THOMAS COOK UKGOES BUST, 600,000FLIERS STRANDEDBritish travel firm Thomas Cook collapsedinto bankruptcy on Monday, leaving some600,000 holidaymakers stranded andsparking the UK’s biggest repatriationsince World War II. The 178-year-olddebt-plagued group, which had struggledagainst fierce online competition for sometime, blamed Brexit uncertainty too. 2 >

TO OUR READERSThehalf-pagecommercial featureonFSSAI,beingcarriedonPage5, isequivalent toapaid-foradvertisement.NoBusinessStandard journalistwas involvedinproducing it.Readersareadvisedtotreat itasanadvertisement.

Contractworkers maygetgratuity before 5 yrs’workSOMESH JHANewDelhi, 23 September

Workers on a fixed-termcontract might soon beeligibleforgratuitybeforecom-pleting five years of service, ifthe government’s proposal forthis in the Code on SocialSecurity Bill, 2019, is accepted.TheBillwascirculatedforpub-

lic consultation lastweek.Currently, workers are not

entitled to gratuity beforecompleting five years ofcontinuous service, accordingto the provisions of thePaymentofGratuityAct, 1972.The law does not make anydiscriminationbetweencasu-al, contractual, temporary orpermanentworkerswhohave

completed five years of con-tinuous service.

UnderthenewBill, thegov-ernmentproposes“fixed-termemployment” as a category ofwork, and defines it as: An“engagement of an employeeor a worker on the basis of awritten contract of employ-ment for a fixedperiod”.

Turn to Page 15 >

THE CMIE TRACKERCONSUMER SENTIMENTS INDEX(Base: September - December 2015 = 100)

UNEMPLOYMENT RATE (%)

UNDERSTANDING THE CONCEPT OF EMPLOYMENT 8 >

Source: CMIE

THEMARKETSONMONDAY CChhgg##

Sensex 39,090.0 1,075.4Nifty 11,600.2 326.0Nifty futures* 11,650.8 50.6Dollar ~70.9 ~71.0**Euro ~77.9 ~78.3**Brent crude ($/bbl)## 63.9## 64.6**Gold (10 gm)### ~37,684.0 ~285.0

ECONOMY & PUBLIC AFFAIRS P14

GAME OF THRONES WINSBEST DRAMA AT EMMYS

ECONOMY & PUBLIC AFFAIRS P7

www.business-standard.com

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

READY TO MEDIATE ON KASHMIR IFINDIA, PAKISTAN AGREE: TRUMP

TUESDAY, 24 SEPTEMBER 201916 pages in 1 sectionMUMBAI (CITY)~8.00VOLUME XXIV NUMBER 29

Taxpanelwants4slabs,35%I-Tfor~2crincome

SHRIMI CHOUDHARYNew Delhi, 23 September

The panel for drafting a new legislation ondirect taxation has suggested an overhaul ofpersonal income tax (I-T) slabs, to increasedisposable income and give a fillip to con-sumer demand. Sources said the draft legis-lation had proposed four tax brackets byintroducing a new slab of 35 per cent forthose earning an annual income of ~2 croreand above.

The panel on the direct tax code (DTC)has also suggested the increase in the thresh-old for exemption from income tax to ~5 lakha year from the current ~2.5 lakh.

The panel has proposed lower rates of 10per cent for annual income between ~5 lakhand ~10 lakh, 20 per cent for incomebetween~10 lakh and ~20 lakh. For income of ~20 lakhto ~2 crore, the suggested rate is 30 per cent.

Currently, personal income is taxed at 5per cent for income between ~2.5 lakh to ~5lakh, at 20 per cent for income between ~5lakh and ~10 lakh, and 30 per cent for anincome of above ~10 lakh.

As such, there is no 10 per cent slab in thecurrent scheme of things. If the recommen-dations are implemented, there will be no 5per cent slab.

From this year, those with an annualincome of up to ~5 lakh are getting a rebate of~12,500 on taxes. This effectively makesincome of up to ~5 lakh free of tax.

Turn to Page 15 >

Current I-T status DTC proposalAnnual salary Slabs Annual salary Slabs(~ lakh) (%) (~ lakh) (%)Up to 2.5 Nil Up to 5 Nil2.5–5 5 5–10 105–10 20 10–20 20Above 10 30 20–200 30

Above 200 35Sources: Budget documents, govt estimates

CHANGES ONCARDS

Higher earnings hopepowers Sensex rallySUNDAR SETHURAMANMumbai,23September

Optimism over economic recovery,sparked by the corporation tax ratecut on Friday, helped the domestic

markets extend gains on Monday, with theSensex logging its second consecutivefour-digit gain.

The benchmark index rose 1,075 points,or2.83percent,toendatatwo-monthhighof39,090. The Nifty closed at 11,600.2, with againof 326points, or 2.9per cent.

Investor sentiment has taken a dramaticturnfrombearishtobullishfollowingthegov-ernment’smove to lower taxes.

Boththeindiceslastweekhaddroppedtotheir lowest levels since February. However,with the stellar gains made in the past twosessions, the Sensex is less than 3 per centaway from its all-time high 40,268, which it

touched in early-June.Overseas investors werestrong buyers on Monday,lapping up shares worth~2,684 crore. In theprevioussessions, their buying wasmuted, even as domesticinstitutions had pumped inover~3,000croreintostocks.

Analystssaidtheloweringthecorporationtaxfrom30percentto22percentwouldboosttheNifty’searningsby8-10percentthisfinan-cialyear.TheSensexhassurged3,000points,or 8.3 per cent, since the tax cut announce-ment as stock prices got realigned to therevisedhigherearningsestimates.“WeexpectIndia’searningsgrowthrevisions, in termsofbothdepthandbreadth, to turn sharplypos-itive after almost nine years of downgrades,”said Ridham Desai, managing director,MorganStanley India. Turn to Page 15 >

FPIs jointheparty,buysharesworth~2,684croreTOP FIVE

BSEPrice in~GAINERS Sep23,‘19 1-day%changeBajajFinance 4,027.85 8.7Larsen&Toubro 1,527.65 8.1AsianPaints 1,804.25 7.9ITC 254.70 6.9AxisBank 727.05 6.8

LOSERSInfosys 765.10 -4.9TataMotors 127.85 -4.2PowerGrid 188.35 -4.1NTPC 115.80 -3.4TechMahindra 682.20 -2.7

THE SMART INVESTOR P10Investor wealth zooms by

~10.35 trn in two days

Sensex

Nifty

ECONOMYPAGE 4BOND YIELDSMAY HARDEN,RUPEE LIKELYTO REMAINSTABLE EXPERTSPEAK

“WE EXPECT INDIA’S EARNINGSGROWTH REVISIONS, INTERMSOF BOTH DEPTHAND BREADTH,

TOTURN SHARPLYPOSITIVEAFTERALMOST NINEYEARS OF

DOWNGRADES”

Ridham DesaiMD, Morgan

StanleyIndia

“GREED AND FEAR ADVISESEQUITY INVESTORS TO CELEBRATETAX CUTS NOW AND LEAVEWORRYWARTS TO WORRYABOUTFISCAL DETERIORATION”

ChristopherWoodGlobal head ofequity strategy,Jefferies

Alsosuggestsincreasingno-taxthresholdto~5lakh

2 COMPANIES MUMBAI | TUESDAY, 24 SEPTEMBER 2019

> .

STOCKSIN THE NEWS

* OVER PREVIOUS CLOSE

> Bajaj FinanceKeybeneficiaryofanticipateddemandrecovery

~4,027.85 CLOSE

8.70% UP*

> LupinGetsthreeobservationsfromUSFDAforTarapurfacility

~ 732.40 CLOSE

3.13% DOWN*

> Avenue SupermartsWith~1.2-trillionm-cap,becomes25thmostvaluedcompany

~1,916.65 CLOSE

8.96% UP*

> ABB IndiaCapitalgoodsstocksrallyonstrongconvictionincapexrecovery

~1,554.70 CLOSE

10.00% UP*

> InfosysToploseramongS&PBSESensexstocks

~765.10 CLOSE

4.97% DOWN*

Maruti Suzuki expects highersales of its cars in September

MarutiSuzukiIndia,thecountry'sbiggestautomaker,expectssalesofitscarsinSeptembertobehigherthanthepreviousmonth,itsChairmanRCBhargava(pictured)toldReutersonMonday.AugustdomesticsalesatMarutiSuzukifell34.3percent,oneofthebiggestmonthlydropsinsalesinrecenttimes.Indianautosalesfellforthe10thstraightmonthinAugust,markingoneoftheworst

slowdownsintheindustry'shistory.“WeexpectthatretailsalesinSeptemberwouldwitnessanimprovementoverAugust,"Bhargavasaid.“Thebookinglevelshavegoneupcomparedtolastmonth,havegoneupsubstantially,andtheexpectationisthatthe29thand30thofthismonthwillprobablywitnessveryhighretailsales."Thenine-dayNavaratrifestival,whichtypicallywitnessesanuptickinsales,beginsonSeptember29. REUTERS<

Sebi imposes~22-crfineonAurobindoPharma,promotersMarketsregulatorSebionMondayimposedapenaltyofover~22croreonAurobindoPharma,itspromoterPVRamprasadReddy,hiswifePSuneelaRani,andotherconnectedentitiesforviolatinginsidertradingnorms.TheregulatorconductedaprobeintothetradinginthescripofAurobindoPharmaduringtheperiodfromJuly2008toMarch2009toascertaintheregulatoryviolation. PTI<

Lupingets 3USFDAobservations forMaharashtraunit

PharmamajorLupinonMondaysaidtheUSFoodandDrugadministration(USFDA)hasissuedthreeobservationsafterinspectionofitsTarapurfacilityinMaharashtra.TheinspectionofTarapurfacilitywascarriedoutbytheUSFDAbetweenSeptember16-20,2019."TheinspectionattheTarapurfacilityclosedwiththreeobservations,"Lupinsaidinaregulatoryfiling.Lupindidnotelaborateonthenatureoftheobservations.“TheCompanyisconfidentofaddressingthemsatisfa-ctorily,”thefilingadded. PTI<

Zydus Cadila getsEIR from USFDA forGujarat facilityDrugfirmZydusCadilaonMondaysaidithadreceivedanEstablishmentInspectionReportfromtheUSFoodandDrugAdministration(USFDA)foritsmanufacturingfacilityatAnkleshwarinGujarat.TheUSFDAhadconductedaninspectionatthefacilityfromJuly22-26,2019.TheEIRreportstatedthattheclassificationofthefacilityis"NoActionIndicated(NAI)”,thecompanyadded. PTI<

SpiceJet takeslease-deliveryofits first freighter jet

SpiceJet’scargoarmSpiceXpresshastakenthelease-deliveryofitsfirstplane, a737-800BoeingConvertedFreighter.SpiceXpress,thefirstcargoairlineacrossSouthAsia,hasleasedthestandard-bodyfreighterfromNGFAlphaofSpectreCargoSolutions,theaircraftmanufacturerBoeingsaidinonMonday."Weareexpandingthemarketscurrentlyweserve,particularlyintheMiddleEast,HongKongandBangladesh,andthenewdeliverywillhelpusinourstrategicdirection,"saidAjaySingh(pictured),chairmanandmanagingdirector,SpiceJet.PTI<

JSWSteelwants25%dutyonimportstoprotectdomesticfirmsJSWSteelonMondaydemandeda25percentsafeguarddutyonimportsofsteeltoprotectdomesticplayers.JSWSteelJointManagingDirectorandGroupChiefFinancialOfficerSeshagiriRaosaidthiswhilespeakingtoreportersonthesidelinesofanindustryevent.OndomesticsteelsectorbeingimpactedduetotheongoingtradewarbetweentheUSandChina,hesaiditwasamatterofconcern. PTI<

ApolloHospitals’pharmabiz rejiggets CCI clearanceTheCompetitionCommissiononMondaysaidithadapprovedtherestructuringofApolloHospitalsEnterprise’spharmacybusinessanditssubsequentacquisitionbycertaininvestors.ApolloHosp-italsEnterprisein2018hadannounceditwoulddivestitsfront-endpharmacytoApolloPharmacyforacashconsi-derationof~527.8croreaspartofarestructuringexercise. PTI<

Bajaj todrive in3moreKTMmodelsbyMarch-endSHALLYSETHMOHILEMumbai, 23 September

KTMAG,theAustrianmakerofmotorcycles partly owned byBajaj Auto, plans to launchthree new models and a fewrefreshes of existing ones thisfinancial year.

On Monday, the company,inwhichBajajowns48percentstake, entered the super-bikesegment with the Duke 790.Priced at ~863,945, the modelwent on sale from 460 BajajProbiking showrooms.

Notwithstandingslowdownin the broader two-wheelermarket,Bajajenvisagessalesof

KTMmotorcycles to grow by athird in 2019-20. It sold 50,000units last year, said SumeetNarang, president, probiking,atBajajAuto.Heattributed theexpectation to the 125 Duke,which helped KTM “create astrong brand in the entry levelof themarket”.

Four in every 10 KTMs thatBajaj sells in India is accountedfor by theDuke 125. A focus onproduct and brand experiencehashelped,he said.

Inthisbackdrop,BajajplanstolaunchthreenewKTMmod-els and refreshes; Narangwouldn't elaborate further. Italso plans to launch the

Husqvarna brand later thisfinancialyear; thesewillalsoberetailed through Probikingshowrooms. Bajaj plans toincrease the number of suchshowrooms to 500 by end-March, saidNarang.

In line with the broaderslowingintheautomobilemar-ket, two-wheeler sales in Indiaskidded14.8percentinthefirstsixmonthsofthefinancialyearto8,039,959unitsovertheyear-ago period, according to theSociety of Indian AutomobileManufacturers.Mostsegmentshavebeenaffectedbutnotsalesof 125cc motorcycles. Sales ofsuch models that include the

KTM Duke 125, Hero SuperSplendor, Suzuki Hayate andTVS Victor expanded to1,152,589 units in the April-Augustperiod,firstfivemonthsof the financial year, from940,482 in the same period ayearbefore.

Deepesh Rathore, co-founder at Emerging MarketAutomotive Advisory, said nothaving a formidable competi-torintheperformancesegmenthad worked to KTM’sadvantage. “They are in theirown league.” No other brandhassimilarlevelsofbrandequi-ty, network and after-sales,headded.

SumeetNarang,presidentofProbikingatBajajAuto, at thelaunchofKTMDuke790 onMonday PHOTO: KAMLESH PEDNEKAR

Thomas Cook UK goes bust, fliers hit

ANEESH PHADNISMumbai, 23 September

Hotels in Goa may be forced to slash ratesandlookforbusinesswithinthecountryfollow-ing thecollapseofThomasCookUK.

Thomas Cook UK, which shut down opera-tions on Monday, leaving hundreds of touristsstrandedinEurope,wasamongthelargestover-seastouroperatorssellingsunandsurfholidaysinGoaduringwinter.

ThecompanyoperatedcharteredflightsfromLondonGatwickandManchesterairportstoGoabetweenNovemberandMarch.

“Thomas Cook UK’s closure is a big hit fortourism inGoa,” saidAlooGomesPereira, chiefoperating officer (charters), Trail Blazer ToursIndia. RussiaandtheUKarethekeysourcemar-kets forGoaandtourists fromthe twocountriestraveltothestateonregularscheduledflightsandonseasonal charters.

“Thomas Cook operated chartered flightsfrom London Gatwick and Manchester to GoabetweenNovemberandApril and last year flewinover35,000Britishtourists,”hesaid.Abouthalfof themwereonpackaged tours.

“Wehopedtoattractmoretouristswithreduc-tion in e-visa fees andcut in goods and servicestaxrates.TheclosureofThomasCookUKisaset-back for us. We are meeting the state tourismdepartment on Tuesday,” said Savio Messiah,presidentoftheTravelandTourismAssociationofGoa. Pereirasaidthegovernmentshouldnowallowforeignairlinestooperatehigher-capacityaircraft toGoa.

Thedevelopmenthasworriedlocalhoteliersbecause British tourists are a good marketfor them. Packaged tours are booked monthsinadvance. “Hotels in the statewill beaffected.Ithinktherewillbeapricecorrection,”saidZafarKarmali, director of sales and marketing atHyatt’sAlilaDiwaresort inGoa.

Localhotelshavebeenseeingmodestgrowththisyearandwill looktoincreasetheirdomesticbusiness and tap themeetings andconferencessegment.AnincreaseintouristsfromRussiaandIsrael (whichwillhavedirect flights toGoafromOctober) could step into the breach Britishtouristshavecreated.

Thomas Cook India has said it will be unaf-fected. SohasTheHotelLeelaGoa.

“The business The Leela Goa derives fromThomas Cook UK is expected to be routedthrough other charter companies operating inthatregion.Hencewedonotforecastanylossofbusiness owing to this development,” saidGeneralManager Shridhar Nair. He added that

the hotel had anticipated the development andtakensteps tocushion theblow.

NandivardhanJain,chiefexecutiveofficerofadvisoryfirmNoesisCapital, saidtheimpactonhotelswouldbeconfined largely tomarkets likeGoaandKerala, andshort.

ClosureabigblowtotourisminGoa

Britain’s178-year-oldgroupfailstosecure£200millionfromprivateinvestors;600,000holidaymakersstrandedAFP/PTILondon, 23 September

BritishtravelfirmThomasCookcollapsed into bankruptcy onMonday,leavingsome600,000holidaymakers stranded andsparkingtheUK’sbiggest repa-triationsinceWorldWar II.

The 178-year-old debt-plagued group, which hadstruggled against fierce onlinecompetitionforsometimeandblamedBrexituncertaintyforarecentdrop inbookings, failedto secure £200 million($250 million, ^227 million)from private investors andcollapsed in the earlyhours.

Monday’s bankruptcy,which followeda lengthyperi-odofchronic financial turmoilafter a disastrous 2007mergerdeal, leftsome600,000touristsstrandedworldwideaccordingto Thomas Cook, while its22,000 staff are out of a job.

The British governmentlaunched emergency plans tobring some 150,000 UK holi-daymakers back home fromdestinationsincludingBulgaria,Cuba,Turkey, and theUS.

Thomas Cook said in astatement that “despite con-siderableefforts”, itwasunabletoreachanagreementbetweenthe company's stakeholdersand proposed new moneyproviders.

“The company’s board hasthereforeconcludedthat ithadno choice but to take stepstoenter intocompulsory liqui-dationwith immediateeffect,”it added.

The group has also beenblighted by enormous costsarisingfromitsdisastrous2007merger with MyTravel, a dealwhichleft itplaguedwithhugelevels of debt.

The UK government saidMonday it had hired planes tofly home British tourists, in amass repatriation plan code-named Operation Matterhornwhichbegan immediately.

LaunchingBritain’s“largestrepatriation in peacetime his-tory”, Transport SecretaryGrant Shapps added that the

government and UKCivil Aviation Authorityhad hired dozens of charterplanes to fly home ThomasCookcustomers.

“All customers currently

abroadwithThomasCookwhoare booked to return to theUKover thenext twoweekswillbebrought home as close as pos-sible to their booked returndate,” the government said.

Passengers are seenatMallorcaAirport afterThomasCookcollapsed, inSpainonMonday PHOTO: REUTERS

‘Unrelated’ ThomasCookIndia feels thepinch

WhenLondon-basedThomasCookGroupUKcollapsedunderapileofdebtonMonday,investorsbeatdownthesharesofanunrelatedcompanythousandsofmilesawayinIndia,ignoringmultipleclarificationsthatit isn’t inanywayrelatedtotheUKfirm.

ThomasCookIndiaresortedtoacommunicationblitzinthepastfewdaystoclarifythatthecollapsedUKfirmexitedtheIndiancompanysevenyearsago.

Evenso,thestockfell 1.8percenttocloseat~153.65ontheBSE.TheUKfirm'ssharesslumped23percentonFriday,beforeitfiledforinsolvency.

ThomasCookIndia,acquiredfromThomasCookUKbyFairfaxHoldingsin2012,paysalicencefeeof~2croretoitsformerpromotertousethebrandnameinIndiaandtwoothercountries.

ThecompanyheldaconferencecallwithinvestorsonMondaytoclarifyitsseparateownershipandthattheclosureofUKtouroperatorwouldhavenoimpactonit.MadhavanMenon,chairmanofThomasCookIndia,said:“ThecollapseofThomasCookUKopenedupthepossibilityforustoacquirebrandrightsinthreecountries,butit istooearlytotakeadecision.”

"Wehavetwobrandsnow—ThomasCookandSOTC.TheSOTCbrandnamewillremainwithus.WehavealicencetouseThomasCookbrandnameinIndia,SriLanka,andMauritiustill2024,"hesaid.

