IT market in Indian media sector to grow at 27 percent

The IT market opportunity in the media and entertainment (M&E) sector in India is estimated to grow at a compounded annual growth rate (CAGR) of 27 percent during 2008-2012.

This is according to a report entitled 'IT in the Indian Media & Entertainment Industry: Emerging Trends and Opportunities' by research firm Springboard Research. The findings are based on a survey of 122 CIOs from large and mid-size media and entertainment companies across India.

The study also forecasts that the sector's annual growth will slow down to 23 percent in 2009 compared to 30 percent in 2008, but will pick up again in 2010.

Going digital

The digitisation of content is the single most important strategic IT area for Indian media & entertainment companies, says the report. At the same time, Enterprise Resource Planning (ERP) solutions are the largest implemented business application.

The findings also say that up to 46 percent of the total IT budget of the companies surveyed was spent on software in 2008, majority of it being enterprise software. On the hardware side, storage solutions dominate spending with 37 percent of survey respondents planning to augment their existing storage capacity in the next 12 months.

Inhouse solutions preferred

According to the report, leading IT vendors like IBM, HP, SAP, and Microsoft contribute just 8 percent of the total IT market share in the Indian M&E industry. On the other hand, 69 percent of survey respondents said that they deployed and built their IT solutions in house. The respondents also paid a heavy premium on vendors' capability to offer strong service and support, with 50 percent rating it as the primary factor when selecting an external vendor for their IT solution.

The report indicates that although majority of M&E companies develop their systems in-house, local IT vendors have a sizeable foothold in the industry as they provide low-cost, industry-specific solutions, and their applications are customised to M&E industry segments. Leading the market are IBM and HP in software and hardware categories respectively. The respondents nominate Wipro as the leader in IT Services category, while Cisco is the leader in networking equipment suppliers list. Other leading vendors in the M&E sector profiled in the study include Akamai, Autodesk, Microsoft, SAP and Siemens Information Systems (SISL), the report notes.

Investment Opportunities Abound Despite Global Crisis

By MICHEL W. POTTS indiawest.com February 26, 2009 03:01:00 PM

LOS ANGELES — As keynote speakers, Ravi Mantha and Sandeep Shrivastava each saw a silver lining of investment opportunities in the dark clouds of the global crisis when giving their presentations during a monthly meeting of The Indus Entrepreneurs Feb. 18 at the Sheraton hotel in Cerritos. Mantha is portfolio manager of global equities at Fidelity Investments, the nation's largest mutual fund company and a leading provider of financial services. Within Fidelity, Mantha is part of Pyramis Global Advisors, the institutional arm of Fidelity Investments. Shrivastava is the managing partner of Tenex Capital Fund in Seattle, Wash., an investment advisory focusing exclusively on Indian equity investments in technology, infrastructure, real estate, and retail sectors. He is also the current chairman of TiE's Seattle chapter. Speaking on the topic of "Contrarian Investing," Mantha contended that a majority of investing activity is simply "following the herd" and the way to succeed in the stock market is to begin thinking like investment mogul Warren Buffet, who is always on the lookout for a good deal. The Standard & Poor's 500 index is more than half a percent above the Treasury rate, "so it is really a fantastic time to be investing in stocks, if you're a long-term investor," Mantha reiterated to India-West. During the dot-com boom throughout the Clinton years, investors had come to expect a 15 percent or higher return on their investments. "Clearly, it was unrealistic," Mantha said. If we look at what should be the return, you should expect from U.S. equities for any reasonable time frame around nine percent to ten percent a year." Nevertheless, during those years, "that was when the herd instinct was kicking in, that the people were looking at the proliferation of new channels, talking about stocks and looking at these success stories, and they were just piling on the bandwagon without thinking about the fundamentals," he pointed out. Stocks, in his opinion, are just another asset. "There are times to buy and then there are times not be jumping in," he asserted. But these days, "the herd is selling stocks and, just looking at how much they have fallen, there's a lot of fear and panic in the market and everybody's running away," Mantha pointed out. However, "if you're a long-term investor, then the time to buy is when everyone else is selling, and the time to do that is now." Although no one can predict how the market will perform within the next six to 12 months, Mantha sets his investment horizon at 30 years. "It really depends on your retirement age, and I'm not saying anything that other financial advisors wouldn't say," he stated. Although by law he cannot make any specific recommendations or say what stocks investors should seriously consider buying at the moment, Mantha did concede that "overseas markets in general are exceedingly good value at the moment." While India has been affected by the global economic crisis in the past year, Shrivastava believes that what isolates the Indian economy from the rest of the world is based on the fact that the country's exports to the developed world is approximately 13 percent. To that extent, "if there is a slowdown in the developed world, unlike China and other parts of Asia, India will be less impacted by that," he told India-West in recounting what he told his audience at the TiE meeting. In looking ten to 20 years down the road, Shrivastava sees that India has several key advantages which are most likely to remain unchanged regardless of whatever course the global crisis takes. One of the keys is what he calls India's "demographic dividend." India has a working class population of approximately 700 million, "and if you project it out, it continues to grow over the next 15 years at least, meaning the working class population will grow to 825 million before it changes direction," he said. Meanwhile, infrastructure investment opportunity in India is still the highest compared to anywhere in the world, since India plans to spend more than $500 million over the next five years on its infrastructure through a combination of foreign and internal capital. At the moment, India has a ten percent power deficit, "and its needs are likely to grow by 30 percent a year for the next five years, so power investment is a big part of the infrastructure investment opportunity," Shrivastava maintained. A third advantage is consumption. India's large population "currently consumes significantly a low percentage versus the rest of the world, so its index is much lower," he pointed out. "So I would say the consumption opportunity right from consumer goods all the way to luxury items will only grow upwards while the rest of the world tapers out." All three advantages will spell growth for India in the next 25 years. "From our vantage point, if you add up the investment opportunity as a result of these three growth areas, you're looking at an average six to seven percent annual GDP growth in India," he contended.

I-T dept moves HC over ITAT decision on broking cos

The Income-Tax Department has challenged the Income Tax Appellate Tribunal (ITAT) decision in the Bombay High Court that allowed over 100 stock broking firms entitlement to depreciation claims on the cost of their Bombay Stock Exchange membership cards.
    The appeals against various stock brokers have been pending over the past three years and are likely to be heard together before the division bench of Justices FI Rebeillo and RS Mohite on Monday.
    The stock brokers include the likes of ICICI Brokerage Services, J M Morgan Stanley Fixed Income Services, Jhunjhunwala Stock Brokers, Net Worth Stock Broking, R R Chokani Stock Brokers, Kotak Securities and K Damani Securities.
    According to section 32 of the I-T Act, depreciation can be claimed either in respect of "buildings, machinery, plant or furniture, being tangible assets" or "know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, being intangible assets". The appeal filed by the I-T Department states that depreciation is not allowable on the membership card of the Stock Exchange as the card is not a depreciable asset. As such, it is not capable of diminishing in value due to its use, wear and tear and obsolescence.
    Also, the stock broking firms are not the owners of the membership cards. The card is, in fact, a privilege given by the stock exchange to its members, the I-T Department's appeal states.
    However, the broking firms were given respite by the tribunal, which allowed them to claim depreciation on the ground of their submission that the membership card was a capital asset through which a right to trade on the stock exchange is acquired by the broker. Also, the card is an intangible asset within the definition of the section 32 of the I-T Act. The I-T Department, then filed appeals before the high court, challenging the tribunal's decision in favour of the said brokers.

US stimulus bill to hit Indians, H1-B visa holders

Washington The US Congress has barred firms receiving government bailout from hiring Indians and other foreign workers through the skilled worker visa (H1-B) programme, if they are replacing American workers.

The bar comes even as IT firms in the US and India are demanding an increase in the H1-B visa, which is capped at 65,000 a year now.

Indians account for a majority of those with H1-B visa, issued to non-immigrant skilled workers for up to six years.

Restricting hiring of H1-B visa holders forms part of American Recovery and Reinvestment Act, widely known as the stimulus bill, that was passed by the Congress on Friday.

With thousands of jobs being cut by US companies almost daily over the past few months, there have been widespread apprehensions that these positions could go to low-cost foreign workers or might be outsourced to places like India.