ANEESH PHADNIS & BLOOMBERG

WHO LOSES, WHO GAINS?TheripplesaresettohittourismintheMediterraneanandNorthAfricanresorts, leavefuelsuppliersoutofpocketandfurtherhurtBritishshoppingstreets

GREECEAbout50,000touristsarestrandedinGreece,Greece'stourismministersaidasextraflightswerebookedtoensuretheirsmoothreturnhome

TURKEYTurkey'sHoteliersFederationsaysthecollapsemeansTurkeycouldsee600,000-700,000fewertouristsannually.ShareholderNesetKockarsaiditwillbesoldfullyorinparts

TUNISIAItowesTunisianhotels^60millionforstaysinJulyandAugust

RIVALCOMPANIESSharesinrivaltouroperatorTUIDartGroupthatrunspackageholidaycompanyJet2holidaysandairlines

easyJetandRyanairrose

AIRCRAFTLEASINGAircraft leasingfirmsarelaunchingmovestorecoverdozensofAirbuspassengerplanesafterthecollapse

SAGASagasaysit’ssecuringalternativeflights,wherepossible,foritscustomerswhoareduetotravelimminentlyandhavebeenhit

WEBJETTheAustralianfirmsaysThomasCookowedit^27mnasofSeptember23

BONDANDSHAREHOLDERSHoldersoffirm’s^2022-denominatedbondsworth^662millionandshareholderswillbehit

REUTERS

‘Wehavenot seenanybig impactof slowdownonanything’

Theconsumersentimentinthecountryisseenasquitebearishwhiletheoveralleconomicgrowthisslowingdown.Consideringthese,whatareyourexpectationsfromtheBigBillionDaysale?Weareavalueplatform.Whenthebroaderconsumerspendingisgood,itisverygoodforus.Evenwhenthingsslowdown,peoplelooktogetmorevalueatthattime.TheearlierperceptionwasthatthefestivalseasonandBBDisheavilyaboutdiscountingandpricing.It’snotaboutthat.It’saboutofferingalltheaffordabilityconstructs,includinguniqueselection,financing,alotmoreengagementfeaturesontheapp(likevideostreaming),feedsandHindi,andalsoaboutinvolvingalotmoreecosystempartners.Forexample,thisyear,playerssuchasBurgerKinghavepartneredusandithasnamedaburgerafterBigBillionDay.So,thenumberofbrandsandmerchantsandecosystemplayers,whoareparticipatinginthefestivalseasonthisyear,hasgoneup

severaltimes.Absolutely,peoplearebettingbigonthefestivalseason(topurchaseproducts).Wecanseethat.

Therearereportsthatpeoplearethinkingtwiceevenbeforebuyinga~5biscuitpacket.Thatmeansit'smoreaboutconsumersentimentthantheactualpurchasingpowerofthepeople.Ofcourse,thesereportscamebeforetheannouncementbythegovernmentlastweektoreducecorporatetaxes.Whatisthesenseyouaregetting?Wehavenotseenanybigimpacton

anything.PeoplestillheavilybuyverybasicstuffonFlipkart.Ifyoulookatwhatourmaincustomercategoriesare,theyincludefashion(thebiggestone),

generalmerchandisecategories,babyproducts,toys,sportinggoods,beautycare,homeproducts,householdproducts,andkitchenware.Allofthoseproductsarestillfairlybasicthings.Andifyoujustlookatthecountry'se-commercegrowth,moreandmoreiscomingfromthesecategories.

Wearehearingthatofflineretailersmeetingthegovernmenttokeepthediscounts(offeredbyonlineplatforms)undercheck.Doyouthinkpricewon'tplayamajorroleinattractingbuyerstoonlineplatformsduringthesaleperiodthistime?Inallthepast12years,wehaveonlybeenfocusedonourcustomers.Wedon'tgetdistractedbywhat(other)peopleintheecosystemdosometimes.Soeveryyear,wecomeupwith30-40newand

innovativefeatures,newproductsandinitiativesforourcustomers.That’swhathaskeptusgoing.Andthatiswhatwillkeepusgoing.Sowedon’tgetdistractedbythenoise.

Whatarethenewfeaturesyouareunveilingthistimetoprovideshoppersabetter(buying)experience?Forexample,welaunched(Flipkartapp)inHindi.It'saverybigproductinitiativeforwhichwebeenworkingonforalmosta

year.Sometimeago,welaunchedanewplatformcalled2GUD(ane-commercevalueplatformforrefurbishedmobilesandelectronics).WehavelaunchedFlipkartVideo(streamingservice)aboutthree-fourweeksback.Severalsuchconceptswekeeplaunching,andthat’swhatourcustomerslike.

Whatareyourexpectationsfromthisyear’sBBDintermsofthevolumesandvalue?Wearegettingbetter.Thebigthingiswhatcanweoffertoourcustomersisunique,affordableselectionnotjustfromoursellers,merchants,artisansandbrands,butalsoourownprivatebrands.Financingoptionforthecustomersisbigpartofourstrategythisyear.Fewyearsback,wehad10millioncustomerswhowereshortlistedtobegivencreditfacilitiesinsomeway.Thisyear,wearetakingthenumberto55million.Earlier,itusedtobejustaboutdeliveringaproduct.Now,it'sheavilyaboutserviceswhichgowiththat.Forexample,demoandinstallationservicesearlierusedtobeofferedonlyfortelevisionsets.Itisnowbeingofferedforallappliances,includingfurniture.Allthesejustkeep

scalingbecausepenetrationofe-commerceisstilllowandthereissomuchroomforustogrow.

HowdoyouviewthecompetitionfromAmazonandupcominge-commerce

businessofRelianceIndustriestotapthefestiveseason?Idon’twanttocalloutanyspecificcompetition.Wedon'ttrackthem.Wedon'tfollowthemtoomuch.IthinkoursinglebiggestfocusishowwemakesurethatFlipkartoffersdemocraticusecasestothecustomers.Flipkartdoesnotjustofferinitiativesand

productsthataremeantforthetop10percent(population)ofthecountry.

WhathaschangedforFlipkartafteryourpartnershipwithWalmart?ThepartnershipwithWalmarthasbeenmostprogressiveforus.Webringcomplementaryskills.FlipkarthasaverydeepunderstandingoftheIndianconsumers.It’sadeepe-commercecompany,Walmarthasacompanyhasvery,veryuniqueskills.Itisoneoftheworld’slargestsupply,sourcingandbrand-buildingcompanies.WehavealottolearnfromWalmart,whichwedo.

As Flipkart gets ready to launch its Big Billion Day sale next week,KALYAN KRISHNAMURTHY,chief executive officer of Flipkart Group, tellsPeerzada Abrar andBibhu Ranjan Mishra thatthe focus is no more about deep discounting or pricing but about solving several of theirproblems, including credit, local language choice, and installation service. He says theBengaluru-based e-commerce major has not seen any big impact on consumer buyingbehaviour in the recent past despite a slowing economy. Edited excerpts:

“Financing option forthe customers is bigpart of our strategy.Few years back, wehad 10 million usersshortlisted to begiven credit facilitiesin some way. Thisyear, we are takingthe number to55 million”

MUMBAI | TUESDAY, 24 SEPTEMBER 2019 COMPANIES 3. <

YUVRAJ MALIKBengaluru,23September

D espite slowdown in the economy,start-upand techbusinesses con-tinue to see a steady rise in fund-

ingandvaluations,andemergenceofnewventures. According to consultancy firmEY, private equity and venture capitalinvestments in H12019 were 27 per centhigher at $23.4 billion compared to thesame period last year.

At 536deals, even thevolumeofdealsis 43 per cent higher than last year.

“According to EY’s forecast in thebeginning of 2019, infrastructure andreal estate sectors have taken the lead inattracting PE investments from mar-quee global investors,” said Vivek Soni,partner and national leader, privateequity services, EY.

The data points to a robust growth inPEsand the start-upecosystem,at a timewhen falling auto sales, ballooning tele-com sector loans and a bad debt crisis atmajorbanksare causinga slump in tradi-tional industries. This, in turn, is puttingblackcloudsover India’sgrowthprospectsin the near term.

However, some observers point outthat a funding glut is leading to a valua-tion bubble of sorts.

There is faster realisation of billion-dollarvaluations.Udaan, anewbusiness-to-businesscommerceplatform, took just24months (since incorporation) tohit $1-billion dollar valuation.

Thiswas trumpedbyOlaElectric, theelectricmobilitybusiness spunoffbyOla,which took just sevenmonths. The valu-ationofByju’s,whichdifferentiates itselffrom the pack by being profitable,climbed to $5 billion from $1 billion inmere fourmonths.

VCs seem to be upbeat. Tiger Global,one of the biggest foreign investors onIndian turf, has invested around $300million across 13 deals so far this year.Like Tiger, other major local and foreign

investors are also bullish on India andopeningup their purses faster thanearli-er, EY data shows.

“It is only when you are investing inconsumerbusiness theprobabilityofwin-ner taking it all is very high.Hence, capi-talplayinga roleandexcessivevaluationsare justified ingrabbing themarketshare,”said Sunil Goyal, founder andmanagingpartner, venture capital firm YourNest.

Even at early stage, start-ups are rais-ingmoremoney fasterowing to theriseofa lot of specialised early-stage VCs andemergenceof seed-stageprogrammes likeSequoia’s Surge.

Start-ups graduating from pro-grammes likeSurgeoftengooutandraisefunds at high valuations.

Blume Ventures’ director Sajith Paisaid limited partners, the big guns whoinvest inVC andPE funds, are upbeat onIndiabecauseof, asheputs it, “inevitabil-ity of the Indianmarket.”

“This manifests in greater allocationbyLPs to Indian funds,whichmeanmoremoneychasing founders and risingvalu-ations. It isalsoseen inmoredirect invest-ments by the likes of Steadview orSoftbank in Indian companies, bumpingup valuations and often delaying immi-

nent IPOs, in an attempt to extract asmuchof thevaluebefore thestart-upgoespublic,” Pai wrote in Medium blogpostthismonth.

However, valuations are not the cor-rect indicator of growth or even success.Snapdeal is perhaps an example; thecompany sawmassivemark-downs afterits acquisition talks with Flipkart wentdown.Not only did the companyhave todownsize substantially, it led to erosionof profits for its investors, especiallyKalaari Capital.

Globally,WeWork,whichwas seekingan eye-popping valuation of $47 billionfor aproposed IPO, is onlygettingaround$10-$14, and is said to be delaying theIPO, according to reports. Uber, whichwas valuedat $82billion at IPO, has seenits stock decline 20 per cent since listinginMay.

“Within theearly stage, companiesarekeeping reasonableexpectations in termsof valuations. The economic slowdowncertainly has a role to play in this senti-ment, but we are seeing that companiesarenot reducinggrowthtargetsbyasigni-ficantmeasure,which isaverygoodsign,”said Kshitij Shah, principal at 3one4 Ca-pital, an early-stage investment firm.

Start-up fundingcontinuesto rise in face of slowdown

Private equityandventure capital investments inH12019were27%higherat $23.4billioncompared to the sameperiod last year, saysEY

PRESS TRUST OF INDIANewDelhi,23September

The Petronet LNG Board hadjust six months back disfavo-ureda$2.5billiondeal tobuy18percentstake inUSfirmTellu-rian’sproposedDriftwoodLNGterminal, and import 5milliontonnes LNG a year from it for40 years as the gas was avail-able in plenty and no longerrequired equity investments,sources said.

Petronet on September 21signedaMemorandumofUnd-erstanding (MoU) with Tellur-ian “wherein Petronet and itsaffiliatesintendtonegotiatethepurchase of up to five million

tonnes per annum (5 mtpa) ofliquefied natural gas (LNG)from Driftwood, concurrentwith its equity investment,which remains subject to fur-therduediligenceandapprovalofitsboardofdirectors,”accord-ing to a joint statement.

The Indian firm on Sundayevening in a regulatory filingsaid it had signed a “non-bind-ing” MoU with Tellurian atHouston, USA. “The process issubject toduediligenceandap-proval of respective Board ofDirectors,” it had said.

Officialsprivytoboarddelib-erations said the issue was dis-cussedatthefirm’sboardmeet-ing inApril/May andmembers

feltthatthecompanyshouldnotgo ahead with the deal due tochanging global gas marketdynamics, where the fuel isavailable in abundance at rockbottomprices.

Locking imports for 40 ye-ars together with an equityinvestment in the LNG termi-nalwasnot favoured, theysaid,adding Petronet’s promoters,including state-ownedgas util-

ityGAILIndia,refinerIndianOilCorp (IOC) andOil andNaturalGas Corp (ONGC), were allagainstthedeal.Companyman-agingdirectorandCEOPrabhatSingh neither answered callsandnorrepliedtotextmessagessent for comments.

Petronet is a firmpromotedbyGAIL,IOC,ONGCandBharatPetroleumCorpLtd(BPCL),andSecretary to Ministry of Petro-leumandNaturalGas,Govern-ment of India, is its chairman.

The officials said the dealwithTellurianisfarfromclosedandwill requirenegotiations.

The deal will go through ifthegovernmentwastopushforit, theyadded.Ifconcluded,this

would be the first long-termLNG import contract signedsince the Narendra Modi gov-ernmentcametopowerin2014.

All the previous deals, 7.5million tonnes with Qatar, 1.44million tonnes with Australia,2.5 million with Russia and 5.8milliontonneswiththeUS,wereall signed during the UPA regi-me. Petronet had first signed abroaderdeal inFebruary.

Petronetdisfavoured$2.5-bnUSdealafewmonthsback

SARITHA RAI23September

UberTechnologiesco-founderTravisKalanickhasinvestedinIndia’s largest shared-kitchencompany, a person familiarwiththemattersaid,takinghissecondactinbusinesstooneofthe world’s fastest-growinginternet arenas.

Kalanick’s real estate com-pany, City Storage Systems,bought a small stake in RebelFoods as part of a previouslydisclosed$125millionroundoffunding, the person said, ask-ingnot to be identified talkingaboutaprivatedeal.Theentre-preneur has taken a slice of abusinessvaluedat$525millionthatdeliversbutterchickenandpaneer-topped pizzas to mil-lionsofIndians,backedbybig-name investors fromCoatue

ManagementandGoldmanSachs to Sequoia Capital andride-hailinggiantGojek.RebelFoods is expandingbeyond itshome turf and into SoutheastAsiaand theWestAsia.

Cloud kitchens, much likecloudcomputingservices,havebecome a popular businessmodel for food-delivery prov-iders that want to serve upmeals while skirting the exp-ense of traditional restaurantswith their associated high realestate and service staff costs.Foodispreparedthroughanet-workoftightly-packedkitchenspaces in affordable locations,far fromthebustlinghighstre-etsthatrestaurantbrandsfavor.

Kalanick, who was oustedin2017fromtheUSride-hailingfirm, ismakinghis first invest-ment in India. Since that dra-matic exit, Kalanickhas set upaninvestmentfundandchart-edastrategy tobuildakitchenrental service, called CloudKi-tchens,throughCSS.Aspokes-man for Rebel Foods declinedto comment. A representative

for a Singaporean unit of CSSdidn’thaveanimmediatecom-mentwhencontacted.

Kalanick’s involvementisaboostforRebel.Hetookastart-up with a small fleet of blackcabs inhis SanFrancisco baseandturnedit intoaglobalride-hailing leader before gettinginto meal delivery. Mumbai-headquartered Rebel, found-ed by McKinsey & Co. alum-nus JaydeepBarman, serves awide menu through “virtualrestaurants”that,asfarascon-sumers are concerned, existonly on the internet.

Rebel’s own menu rangesfrom fragrant biryani and cot-tagecheese(paneer)pizzastoahundred variations of dosa,southernIndia’slentil-and-ricecrepe. It operates more than250cloudkitchensin22Indiancities, and plans to expand to400by the year ending inMa-rch2020,founderBarmansaid.

Thestart-up,however,oper-ates inacrowdedspace,partic-ularly in India where deliveryfirmSwiggy,backedbyNaspersand Tencent Holdings, is alsobuilding its own virtual cook-ingnetwork.Uberalreadydeliv-ersfromachainofso-calledgh-ost kitchens, while Amazon isreportedly scoping out its owncloud kitchen and food deliv-erystrategy. BLOOMBERG

Kalanickgrabssliceofcloudkitchenpie

Kalanick’s realty firm,CityStorageSystems,boughtasmall stake inRebel Foodsaspart of apreviouslydisclosed$125-mnroundof funding

At536deals,eventhevolumeofdealsis43percenthigherthanlastyear

The firmhas signeda ‘non-binding’MoUwithTellurian

ROMITA MAJUMDARMumbai,23September

Software consulting giantAccenture has opened itslargest interactive experiencecentre inMumbai.

This is the sixth such facili-tybyAccentureInteractive,themarketing managed servicesarm of Accenture, which con-tributed$8.5billiontothecom-pany’sbusiness in2018.

This centre serves as thehubofAccenture’s“experienceactivationnetwork” – a collec-tion of state-of-the-art sitesworldwidethatdelivermarket-ing and brand solutions. “Wehaveoneof themost powerfulexperienceactivationnetworksglobally and Mumbai is thelargest and most importantcentrewithin thatnetwork.

The solutions here willfocus on data analytics andinsights, target segmentationand content creation alongwithcustomisationapart fromprogrammatic delivery andmeasuringtheperformanceofcampaigns on a daily basis, ”said Nikki Mendonca, Presi-dent, Accenture InteractiveOperations.

Mendonca added thatAccentureexpectstoaddafewhundred new marketing acti-vationrolestotheMumbaicen-

treby2021.Thecentrewillcaterto business needs across theAsia Pacific as well as globalclients. Accenture has similarcentres across Italy, Spain,Poland, CostaRica andChina.Globally,AccentureInteractivehas about 50,000 employees.

Occupying two floors of itsintelligentoperationscentreinMumbai, thisactivationcentreincludes dedicated designthinking spaces, immersivedemonstrationzonesandinter-active digital surfaces forclients. Clients like Glaxo-SmithKline, Radisson HotelGroup and Shell, among oth-ers, will be serviced throughthis centre.

AccentureInteractiveOper-ations, which is almost adecade old, delivers content,programmatic, digitalmarket-ing and e-commerce servicestoleadingbrandsacrossrough-ly 75countries.

AccentureInteractiveOper-ationshasalargetalentbaseinIndia, paired with deep tech-nology and functional skills,havingestablishedcredentialsacrossthespectrumofmarket-ingactivationservices.

Large banks also form andincreasing customer base forthefirmastheyseektobringinfintech solutions to improvecustomerexperience.

Accenture launchesflagshipexperiencecentre inMumbai

The Supreme Court has agr-eed tohearonTuesdayapleamovedbythe InsolvencyandBankruptcy Board of India(IBBI)inwhichtheinsolvencyregulatorhassoughtgo-aheadto initiate criminal proceed-ings against Liberty HouseGroupforfailingtogothroughwith its resolution plan forAmtekAuto.

Theapexcourt,whileagre-eing to hear the IBBI, saidthere would be no persecu-tion of Liberty House groupfor now. The IBBI has appr-oached the SC against theNationalCompanyLawApp-ellate Tribunal’s order. Theappellatetribunalhadsaidtheregulator needed permissionfrom the National CompanyLaw Tribunal to initiate pro-ceedingsagainstLibertyHou-seandothersucherrantfirms.

On September 6, the SChad, on a plea moved by theAmtek Auto lenders, stayedthe firm’s liquidation. TheNew Delhi-based integratedcomponentmakerwashead-ed for liquidation after theNCLAT judgment onAugust16. The appellate tribunal, inits judgment,hadclearedtheway for liquidation of thefirm, and said since thereremainednoapprovedresol-utionplanforthefirmdespitethe passage of the statutoryperiod of 270 days, AmtekAutomust be liquidated.

IBBI seekscriminalproceedingsagainst LibertyHouse Group

Handle tax issues ofstart-ups with care:CBDT to I-T deptIncome Tax related issues ofstart-ups should be handledwith “utmost care” and afinal action taken report ontheir grievances should besubmitted within threeworking days, the CBDT toldthe taxman on Monday. Ithas also asked the regionalheads of the Income TaxDepartment to constitute astart-up cell at their offices.

PTI<

ICICI Bankto open 450slimmer branches; tohire 3,500 by MarchThe ongoing slump in therealty sector is helping ICICIBank in its expansion drive asit is adding branches by nearlya tenth of its existing footprint,a top official said. According to executive director AnupBagchi, the branch expansionplan is not affected much bythe ongoing slowdown. ICICIBank is adding 450 branchesto take its network to 5,300 byMarch 2020 and will be hiringaround 3,500 personnel forthe same, he added. PTI<

Irdai simplifiesmodification ofapproved products The insurance regulator —Insurance Regulatory andDevelopment Authority ofIndia (Irdai) — on Mondaysaid that the non-lifeinsurers can carry out minormodifications in the alreadyapproved individualinsurance products on acertification basis therebymaking the process simplerfor general and healthinsurers. Earlier, the insurershad to re-file the productwith the regulator to get themodifications approved.

BS REPORTER<

CorrectionThe report ‘Compliance willmake good lost revenue: FM’,published on September 23,mentioned that the delay inapproval of the Ordinance tocut the corporation tax hadFinance Minister NirmalaSitharaman and her teamworried. However, the delay occurred as a FinanceMinistry official could notmeet President Ram NathKovind on time. The error is regretted.