The government data for 2008 shows that about 5.7 lakh Indians were issued H1-B and other non-immigrant visas.

Experts believe the Congress' move would certainly impact hiring of H1-B visa holders, thus affecting in a big way the engagement of Indian techies in the US, but might not affect outsourcing of jobs to places like India.

About two years ago, the US had cut down the H1-B visa limit to 65,000, from 1,95,000 a year previously.

IT firms, both Indian and American, have been asking to raise the cap to allow the companies in the US greater access to the growing talent pool across the world.

Senator Bernie Sanders, who along with another Senator Charles Grassley had moved the proposal for such restrictions, said that about a dozen banks which are getting over USD 150 billion as the bailout money have sought visas for over 21,800 foreign workers in past six years to replace sacked Americans.

These banks have announced at least one lakh job cuts in the recent months, Sanders noted.

Earlier this month, India-born international economist Jagdish Bhagwati also argued that the provision to restrict hiring of H1-B visaholders would deprive the US of the best global talent which comes in the form of highly trained and talented people.

"In terms of broader considerations like the people who are coming in on H1-B visas -- they're frequently highly trained and talented people and a lot of our progress and prosperity depend on having such people," Bhagwati, Professor of Economics at the Columbia University had said.

The American Immigration Lawyers Association, which also has been opposing the measure, described the Congress approval as 'disappointing' and argued that this would prove to be counterproductive as it prevents the US companies to hire the best available global talent.

The amended stimulus bill would require the banks receiving the bailout money to hire only Americans for two years unless they could prove they were not replacing laid-off Americans with guest workers, Sanders had said.

"With thousands of financial services workers unemployed, it is absurd for banks to claim they can't find qualified American workers," Sanders said.

"While we are suffering through the worst economic crisis since the Great Depression, the very least we can do is to make sure that banks receiving a taxpayer bailout are not allowed to import cheaper labour from overseas while they are throwing American workers out on the street," he said.

In addition to banks, the Sanders-Grassley provision also restricts hiring of guest workers at any other firm that receives funds under the Troubled Asset Relief Programme or from emergency loans made by the Federal Reserve.

GDP growth loses steam,logs 5.3%

But Investments Remain Robust; Q4 Could Be Better

SHRINKING agriculture and manufacturing slowed economic growth to an unexpected 5.3% in the third quarter to end-December, throwing government projections of a 7.1% growth for the full financial year into disarray and bolstering the case for further rate cuts and more proactive fiscal measures.
    Government data released on Friday showed that the third-quarter gross domestic product (GDP) slipped from 7.9% and 7.6% in the first two quarters, and was sharply lower than the 8.9% growth achieved in the same period last year, making the Central Statistical Organisation's advance estimates for the year a tad too optimistic.
    The economy would have to grow by an unlikely 7.7% in the fourth quarter to achieve the target growth rate for the year as a whole. For the nine months to end-December, GDP expanded by 6.9%.
    There is a silver lining, however: investment remains robust, with gross fixed capital formation a shade higher than in the third quarter of 2007-08, a year in which the economy grew 9%.
    The BSE Sensex tumbled as much as 226 points on the news, but recovered by the end of the day, with the index closing just 63 points down. All eyes are now on RBI for another cut in interest rates and increased government spending to counter a slump that has already cost lakhs of jobs. Economists said the third-quarter number could be based on incomplete data. Economy may rebound in Q4 on govt's stimulus packages
ICRA economist and a member of Prime Minister Manmohan Singh's economic advisory council, Saumitra Chaudhari, said he expected the figures to be revised upwards as more data come in on agricultural output.
    The current assessment of a 2.2% decline in agriculture, forestry and fishing is based on skimpy data, he added.
    "The initial estimate of crop production does not capture data as much as the subsequent ones. The third advance estimate of crop production will be better than the second advance estimate, based on which the December quarter GDP number has been compiled. The final estimate would be still better and would get reflected in the GDP number," said Mr Chaudhary.
    In any case, the prognosis for the fourth quarter is much brighter, with results of the government's recent fiscal stimulus measures beginning to be felt during this quarter.
    Department of economic affairs secretary Ashok Chawla expressed optimism about the economy performing better in the January-March quarter. "The 5.3% growth is broadly in line with our expectation. The fourth-quarter contribution to GDP growth is normally better....Our expectation for the fourth quarter is that it will show robust growth, which will add up close to 7% for the whole year," he told reporters.
    Investments in fixed capital assets like plant and machinery by industry continued to be robust despite an economic slowdown. Gross fixed capital formation as a proportion of GDP stood at 31% against 30.8% in the same period last year. Inventories, however, piled up, rising to 4.3% of GDP from 3.4% of GDP in the third quarter of 2007-08.
    In the October-December period, agriculture, forestry and fishing activities shrank by 2.2% in contrast to the 6.9% growth the sector recorded the same time a year ago. The manufacturing sector too contracted by 0.2% in the quarter, after having grown 8.6% in the same period a year ago and 5% in the previous quarter as demand dried up in the wake of job cuts and overall negative consumer sentiment.
    While mining and quarrying expanded during the quarter, compared to same time last year, other sectors recorded moderate growth.
    "The high base of 6.9% growth in agriculture in the last quarter of 2007-08 and the abnormal monsoon led to the sharp fall in farm output. The fall in manufacturing was on expected lines," said Crisil director and principal economist DK Joshi.

RELIANCE, RPL TO MERGE

Spotlight now on swap ratio In a typically audacious move, catching markets by surprise, RIL and RPL decided to merge, creating an Indian oil, natural gas, refining and petrochemical giant comparable with the world's best

RELIANCE Industries will combine with Reliance Petroleum to create a mammoth oil and gas company with a projected topline, comprising nearly 20% of the combined turnover of the 30 companies in the BSE Sensex.
    The two companies said in separate statements on Friday evening that their respective boards will meet on March 2 to discuss a possible merger. The plan, when implemented, will further strengthen RIL's position as one of India's top companies and one of the world's biggest producers of petroleum and petrochemical products.
    Using analyst estimates for RPL, ET Intelligence Group calculations show that the merged entity will become India's biggest company in terms of net profit overtaking PSU major Oil and Natural Gas Corporation (ONGC). In terms of net worth, and sales, it will continue to remain second after Indian Oil Corporation.
    The combined firm's turnover will be 19.7% of the total 30 Sensex companies while its net profit will be 16.5% of the overall profitability of the Sensex 30. The merged firm's market cap will be 16.8% of the market cap of all the Sensex companies.
    The merger will help the combined entity save on income tax and dividend distribution tax. It will also create a much bigger balance sheet, which will help RIL raise money for working capital and for expansion.
    The merger will create a truly global colossus in the area of petroleum refining and marketing. The merged entity will be the sixth-biggest private sector refiner in the world with a total capacity of 1.2 million barrels per day. The combined cash flow will be immense, and will help finance ambitious investments in the difficult and expensive areas of oil and gas exploration.
    "The merger makes good business sense, given the current global environment. The merger will help lower costs and give you size as a company," says Enam Securities head (broking) Dharmesh Mehta.
    Meanwhile, RIL in a latenight announcement said that it will buy back US oil major Chevron's 5% stake in RPL. Post the deal, RIL stake in RPL will rise to 75.3%. Chevron had bought a stake in the company in 2006 with an option to increase it to 29% around the time of the commencement of the 29-million tonne refinery, or three months after that.
    RIL, India's biggest private sector company, has grown to its current stature and size through mergers, acquisitions and rapid growth fuelled by massive investments in chemicals and oil and gas. Merger move fits in with Reliance's strategy
IT has followed a strategy of implementing mega projects quickly, developing expertise in a number of areas, especially financing.
    "It is positive for shareholders of Reliance Industries. There will be savings in costs due to a combination of businesses," said Deepak Sawhney, research head at Networth Stock Broking.
    The current move, coming amidst a sharp slowdown in demand for many RIL products, continues an Ambani tradition of launching big projects under separate, publicly-listed companies and then folding them back into the main company. Two petrochemical projects were launched under this route in the 1990s. This was followed by the first major refinery project, which raised money from the public in 1993 and began operations in 1999. In fact, it is exactly seven years ago that the first RPL was merged into the main company. Four years later, RIL adopted the same route when it decided to implement a second refiner project.
    The strategy makes good sense for RIL as it is able to implement big projects quickly and that too without incurring any major cost.
    Reliance Industries shares ended the day 1.97% down to Rs 1,265.05. Shares of RPL ended the day 1.23% down at Rs 76.20.
    The announcement came after market hours but that did not stop frenzied speculation about the possible share-swap ratio. Many analysts speculate that it could be 1:18.6, or one share of RIL, for every 18.6 shares of RPL.
    Independent investment advisor SP Tulsian feels the merger is "slightly negative" for RPL while only "mildly positive" for the Reliance Industries.
    "I think that the swap ratio would be around 20:1 or 24:1," he adds. Mr Tulsian expects RPL shares to drop to around Rs 70 on Monday. On Friday, RPL shares closed 1.2% lower at Rs 76.20. The shares have fallen 5% over the last one month.
    It is not clear what the companies propose to do with RIL's holding in RPL. Having promoted the company in 2005, RIL owns a little over
70% in RPL. The company has two options. The shares can either be cancelled or be held as treasury stock through a trust. During the time of the merger of the first Reliance Petroleum in 2002, the shares were held in a separate trust. The advantage this gives RIL is that the shares can be either sold, or pledged, to raise money for the company's projects.
    However, it is also possible that these shares could be cancelled, as holding them separately would only increase the dilution in RIL's equity and lower earnings growth. The treasury stock could amount to as much as 10% to RIL's existing equity base, unless of course the shares are cancelled.
    Speculation has been raging for quite some time that RPL has suffered large inventory losses due to the sharp fall in crude prices in the months of November and December. Some analyst and industry experts have also said the current proposal is a way for RPL to escape the damaging effects of such losses as they can be absorbed in a bigger balance sheet. RPL officials, however, have consistently maintained that they have not suffered any major losses and that the losses, if any, are very small in relation to the size of the company.
    Where RIL stands to benefit clearly is in savings on income tax and dividend distribution tax.
    The current tax holiday for RIL's Jamnagar unit is set to expire by March 31, 2009, while RPL's refinery, which has SEZ status, has a tax holiday for another seven years. RPL can also escape paying dividend distribution tax in a merger. Otherwise, it would have to pay tax every year when it is returning money to shareholders.
    "The combined entity can also use the large cash flows of the new refinery for expansion plans in E&P without having to pay dividend distribution tax (17%), which would be applicable in case Reliance Petro was a separate company and it was returning cash to its shareholders (including RIL) through dividends," said Sanjeev Prasad, executive director and co-head institutional equities, Kotak Securities.
    The RPL refinery was commissioned in December 2008. It is expected to be fully operational by the middle of 2009.