India aims to sell two or three state-owned firms to local orforeign firms to raise up to ~60, 000 ($8.5 billion) by March 2020, a senior finance ministry official said on Monday. Thegovernment planned to sell Bharat Petroleum Corp Ltd, logisticsfirm Container Corp of India and debt-laden Air India before theend of the 2019/20 financial year, the official, who asked not tobe named, told reporters. The Prime Minister's Office (PMO) hadvoiced reservations about the Finance Ministry's past sales ofstakes in one state entity to another, which was the case whenrefiner Hindustan Petroleum Corp Ltd was sold to Oil andNatural Gas Corp Ltd, the official said. “The PMO is very clear that we cannot be selling government companies to anothergovernment company and then call it privatisation,” theofficial said. REUTERS<

Govt plans to sell BPCL, Concor,Air India by March 2020

IN BRIEF Bond yields may harden,~ likely to remain stable

PRESS TRUST OF INDIANew Delhi, 23 September

Election CommissionerAshok Lavasa’s wife NovelSinghal Lavasa has comeunder the scanner of theIncome Tax Department oncharges of alleged tax eva-sion, official sources said on Monday.

Lavasa’s wife has been iss-ued a notice by the depart-ment to explain certain detailsin her IT Returns (ITR) withregard to holding directorshipin about 10 companies, theysaid.

The officials said after pre-liminary investigation, the taxdepartment has asked her toprovide more documentsrelated to her personalfinances.

The department is lookingat the ITRs of Novel SinghalLavasa to ascertain if her

income has escaped assess-ment in the past or somethinghas been concealed from taxauthorities, they said.

The probe into alleged taxevasion and holding of direc-torship in multiple firmsagainst the former banker per-tains to a time period between

2015-17, they said. No com-ments were available fromeither the election commis-sioner or his wife.

Ashok Lavasa was appoint-ed election commissioner onJanuary 23, 2018, after heretired as the Union FinanceSecretary in the previous year.His difference of opinion, withregard to the implementationof the model code of conduct,with Chief Election Commi-ssioner Sunil Arora andElection Commissioner SushilChandra was reported duringthe recently-concluded gener-al elections.

Novel Lavasa issued astatement saying she had paidall taxes and had disclosed allher income. “I have replied toall I-T notices received sinceAugust 5 and have been coop-erating with the ongoingprocess of the department,”the statement said.

ANUP ROYMumbai, 23 September

The rupee is likely to remainaround the present level, where-as bond yields could inch up to 7

per cent level in the near term on con-cerns of widening fiscal deficit, accord-ing to currency and bond dealers.

Finance Minister NirmalaSitharaman last week cut corporationtaxes, which would result in foregonerevenue of about ~1.45 trillion. The 10-year bond yields had shot up 15 basispoints to close at 6.78 per cent on Fridayin response. The yields closed at 6.75per cent on Monday, as investors boughtbonds ahead of the release of a revisedliquidity framework report by theReserve Bank of India (RBI).

The liquidity framework is expectedto make rate management contingenton the prevailing liquidity in the sys-tem. For example, if there is a certainextent of surplus liquidity, which drivesdown the yields, the market can expectrate hikes and vice-versa.

Still, most bond dealersexpect the yields to reach atleast 7 per cent, and can gobeyond that by December, butnot by a wide margin.

“The tax cuts will lead toan improved credit demand,increased cash flow to thecompanies and will ensurebetter maintained demandfor liquidity. This may pushup yields in the market,” saidDhananjay Sinha, head of research andchief economist at IDFC Securities Ltd.

But yields would fall back in themedium term, according to JoydeepSen, consultant with Phillip Capital.

“Rate cuts are still there on the table;real interest rates are positive. Drivenby the RBI’s benign outlook and extentof OMOs over the course of the year,yields will trace back in the medium

term,” Sen said. The RBI buys or sells bonds from the

secondary market under its open mar-ket operations (OMO) programme. Themarket expects the RBI to purchasebonds to drive down yields, starting

October. But there is no concern as

such on rupee. Currency deal-ers say even as rupee shouldhave appreciated sharply fol-lowing the equity marketscue, it could not do so as oth-er currencies in the region fol-lowed cues from China andremained weak.

A stronger rupee also com-plicates the dilemma for the

policy makers who want India’s exportsto boost. So, it is likely that the RBIwould intervene actively to let rupee rel-atively weaker against the dollar.

“Rupee should remain stable. Therupee, in our view is structurally over-valued and ideally it should depreciate,but keep an eye on crude, prices ofwhich shows some hardening tenden-cies,” said Sinha.

According to Bank of America Merrill

Lynch (BofaML), while rupee hasstrengthened from 72.4 a dollar inSeptember to 70.94 level now, due to avariety of factors, including tax cuts,“improvement in domestic sentiment,especially on the supply side, may nottranslate into improved demand justyet, meaning that FPI equity inflowsmay not recover immediately”.

According to Adarsh Sinha and Rohit Garg, currency analysts at theBofaML, negative impact on the fiscals“could potentially overwhelm positiveimpact on corporates”, even as policymakers wouldn’t want an appre-ciating rupee that would offset any eas-ing in financial conditions from recentmeasures.

Besides, risk from external factorssuch as Chinese renminbi and crude oilremained significant and investorsseemed to be bearish on the rupee.

As such, rupee may not appreciatemuch, but it should be managed toremain stable at around the present lev-el. “Stable currency will also ensureprice stability and stable interest rateover the medium term,” said a currencydealer with a large bank.

Election Commissioner’swife under I-T scanner

The public sector unitslisted in BSE500 (ex-financials) will savearound ~19,300 crore intaxes based on theactual profits in FY19.Much ofthe taxwindfallofaround ~10,000 croreis likelyto flowbacktothe governmentin theform ofdividend anddividend distributiontax. The PSU stocks, though, could see riskdue to greaterdisinvestmentfor fiscal 2020, global financial firmBankofAmerica Merrill Lynch said. The government, the BoFAsaid,is well behind its revenue targetfor FY20. According to theDepartmentofInvestment& Public AssetManagement(DIPAM), only~12,300 ofdivestmentrevenue has come inFY20 so far, as compared to a targetof~1.05 trillion. “We,therefore, see further pressure on PSU stocks due to rushedgovernmentstake sales in the restofthe financial yearending March 2020,” itsaid. DEV CHATTERJEE

TAXSAVING BYPSUs IN FY19#

ONGC 7,095

Coal India 2,835

Indian Oil 2,127

Bharat Petroleum 1,129

Gail India 804

NMDC 746

NLC India 678

NHPC 489

Hindustan Aeronautics 437

Bharat Heavy Electricals 375

Nalco 318

Steel Authority of India 307

Oil India 262

Mangalore Refinery & Petro 136

Bharat Electronics 119

Figures in ~ crore

Recalcuated figure according to the new tax rateSource: BofA Merrill Lynch Global Research, Bloomberg

PSUs SET TO PAYHIGHER DIVIDENDWITH TAX SAVINGS

MEGHA MANCHANDANew Delhi, 23 September

The department of telecommunica-tions (DoT) is considering not sellingassets of the beleaguered BharatSanchar Nigam (BSNL), worth over~1 trillion, through the Departmentof Investment and Public AssetManagement (DIPAM) route.

This is because the public sec-tor unit is severely cash strappedand a sale through this route mayslow down fundraising. Thefastest way to revive BSNL is byway of monetisation of its assets,which includes land, telecom tow-ers and optical fibre. However, thesame exercise may take longer thanexpected if it is done throughDIPAM, a senior official in the knowtold Business Standard.

“The disinvestment departmenthas a well-defined structure for sucha sale but the money generatedthrough the exercise first lands inthe consolidated fund of India. It islater given back to the company,which may take almost a year,” hesaid. The other option is the compa-

ny doing it itself, which, however,has not progressed in the last fewyears, DoT felt. Therefore, telecomdepartment is in a fix as the DIPAMroute may prove to be longer.

BSNL is currently grappling witha revenue shortfall of about ~800crore every month and is strugglingto pay salaries to its employees. Itrelies on short-term loans from thecentral government to meet its oper-ational expenses. The revival pack-age being readied by the Union gov-ernment will be finalised afterfactoring in the pros and cons of var-ious proposals, including a volun-tary retirement scheme (VRS), allot-ment of 4G spectrum free of costand monetisation of assets. A newproposal has been planned after thePrime Minister’s Office (PMO) rejec-ted the earlier plan of its mergerwith sick public sector unit Mah-anagar Telephone Nigam (MTNL).

Meanwhile, DoT is negotiatingwith the Department of Revenue,Department of Economic Affairsand NITI Aayog for giving loan guar-antee for raising funds for the twoPSUs in a bid to keep them afloat.

The loans would be utilisedtoward the companies’ capitalexpenditure and salary payments.BSNL raised loans in the past alsoto pay salaries to its employees.These loans mainly act as small tomedium term arrangementsbefore the Union governmentfinalises a full-fledged bailoutpackage for the two sick PSUs.

The previous proposal thatincluded merger of the two compa-nies was shot down by the PMO as itfelt that the merger won’t serve the

desired purpose of reviving the twocompanies. The voluntary retire-ment package being considered forBSNL is expected to be around~6,365 crore and an equity infusionof ~6,767 crore has been planned forthe allotment of 4G spectrum. BothBSNL and MTNL had sought relieffrom the Centre in the form of con-version of debt to sovereign guaran-tee as well as for pay revision andsubsequent voluntary retirement.BSNL sought 4G spectrum acrossIndia through an equity infusion of

~7,000 crore. MTNL suggested con-verting its ~20,000 crore debt intosovereign bonds and surrendering3G spectrum. The proposed retire-ment package may be funded by abond issue of over 10 years.

About half the 176,000 employ-ees at BSNL are estimated to retire inthe next five-six years. If only about50 per cent of the eligible employees(those about 50 years) opt for volun-tary retirement, that would be40,000 people. For MTNL, the VRS package could have a revenueimpact of ~2,120 crore. The companyhas 22,000 employees. Of this,16,000 employees with retire in thenext five-six years.

BSNL’s loss is estimated to bearound ~14,000 crore with a declinein revenue to ~19,308 crore during2018-19. BSNL’s losses were ~4,859crore in 2015-16, ~4,793 crore in2016-17, ~7,993 crore in 2017-18 andis estimated to swell to ~14,202crore in 2018-19.

The firm’s debt stands at~13,000 crore against the overalldebt of the telecom sector at over~6 trillion. IT & telecom ministerRavi Shankar Prasad, in his firstpress conference after assumingcharge, had said that the govern-ment will revive BSNL and MTNL.

Govt unlikely to take DIPAM route for BSNL asset saleThe fastest way to revive telco is by way of asset monetisation, say experts

RUPEE VS DOLLAR (Inverted scale)

Compiled by BS Research BureauSource: Bloomberg

The liquidityframework isexpected tomake ratemanagementcontingent onthe prevailingliquidity in the system

Lavasa’s wife has been issueda notice to explain details inher I-T returns with regard toholding directorship in 10 companies

MEGHA MANCHANDANew Delhi, 23 September

Distressed employees of cash-strapped Bharat Sanchar Nig-am (BSNL) on Monday urgedPrime Minister Narendra Modito revive the company andmake it a strong telecom oper-ator. In a letter to PrimeMinister Narendra Modi, thestaff of the beleaguered com-pany said, “We heard that thefinance ministry is proposingthe closure of BSNL, instead ofits revival.”

“It is felt that those officersinvolved in the process may notget an opportunity to learnabout the critical role played byBSNL in nation building and inimplementing governmentschemes and projects,” generalsecretary of BSNL UnionSebastin. K said in the letter.

Stressing the role played bythe company during critical sit-uations, the employees havesought relief from the govern-ment. Sebastin said during therecent developments in Jam-

mu & Kashmir, the governmentis fully dependent on BSNLlandline and mobile for pro-viding services to a few gov-ernment functionaries andsecurity forces in Kashmir val-ley, despite the company incur-ring huge losses. No other oper-ator is allowed to provideservices due to security rea-sons. BSNL is providing tele-com services in remote parts ofthe country and maintaining17,000 to 18,000 exchanges,incurring ~3,000 to ~4,000 cr-ore losses every year. Otherw-ise, these villages will be cut off.

The aggrieved employeessaid, “A wrong notion has beencreated by the government,management and the mediathat the main reason for BSNLloss is its employee cost.”

The letter said, BSNL pro-vides direct employment toseveral people and most of theoperations and maintenanceactivities are done by its ownemployees, whereas otheroperators outsource majorityof their works.

BSNL is currently grappling with a revenue shortfall of about ~800 croreevery month and is struggling to pay salaries to its employees

BSNL staff writes to Modi, calls for revival

4 ECONOMY & PUBLIC AFFAIRS MUMBAI | TUESDAY, 24 SEPTEMBER 2019

> .

“A historic day in world politics! Leaders ofthe two most powerful democracies sharedtheir ideas & dreams for a prosperous worldtogether in a way that one has never seenbefore. #HowdyModi was unprecedented”

AMIT SHAH, Union home minister

“Democracy exists in Bengal but it is underthreat in several other parts of the country.The BJP is not talking about job losses or thedownward spiral of Indian economy, all itwants to do is serve own political interests”

MAMATA BANERJEE, West Bengal chief minister

“It is the boldest decision of the Indiangovernment to encourage investments bycorporate houses. Maharashtra being themajormanufacturing hub of India will hugelybenefit from slashing of corporate tax”

DEVENDRA FADNAVIS, Maharashtra chief minister

Late monsoon surge limits kharif shortfall SANJEEB MUKHERJEENew Delhi, 23 September

The country’s foodgrain production inthe 2019 kharif season is expected to beless by only 0.8 per cent, despite adelayed progress of the southwestmonsoon. The reduced shortfall islargely because of good rainfall after-June, the government's first advanceestimate has revealed.

However, the estimates could changein the coming months. The full impact ofexcess rain and floods on standing soy-bean and urad crops in central and west-ern India in late August and Septemberhas not been fully taken into account.

According to the estimates releasedon Monday, rice production is projectedto fall by 1.7 per cent due to delayed onsetof rains over eastern India and also a shiftin some areas of Haryana and UttarPradesh towards more lucrative maize.

The southwest monsoon staged arecovery since July and was almost 5 per cent more than normal as onMonday, as against 33 per cent belownormal in June-end.

The four-month monsoon that startsfrom June contributes over

70 per cent of the country’s total rainfalland is vital for agriculture.

Overall kharif pulses production isestimated to fall by 4.19 per cent to 8.23 million tonnes (mt) mainly due todrop in urad output.

Kharif crops contribute around 40 per cent of India’s annual pulsesproduction. The rest comes from therabi season.

This year, standing urad crops inlarge parts of Madhya Pradesh were

inundated due to excess rain, whichcould impact the final output as sowingstarted late. However, a final assess-ment is awaited.

So far, according to the first estimates,urad production in the 2019 kharif sea-son is expected to be 2.43 mt, which is5.07 per cent less than the fourthadvanced estimated of 2018-19.

“These are preliminary estimates. Ifthings remain as it is, there might not bea big increase in inflation in foodgrains

and cereals in the coming months.However, the same cannot be said abouthorticulture crops, mainly onions, whereprices have already started firming up,”Madan Sabnavis, chief economist, CARERatings, told Business Standard.

He said in case of pulses and rice,where production according to the firstestimate is expected to less than lastyear, imports and stocks in hand ingovernment godowns could keepprices under check.

HOW THE PRODUCTION WAS AFFECTEDCrop 2018-19* 2019-20* % Change

Rice 102.13 100.35 -1.74

Coarse cereals 30.99 32.00 3.25

Pulses 8.59 8.23 -4.19

Foodgrains 141.71 140.57 -0.80

Oilseeds 21.27 22.38 5.21

Sugarcane 400.15 377.76 -5.59

Cotton*** 28.70 32.26 12.40

Jute & mesta**** 9.76 9.95 1.94*According to fourth advanced estimate of 2018-19; **According to first advanced estimate of 2019-20; ***Cotton production is in million bales. 1 bale=170 kilograms; ****Jute and Mesta production is in millionbales. 1 bale=180 kilograms Source: Government of India

6 ECONOMY MUMBAI | TUESDAY, 24 SEPTEMBER 2019 1>

Panel suggestion on corporationtaxdifferent from FM’s formulaDILASHA SETH New Delhi, 23 September

The corporation tax ratestructure recommend-ed by the task force on

direct tax laws was a bit differ-ent from what was announcedby Finance Minister NirmalaSitharaman last week.

The panel, headed by cen-tral board of direct taxes(CBDT) member AkhileshRanjan, also recommended 25per cent corporation tax ratefor companies, but without sur-charges and cess, sources said.

Sitharaman on Friday hadannounced 22 per cent rate forcompanies. Adding surchargesand cess, this becomes 25.17per cent against the currentrate of 34.94 per cent.

Sources said the panel rec-ommended doing away withcess and surcharges to makecorporation taxes a cleanstructure.

Besides, the panel wanted25 per cent corporation taxrates for all, sources said. On

the other hand, the financeminister had announced itfor companies not availingexemptions such as tax holi-days enjoyed by units in spe-

cial economic zones (SEZ) oraccelerated depreciation.

The panel wanted that theexemptions may continue tillthey are phased out, accord-

ing to the existing road map.According to the new struc-

ture, those not availing of thereduced rate due to exemp-tions they enjoy, can opt for thereduced rate once the sunsetclauses on the exemptions end.

The Friday ordinance alsotalked about reduced rate of15 per cent for those compa-nies that would be incorpo-rated from the next monthand start production beforeMarch 31, 2023. These com-panies are not required to payminimum alternate tax(MAT).

The original task force ondirect tax laws, constitutedby the Modi government, hadproposed a 15 per cent corpo-ration tax rate across theboard.

That panel, headed by for-mer CBDT member ArbindModi, had proposed that thisreduced rate be complement-ed with changes in account-ing procedures, and modifi-cation in the rule for source ofincome.

Not all members of theModi panel signed on the rec-ommendations because ofwhich the new task forceunder Ranjan was appointed.

Some people say the corpo-ration tax rate cut will onlyaddress supply side issues,whereas the problem wasdemand side slowdown. Theywanted that the overall reportof the task force be reviewedand implemented, includingits recommendations on per-sonal income tax rates.

“Instead of piecemealimplementation, the govern-ment should implement theDTC report as a whole, whichaddresses all issues, whilealso ensuring that revenuesare protected,” said an expert.

The new corporation taxrates cut would hit the excheq-uer by ~1.45 trillion a year.

The expert added that a cutin personal income tax wouldhave addressed the demandside problem too, by givingmore income in the hands ofthe people.

SBI to link credit for medium units to repo rateThe State Bank of India (SBI) will link pricingof credit for medium enterprises to the reporate from October 1. This is in addition to themandatory linking of retail, home, and MSMEloans to repo rate. It will voluntarily extendbenchmark-based lending to medium enter-prises to boost lending to the MSME sector asa whole, the SBI said.

Prashant Kumar, chief financial officer anddeputy managing director, SBI, said the size of

this portfolio (medium enterprises) is about~10,000 crore and falls under the Reserve Bankof India's definition of MSME units. The medi-um enterprise portfolio is distinct from mid-size corporate loan book.

The bank’s retail loan (personal and house-holds) portfolio rose by 18.68 per cent to ~6.63 trillion by the end of June. The MSMEloan book saw 2.24 per cent increase to ~2.81 trillion. ABHIJIT LELE

Corporation tax cut could impact power bill AMRITHA PILLAYMumbai, 23 September

The Union government’s decision to cutcorporation tax is expected to generatesavings worth ~4,000 crore for power dis-tribution companies.

Whether the savings will meancheaper power or not, however, will de-pend on a host of regulations. The sourceof power, renewable or non-renewable,and the nature of the market, regulatedor merchant, will be a factor governingwhether the cost would go down.Conventional power producers areexpected to have limited gains from thetax cut because power-purchase agree-ments (PPAs) require them to pass ontax changes. Renewable power produc-ers, however, may be able to absorb thechange and benefit from the reduction.

“Whether companies must pass onthe tax cut to the procurer or not dependson the terms of the PPA in place. Inrenewable energy, where the commonlyused agreements do not adjust forchange in tax, producers benefit fromthe cut, although this may be partly lostin the various impacts they suffer such asfrom past tax hits, back-down anddelayed payments,” said KameswaraRao, partner with PwC India.

According to an ICICI SecuritiesResearch note, the impact of these cuts islikely to be positive for the power sectorbecause cash flows for the entire valuechain will improve. “The biggest benefi-ciaries will be discoms, where annualsavings resulting from the cut are esti-mated at ~4,000 crore,” said the note dat-ed September 22.

Rao added: “Across the regulated util-

ities space, tax cuts will get passed on toconsumers in the next tariff reviewwhenever it comes up. The discoms,however, can ask for the savings to beused for adding capacity or upgradinginfrastructure, and the reduction maynot directly come to the end customer.”