INVESTORS OF RIL MAY GAIN MORE
The market widely believes that the swap ratio will be in favour of RIL shareholders. This is based on the simple arithmetic that there are more minority shareholders in RIL than in RPL.

RPL, Rel Infra under regulatory lens

 THE finance ministry has told Parliament that companies belonging to both the Ambani brothers — Reliance Petroleum and Reliance Infrastructure — were being investigated for alleged violation of norms governing insider trading and overseas borrowings, respectively.
    Reliance Petroleum (RPL) is one of the 19 companies against which market regulator Sebi has received complaints alleging insider trading in the past three years, acting FM Pranab Mukherjee said on Wednesday.
    Responding to another question, minister of state for finance Pawan Kumar Bansal said that the Reserve Bank had referred cases of alleged violation of the external commercial borrowings (ECB) regulations by Reliance Infrastructure, earlier known as Reliance Energy, to the Enforcement Directorate. A Reliance Infrastructure spokesperson said the company had been legally advised that there had been no Fema violations.
    The allegation of insider trading in Reliance Petroleum pertains to a series of events in November 2007, when 10 entities sold stock futures of RPL in the first week of the month, days before parent Reliance Industries (RIL) started trimming its stake in the refiner.
    Reliance Industries confirmed to ET that these entities conducted these transactions on behalf of RIL. In an emailed response, the company spokesperson said: "All the entities have acted as agents of Reliance Industries (RIL). The entire sale proceeds net of commission was paid over by these entities to RIL. The resulting income accruing from the transactions has been duly accounted for in the books of RIL for the period ending March 31, 2008."
    The spokesperson further said: "As mentioned earlier, all profits (net of commission) for both forward and cash segments have been duly accounted for in the books of Reliance Industries and hence, there is no question of insider trading."
    The queries from ET and RIL's response both occurred before Wednesday's developments. In case of Reliance Infrastructure, the controversy relates to investment of ECB proceeds in fixed deposits and debt mutual funds, something not permitted by the ECB guidelines in force at the time. Reliance Infrastructure had raised ECBs of $360 million and $150 million in July and November 2006.
    ECB norms at the time of these transactions required funds to be parked outside the country and was also not to be used in the capital market.
    RBI had passed a compounding order on the alleged violations regarding the $360 million and a penalty of Rs 124.68 crore was levied. The company did not pay the penalty and sought compounding of both the ECBs — $360 million and $150 million.
    The application was not found to be in order and the company was allowed to file a separate application for compounding of the alleged offence relating the second ECB. The matter was referred to the ED, as the company did not respond further, the minister said in the written reply.