ICICI Securities said of power pro-ducers: “As most companies are cur-rently under MAT, a small amount relat-ed to tax on incentives and other incomewill be retained by the companies on acost-plus basis while tax benefit on coreincome will be passed on.” Based onthese savings, ICICI Securities expectsNTPC earnings to increase by ~250 crorefrom the current financial year onwards.“Impact on other companies such as JSWEnergy and CESC will be negligible asmore than 80 per cent of their profitscome from regulated businesses, which

will be passed on to the consumers,” thenote added.

Gains owing to the tax cut in regulat-ed transmission, too, are expected to belimited. Analysts with Motilal Oswalhave listed Power Grid Corporation as aNifty company with the least earningsrevision due to the tax cut. The analystsexpect Power Grid’s profit to see a revi-sion of just 0.3 per cent. Coal India, India’slargest coal producer, may see signifi-cant savings. “Coal India was in the high-est tax-paying bracket with an effectivetax rate of 35.62 per cent in FY19. Therewill be a significant increase in the PATwith its effective tax rate now reduced to25.2 per cent,” the note said.

With no regulatory obligation to passon the benefit and in the absence of com-petition, Coal India can choose what itwants to do with its savings.

IN A FIX?Panel on direct tax laws

recommends 25% corporationtax rate, doing away with cessand surcharges

This is slightly differentfrom new corporation taxrate structure

New structure says 22%

corporation tax rate, whichcomes to 25.17% after cessand surcharges

The panel also wants 25%tax for all companies

The new structure is foronly those companies notenjoying tax exemptions

ILLUSTRATION: AJAY MOHANTY

‘Benefits on supplies fromDTA to SEZ unit linked topayment in foreign currency’

Our customer in the US hasasked us to deliver ourgoods to a SEZ unit andagreed to pay us in foreigncurrency. Will this beconsidered as export for thepurpose of drawback andother incentives?As per Rule 24(3) of the SEZRules, 2006, “drawback or anyother similar benefit underthe Customs and CentralExcise Duties DrawbackRules, 2017, as amended fromtime to time, against supply ofgoods by Domestic Tariff Areasupplier shall be admissiblewhere payments for the sup-ply are made from the ForeignCurrency Account of theUnit”. As per Para 4.21(iii) ofFTP, “export to SEZ Unitsshall be taken into account fordischarge of export obligationprovided payment is realisedfrom Foreign CurrencyAccount of the SEZ unit.”

Also, as per Para of 5.11 ofHBP, “realization in case ofsupplies to SEZ units shall befrom foreign currencyaccount of the SEZ unit.”These conditions are not ful-filled on your case.

We are re-importing somematerial exported earlier.We had claimed MEIS andhave utilised it. So, we haveto surrender that benefit, asper Para 3.24 of HBP. Afterimport, as agreed with thebuyer, we will send newmaterial to the buyer, asreplacement. As paymentwas received earlier, thereplacement will beexported under GRExemption. How to reclaimMEIS on the replacementexports, when there will beno fresh payment againstthe new shipping bill?I am afraid you surrender thebenefit you took and can't getthe benefit on free replace-ment. This problem is notaddressed under any of thecurrent instructions or provi-sions. You may write to theDGFT and seek suitable dis-pensation.

We want to import air liftplatforms on lease basis andsend it back. Is there anyexemption and if so, whatare the conditions?

You may refer to notification72/2017-Cus dated August 16,2017, for the exemption and theconditions for temporaryimport of goods on lease basis.

The finance ministerannounced on September 14,2019, that for textile sectorMEIS + old RoSL will continuetill December 31, 2019 andthen be replaced with theScheme of Reimbursement ofDuties & Taxes on ExportProducts (RoDTEP). We arenot able to comprehend thisas the old RoSL scheme wasreplaced with a new RoSCTLscheme with effect fromMarch 7, 2019. Can you help usunderstand?As I understand, RoSLscheme has been broughtback for a limited period.

We want to export goods tofew of our overseas clients,where prices are not fixedand can be finalised onlyafter shipment. Can weexport the goods and thensettle the matter throughdebit and credit notes?When the price is not fixed atthe time of export, you mayseek provisional assessmentin accordance with Section 18of the Customs Act, 1962, andget the final assessment ship-ping bill done upon finalisa-tion of the price.

Business Standard invites readers’ SME queries related to excise, VAT and exim policy. You can write to us at smechat@bsmail.in

CHATROOMT N C RAJAGOPALAN

MUMBAI | TUESDAY, 24 SEPTEMBER 2019 ECONOMY& PUBLIC AFFAIRS 7. <

RBI denies default data access to SebiSHRIMI CHOUDHARYNewDelhi,23September

TheReserveBankofIndia(RBI)has expressed disagreementover the Securities and

ExchangeBoardofIndia’s(Sebi)pro-posedframeworkenablingcreditrat-ingagencies(CRAs)tolegallyaccessbor-rower database, helping them intimely recognitionofdefault.

A panel of financial regulators,including the Pension FundRegulatory and DevelopmentAuthority and the InsuranceRegulatory and DevelopmentAuthority of India aswell as theRBIand Sebi, met last month and dis-cussedaproposaltogiveCRAslimit-ed access to the RBI’s CentralRepository of Information on LargeCredits (CRILC).

The CRILC is a borrower-leveldataset focusing on systemically impor-tant credit exposures.

Banks report to the CRILC creditinformation on all their borrowershaving aggregate fund-based andnon-fund-basedexposureof~50mil-lionandabove.

Sourcessaidthecentralbankhadcited sensitivity and confidentiallyissuesforallowingthird-partyaccessto largecreditdata information.TheRBI had also assured that it wouldask lenders to improve the informa-tionsharingunderthecurrentmech-anism of Credit InformationCompany (CIC).

Currently,theratingagenciescanaccesstheCICthatisanindependent,third-party institution collectingfinancial data regarding loans, cred-it cards, andmoreabout individuals

andsharesitwithitsmembers.Banksand non-banking financial institu-tionsusually takedata fromtheCIC.

Sebi argued rating agencies can-

not decide ratings basedon theCIC,as it isnot rapid, cleanandaccurate.ItalsosaidtheCICdidnotprovidetheupdateddataaboutthehistoryofbor-

rowers, repayment dues and so on.The market regulator said there

was a substantial difference in thedefaultdatadisclosedbyratingagen-

cies and the one available with theCRILC. Even the central bank hasraisedthisconcernoverdivergenceindefault rates identified by the CRAsand theCRILC.

“Banks aremandated to provideall updates about borrowers to theRBI’srepository.But,thelendershavebeen reluctant on sharing the samewithCRAsdue to their confidential-ity clause with the said borrower,”said the sourcecitedabove.

To address this, Sebi recentlyamended its regulations on ratingagencies by adding a clause in theagreement between an issuer and aratertoprovidean“explicitconsent”fromtheissuertoobtaininformationrelated to loans, repayment, delay,etc.frombanksorotherlendinginsti-tutions.Sourcessaidbanksaremiffedwith thisamendmentasgiving indi-vidual borrowerdata is a tedious jobwhichwouldincreasetheirworkload.The RBI, too, is not willing to allow

banks to give individual creditaccount information.

Amid surging cases of debtdefaults including in IL&FS, the roleof rating agencies have come undertheregulatoryglare.Themarketreg-ulator has been making constantchanges in the CRA rules for bettermonitoringandimprovingperform-ance. CRAs have been complainingthey are dependent on the informa-tion provided by the borrowers asbanksnever disclose borrowing andlending information.

In2017,Sebihadproposeditmakeitmandatoryfor listedcompanies tomakedisclosureoftheirloandefaultsto the stock exchanges if they fail tomakerepaymentofduesandinterestwithin 24 hours. However, the pro-posal was then turned down by thegovernment,asthecentralbankwasofviewthatbankswouldneedanoth-er~26,000crorecapitalifthemeasurewas implemented.

CitessensitivenatureofinformationonitsdatabaseDIFFERENCES OVER SHARINGSebi ask| Sebiproposes

lettingratingagenciesgetaccesstotheRBI’srepository

| Regulatorsraiseconcernsoverdivergenceintheloandefaultinformation

Counter argument| Sebisaysratingcannotbedecidedonthe

CIC,asitdoesnothavereal-timedata

RBI response| RBIsaysaccessto

CRILCcan’tbegiventoathirdpartyasinformationwassensitive

| ThecentralbankpressesuponusingcurrentCICmechanism

ReadytomediateifIndia,Pakagree:TrumpPRESS TRUST OF INDIANewYork,23September

Describing himself as "anextremely good arbitrator",US President Donald Trumpsaid on Monday that he wasready to mediate betweenPakistan and India on theKashmir issue, but both sideshave to agree on that.

Trumpmade the remarksduring his meeting withPakistani Prime MinisterImranKhan on the sidelinesof the UNGeneral Assemblysession here.

"If I can help, I will cer-tainly help," Trump said,describing theKashmir issueas a "complex" onewhichhasbeengoingon fora long time.

"If both (Pakistan andIndia)want, I am ready to doit," he said, a day afterattending 'Howdy,Modi!' ral-ly in Houston, where heshared the stage with PrimeMinisterNarendraModi anddisplayed a close friendship

and a common vision onfighting terrorism.

"At any point of time, Iwould be an extremely goodarbitrator," he said.

Trump praised the'Howdy,Modi!'mega rally inpresenceofKhanand saidhehas heard a "very aggressive

statement" byPrimeMinisterModi.

"It was very well receivedwithin the room," Trumpsaid, referring to the gather-ing of 50,000 people at theNRG stadium inHouston.

At the rally on Sunday,Modi hit out at Pakistan for

its support to terrorism andsaid India's decision tonulli-fy Article 370 has causedtrouble to those who cannothandle their country as hecalled for a "decisive battle"against terrorism.

During his press interac-tion alongside Khan, TrumprepeatedlysnubbedPakistanireportersandononeoccasioneven asking one of the jour-nalists whether he is part ofthe Pakistani delegation.“Wheredoyou find reporterslike these,” Trump askedKhan in response to a ques-tionposedbyaPakistani jour-nalist onKashmir.

Khan, who has declaredhimself an ambassador ofKashmiris, on SundaybriefedUS lawmakers, schol-ars, human rights activistsand the media on the reper-cussions of India revokingthe special status of Jammuand Kashmir on August 5.

TrumpandKhan lastmetin July at the White House.

During their first one-on-oneinteraction, theUSpresidenthad expressed his willing-ness to mediate betweenIndia andPakistan to resolvethe Kashmir issue -- an offerIndia rejected.

During Modi's meetingwithPresidentTrumpon thesidelines of the G7 Summitin France last month, theprimeminister categoricallyrejected any scope for a thirdparty mediation betweenIndia and Pakistan on theKashmir issue.

"All the issues betweenIndia and Pakistan are ofbilateral in nature, and wedon't want to trouble anythird country.Wecandiscussand resolve these issuesbilaterally," Modi had said.On his part, Trump had saidhe and Modi spoke aboutKashmir "at great length"during the G7 Summit andhe feels that both India andPakistan can resolve it ontheir own.

SaysModi's'veryaggressivestatement'atHoustonrallywas'wellreceived'

Modi pledges tomore than doubleIndia’s non-fossilfuel target to 450 GWPrimeMinisterNarendraModionMonday gave a clarion call for a“global people’s movement” tobringaboutabehavioralchangetodeal with climate change as hemade a path-breaking pledge tomore thandouble India’snon-fos-silfueltargetto450gigawatts(GW).

In his Independence Dayspeech,ModihadannouncedthatIndiawill produce 175 GWof non-fossil fuel as part of its commit-ment to the Paris Climate agree-ment. Monday’s announcementduringModi's speechat theglobalclimate summit goes well beyondthe pledge of 175 GW. It comes aday afterModi andTrump sharedthestageatagalaeventinHoustonon Sunday and displayed a closefriendship and a common visionon fighting terrorism.

TrumpwithdrewfromtheParisclimate deal in 2017 and blamedIndia and China for his decision,saying the agreement was unfairas it would havemade the US payfor nations which benefited themost fromthedeal. PTI

USPresidentmeetsPakistaniPMImranKhan inNewYork

Manmohancalls onChidambaram:Hopecourtswill do justiceARCHIS MOHANNewDelhi,23September

The Congress on Mondaythrew its full weight behindparty leaderPChidambaram,underscoring that it believesthe former Unionfinance minister wasa victim of “politicalvendetta” and notinvolved in any cor-ruption, with formerprime ministerManmohanSingh(pictured) andCongress presidentSonia Gandhi meet-ing him at Tihar Jail.

Singh and SoniaGandhi met Chidambaram,lodged in Tihar Jail sinceSeptember 5 in connectionwith the INX media case,along with his son and LokSabha member KartiChidambaram. The meetinglasted its permitted duration

of half anhour.In a statement issued later

in the evening, Singh said theparty is “concernedwith con-tinued detention in custody”of their colleague. The formerprime minister said, “We are

confident, andwe sincerelyhope, that thecourtswill ren-der justice inthis case.”

“In our sys-tem of govern-ment, no deci-sion can betaken by anysingle person.All decisions

arecollectivedecisionsrecord-ed in files. A dozen officers,includingsixsecretaries to thegovernment, examined andrecommended the proposal.Minister Chidambaramapproved theunanimous rec-ommendation,” Singh said.

PHOTO: AP/PTI

A K BHATTACHARYA

The big question that has arisenafter Finance Minister NirmalaSitharaman’s corporation tax

rate cut decision last Friday is whatits actual impact would be on the gov-ernment’s fiscal situation. On Friday,Sitharaman said the measures (seetable) would result in forgone rev-enues worth ~1.45 trillion.

This was a huge amount — almost19 per cent of the total corporation taxthe government was to collect duringthe current year. This would have alsomeant a widening of the fiscal deficitby about 0.7 per cent of gross domes-tic product (GDP). In other words, thegovernment’s fiscal deficitwould have increased fromthe budgeted 3.3 per cent ofGDP to 4 per cent.

But on Sunday,Sitharaman told media peoplethat she was expectingimproved compliance afterthe tax cut and that wouldhelp her stick to the fiscaldeficit target. She also saidshe had no plans to cut gov-ernment expenditure either.

What has given Sitha-raman the confidence toclaim that there would be no fiscalslippage or expenditure squeeze?

If you dig a little deeper into themanner in which the finance minis-ter has changed the corporation taxrates, you may get a sense of what liesbehind her confidence. She is bank-ing on many tax-paying companiesgiving up their tax exemptions andincentives and opting for the newlower tax rate of 25 per cent.Remember that the lower tax rate of25 per cent can be enjoyed only bythose who give up the existing taxexemptions and incentives. And once

you give them up, there is no way youcan return to the earlier regime ofenjoying those exemptions!

How much did the governmentgive up by way of revenues on accountof these exemptions and incentives?In 2018-19, revenues worth ~1.08 tril-lion were forgone by the governmentowing to as many as 28 different typesof tax exemptions and incentives.These are exemptions and incentivesfor exports, accelerated depreciation,setting up of units in special econom-ic zones and investments in specificstates. Over 80 per cent of the rev-enues forgone by the government areon account of export benefits andaccelerated depreciation.

Hypothetically,therefore, if all compa-nies opt for the 25 percent tax rate and giveup their exemptions,the government standsto save an amountequivalent to ~1.08 tril-lion. This is the actualamount of revenuesforgone in 2018-19 onaccount of theseexemptions; there is noestimate yet of howmuch revenue would

be forgone on this account in thecurrent year. It is possible that theentire tax amount forgone on suchincentives will not be saved —because some companies may preferto continue with these exemptions— but certainly, a large portion ofthe savings will not be required tobe spent. So a part of the revenuesforgone by Sitharaman’s decision toreduce the corporation tax ratewould be made good.

Remember that the effective taxrate for Indian companies (the actualincidence of taxes on companies after

taking into account the benefits fromtax exemptions) was about 29 per centin 2018-19, compared to the actual taxrate of 35 per cent. Thus in the aggre-

gate, the net tax benefit for India Incwould be four percentage points(down from the effective rate of 29 percent to the new rate of 25 per cent).

But the impact of the tax ratechange, taken together with the lossof exemption benefits, would varyfrom company to company.Financial services companies likebanks would hugely benefit becausethey do not enjoy any tax exemptionbenefits at present. But a large num-ber of infrastructure, public sectorand information technology compa-nies enjoy the tax exemption benefitsin a big way. If they too opt for thenew tax rates, then the governmentwill be able to forgo less revenue ontax exemptions.

If the stock markets have risensharply, it is largely because of thepreponderance of the financial sec-tor companies in the benchmarkindices of the Bombay StockExchange and the National StockExchange. This may also be why aCRISIL Research study of top 1,000listed companies shows that theirtotal tax gains on account ofSitharaman’s tax bonanza would beonly about ~37,000 crore.

In the end, a bigger question aris-es. If the actual gain for India Inc isso little and the government’s rev-enue loss will be much less than thefeared ~1.45 trillion, is the actual taxstimulus far less than earlier estimat-ed and have the stock markets react-ed prematurely?

To be sure, the government’s fiscalwoes are not going to be over even ifthe impact of the corporation tax cutson its fiscal deficit turns out to belower than ~1.45 trillion. The gross taxcollection shortfalls in the first fourmonths of the current financial year(they are growing by just 6 per cent,compared to the budgeted goal of 18 per cent) will mean that the fiscaldeficit target of 3.3 per cent of GDP would be difficult to achieve inany case.

8 ISSUES AND INSIGHTS>

MUMBAI | TUESDAY, 24 SEPTEMBER 2019

> CHINESE WHISPERS

> LETTERS

Globally, policy circlesare now debating thereducing efficacy of

unconventional monetary poli-cies being used by global cen-tral banks to support growthand the need for other levers,including counter-cyclical fis-cal policies. The rise in suchactivism is on account of the

fact that these unconventionalpolicies have not been able togenerate inflation despite verylow rates across the yield curve,often moving to negative terri-tory. This limits the space ofmonetary policy to deal with afuture slowdown.

Proponents of counter-cyclical fiscal policies advocateputting money into the handsof those who would spend it,thus improving aggregatedemand and in turn leading toimproved inflationary impuls-es, through tools like tax cuts.However, any such policyneeds to be implemented with-in the contours of maintainingcentral bank independencewithout relying on excessivedebt monetisation, throughclose coordination with thecentral bank and a well-definedexit strategy when inflation

returns to medium-term trendlevels. Moreover, one needs tounderstand that reliance on fis-cal policy would possibly offsetto some extent the work doneby monetary policy in loweringinterest rates. Rates could riseas expansionary fiscal policiescould lead to reducing the glob-al savings glut along with anincreased risk perception ofgovernment bonds, whichcould lead to an outflow offunds from debt instruments.

Another school of thoughtgaining ground is the approachsupported by modern mone-tary theorists (MMT), whichradicalises policy making bytransferring the burden of eco-nomic stabilisation to fiscalpolicy alone. This could bedone by reducing the role ofmonetary policy to fund thegovernment through debt

monetisation with taxation tak-ing a secondary role. Whilequantitative easing (QE) in partdoes defer to debt monetisa-tion, it is only temporary as theQE debt is not rolled over butneeds to be repaid by the gov-ernment on maturity. In con-trast, the MMTs propose rollingthe debt in perpetuity to apoint where markets movebeyond the liquidity trap (anenvironment of low interestrates and high savings rate).Proponents of modern mone-tary theory would theorise thisto be non-inflationary underthe premise that governmentswould roll back this “helicoptermoney” as economies reachfull potential by increasing tax-es. In practice, however, thiscould be misleading as govern-ments might not have the abil-ity or the political willingness

to retract, eventually leading tothe unintended consequencesof overheating of the economy.

Other tools to improveinflation and inflationaryexpectations include raisingthe inflation target, price leveltargeting or through raisingthe average inflation targeting.These policies, if consideredcredible, could eventually leadto an increase in inflation lev-els, providing more ammuni-tion to central banks duringdownturns. However, thesepolicies might lead toincreased costs through higherinflation, increased transac-tion costs and redistributionof wealth from holders of cash(mostly the poor) which can-not be ignored.

These discussions lead us tothink that the policy prescrip-tion for this low-inflation, low-

growth environment might bemore esoteric than one wouldlike to believe. However, onemight need to step back andassess the need or the urgencyto move out of this milieu.Neutral rates have come downon account of changing demo-graphics, technology and glob-alisation. These are structuralchanges that could be consid-ered outside the purview ofinfluence of monetary policy.One could argue that the low-inflation, low-growth environ-ment is the new normal andany attempts to distort thiscould lead to unhealthy pres-sures on credit and asset priceincreases. Moreover, should weconcentrate on growth rates,when in most of the developedworld, metrics of per capitaincome levels and social andhuman development indica-tors are robust? The jury is stillout there, in our view.

The author is group head, globalmarkets, sales, trading andresearch, ICICI Bank

Walking a tightropeIs a low-inflation, low-growth environment the new normal?