RPL, Rel Infra under regulatory lens

 THE finance ministry has told Parliament that companies belonging to both the Ambani brothers — Reliance Petroleum and Reliance Infrastructure — were being investigated for alleged violation of norms governing insider trading and overseas borrowings, respectively.
    Reliance Petroleum (RPL) is one of the 19 companies against which market regulator Sebi has received complaints alleging insider trading in the past three years, acting FM Pranab Mukherjee said on Wednesday.
    Responding to another question, minister of state for finance Pawan Kumar Bansal said that the Reserve Bank had referred cases of alleged violation of the external commercial borrowings (ECB) regulations by Reliance Infrastructure, earlier known as Reliance Energy, to the Enforcement Directorate. A Reliance Infrastructure spokesperson said the company had been legally advised that there had been no Fema violations.
    The allegation of insider trading in Reliance Petroleum pertains to a series of events in November 2007, when 10 entities sold stock futures of RPL in the first week of the month, days before parent Reliance Industries (RIL) started trimming its stake in the refiner.
    Reliance Industries confirmed to ET that these entities conducted these transactions on behalf of RIL. In an emailed response, the company spokesperson said: "All the entities have acted as agents of Reliance Industries (RIL). The entire sale proceeds net of commission was paid over by these entities to RIL. The resulting income accruing from the transactions has been duly accounted for in the books of RIL for the period ending March 31, 2008."
    The spokesperson further said: "As mentioned earlier, all profits (net of commission) for both forward and cash segments have been duly accounted for in the books of Reliance Industries and hence, there is no question of insider trading."
    The queries from ET and RIL's response both occurred before Wednesday's developments. In case of Reliance Infrastructure, the controversy relates to investment of ECB proceeds in fixed deposits and debt mutual funds, something not permitted by the ECB guidelines in force at the time. Reliance Infrastructure had raised ECBs of $360 million and $150 million in July and November 2006.
    ECB norms at the time of these transactions required funds to be parked outside the country and was also not to be used in the capital market.
    RBI had passed a compounding order on the alleged violations regarding the $360 million and a penalty of Rs 124.68 crore was levied. The company did not pay the penalty and sought compounding of both the ECBs — $360 million and $150 million.
    The application was not found to be in order and the company was allowed to file a separate application for compounding of the alleged offence relating the second ECB. The matter was referred to the ED, as the company did not respond further, the minister said in the written reply.

Airtel to add 17,000 rural outlets by March

 VILLAGE is where the future lies for India's largest mobile operator, says Sanjay Kapoor, Bharti Airtel's president of mobile services. A half of his new customers come from rural India, and now the company wants to set up a Rural Airtel Service Centre in every Indian village. Mr Kapoor speaks to ET's Joji Thomas Philip on how the company plans to go about it.