Hard bargainingFive of Bihar’s 243 Assembly seats willhave byelection on October 21. Thegrand alliance, comprising theRashtriya Janata Dal, the Congress, andothers, is yet to decide seat allotmentfor the Assembly seats and theSamastipur Lok Sabha constituency.Hindustani Awam Morcha (HAM)President Jitan Ram Manjhi, aconstituent of the grand alliance, onMonday said, come what may, his partywould contest the Nathnagar VidhanSabha seat in Bhagalpur. Manjhi hadrecently threatened to pull out of thefive-party grand alliance. TheBhagalpur seat had fallen vacant aftersitting Janata Dal (United) MLA AjayMandal’s election to the Lok Sabha.Manjhi’s latest outburst comes lessthan two months after he had accusedthe grand alliance of havingunderestimated his party andthreatened to go it alone in theAssembly polls next year.

Congress talent hunt in UPFacing a leadership crisis in UttarPradesh, the Congress party held a“Talent Hunt” to identify a new team forthe state minority cell. The day-longexercise, held at the UP CongressCommittee headquarters in Lucknow,saw the participation of nearly 600aspirants from 40 eastern and centraldistricts of UP. The exercise was started atthe behest of the All India CongressCommittee general secretary in charge ofeastern UP, Priyanka Gandhi. Congresssources said a similar "Talent Hunt" wasbeing planned for the western districts ofUP as well.

Baseless criticism

This refers to "Impetus to Make inIndia, claims PM; Oppn says it's timedfor US visit" (September 21). The gov-ernment's decision to slash the cor-porate tax rate has come in for widepraise from various quarters.However, the Opposition has not beengenerous to the government andbelieves that the decision has beentimed for the US visit of the PrimeMinister. A few things need to beappreciated in this regard. Slashingof corporate tax has not come all toosudden. There has been gradualreduction over the years and this bigslash would not have come now hadthere been no slowdown.

So, the current economic slowdownhas prompted the government to go infor this huge cut in corporate tax ratenow. Also, the rate cut is aimed at lur-ing foreign companies that are windingup their facilities in China as a resultof US-China trade war, to set up man-ufacturing facilities in India. Clearly,the decision to cut the corporate taxrate could not have been postponed tillthe next Budget as delaying it any fur-ther would not have been useful inarresting the slowdown or attractingforeign firms to set up their facilitiesin India. The Opposition is well withinits rights to criticise the governmentbut the criticism needs to be based onsound rationale and it should not lackconviction.

Sanjeev Kumar Singh Jabalpur

More NPAs? This refers to the editorial “Phone bank-ing, again” (September 23). I agree withthe views expressed in the editorial.Pushing up and encouraging lendingto small businesses and retail borrow-ers by holding loan melas is not a wisemove. The public sector banks (PSBs)have barely started recovering fromthe non-performing assets (NPAs)loans mess and to again force them tolend will set the clock back. The PSBsneed to lend based on risk assessmentof the borrower and his/her ability torepay the loan. The hard earned mon-ey of the depositors and the capitalpaid for by the tax payers cannot beblown away recklessly, like the loanmelas pushed by Janardhana Poojaryin the Congress era.

Forcing banks not to declare loansto small businesses as NPAs till March2020 will enable PSBs to cover up theirgrowing NPAs to this segment for amuch longer period of time.Economic development happenswhen banks lend wisely, borrowersinvest in businesses, production ofgoods and services increases andloans are repaid on time. Lending inmelas and then not repaying does notcreate a perception of economic well-being. It only shows the pitfalls ofpolitical interference and patronage.We are creating the setting for the nextphase of the big NPA mess. This hap-pens every few years. But the differ-

ence is that this time it will come toosoon after the previous phase.

Arun Pasricha New Delhi

PM Modi in HoustonFrom all appearances, the “Howdy,Modi!” event in Houston was a bigsuccess. It was a visual treat. PrimeMinister Narendra Modi deliveredhis address to the rapturous applauseof the audience. The bromancebetween Modi and US PresidentDonald Trump was in full display inHouston. They made a mutual admi-ration club heaping praise on eachother. With his words “Abki baarTrump sarkar”, Modi has endorsedTrump’s candidacy, apart from cer-tifying that Trump “made Americagreat again”. It was a deviation fromthe hitherto followed policy of non-partisanship vis-a-vis the RepublicanParty and the Democratic Party. ThePM opined that Article 370 “benefit-ted separatists and terrorists”. Heproclaimed that “discriminationagainst Dalits is now past history”.We couldn’t agree more with Modiwhen he said, “Diversity is thestrength of our democracy”.

G David Milton Maruthancode

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

> HAMBONE

Ihave always found the official defi-nition of employment to be extraor-dinarily lax. A person is considered

to be employed if she has beenemployed for at least one hour duringa week. The person could be desperate-ly looking for a real job during the restof the week but the one hour sheworked supersedes.

This is a global norm, a recommen-dation of the International LabourOrganization. India follows this globalpractice.

But, how can a person who hasworked merely for an hour in a weekbe considered as an employed person?

In India, where the unorganised sec-tor dominates and where people areengaged in work largely informally, alarge proportion of people can get clas-sified as employed even if they do notconsider themselves to be employed inany sense of the term.

Imagine the household of a typicaltea vendor. He sets up shop on thestreet and negotiates deals with theformal and informal enforcementagencies to allow him to do business.He organises raw materials and fuel,sets up the stove to brew the sugarshot,runs the production operations, solic-its customers and is the sales manag-

er-cum-accountant. He spends a good12 hour a day of hard work for six daysof the week to earn a living and toensure he does not lose his spot on thestreet to a potential competitor.

On the seventh day he replenishesstocks and cleans. On this day, his wifehelps in the cleaning of the cloth usedas the sieve in the operations, gives awash to the equipment and refillsstocks. If she spends an hour or moreon that day on these activities and forthe rest of week is fully occupied onlytaking care of the house, she is still con-sidered to be employed.

If a surveyor asked the wife whethershe was employed, her answer wouldbe in the negative. And, it would be anhonest answer. But, the official statis-tical machinery would dig deeper anddiscover that the wife should also beconsidered as employed.

We believe that this stretches thecommon-sense understanding of theterm employment.

The tea vendor's household is not arare phenomenon in a place like India.If the Ola cabby's brother who is stilltrying to find a job gives his brother'scar a good wash every weekend, hecould be classified as an employed per-son. If the village grocer's daughter whois still studying spends an hour a weektallying stocks she could be consideredemployed. If the milkman's wife wash-es the milk cans she could be classifiedas employed.

By classifying these occasionalstints at work as employment, we couldbe overestimating the number of reallyemployed people in the country. All ofthem did work but, it is debatable thatall of them are employed.

It is easy to classify the salariedclasses as employed. For the non-salaried classes, perhaps, it makessense to classify a person as employedonly if she has worked adequately to

make her feel that she is indeedemployed. I guess such a feeling wouldemerge only if a person works suffi-ciently to contribute meaningfully tothe economic well-being of the family.It is this feeling that should be centralto counting a person as employed.

We need not be judgemental aboutthe minimum number of hours a per-son should work to be consideredemployed.

If a modern-day gig worker feels thata couple of hours of work a day is suffi-cient to feel employed, so be it. If anoth-er one feels its important to work six oreven eight hours to feel employed, whoare we to lower the bar?

There could be differences in per-ceptions of employment across gen-der, age, education and most of all,need. Culture and evolution can shapeperceptions regarding employment.These differences offer a rich insightinto the nature of employment.Incorporating these into the definitionof employment is a challenge worthpicking up. To leave the definition ata ridiculously low level is to mock theimportance of real meaningfulemployment and abandon the diver-sity in its interpretation.

CMIE's Consumer PyramidsHousehold Survey gives importance tothe perception of the respondentregarding employment/unemploy-ment status. Beginning September 1,2019, it has also started capturing twoadditional pieces of information. First,it would distinguish between work andemployment. And second, it seeks tocapture the utilisation of time. Thesetwo additional pieces of informationalong with the perceptions-basedresponses on employment could helpus unravel the nature of the perceptionof employment.

The author is the MD & CEO of CMIE

Understanding the concept of employment

B PRASANNA

MAHESH VYAS

ON THE JOB

Underestimates & overreactions

TAKETWOANALYSIS BEHIND THE HEADLINES

No to Congress and NCPThe VanchitBahujan Aghadi(VBA), whichhad queered thepitch for somecandidates ofthe Congressand theNationalist

Congress Party (NCP) in the Lok Sabhapolls in Maharashtra, on Monday ruledout an alliance with these parties forthe Assembly elections scheduled fornext month. VBA leader PrakashAmbedkar (pictured) said his party, theBharipa Bahujan Mahasangh (BBM),was open to a seat-sharing dialoguewith the All India Majlis-e-Ittehad-ul-Muslimeen, the estranged ally withwhich it had contested the Lok Sabhapolls. Talks between the AIMIM andthe VBA had hit a roadblock recentlyover seat sharing. Ambedkar said theVBA would contest all the 288 seats inthe state, and that the names of thecandidates and the alliance partnerswould be declared before September26. The BBM chief said he had offered144 seats to the Congress for nextmonth’s polls but it did not respond tothe offer. “They were calling the VBAthe B-team of the Bharatiya JanataParty (BJP). But they (Congress) weredealing with the BJP to get relief fromgovernment agencies probing cases,”Ambedkar alleged.

THE MATH BEHIND THE TAX CUTS AND REVENUE LOSS

The cause

**Set up after October 1, 2019 and manufacturing beforeMarch 2023*On the condition that companies give up tax holidaysand exemptionsTax rates in per cent inclusive of 10% surcharge and 4%cessGDP estimates for 2019-20: ~211 trillion

#Based on the assumption that govt saves the entireexpenditure on tax exemptions

The effect

Old New FM's estimate Notional savings on revenue rate rate of forgone foregone on exemptions

revenue, 2019-20 and incentives, 2018-19Corporation tax rate 35 25* ~1.45 trillion ~1.08 trillionNew manufacturing firms** 29 17 — —

Minimum Alternate Tax 22 17Impact on Savings impact

fiscal deficit 0.5 % of GDP0.7 % of GDP

Net impact of tax giveaway

0.2 % of GDP#

Why the impact of the corporation tax cut may not be as substantial on the fisc or on India Inc

Sitharaman has said she is expecting improved compliance after the taxcut and that it would help her stick to the fiscal deficit target

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

The global supply chain for goods is in a state of flux, and this is thetime for India to take advantage of it. Costs are increasing in China,for long the hub of global manufacturing, and the Sino-US trade waris disrupting existing supply arrangements. Many companies are look-

ing to set up plants elsewhere in the emerging world — and India should behigh on their list of possible destinations. So far, however, domestic risk factorsand a high-cost environment have rendered Indian manufacturing relativelyuncompetitive and locating in India is thus unattractive. But recent moves fromthe government can reverse this trend. Most notable among these is the slashingof the corporate income tax rate to 25.17 per cent for large companies, announcedlast week by Union Finance Minister Nirmala Sitharaman. What was perhapslost in the middle of the euphoria induced by this step was the fact that newmanufacturing firms will be taxed at an even lower concessional rate of 17 percent including surcharge and cess. This is a sensible attempt to induce newinvestment in the manufacturing sector.

A major tax cut of this nature for new investment should significantly alterthe return on equity for new investment. Importantly, it is also in the spirit ofthe larger corporate income tax cut, which intended to make India competitivewith peer nations in Southeast Asia. Countries such as Thailand and Vietnamhave concessional rates for new investment — which are, however, even lowerthan India’s new rates. For example, companies that move their regional operatingheadquarters to Thailand would receive corporate tax rates below 10 per cent,and their foreign employees would be taxed at only 15 per cent.

The tax cut for new manufacturing companies should be seen in thecontext of other moves to make the environment more hospitable to new invest-ment. For example, the wage code has been streamlined and some export-ori-ented sectors have been permitted more substantial use of contract labour.The government also recently provided clarity on foreign investment in contractmanufacturing, which is permitted at the 100 per cent level through the auto-matic route. The finance minister also announced in the last fortnight a packagefor exporters that would be compliant with Indian obligations at the WorldTrade Organization, and also promised that refunds of input tax credits wouldbe processed in a time-bound manner. Credit-constrained export-oriented sec-tors might also benefit from a relaxation of priority sector lending norms forbanks. The larger attempt here is clearly to create an environment that isfriendlier to those willing to expend capital on the risks that Indian manufac-turing entails. Threats to risk capital include high taxes, now being addressed,and high interest rates, which too are being lowered consistently by the ReserveBank of India, now that inflationary expectations are under control. But moreneeds to be done. Comprehensive central labour and land law reform is a long-pending demand of the manufacturing sector and cannot be evaded forever. Itis also necessary to consider the question of administrative and regulatory risk.Access to international arbitration, clear advance tax rulings, more capacity inthe judicial sector, and an independent and apolitical regulatory cadre are amust. Only then will a sustained increase in manufacturing’s share in grossdomestic product be visible.

The Supreme Court’s judgment last week bringing non-governmentalorganisations (NGOs) “substantially funded” by the government underthe Right to Information Act raises several critical questions. The two-judge Bench of Justice Deepak Gupta and Justice Aniruddha Bose

based their judgement in the case D A V College Trust and Management Societyvs Director of Public Instructions on an interpretation of “inclusive” sub-clausesdefining the categories of eligible institutions under the Act. In addition to fourcategories, one clause stated that the Act would be applicable to bodies thatwere owned, controlled, or substantially financed by the appropriate government,and not necessarily formed under the Constitution, an Act of Parliament or astate legislature, or by a notification. This definition, the judges concluded,brought NGOs funded, directly or indirectly, by the appropriate governmentsquarely within the ambit of the Act. Potentially, thousands of private trusts andinstitutions that work with government funding to varying degrees could nowbe open to public scrutiny.

In terms of the broad purpose of the RTI Act, the judgment appears unex-ceptionable. If public money is being expended on a private initiative, thetaxpayer has the right to know how it is being spent. This is relevant in the caseof hospitals and educational institutions for which governments extend landgrants and related subsidies. Most of this aid typically comes with conditionsattached, such as reserving a certain percentage of beds/seats for the poor. Therehas long been a suspicion that the mushrooming “five-star” hospitals and edu-cational facilities in 21st century India, built on government land and tax breaks,observe these conditions more in the breach. The Supreme Court’s latest judgmentwould bring them under public scrutiny.

The attractions of such transparency must be weighed against the ambiguityon the key definition of “substantially funded”. In 2015, the Central InformationCommission had defined substantial funding thus: If a body receives ~5 lakhfrom the government and if this amounts to 10 per cent of the annual income ofthe NGO concerned. Though this ruling has the virtue of specificity, it appearsto set the threshold rather low. The Supreme Court in its September 17 rulingstated the term “substantial” meant “a large portion”. It added that “[i]t does notnecessarily have to mean a major portion or more than 50 per cent. No hard andfast rule can be laid down in this regard”. The issue had to be determined on“the facts of each case”. The judgment has offered some guiding examples — forinstance, if the grant amount is small (say, ~5,000) or whether the NGO concernedcan function without it and so on. But this still leaves the door wide open forinterpretation and adds to NGO costs in terms of lawyers’ fees. As it is, NGOsthat receive government funding are required to appoint information officers toservice RTI requests, which is likely to put disproportionate pressure on smallerNGOs rather than the bigger, well-funded ones. The government would do wellto include a specific definition of “substantial funding” in the RTI Act so thatthe overburdened courts are not loaded with more cases on this count.

Volume XXIV Number 29

MUMBAI | TUESDAY, 24 SEPTEMBER 2019

The finance minister surprised almost everyoneon Friday with her announcements on corpo-rate taxation. The government has taken the

decisive step of reducing tax rates by 10 percentagepoints to 25 per cent for all domestic companies. Fornew manufacturing investments, companies can availof a tax rate of 17 per cent, provided the new assetsbecome operational by March 31, 2023. There weresome other less significant changes for share buybackprogramme that was announced earlier, as well as forthe removal of surcharge on capital gains on buyingand selling of equities. The total cost of these taxbreaks was estimated to be ~1.45 tril-lion. The magnitude and speed of cor-porate tax relief is unprecedented forIndia. Overnight, we are now compa-rable to most countries in Asia. Thiswas clearly an unexpected move, andmarkets rejoiced by promptly risingover 5 per cent on Friday. On furtherreflection, it becomes clear that thisis a major policy move. Investors haveto think through the long term impact— and it is not just the rise in corpo-rate earnings. Here are some of mytakeaways.

1. The government has finally moved past the “suit,boot ki Sarkar ” jibe of the Congress. It is no longerscared of being seen to be wooing businesses. Money-making, if done ethically, is to be celebrated and notvilified. This is a big step in correcting the perceptionthat the government had moved too far to the leftand was not pro-business. 

This tax break is targeted at corporate India, andimproving corporate confidence. The governmentrecognised that there was risk aversion among corpo-rate leaders. The decision to decriminalise certainoffences in the companies Act is another step in this

direction. No amount of reduction in interest rateswill catalyse investments if business leaders lack belief. 

India will become a more attractive destination toset up and run a business as a result of these steps.Instead of giving a relief in GST rates, which wouldhave given a boost to consumption, the finance ministerhas improved the earnings and cash flows of corporateIndia, hoping that these companies will gain confidenceand, in turn, hire and invest. While more needs to bedone to ease the hassles of running a business in India,this is a massive step. Tax rates can no longer be thereason to not invest in India. Corporate India must now

stop complaining and instead stepforward and bet on the economyand growth normalising. The timefor cynicism and doubts about thegovernment having any interest incorporate India must end.Companies will hopefully use thiswindfall to make investments forthe future, be it in people, pricing,technology, brand building or plantand machinery. Ultimately, domes-tic investments must drive our econ-omy; foreign direct investments canonly be the icing on the cake.

2. This is a huge bet on growth. We will miss thefiscal targets for this year for sure, but even going for-ward, the only way this step makes sense for the gov-ernment is if growth comes back strongly. PrimeMinister Narendra Modi needs funds for his socialprogrammes. With these new tax rates, unless growthaccelerates strongly, he will not get the revenues heneeds to fund these social schemes. These tax cutsshould put to rest any doubt about whether the gov-ernment cares about economic growth. Everyone isnow aligned on one thing: Rapid economic growth isa necessity. Better still both the fiscal and monetary

authorities are finally on the same page.3. The bears worry about the fiscal deficit. It is

true we may see a fiscal deficit of 3.7-3.8 per cent ofGDP this year. However, as an equity investor I canlive with that if growth strengthens and earningsaccelerate. I would prefer a higher fiscal deficit withstronger GDP and earnings growth and a little high-er inflation, than an obsession with 3.3 per cent(fiscal deficit), with no inflation and weak growth.The fiscal overshoot will also put pressure on thegovernment to monetise assets faster and morestrategically. Strategic divestments will come backon the table. They may be far more aggressive thananyone now thinks. We may see a faster roll out ofdirect benefit transfer, in the area of food and fer-tiliser subsidies, as pressure to optimise expendituregains ground. The fiscal constraints this step impos-es will encourage more reform. 

4. We should see an 8-10 per cent rise in profitsafter tax for the listed corporate sector. The initialbenefits may be lower as some companies will notmove to the new regime and others will have to markdown deferred tax assets. More importantly, the newtax regime will raise the normalised return on equityand free cash flow metrics for corporate India. Thebenefits are for perpetuity and should therefore raisethe theoretical multiple for the market. 

5. These steps only further strengthen the ongoingconsolidation in corporate India. The strong will geteven more powerful and the weak will fade away.After all, the biggest beneficiaries of these steps arethe companies which pay the highest absoluteamounts and highest rates of tax. Weak companies,which are not profitable, get no benefit at all. In indus-try after industry the weaker players with weak gov-ernance or stretched balance sheets are being sweptaway, creating space for market share gains for thebetter run companies. The clean up of corporate Indiawill only accelerate post these cuts.

6. In the short term, the economy will remain weak.Q2 earnings will be horrible; consumption demandwill take time to recover; the NBFC crisis is not over;you will see no immediate pickup in investments;jobs growth will remain weak. People will argue thatthis is a blunt stimulus measure, it would have beenbetter to cut income taxes or GST. Others will arguethat companies will just sit on the gains. 

However, sentiment has turned in my opinion.So have markets, as they lead the economic cycle.The government has shown that it will listen, andthat the economy and corporate India matter. Thelurch to the left in economic policy-making has beenarrested. It has also shown that the government hasthe willingness to make big bets even in the eco-nomic sphere. Investors thought that monetary pol-icy was the only lever the government had at its dis-posal to revive the economy. We were wrong. Noone expected a stimulus of this magnitude. We nowhave both the fiscal and monetary levers beingpulled simultaneously. Over the next 18 months,expect both GDP and corporate profits to accelerate.We may have hit bottom in both.

The writer is with Amansa Capital

Big bang stepsWith fiscal and monetary levers being pulled simultaneously,expect economic growth and corporate profit to accelerate

Yesterday, the United Nations Secretary-Generalconvened a climate action summit urgingworld leaders to increase ambitions to ensure

net zero emissions by 2050. India co-chaired theindustry transition track with Sweden. India aims tobecome a $5 trillion economy by 2024. Manufacturingshare of GDP reached an all-time high in 1995 (18 percent). When China was at our current size in 2006,manufacturing contributed a third of its GDP.Manufacturing is also responsible for a quarter ofIndia’s greenhouse gas emissions, rising to more thana third by 2040.

Can Indian manufacturing remain competitive,add to national income and create jobs, despite envi-ronmental constraints imposing hard choices on pat-terns of industrial development?

Four industries — iron and steel,cement, ammonia, and petrochemi-cals — contribute 27 per cent of indus-trial value, 23 per cent of formal sectormanufacturing jobs but a whoppingthree-quarters of emissions. Evenbest-in-class energy efficiency will notkeep the planet within the carbonbudget consistent with limiting tem-perature rise to under 2°C by 2100. Inorder to retain or gain an edge, Indiamust consider emerging technologies.

Iron and steel (32 per cent of emis-sions) will witness three-fold increasein production capacity by 2030. Mostplants today use blast furnace tech-nology. Lack of high-grade coking coalhas forced firms to increasingly rely on imports. Someplants have shifted to direct reduced iron technology,which uses locally available low-grade non-cokingcoal, but input costs are very high. Average emissionsintensity of steel production in India is twice theglobal level.

Alternatives are under development. TATA Steel’splant in Ijmuiden, Netherlands, has successfullypiloted the Hlsarna process, with half the carbonintensity of its Jamshedpur plant. But this approachwould increase import dependency of low-ash non-coking coal. The Circored process uses natural gasto produce hydrogen and substitute for coal.Swapping the steam methane reformer with an elec-trolyser, which uses renewable electricity to producehydrogen, eliminates emissions.

Today, green hydrogen-based steel is 20-30 percent costlier but could become competitive in Indiawith a carbon tax of $40 per tonne of C02. It couldmeet strong domestic demand and provide for 4 mil-lion direct jobs by 2050, creating another 1.6 millionjobs along the hydrogen supply chain.

Cement production adds 30 per cent of manu-facturing emissions. With growing demand, lime-stone imports have increased 18-fold since 2000.Reducing clinker slows down import dependencyfor high-grade limestone and reduces emissions.But clinker substitution has reduced emissionsintensity by only 5 per cent since 2010. Averageclinker factor of Indian cement still remains at 0.71(global average: 0.66).

In collaboration with EPFL(Switzerland), researchers from var-ious IITs are piloting and testingLimestone Calcined Clay Cement(LC3). Early results indicate thatLC3 can be as strong as Portlandcements while replacing half theclinker and using low-grade lime-stone abundantly available in India.A transition towards low-carboncement could support 540,000 jobsin 2050.

Ammonia, primarily used tomake urea, is critical to food secu-rity. Despite being the world’s sec-ond largest urea producer, India’s

urea imports have grown 30-foldsince 2000. Globally, energy need-

ed to manufacture a tonne of ammonia has droppedtwo-thirds but Indian plants have lower energy effi-ciency.

One alternative is to use syngas from coal and coal-bed methane. India’s first coal gasification project toproduce urea is under construction in Odisha.Another CBM-based urea plant in West Bengal willstart commercial production by end-2019.

Other attempts, in Oxford and Fukushima, areaiming for zero-carbon ammonia, by combiningrenewables-derived hydrogen with nitrogen cap-tured from air. A seven-fold drop in electrolysercosts and cheaper renewable electricity have nudgedAustralia, France, Japan, the Netherlands, Norway,Singapore and South Korea to announce plans for ahydrogen economy.

Green ammonia would reduce India’s dependenceon natural gas, freeing it up for other sectors. By 2050,about 200,000 jobs could be created along the hydro-gen supply chain replacing 20,000 jobs in the naturalgas supply chain.

India has built huge petrochemicals refiningcapacity. Since 2000, imports dropped from 39,300tonnes to just 24. The thermal energy needed tocrack crude is responsible for maximum emis-sions. Today’s steam cracking furnaces are oper-ating at peak efficiency. Reliance Industries’Refinery Off-Gas Cracker facility (the world’slargest) uses refinery gases (and gasified petcoke)as feedstock, making it the most energy efficientproducer in the world.

But India still remains import dependent for oilfeedstock. An alternative is green methanol.Renewables-derived hydrogen and CO2 capturedfrom air produces syngas, feeding green methanolproduction with zero carbon emissions. CEEW andthe International Energy Agency find that by 2030green methanol could be cheaper than using naturalgas and coal-based processes in India, reducing bothimport dependency and emissions footprint. It couldcreate an additional 160,000 jobs along the hydrogensupply chain.

Green steel, low-carbon cement, green ammoniaand green methanol for petrochemicals promise loweremissions, lower imports and more jobs, while helpingIndia respond to technological shifts. Dedicatedefforts are needed to reduce costs and increase adop-tion: R&D and innovation partnerships; regulatorynudges by making clean energy more affordable andby taxing environmental externalities; and creatinga domestic market for green products and processes(with financial incentives, consumer awareness andleveraging supply chains).

India could reap benefits from new approachesto heavy industrial manufacturing. Or it could gettrapped in older technologies and fuel dependence.Big bets on the essential trinity of growth, jobs andsustainability are needed urgently.

Ghosh is CEO and Biswas is Programme Lead, Council onEnergy, Environment and Water (http://ceew.in). Theirlatest paper (with Karthik Ganesan),SustainableManufacturing for India’s Low-carbon Transition, isavailable here:http://bit.ly/2m6IZZW.Follow@GhoshArunabha@CEEWIndia@tirtha_biswas

This is the book that spawnednumerous political theories,including conspiratorial, after its

New Delhi launch last month. One of thespeakers, former Union minister JairamRamesh, made remarks interpreted byinstantaneous analysts as soft on PrimeMinister Narendra Modi. He remarked itwas time “we recognise Modi’s work andwhat he did between 2014 and 2019 dueto which he was voted back to power byover 30 per cent of the electorate.”Abhishek Manu Singhvi picked up the cueand tweeted: “Always said demonising

#Modi wrong. Not only is he #PM ofnation, a one-way opposition actuallyhelps him...”. The “final” evidence ofsenior national-level Congress leaders lin-ing up at Mr Modi’s altar was ShashiTharoor’s I-have-already-said-it state-ment: “I have argued for six years nowthat Narendra Modi should be praisedwhenever he says or does the right thing,which would add credibility to our criti-cisms whenever he errs....”

Undoubtedly, provocation for MrRamesh’s peppery remark was the bookthat gives away the author’s political ori-entation or perspective on the subject byincluding “malevolent” and “New India”in its title. Mr Ramesh was possibly statingthat this book, written before the May 2019Lok Sabha verdict, makes little effort tounderstand what makes Mr Modi tickdespite his obvious divisiveness and thepolitics of malevolence he pursues inces-santly. This limits the reach of the book,since it is likely to be picked up by the

converted, or those outside the dominantfold of the times.

As the three Congress veterans’ remark,not all of them in the context of the book,there must be something that Mr Modi isdoing correctly for him to increase his voteshare by six percentage points between2014 and 2019. This, however, is not thesubject of the author’s scrutiny as he writeswhile explaining what made him take upthis project: The London publisher invitedhim to lunch and asked if he would write abook on Modi’s India, or India after theprime minister assumed office in 2014. MrKomireddi labels Modi as the “worsthuman being ever elected prime minister.”

The author is enormously angry. Theconcluding chapter, Coda, opens with aNissim Ezekiel poem: “When, finally, wereached the place; We hardly knew why wewere there. The trip had darkened everyface; Our deeds were neither great norrare...”. When elections were held this pastsummer, Indians already had “more than

a glimpse of the New India he [Mr Modi]has spawned. It is a reflection of its pro-genitor: culturally arid, intellectuallyvacant, emotionally bruised, vain, bitter,boastful, permanently aggrieved andimplacably malevolent: A make-believeland full of fudge and fakery; where sav-agery against religious minorities is amongtherapeutic options available to a self-pity-ing majority frustrated by Modi’s failure toupgrade its standard of living.”

The diagnosis is clinical and in prosethat is hard to put down — in fact, the bookbegan with a narrative located in the 1980s,when the dream of secular and inclusiveIndia was beginning to sour, and written ina style that makes it one of the most fasci-nating non-fiction books this writer hasread. As the last pages stacked up on theleft of the book’s hinge, realisation set inthat here was a writer who had matched MrModi rant for rant, the difference being thatthe spoken word was replaced by the writ-ten. Yet, there was no escaping the sadness

at the book not turning out as one expectedit to be. Not a very small measure of thiswas contributed by the author’s confessionthat the section on Murad, escapades withwhom in the 1980s set the foundation ofwhat Old India, as a juxtaposition to theNew India, may have been, was “slightlyfictionalised to conceal identities”.

Style apart and Mr Komireddi’s refusalto probe the reasons for Mr Modi’s ever-increasing stranglehold on the electoratedespite escalating anger and fear of his ilk,the book is extremely valuable for peoplewho have been spared the lives of wormsin Mr Modi’s New India. This book was con-ceived over a London lunch chiefly for peo-ple who may have flipped through head-lines detailing the latest horrific incidentfrom India, but were unaware of the entirecanvas of hate-spewing ideology and kan-garoo courts engulfing India since 2014. Theauthor lays bare multiple facets of this NewIndia where an individual has become theparty, the party has become the governmentand the government has become the nation,and how criticising one of them means cas-tigating all.

Kudos to the author for seeing Mr

Modi’s emergence as part of a politicalprocess that began in an earlier era.Almost one third of book, part one for-mally, can be considered a narrative onthe pre-history of Mr Modi’s India andcan be encapsulated in one oft-repeatedquote of a certain Dev Kant Barooah:“India is Indira, Indira is India.” Fast for-ward to party leaders attempting to out-pace rivals by statements eulogising MrModi and likening him to historical heroesof the Shivaji variety or terming him the“second Mahatma”. When the regime’smalevolence is incessant, it is often taxingto recollect details. This is where this bookserves an important purpose. It is a readyreckoner on what is now past.

The writer is a journalist. His latest book is RSS:Icons of the Indian Right. He has also writtenNarendra Modi: The Man, The Times (2013)

Big bets for heavy (green) industries

A ready reckoner of Modi’s India 1.0

BOOK REVIEWNILANJAN MUKHOPADHYAY

MALEVOLENT REPUBLIC: A ShortHistory of The New IndiaKS Komireddi

Westland Books, 228 pages, ~599

Govt must follow up tax cuts with administrative reform

Hope for manufacturing

ILLUSTRATION: AJAY MOHANTY

Substantial ambiguityA broader RTI Act needs sharper definitions

INFLEXION POINTSARUNABHA GHOSH &TIRTHA BISWAS

AKASH PRAKASH

JASH KRIPLANI & JOYDEEP GHOSHMumbai/New Delhi, 23 September

Catalyst Trusteeship, actingon behalf of one or a fewdebenture holders, sold ~204crore worth of ZeeEntertainment’s shares in abulk deal on Monday. Zeeshares were placed as collat-eral with various mutual funds(MFs) and lenders, which hadtaken loan-against-share (LAS)exposure to Essel Group firms.

On Monday, shares of ZeeEntertainment corrected 9.6per cent amid talks of one ofthe lenders invoking thepledged shares and sellingthose in the market.However, it couldn’t beascertained which lenderinitiated this share sale, orif there were more than onelender involved.

According to marketsources, SBI Mutual Fund wasthe major seller in the marketalong with a few other funds,which pruned their respectiveexposure. SBI MF didn’t offi-cially confirm the transaction.As of March-end, SBI MF hadexposure of around ~368 croreof debt exposures to Esselgroup firms. Responding to ane-mailed query, a companyspokesperson said: “EsselGroup confirms that thelenders who had not agreed togrant the extension have exit-ed by selling the pledgedshares of Zee Entertainment.The other lenders, who valuethe assets, have in-principallyagreed to grant more time tothe Group.”

The share sale comes at atime when Essel Group is try-ing to get an extension frommutual funds (MFs) and otherlenders to clear its dues. InFebruary, promoters of EsselGroup firms had reached a‘standstill’ agreement withMFs and other lenders to clearits dues by September 30.

Earlier this month, pro-ceeds from promoters’ stakesale in Zee Entertainmentwere transferred to MFs andlenders. This transaction set-tled half the dues of most of

the creditors. Over the last onemonth, the stock of ZeeEntertainment has corrected17.4 per cent. This sharp cor-rection in shares would havealso weighed on the equitycover that was offered againstthese loans. Essel Group hasbeen seeking an extensionfrom MFs and other lendersfor its debt repayment beyondthe September 30 deadline.Earlier, MFs and other lendershad entered into a ‘standstill’agreement with Essel Groupwhere the former wouldn’t sellthe pledged shares of promot-ers to recover dues.

The promoters were giventime till September 30 to clearthe outstanding dues. It wasexpected that most lenderswould give an extension toEssel Group.

According to people in theknow, Subhash Chandra,chairman of Essel Group, wasalso going to make a represen-tation to Finance MinisterNirmala Sitharaman to assureof the Group’s debt repaymentplans.Overall, the MF industryhad ~5,000 crore–~6,000 croreof debt exposure to EsselGroup firms.

Exchange disclosuresshowed that as of the Junequarter, 64 per cent of the pro-moter holdings in ZeeEntertainment were pledged.

MUMBAI | TUESDAY, 24 SEPTEMBER 2019 InvestorWWW.SMARTINVESTOR.IN FOR INFORMED DECISION MAKING <

The Smart

Cement: Significant upside hinges on demand revivalVolumes as wellas price need to gather pace

UJJVAL JAUHARI

The cut in corporation tax rates is givingsome respite from the weak sentimentthat prevailed towards cement compa-nies. The stocks of UltraTech Cement,Shree Cement, ACC, and AmbujaCements have gained 12-15 per cent inthe last two trading sessions, given thatmost of them paid tax at the rate of over30 per cent in FY19.

Analysts say the benefits of the ratecut may flow to the bottom line of thesecompanies, or they can utilise the sav-ings towards funding expansions todrive future growth. However, the keyis a recovery in cement demand andprices.

The welcome relief comes at a timewhen demand remains unsupportive.Cement prices have continued trendingdown month-on-month since the startof the year as demand remained elusive.

While the general election affectedcement companies during the April-June period, monsoon kept demandsoft in the September quarter. Not sur-prising, stock prices of the above men-tioned large players, too, had correctedup to 20 per cent till Thursday from theirMay-June highs. A few days ago, CreditSuisse, too, had downgraded manycement stocks as the foreign researchhouse said that demand weaknesswould drive downside.

Among the reasons for muteddemand growth is slowing publicexpenditure in marquee sectors likeroads and railway, and it will take timeto attract private investment, say ana-lysts. Further, there are risks of the gov-ernment curtailing spending to limitthe fiscal impact.

The urban housing demand is stillweak, with huge inventory awaiting liq-uidation. In this backdrop, demand

growth estimates, too, are tweaked byanalysts. Credit Suisse expects 4-5 percent price growth and nil demandgrowth in FY20.

Though the move to cut taxes canpush the weak industrial investmentactivity, it needs to be watched for. TheStreet will also keep an eye out on ruraldemand recovery and further push fromaffordable housing schemes.

Analysts, however, say any demandrecovery can happen after the festive sea-son, which impacts labour availability,and thus demand recovery still may besome time away. Sanjeev Kumar Singhat Emkay Global feels demand recoveryholds the key now for any earningupgrade. Meanwhile, among stocks,UltraTech being a pan-Indian player withexpanded capacities stands to gain themost from any demand recovery andthus, is among top picks of most analystspost the corporation tax rate cut.

Double tax relief gives more room for hotel industry growthLower GST to pushoccupancy; cut incorporation tax toaid earnings

SHREEPAD S AUTE

Apart from the gains fromthe reduced corporate taxrates announced last Friday,the hotel sector is blessedwith lower goods and ser-vices tax rates. With a 2.8 percent rise in the BSE Sensex,the stocks of most of thehotel players gained 7-20 percent on Monday. And, ana-lysts see more gains aheadfor hotel companies.

The GST Council slashedGST for hotel accommoda-tion with tariffs of up to~7,500 per night to 12 per centfrom 18 per cent, and onroom tariff of above ~7,500 to18 per cent from 28 per cent.There will be no GST onroom tariffs of below ~1,000.

According to Archana

Gude, analyst at IDBICapital, “With lower GSTrates, room rates will nowbecome cheaper. This wouldpush occupancy level andso the overall average roomrates of hotels.”

The expected uptick inthe occupancy rate augerswell in terms of pricing forthe hotel sector, which isalready seeing a favourabledemand-supply scenario.While demand for hotelrooms is rising by 5-6 percent, room inventory isincreasing by less than 4 percent, according to analysts’estimates.

Though there is scepti-cism over any immediatejump in occupancy, given theoverall consumptiondemand pressure, lowering

GST just before the start ofthe peak season should helphotels fare better, say ana-lysts. October-March is a sea-sonally strong period for thehotel sector due to holidaysand festive seasons. Furtherdemand for the organisedhotel sector, though notimmediately, would comefrom a likely market sharegain away from the unorgan-ised players because of lowerGST rates.

With the new GST rates,the tax gap between luxuryand mid-segment hotels hasnarrowed, and this shouldhelp customers shift tohigher-scale rooms/hotels,boosting their operatingprofitability.

Besides, “lower corporatetax rate is expected to

improve corporate travellers,”says Sanjay Sethi, MD & CEOof Chalet Hotels. Analysts atMotilal Oswal echoed theview. The corporate segmenthas a large share of the hotel’srevenue pie.

Further, as is the casewith many othersectors/companies, the gapbetween the existing corpo-ration tax rate for hotels andthe revised rate itself haswarranted upgrades in earn-ings estimates. According toFY19 numbers, most of thelisted hotel majors face effec-tive tax rates of over 33 percent, as against the new rateof 25.17 per cent.

Overall, the improvedgrowth potential for hotelsshould help improve investorsentiment.

THE COMPASS

“Fundamentals will alwayslook worst at the beginningof any bull market. That'swhy participation is so lowduring this stage in whichlarge gains are made.”GAUTAM BAID, Author, Portfolio Manager

India Inc earningsestimates rise 10%

Investor wealth zooms by~10.35 trillion in two days

Zee falls 10%on MF sale

PRESS TRUST OF INDIANew Delhi, 23 September

Investor wealth soared for the sec-ond consecutive session onMonday, rising by ~10.35 trillionin two sessions, as market senti-ment remained euphoric after ahost of measures were announcedto boost the sagging economy.

Led by the gains in the equitymarket, the market capitalisation(m-cap) of BSE-listed firms roseby ~10.35 trillion to ~ 148.8 trillionin two trading sessions. The m-cap of BSE-listed companies was~138.54 trillion on Thursday. Themarkets are on the rise sinceFinance Minister NirmalaSitharaman delivered a surprisecut in corporate tax rates.

The announcements were

made during trading hours onFriday and they sent the marketssoaring. On Friday, the Sensexlogged its biggest single-day jumpin over a decade bysurging 1,921.15 points,or 5.32 per cent.

“The Indian bench-mark indices startedthe expiry week on astrong note, buoyed byimproved domesticsentiment post a slewof measures by the gov-ernment last week. The marketsregistered a second straight ses-sion of healthy gains, despiteunsupportive global cues,” saidAjit Mishra, vice president,research, Religare Broking.

The government slashed thebase corporation tax for existing

companies to 22 per cent from 30per cent, and for new manufac-turing firms incorporated afterOctober 1, 2019, to 15 per cent

from 25 per cent.From the 30-share

components, 16 scripsclosed the day withgains, led by BajajFinance, L&T, AsianPaints, ITC, Axis Bank,Kotak Bank, ICICIBank, IndusInd Bank,HDFC twins, Maruti,

and SBI, rallying up to 8.70 per cent.

In the broader market, theBSE midcap and smallcap indicesrallied up to 3.08 per cent.

On the BSE, 1,638 scripsadvanced, while 972 declined and184 remained unchanged.

BLOOMBERGMumbai, 23 September

India’s key stock gauges’ earnings esti-mates have been raised by as much as 10per cent by analysts after FinanceMinister Nirmala Sitharaman delivereda $20 billion tax break in her latestattempt to boost economic growth froma six-year low.

The surprise reduction in corporationtax drove a 5.3 per cent surge in the S&PBSE Sensex Index to 38,014 on Friday, itsbiggest gain since May 2009. The govern-ment’s move may improve earnings, mar-gins and help initiate capacity expansionbefore a potential improvement in con-sumer demand in the festival season start-ing next month, according to analysts andfund managers. The Nifty 50 also climbed5.3 per cent Friday, to 11,274.2.

“Consensus for EPS impact purely onaccount of the tax change is 7-10 per cent”

analysts at Axis Mutual Fund wrote in anote last week.

“A demand recovery during theupcoming festival season will furtherimprove corporate earnings over the nextfew quarters,” the note added.

ANALYSTSPEAK

PUNEET WADHWANew Delhi, 23 September

Reduction in the corporation taxrate has made foreign investorssit up and take notice. While

most brokerages have revised their cal-endar and financial year-end targetsfor the frontline benchmarks, foreigninvestors, too, have started to rejig theirequity exposure.

While Nomura, Morgan Stanley,and Goldman Sachs have revised theirindex targets upwards, ChristopherWood, global head of equity strategyat Jefferies, has boosted his exposureto Indian equities by 3 percentagepoints following the government’sannouncement to slash the corpora-tion tax rate to an effective 25.2 percent from the earlier 35 per cent.

The move, Wood wrote in GREED& fear (his note to investors), cameas a surprise and showed the benefitsof one political party dominatingParliament. It also underscored thatthe Narendra Modi government wasfinally responding in earnest to theextreme slowdown in growth inrecent months.

“GREED & fear advises equityinvestors to celebrate tax cuts nowand leave worrywarts to worry aboutfiscal deterioration. GREED & fear

will, accordingly, raise the weight-ing in India by 3 percentage pointsin the Asia Pacific ex-Japan relative-return portfolio and reduce it inIndonesia by 2 percentage points,and take 1 percentage point fromChina,” Wood wrote.

In August 2019, he had trimmedhis exposure to India by 1 percentagepoint amid fading hopes of a stimulusby the government, sub-par corporateearnings, and the sudden focus onJammu & Kashmir.

On the hand, Nomura has revisedits Nifty50 target for March 2020 to12,545 on the back of a potential 7 percent earnings increase in FY20/21. Thistranslates into a gain of around 9 percent from the current levels. However,it does caution against the sharp jumpin the markets witnessed after theannouncement on Friday.

“We see limited scope for valua-tion expansion, and the stock pricerally after the tax cut announcementhas already factored in the potential

earnings impact,” wrote SaionMukherjee, managing director andhead of India equity research atNomura, in a recent co-authoredreport with Neelotpal Sahu.

Analysts at Goldman Sachs andUBS have also recast their target levelsfor the frontline indices. While thoseat Goldman Sachs have revised their12-month Nifty50 target to 13,200 from12,500 earlier, UBS has upped its June2020 base-case for the Nifty50 to12,300 from 11,100 earlier, with

upside/downside scenarios of13,300/10,300.

“With recent growth-supportiveannouncements, the boost to corporateearnings (from an already region-highforecast) and likely better sentiment,the positive investment case on India(relative to the rest of the region) hasstrengthened further. We continue tolike domestic cyclical sectors like banks(both private and public sector), indus-trials and autos, which are best-posi-tioned for a cyclical upturn,” GoldmanSachs' analysts wrote in a report.

Ridham Desai, India equity strate-gist at Morgan Stanley, shared a similarview and raised his June 2020 S&P BSESensex target to 45,000 from 40,000earlier. Rate cuts, privatisation, FPI lim-it increase, sovereign bond issue, andthe forthcoming growth prints are thekey triggers in Morgan Stanley’s viewto drive the markets hereon.

“We now raise our FY2021 earningsgrowth estimate from 20 per cent to 23per cent. We expect India's earningsgrowth revisions, in terms of bothdepth and breadth, to turn sharply pos-itive after almost nine years of down-grades,” Desai wrote in a recent co-authored report with Sheela Rathi.

As an investment strategy, Nomurahas increased its overweight stance onfinancials, which they believe, will bedriven by the potential positive impacton earnings and return on equity (RoE)that should drive up the valuation mul-tiples going ahead. Healthcare, utili-ties, and infrastructure & constructionare the other sectors Nomura is overweight on.

Foreign brokerages raise index targetsAll figures in %

MCSI AC Asia Pacific ex-Japan weight *

China 31.3

Australia 17.3

South Korea 11.8

Taiwan 10.9

Hong Kong 8.8

India 8.3

Singapore 3.1

Thailand 2.8

Indonesia 2.0

Malaysia 2.0

Philippines 1.0

New Zealand 0.6

Pakistan 0.03* September 20, 2019Source: GREED & fear, Woods weekly note toinvestors

CHRIS WOOD’S EXPOSUREILLUSTRATION: AJAY MOHANTYNomura, Goldman Sachs and UBS

revise Nifty’s 12-month targetsupward to 12,300-13,200

LLPs may lose sheen asnew tax rates kick in ASHLEY COUTINHOMumbai, 23 September

Limited liability partnerships(LLPs) may lose their sheen asthe tax differential vis-a-viscompanies has widened fol-lowing the decision to slashcorporation tax rates.

The basic tax rate for com-panies has been reduced to 22per cent from 30 per cent ear-lier, and that for new domesticmanufacturing companies hasbeen cut to 15 per cent. Theeffective tax rates for these enti-ties, including surcharge andcess, is 25.17 per cent and 17.16per cent, respectively. LLPs, onthe other hand, are taxed at 30per cent, with an effective taxrate of nearly 35 per cent.

Experts believe that thosesetting up manufacturing com-panies can opt for the companystructure, as the tax rate of 17.16per cent is attractive as againstthat for LLPs. For other firms,the decision to opt for a com-pany or LLP structure willdepend on whether the profitsare more likely to be ploughedback into the business or givento shareholders as dividends.

“The tax changesannounced by the finance min-ister reduce the tax arbitragebetween a company and anLLP, and will compel new busi-nesses to look at legal entityoptions carefully,” said TejasDesai, partner, EY India.

“LLPs may have lost someof their lustre but the fact thatno dividend distribution tax ispayable by LLPs may still holdsome attraction for investors,especially those focused onsectors other than manufactur-ing. Dividend tax is still a hugecost when it comes to profitextraction, and India’s peers inSoutheast Asia score on the tax

efficacy front,” said AbhaySharma, partner, ShardulAmarchand Mangaldas & Co.

For companies, the effec-tive rate of dividend distribu-tion tax (DDT) works out to be20.56 per cent. DDT is to bepaid within 14 days of decla-ration, distribution or paymentof dividend, whichever is ear-lier. On non-payment, interestat the rate of 1 per cent of theDDT amount is charged untilit is paid to the government.

“If reinvestment is a goal,LLP is not an attractive option.But in the present environ-ment, many clients would stillprefer to have the flexibility towithdraw profits without beingliable to pay DDT. There is agrowing trend ofentrepreneurs wanting to de-risk from business, too. Someof these would still opt for thepartnership option,” saidGirish Vanvari, founder,Transaction Square.

The ministry of corporateaffairs in March had come outwith a circular, barring entities

engaged in manufacturingfrom adopting the LLP struc-tures, reportedly creatinguncertainty for over 10,000such LLPs. It said LLPs as bodycorporates had been set up forcarrying out activities relatedto the service sector, not man-ufacturing. But, the circularwas withdrawn in April, fol-lowing concerns among mar-ket players over its applicabil-ity and impact.

Promoters’ dilemma The higher tax rates for indi-viduals vis-à-vis companiesmay also prompt promoters ofcompanies to plough back themoney in their companies.

“Reduced tax rates forcompanies and correspond-ing increased tax rates for thesuper-rich will encourage pro-moters to retain funds at thecompany level as againstdeclaring dividends orextracting cash by way ofsalaries,” said Bhavin Shah,leader – financial services tax,PwC India.

QUICK TAKE: LIMITED UPSIDE IN VOLTAS The stock of Voltas is up 7 per cent in the past threesessions, ahead of the festival season. Despite therecent economic slowdown, the demand for roomair conditioners has been steady. At current levels,however, positives seem priced in the stock, givenanalysts’ average one-year target price of ~642

Subhash Chandra, chairman,Essel Group, is expected tomake a representation to the finance minister

nThe Nifty’s 1-year forward consensusearnings estimate for FY20 could riseby 7%, says Bank of America

nCitigroup said that the cut in thecorporate tax rate could increaseearnings of companies undercoverage by as much as 8-9% from FY20

nBanking and consumer stocks likelyto grow at CAGR of 48.2% and 18%,respectively, said ICICI Securities

Source: Bloomberg

OPTING FOR EXITnEssel group was seeking

extension from lenders

nCurrent 'standstill'agreement wasexpiring on Sept 30

nPart of dues werecleared earlier inSeptember

nZee shares down over17% in one month

TAX RATES FOR VARIOUS ENTITIESCompany Manufacturing LLP Individuals

company Corporate tax 22 15 30 30Surcharge 10 10 12 37Cess 4 4 4 4Effective tax rate 25.17 17.16 34.94 42.74Dividend 20.56 20.56 — —distribution tax*

ON PROFIT OF ~100Tax 25.17 17.16 34.94 42.74PAT 74.83 82.84 65.06 57.26DDT 15.39 17.03Income 59.44 65.81 65.06 57.26*Figures in %; NB: Additional 10 per cent tax levied for non-corporateshareholders Source: Industry

The m-cap ofBSE-listedfirms rose to ~148.8trillion intwo trading sessions

SBI Mutual Fundmay have exited,other fundhouses pruneexposure

MUMBAI | TUESDAY, 24 SEPTEMBER 2019 THE SMART INVESTOR 11. <

COMMODITIES1>

Targetprices, projected movements in terms ofnext session,unless otherwise stated

> TODAY’S PICKS BY DEVANGSHU DATTA

NiftyCurrent: 11,603 (fut: 11,601)Target: NA

Stop-long positions at 11,500. Stop-short positions at 11,700. Big movescould go till 11,750, 11450. Profit booking possible today. A long 11,500p (55),short 11,400p (35) could pay 15-20 if the index reacts before Thursday.

Bank NiftyCurrent: 30,548 (fut: 30,590)Target: NA

Stop long positions at 30,450. Stop short positions at 30,750. Bigmoves could go till 31,000, 30,200. May be a session of profit-bookingtoday but trend remains positive.

BPCL Current: ~451Target: ~440

Keep a stop at ~456 and go short. Add to the position between ~445-~447. Book profits at ~440.

Cipla Current: ~449Target: ~440

Keep a stop at ~453 and go short. Add to the position between ~442-~444. Book profits at ~440.

Infy Current: ~764Target: ~780

Keep a stop at ~758 and go long. Add to the position between ~773-~776. Book profits at ~780.

SANJAYKUMAR SINGH

The Nifty’s sharp turnaround — rising895 points or 8.4 per cent — over thelast two trading days (Friday andMonday) has suddenly changed the nar-rative for stock marketinvestors. Only a week ago,many were celebrating fundhouses that were sitting onhigh cash to protect investorsfrom losing more money.

Due to the sharp movementin a very short time, any equityfund manager who had goneheavily into cash to protecthimself against the marketdownturn would have missedout on these returns. These events raisethe question whether investors shouldinvest in funds that take high cash calls.

Most funds maintain an exposure of1-5 per cent to cash to meet redemptionrequirements. Sometimes these levelsrise to 5-10 per cent. “Cash levels may

have risen in recent times because mar-kets have been choppy and fund man-agers kept higher cash levels to takeadvantage of buying opportunities thatcould arise. Besides, in categories likemid- and small-caps, fund managers

take more stock-specific callsand hence wait to buy thestocks they like at desired valu-ations,” says KaustubhBelapurkar, director-managerresearch, MorningstarInvestment Adviser India.Liquidity is an issue in thesecategories, so fund managersdeploy cash gradually to min-imise impact cost (which refersto an investor’s own purchases

driving up a stock’s price, thereby raisinghis average buying cost).

In falling markets, some fund man-agers deliberately move a portion of theirportfolio to cash because this helps thembeat their benchmark and peers (bydeclining less). The flip side of such a

call is that when the markets run up, afund manager who is heavily into cashgets left on the sidelines and subse-quently struggles to catch up with hisfully-invested peers. “Historically, theexperience has been that it takes time forthe markets to fall to lower levels. Butupward moves tend to be very suddenand sharp,” says Gautam Kalia, head,investment solutions, Sharekhan byBNP Paribas. Thus, if the expectedreturns from equities are, say, 12-14 percent in a year, and a fund manager is

out of the markets on those two dayswhen it generated an 8 per cent return,he will have a difficult time catching up.

This has happened in the past too.Many fund managers were caught onthe wrong foot in 2009, when the mar-kets rebounded after a very bearish2008. Since then, many fund houseshave put in place internal stipulationsrequiring fund managers not to exceeda 5 per cent cash level.

Another argument against high cashholdings is that the investor pays thefund house an expense ratio for invest-ing in equities. The asset allocation deci-sion should be taken by the investor orhis advisor. If the fund manager decidesto go heavily into cash, he skews theinvestor’s asset allocation. Thus, by andlarge, it works in the investor’s favour iffunds remain fully invested.

But what about funds likeQuantum Long-Term Value Equitythat go up to quite high cash levels(and yet it has given a 12.28 per cent

compounded annual return over thepast 10 years)? Says Nilesh D Shetty,associate fund manager, equity,Quantum Mutual Fund: “We follow aprocess-driven approach. We have buyand sell limits for each stock in ouruniverse. In a bull market, the sell lim-its of a lot of stocks get triggered. Thefund manager then has no option butto sell those stocks. If valuations areexpensive and the buy limits of veryfew stocks get triggered, and the fundalso receives inflows, then the cashlevel tends to rise.” High cash levels,however, allow the fund to deploymoney in the ensuing correction atmore attractive valuations.

Should investors then take an expo-sure to funds that take high cash calls?Says Kalia: “Check if this strategy hashelped the fund manager generatealpha over the long term. Also, seewhether the fund house has communi-cated its mandate of taking high cashcalls clearly to investors.”

High cash calls: A double-edged swordThe bottom line is whether the fund manager has been able to generate alpha with this strategy

YOURMONEY

DILIP KUMAR JHAMumbai, 23 September

Prices of green vegetables havedeclined by up to 39 per centin the past three weeks

because of a sharp increase in thearrival of new season harvests.

Data compiled by the NationalHorticultural Board (NHB) showedthat the price of green peas declined39 per cent to trade at ~55 per kg inthe wholesale BengaluruAgricultural Produce MarketCommittee (APMC) on Monday.Trading at ~80 per kg in retail, greenpeas have, so far in September,posted a decline of 33 per cent.

Following the trend, bittergourd slumped 17 per cent to ~20per kg in Delhi for the first threeweeks of September. Vegetableadditives such as chilli, okra andgarlic also reported a decline inmost mandis. The price declinecomes ahead of the festive season.

Excessive rainfall in almost allmajor vegetable-growing regionshas delayed sowing. Also, suddenwater logging has damaged stand-ing crop this kharif season. The dropin vegetable prices is being consid-ered a temporary relief. Prices ofthese items are likely to increase inthe coming weeks.

“There has been a sharp increasein the arrival of new season crops asfarmers have started plucking matur-ed vegetables with water recedingfrom the fields. The arrivals are set toincrease in the weeks to come,” saidSantosh Sidhangouda Patil, chair-man, APMC Sangli, one of the largestvegetable mandis in Maharashtra.

In contrast, tomato prices of local

variety have jumped 11 per cent (to~50 per kg) in Delhi retail markets, fol-lowing a 22 per cent jump (to ~22 perkg) in wholesale mandis. Potato pricespresented a mixed picture, with riseand fall in wholesale and retail mar-kets depending on availability.

Vegetables are drought-tolerantcrops, which require an intermit-

tent sprinkling of water for bloom-ing. Most major vegetable growingpockets in Maharashtra reportedfloods and waterlogging in veg-etable-sown fields. As a result, 15-20 per cent standing crop is esti-mated to be damaged this year.

“The arrival of vegetables tomandis is 10-15 per cent lower in

September when compared to thesame time last year,” said a seniorofficial at APMC, Nagpur.

Sriram Gadhave, president of thePune-based Vegetables GrowerAssociation said: “We cannot expectvegetable prices to decline as steeplyas the past years because of esti-mates of lower production.”

Mining sectorwon’t gain a lotJAYAJIT DASHBhubaneswar, 23 September

The government’s latest moveto pare corporation taxes hasfailed to perk up the miningsector already burdened witha slew of levies like royalty, thegoods and services tax (GST),and mandatory contributionsto the District MineralFoundation (DMF) and theNational Mineral ExplorationTrust (NMET). TheFederation of Indian MineralIndustries (FIMI) feels thateven after the governmentslashed corporation tax rates,the taxation rate is still steepfor the mining sector.

“The effective rate is 58 percent for existing mines and 54per cent for new mines grantedthrough auctions. Globally, therates are as low as 31 per centwith the highest being 45 percent,” said R K Sharma, secre-tary general, FIMI.

Apart from royalties onrespective minerals, minershave to pay to the DMF peggedat 30 per cent of the royalty forolder mines and 10 per cent formines won through auctions.

They also have to pay twoper cent of royalty to NMET,dividend distribution tax andcorporate tax.

The sector has been clam-ouring for ‘one tax regime’ inmineral production along thelines of GST with the effectivetaxation rate (ETR) capped at40 per cent.

Over and above the ETR,

the mining sector is burdenedwith a plethora of other taxesand levies such as net presentvalue (NPV) for surveys andmining in forest land.

The levies also include auc-tion premium, performancesecurity, GST on royalty, stampduty, compensation afforesta-tion charges and 10 per centtax as levied by the SupremeCourt in Goa and Karnatakabesides Forest DevelopmentTax (FDT). All these levies andpayments to the governmentmake the domestic raw materi-als costly, resulting in costlierfinished products in the econ-omy and leading to importsand reduced gross domesticproduct (GDP) from mining.

The mining sector’s contri-bution to GDP is only 1.53 percent, compared to 7-7.5 per centin resource-rich countries likeAustralia and South Africa.

It is obvious that the miningsector in India is heavily taxed,not only in comparison to inter-national levels but also againstother domestic sectors.

Lower tax rates won’t helpmajor concerns of banksNifty Bank index has gained 14.2% since Friday; experts advise investors to book profit

RCap falls 8%after ratingsdowngrade

NSE hitby glitch in finalminutes of trade The National Stock Exchange (NSE) system facedtrading outage, with investors unable to placeorders in the last 15 minutes of the trade on Monday.The move hit several brokers and traders who hadactive positions in the market.

Sources said the exchange is looking to ascertainthe reason for the glitch. Some officials said theproblem occurred due to a connectivity issue withone of the internet services providers, Sify.

“NSE stock price feeds stopped updating after3.15 pm. The system started showing Friday’s clos-ing prices. Traders were unable to square off theirpositions, leading to panic,” said a person aware ofthe development.

Market regulator Sebi, too, has asked for a reportfrom the NSE over the glitch. Some brokers alsofaced issues during the start of the trade with pricefeeds from NSE’s servers in Hyderabad and Jaipurfailing to update. ICICI Direct a morning tweet hadsaid: “Price feeds not coming from the NSE due totechnical issue at the NSE’s end. Limit orders notgoing across all products. Please place limit price."Later the brokerage said tweeted again saying theissue had been resolved. BS REPORTER & PTI

PRESS TRUST OF INDIANew Delhi, 23 September

Shares of Reliance Capital on Monday dropped 8per cent after CARE Ratings downgraded the com-pany’s long-term debt program.

The stock tanked 7.5 per cent to close at ~29 onthe BSE. During the day, it cracked 11.32 per cent to~27.80 — its 52-week low. On the NSE, it plunged 7.98per cent to close at ~28.80. In terms of the traded vol-ume, 4.72 million shares were traded on the BSEand over 30 million units on the NSE.

CARE on Friday downgraded rating for thecompany’s long-term debt program, market-linkeddebentures and subordinated debt to CARE D, dueto the alleged “delay” in payment of interest byone day.

Meanwhile, Reliance Capital has slammedCARE Ratings for downgrading its debt and calledactions by the rating agency “pre-meditated andprejudiced”.

Reliance Capital said there was a delay in pay-ment of interest for non-convertible debentures(NCDs) due to a technical glitch and the paymentwas made on the next working date.

It said CARE has acted in a pre-meditated andprejudiced manner, and has even suppressed theabove facts completely in its rating action letter,thereby making it appear as if the company haddefaulted in payment of interest by a day, whereasthe reality is documents had been provided toCARE that proved funds had duly been arranged onthe due date, and the alleged delay was on accountof technical glitches.

Vegetable prices drop sharplyas new season arrivals jump

GOING SOFTVegetables price movement

mtd: Month-to-date; *Wholesale -Delhi, Retail -MumbaiCompiled by BS Research Bureau Source: National Horiculture Board

Wholesale (~/Qtl) Retail (~/Kg) Sep 23 mtd Sep 23 mtd

2019 (%) 2019 (%)Peas (Bengaluru) 5,500 -38.9 80 -33.3Cabbage (Chennai) 1,500 -21.1 24 -20.0Tomato Hybrid (Chennai) 1,100 -26.7 20 -16.7Brinjal Round (Mumbai) 2,500 -28.6 60 -40.0BitterGourd* 2,000 -16.7 50 -16.7Chilli (Kolkata) 2,500 -28.6 80 -20.0Okra (Mumbai) 3,500 -7.9 50 -16.7Cauliflower(Bengaluru) 1,400 -22.2 30 -6.3

Retail onion prices hit ~60 a kg in MumbaiOnion prices have jumped in the Mumbai retailmarket to trade at ~60 a kg on reduced supply fromwholesale mandis. In other metro centres also, theretail onion price is hovering between ~58-65 a kg.

Onion has become costlier by over 33 per cent in thelast one week and over 70 per cent in September, sofar. Farmers and stockists have reduced supply fromcold storage amid expectations of further increase inprices. In Mumbai wholesale mandi, onion supply hasdeclined to 140 tonnes now from the level of 2500tonnes in the peak arrival season. According to sources,the government is considering levying stock limit and

ban on exports to boost physical supply into mandis.“With the new season crop arrival is a month

away, onion prices would continue to rise. Thegovernment’s imposition of $850 a tonne of theminimum export price and proposing 2,000 tonnes ofits import have not helped control prices. Any furtheraction, however, would yield negative impact ononion prices when the new season crop getsharvested. The government will have to offer subsidyas onion prices would crash with the onset ofarrivals,” said Sanjay Sanap, an onion wholesalerbased in Nashik district of Maharashtra.DILIP KUMAR JHA

The mining sector’scontribution to GDP is 1.53%

CUT IN CORPORATION TAX RATES

HAMSINI KARTHIKMumbai, 23 September

For the second consecutivetrading day, Indian equitiescheered the government’s

move to reduce corporation tax forIndia Inc. Banking stocks, in par-ticular, seem to have benefited themost. With a jump of over 5 per centon Monday and 14 per cent sincelast Friday, the Nifty Bank indexstands out as the largest gainer.

Part of these gains could be cor-related with the fact that most bro-kerages believe the lower tax ratecould strengthen earnings and thereturn profile of banks. Forinstance, analysts at Nomura saybanks could see their earningsincrease by 10–13 per cent, with anear 10 per cent moderation in thecorporation tax rate. This could, inturn, lift the return profile of banks,with return on equity increasing1–1.5 per cent for the sector.

However, what needs to be seenis whether the current fundamentalsare supportive enough to help meetthese heightened expectations. Forone, data on loan growth, includingfor August doesn’t paint an encour-aging picture. The appetite for loans,whether corporate or retail (barringpersonal loans), isn’t healthy. Offtakein the retail loans segment startedweakening since July and remainsso even in August.

Suresh Ganapathy, banking ana-lysts at Macquarie Capital, in a notebased on a marketing trip to

Singapore and Hong Kong, saidinvestors seemed fairly pessimisticon banks after the recent slowdownin GDP growth and noise sur-rounding job losses. These beingthe guiding factors for loan growthexhibiting little signs of recovery

and experts say the reduction in thecorporate tax rate may not reversethese conditions. Analysts at KotakInstitutional equities echo the opin-ion. “We expect earnings for banksto largely remain unchanged,” theysay. In the case of large banks, theyfeel, in order to remain more com-petitive, banks could cede part oftheir net interest margin, as seen inthe past, to spur loan growth. “Weexpect higher competition in lowerspread products,” analysts at Kotaknote. Also, with bond yields more-or-less firming up, treasury incomegains in FY20 may be lower than inthe past. Further, if profits doincrease by way of lower taxes, ana-

lysts anticipate that much of it maybe consumed to provide for possibleloan losses.

These factors also explain whyanalysts are reluctant to revise theirearnings target just yet, despite low-er tax rates being a positive move.“Near-term sentiments tend to behigh on measures like this, but fun-damentals haven’t changed somuch for banks,” says LalitabhShrivastawa of Sharekhan.

The deeper concerns for bank-ing stocks remain a possible dete-rioration in asset quality and howtheir retail loan book will shape up,should there be a weakness in con-sumer sentiment driven by job loss-es in select pockets and salariesstagnating in the recent times.

“Investors are worried aboutsecond order impacts from newstress emerging in the mid-corpo-rate and SME space, as well as ruboff effect on retail asset quality,”Ganapathy emphasises. Analystssay the September quarter resultswill hence be critical to take stockon their expectations from the sec-tor. “For the first time in manyyears, I expect another round ofearnings downgrade for bankingstocks, particularly for privatebanks,” says a fund manager.

A lot would also depend on thegovernment’s additional measuresto revive economic growth, mainlythe demand side. For now, expertsbelieve investors should use thesharp rally to book profit acrossbanking stocks.

BEARISH EARNINGSESTIMATES

Compiled by BS Reseach BureauSources: Brokerages, Exchanges & Bloomberg

FY20 earnings per share (%)Apr ‘19 Current chg

YES Bank 24.0 4.5 -81.2Union Bank 13.4 4.1 -69.2BOB 21.1 12.0 -43.1PNB 8.8 5.2 -41.0Canara Bank 37.9 27.2 -28.2RBL Bank 27.3 21.9 -19.6Axis Bank 40.2 34.0 -15.6IndusInd Bank 99.7 84.7 -15.0ICICI Bank 22.2 20.9 -5.5SBI 27.4 26.2 -4.4HDFC Bank 48.3 46.7 -3.4

LOSING STEAM

CASH EXPOSURE IS UPCash and equivalents

Large-cap funds (% of portfolio)

LICMF Large Cap 12.29

Axis Bluechip 12.12

Franklin India Bluechip 8.75

SBI Bluechip 8.28Source: mutualfundindia.com

NIFTY BANK

Compiled by BS Reseach Bureau

As on Sep 23 International Domestic------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- -------------

Price %Chg# Price %Chg#

METALS ($/tonne)

Aluminium 1,766.0 1.3 1,987.9 -1.2

Copper 5,777.5 -2.8 6,161.0 -7.0

Zinc 2,310.0 -9.1 2,608.2 -11.5

Gold ($/ounce) 1,518.6* 8.5 1,652.5 9.1

Silver ($/ounce) 18.4* 19.8 20.5 21.2

ENERGY

Crude Oil ($/bbl) 63.8* -1.6 64.4 -0.4

Natural Gas ($/mmBtu) 2.5* 14.6 2.5 13.9

AGRI COMMODITIES ($/tonne)

Wheat 168.4 -8.6 291.3 2.7

Sugar 329.6* 1.5 492.9 4.1

Palm oil 532.5 5.4 874.1 6.3

Rubber 1,525.3* -31.8 1,797.5 -17.7

Cotton 1,293.7 -4.1 1,628.0 -13.0* As on Sep 23, 1800 hrs IST, # Change Over 3 MonthsConversion rate 1 USD = 70.9 & 1 Ounce = 31.1032316

Notes: 1) International metals, Indian basketcrude, Malaysia Palm oil, WheatLIFFE and

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

prices except forSteel.3) International Crude oil is Brentcrude and Domestic Crude oil is Indian basket.4) International Natural gas is Nymexnearmonth future & domestic natural gas is

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

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

month future and Palm oil is Malaysia FOB spotprice.7) Domestic Wheat& Maize are NCDEXfuture prices of nearmonth contract, Palm oil

& Rubberare NCDEXspotprices.8) Domestic Coffee is Karnataka robusta and Sugar is M30 Mumbai local spotprice.9) International cotton is Cotton no.2-NYBOT nearmonth future & domestic cotton is

MCXFuture prices nearmonth futures.Source: Bloomberg Compiled by BS Research Bureau

> PRICE CARD

14 ECONOMY& PUBLIC AFFAIRS MUMBAI | TUESDAY, 24 SEPTEMBER 2019 1>

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]BEST COMEDY:

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A look at the shows,actors, and teamswho won at the71st Emmy Awards

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AROUND THE WORLDN

Noneedtobanpetrol,dieselcars:GadkariPRESSTRUSTOF INDIANewDelhi, 23 September

Easing fears of the auto-mobile industry, UnionRoadTransportMinister

NitinGadkari onMonday saidthere is no need to ban petroland diesel vehicles as electricmobility has picked upmomentumon its ownandallbuseswould be electric in twoyears.

Earlier, government think-tankNitiAayoghadreportedlyproposed that post 2030, onlyelectric vehicles (EVs) shouldbe sold in India. Later, Unionministers,includingPetroleumMinister DharmendraPradhan, tried to allay the fearofautomobilemanufacturesinthecountrybydenying that.

A panel headed by NitiAayog Chief Executive OfficerAmitabhKanthad earlier sug-gested that only EVs (three-wheelers and two-wheelers)withanenginecapacityofupto150ccshouldbesoldfrom2025onwards.

“I always talk about EVssuch as cars, bikes, and buses.Now, ithasstarted.There isnoneed to make it mandatory.There is no need to ban petrolanddieselvehicles. Inthenexttwo years, all buses would beelectricandrunonbio-ethanolandCNG(compressednaturalgas),”Gadkarisaidwhilespeak-ing at a National Conclave onEnergy Efficiency in Micro,SmallandMediumEnterprises(MSMEs).

Takingaboutthecostbene-fit, theministersaid,“Ifwerunvehiclesonelectricity, itwouldcost~15per litreofdiesel.Now,wehaveplasticcylindersavail-able fromGermanywhichcansave 50 per cent cost on LNG(liquefied natural gas) and 40per cent on CNG”. He alsospoke about converting farmstubble left after harvest intocleanfuels forgeneratingelec-tricity and running vehicleswhich can increase farmers'incomemanyfold.

Currently, farmers burnstubble thatcausesairandsoilpollution. The governmentthrough its firms such as pow-er giant NTPC has startedprocuring stubble pellets for

usingthoseasfuel incoal-firedplants. Talking aboutMSMEs,Gadkari said, "Wehaveaprob-lemof(higher)capitalcost.Theinterest cost (on borrowing) istwo-three per cent across theworld.Infewcountries, it is justone per cent. The borrowingcost forMSMEs inourcountryis11,12,or13percentandsome-times up to 14 per cent. Weneed to reducecapital cost.

Theministeraddedthatwehave inked agreement withWorld Bank, AsianDevelopmentBankandKfWtofacilitatelow-cost lineofcreditfor MSMEs." He also said, "Ifour logistics cost comesdown,ourexportscouldbeoneandahalf times(fromnow).There isalso a need to keep a tab onpower tariff (especially to pro-mote MSME). There is issuewith labour cost also.Weneedto reducevarious cost tomakeour exports competitive."About energy efficiency, hesaid,"Wealsoneedtofixnormsfor energy efficiency ofmachines. We should not giveISI(BureauofIndianStandard)mark to those machines thatare inefficient.This is requiredto improve our competence."Talking at the event, PowerMinisterRKSinghsaidthenewpower tariff policy has beensent for Union Cabinetapproval which would settleissue related to cross subsidy,tariff surcharge and unsched-uled loadshedding.

The minister also said thenew policy provides for mak-ing it mandatory to procurepower from waste-to-energyprojects and classified it as"must-run"plants likewehavedone for the renewableenergysuch as solar andwind power.

UnionRoadTransportMinisterNitinGadkariasserted thatEVsarepickingupmomentumnaturally

Balakot camp reactivatedby Pakistan, says RawatArmy Chief General BipinRawat on Monday saidPakistan had recently reacti-vated the Balakot terror campandabout500infiltratorswerewaiting to sneak into India.

“Let me tell you, Balakothas been reactivated byPakistan very recently,” hesaid, apparently stating that

the terror camp beyond theborderhasbecomeoperationalagain,whileansweringaques-tiononnewterrorcamps. Theresponse to the terror campbecoming functional againmay go beyond India’s previ-ous responseofanair strike inFebruary, he said at theOfficersTrainingAcademy.PTI

Iran says seizedUK-flagged tanker‘free’ to leave

Iran said a British-flagged oiltankerwas“free”toleavemorethan twomonths after it wasseized in the Gulf. “The legalprocesshasfinishedandbasedon the conditions for lettingthe tanker go free have beenfulfilledandtheoiltankercanmove,” it said. AFP/PTI

T E NARASIMHANCHENNAI, 23 SEPTEMBER

F rom a soap to cure forskininfectionstoalegacybrand with ayurvedic

credentials, a massive reposi-tioning exercise is on atMedimix. The homegrownhandmade soap that has justhit the half-century mark ishoping to leverage its all-natu-ral productmix andmedicinalproperties togainwiderappealamongayoungaudience,whiletransitioningfromabudgettoapremiumbrand.

For the AVA and Cholayilgroups that own the brand inthe South and North respec-tively, the repositioning exer-cise calls for a smart balancingact. It is about driving a per-ception change among con-sumers; about putting somedistance with the present-daybrand and its past but at thesametime,leveragingitslegacy.

Medimix ticks the natural-herbalbox,anaspirationalseg-ment thathasseenseveralpre-mium brands debut in recentyears. Its ayurvedic roots offeran easypass into the segment.However Medimix’s inheri-tance comes at a price; itsfounder, the late VP Sidhan, arailway employee who dis-pensedayurvedicmedicines inhis spare time formulated thesoapasacure for skindiseasesthat conservancyworkers suf-fered from. Its originsbracket-ed it firmly in the budget seg-ment,andtheassociationwitha taboo health issue made itsomewhat of an embarrass-ment to the shopping list. Thechallengewillbebalancingthetwo aspects of its legacy whileweaving a new story aroundthe brand.

A V Anoop, managing

director, AVA Group says thatthebrandisperfectlysuitedforthe present generation. Notonlybecause ofwhat goes intoit, but also because of itsman-ufacturing process. Made byhandatminimumcost, it takesaroundeightdaysfortheclassicsoap bar to be ready for themarket, he adds.

AnewsoapstoryFrom a medicinal soapMedimix’wants tobeseenasa‘herbal-natural’ product.Anoop says that the companyhas decided to overhaul itsimagetobecomemorerelevantto consumers today. Thepack-agingisnewandsoisthewayittalks to customers. Plus thebrand has been extended intohair oil, shampoo and bodywash, products that appeal totheyoung.

In the past, “People felt theproductwasmeantforskindis-ease. And in the North, theyknewitasagreensoap.Wehavecome long way since then tobecomeabrand forhealthandpersonal care,” saysAnoop.

In all of this, the company

does not want to let go of itsayurvedic roots, which HarishBijoor, founder Harish BijoorConsults says is its strength.“Medimix is a niche success.The beauty of the brand is itskeenfocusonthecategoryandundiluted product values. Allthis has helped the brandholdits space andgrow,”he adds.

Born in a kitchen whereSidhan mixed various oils tocome upwith a cure for a skininfection,thesoapwasaneasy-to-useversionof themedicinalproduct. Itwas initially sold inChennai,asaprescription-onlyproduct but as its popularitygrew, the brand was formallylaunched in 1969—the namewas an amalgamation of thewordsmedicineandmix.Easyto recall, the name has con-tributed significantly to thebrand’spopularityandneithercompany,Cholayil intheNorthrunbySidhan’ssonandAVAinthe South, by his son-in-law,haschangedit inall theseyears.

AggressivemarketersFrom the start Medimix hasbeen a big advertiser. It made

its in-movie brand debutalmost 44 years back at a timewhen few brands experiment-ed with the medium. InApoorva Ragangal, a Tamilmovie, the soaphada role andits director famously boastedthat he had introduced twosuperstars in the movie,Rajinikant andMedimix.

Early advertisements car-ried the tag line ‘doctors pre-scribe’ since that was the keyselling point. In the new adswhere Parineeti Chopra is theendorser for Northernmarkets, the brand’s herbaland ayurvedic qualities areemphasised, not medicinalproperties.

The group has steadilysought out big associations toamplify the brand’s presence.It tiedupwithhotels and largeinstitutions for bulk suppliesearly on and made sure thatthe brand retained its nameand did not become a whitelabel under the larger hospi-tality chains.Todaynearly30-40 lakh co-branded smallsoapsaredistributed tonearly4,000hotels everymonth.

Mass to trendy, Medimixscripts a newbrand storyThe50-year-oldsoapisrepackagingthebrandpromise,usingitsmedicinaltagtoridethegrowingdemandforherbalandnaturalproducts

Thecompanyrecently appointedParineetiChopraasbrandendorser for thenorthernmarkets

FROM PAGE 1

MUMBAI | TUESDAY, 24 SEPTEMBER 2019 BRANDWORLD 15. <

Higherearnings...The brokerage expects theSensextoclimbto45,000—15per cent upside from currentlevels—byJunenext year.

Gautam Chhaochharia,head of India research, UBSsaid the move by the govern-mentsendsastrongsignalthatgrowth is going to be policyfocus goingahead.

“Whilenear-termdemandboostmayunderwhelm,othermeasures should help andclose out the recent negativefeedback loop," he said.

Investors are pinninghopes that the move to lowertaxes will not just benefit cor-porateentities,buthaveapos-itive spill over impact on theeconomy, kick start a newinvestment cycle and boostconsumption.

However, after the stellargains over the past two days,theremaynotbefurtherroomfor stocks to edgehigher.

Edelweissinanotesaidfur-ther gains could bemodest asthepositiveimpactontheeco-nomiccouldonlyhappenwitha lag.

“Theeconomicresponsein

terms of investment and con-sumptionwill be a tad laggedeven as expectations runupfront,” Edelweiss analystsledbyAdityaNarainwroteinanote.

Investorscontinuedtopileonto stocks that could benefitthe most from the reductionintax.Banking,capitalgoods,automobiles and consumergoods space, where the effec-tive tax rate was the highest,wereseenbenefitingthemost.

Banking shares — whichalso have the highest weigh-tageinthebenchmarkindices— have gained the most withthe Bank Nifty index surgingover15percentinpasttwoses-sions.Consumergoods,capitalgoods and automobile stockstoo have rallied sharply.Meanwhile, shares in theexport-oriented technologyand pharma space havedeclined as the new taxationframework is said to impactsomecompanies, particularlythose availing avail tax win-dow,negatively.

Information technology(IT)shares ledbyInfosys(fell5per cent) were among themajor losers on Monday.Financial stocks aloneaccounted for nearly 900-

pointgain,whilethe ITstock

dragged the index lower by200points.

Taxpanel...Explaining the rationale for arejig intaxslabs,asourcesaid,“This can boost consumptionand investment by the mid-dle-income group. Peopleearning between ~5 lakh and~20 lakh tend to consumemorewith tax cuts.”

Expertsbelieveacut in taxrates is bound to hit theexchequer.

However, itdependsonthevirtuous cycle of investmentand economic growth. If thecut intherates increasescom-pliance, thingsarelikelytosta-bilise in two-three years.

The government-consti-tuted task force, headed byCentral Board of Direct Taxesmember Akhilesh Ranjan,submitteditsreporttoFinanceMinister Nirmala SitharamanonAugust19.Thenewtaxcodeis aimed at simplifying taxlaws,whicharerathercomplexat present, and also reducingthenumberof exemptions.

Deadlines to submit thereport were extended severaltimes. Itwas originally sched-uledtosubmitonFebruary28.

Sourcessaidthelastexten-sion was given since ChiefEconomic AdvisorKrishnamurthySubramanianwasnew to thepanel.

Contractworkers ...According to the latest pro-posal, the condition

of five years is not applica-ble incaseofdeathordisable-ment or “expiration of fixed-term contract” — somethingotherworkersarealsonotenti-tled to. “This is a win-winfor bothworkers and employ-ees.Thismovewill incentiviseworkers to accept the fixed-termemploymentsystemasitwill becompetitive to regular-wageemployment.Ontheoth-er hand, employers will get agood supply of fixed-termworkers,” said K R ShyamSundar, a labour economistand professor at XLRIJamshedpur.

The industry has beendemanding for a fixed-termemployment framework as areplacement to the existingcontractual labour system,underwhichcontractworkers

arehiredthroughacontractor.Industrialists findthecontrac-tor system tobe a cost burdenand cumbersome process intermsof compliance.

“Industryandindustrialistwho are fair and ethical andbelieve in equity should notmindpayinggratuitybenefitsto fixed-term workers. This isan equitable proposition andbetter than a framework inwhich industry was forced tohire such workers throughcontractors,” PradeepBhargava, president,MarathaChamber of Commerce,Industries and Agriculture,said. He said that fixed-termemploymentprovidesflexibil-ity to industries in terms ofwork tenure but it shouldn’tcome at the cost of workers’benefits.

Under fixed-term employ-ment, contract workers arehired by the industry directlyfor a fixed tenure but they areentitled to all social securitybenefits which permanentworkers inthesamefactoryorestablishmentget.Fixed-termemployment is best suited forproject-based work and thetenure of contract may varydepending upon the require-ment of the establishment.

However, fixed-termemployeesarenotentitled forretrenchmentcompensationsandemployersarenotobligat-ed togiveanoticeof retrench-ment to suchworkers.

InMarch 2018, theCentralgovernment had notified theIndustrial Employment(Standing Orders) Central(Amendment) Rules, 2018allowing industries to hirefixed-termemploymentwork-ers — a form of contract sys-temwith a fixed-term tenure.

The notification is, how-ever applicable to industriesbelonging to the centralsphere, as theCentral govern-ment can frame rules onlysuch for industries. Thus, inorder to plug this gap andimprove implementation ofthe government’s notifica-tion, the Centre has nowpro-posed bringing in fixed-termemployment in the centrallabour laws. The March 2018notification had mentionedall social securitybenefitsbutsince gratuity is only eligibletobepaidafter completionoffiveyearsof continuous serv-ice, itwasnot possible to givethegratuity sumonapro-ratabasis.

SOLUTION TO #2850 VVeerryy EEaassyy::

Solutiontomorrow

HOW TO PLAYFill in the grid sothat every row,every columnand every 3x3box containsthe digits 1 to 9

> BS SUDOKU # 2851