Can you detail Bharti's rural drive? Will the new rural service centres have employees on Airtel payroll?
    When it comes to rural India, there are several limitations with our call centres. Villagers are usually not comfortable speaking with call centre executives or to a machine. Rural users prefer to be served in the local dialect by a local person. The rural space is very important to us as two-third of the new additions (of mobile phones) are expected to come from this segment from next year onwards. We tried a pilot to set up Rural Airtel Service Centres in Rajasthan. We are following the 'four As' model — availability, awareagent. They are not on the rolls of Bharti Airtel. These agents sell and exchange SIMs, (subscriber identification module cards in phones), they are empowered to activate, reactiness, accountability and affordability. The rural centres help us address these aspects. In all villages, we have identified an entrepreneur, who runs a multi-brand outlet, or a general store or any outlet, and have trained him to be an Airtel vate and recharge mobile connections and sell valueadded services amongst other things.
How has the experience been so far?
    Post the pilot project in Rajasthan, we have established 3,000 such centres in the past couple of months. This will be expanded to 20,000 by March, with an aim to have one such centre in every village. We have noticed that the project acts as a big differentiator for our services. For instance, SIM replacement is a major concern in rural areas as they often get damaged. Customers have to go to the nearest city to replace the SIM cards.
And how does the rural vendor who runs the Airtel centre benefit?
    The vendor can increase his revenues by selling a host of services — from hello tunes, to music-on-demand and ring tones — and help customers activate and stop services on their mobiles. This would serve as an add-on revenue opportunity for him, already running another business.

India’s Enron SATYAM SCAM

Satyam sees sabotage by top officials

Executives Talk To Clients, Attempt To Shift Work To Rival Companies

Deepshikha Monga & Soma Banerjee NEW DELHI

SOME senior executives of Satyam Computer Services are trying to sabotage the troubled company by attempting to divert work to rival firms or cut deals with customers apprehensive about the struggling company's future, top Satyam officials said.
    Some of the executives suspected of destabilising the company's relationship with clients have been identified, two Satyam officials said, but did not reveal how many could be involved. "A few executives have asked a customer if he would give them work if they started something on their own with their current team at Satyam," said a company official, on condition of anonymity.
    Some have also contacted rival IT firms to enquire if they will be hired as part of a package deal in which they come with members of their team as well as Satyam's clients.
INSIDER JOB The Satyam board sacked senior veep Anil Kumar who was allegedly in talks with a rival IT firm to join it along with his team members
Last month, the co also sacked a relationship manager handling US health insurance firm Cigna, allegedly for trying to move work
Two Satyam officials confirmed that the firm has identified some of its key execs for destabilising the company's relationship with clients
Some executives have also contacted rival IT firms to check if they will be hired on bringing along their team members and Satyam's clients Satyam roadmap in the works
RECENTLY, the Satyam board sacked senior vicepresident Anil Kumar, who was handling the banking, financial services and insurance business verticals at the firm. Mr Kumar, who was reporting directly to the former interim CEO Ram Mynampati, was in talks with a rival IT firm to join it, along with his team, according to a person with knowledge of the development.
    Last month, the company sacked a relationship manager handling US health insurance firm Cigna after finding out that he was in talks with the insurer to divert work away from Satyam. A government-appointed board is attempting to save Satyam from collapse after its founder B Ramalinga Raju said he had cooked the firm's books to the tune of over Rs 7,000 crore. The board is now chalking out a long-term roadmap for the company, including a possible sale. Suitors include engineering firm Larsen & Toubro, which holds a 12% stake in Satyam, BK Modi's Spice Group and the Hindujas.
    State Farm Insurance, which had a contract worth about $80 million with Satyam, terminated the deal recently on concerns about the Hyderabad company's future. Other outsourcing vendors of the US-based insurer are now vying for the contract. deepshikha.monga@timesgroup.com 

‘Simple’ FDI norms block flow

Foreign Funds Now Have To Go Through Another Level Of Scrutiny

THE more the government simplifies its norms for foreign investment, the more difficult it becomes for foreign capital to enter India. At least that is the case with the latest Press Notes (2 and 3 of 2009) issued by the Department of Industrial Policy and Promotion. Investment that was permitted under the automatic route in some key sectors will now require clearance by the Foreign Investment Promotion Board and the government, thanks to the new "simplified norms".
    Press Note 3 calls for FIPB/government approval when an Indian company is being set up with foreign equity participation and non-resident control or ownership of that company, in any of the sectors with caps on foreign investment: defence production, air transport services, ground handling services, asset reconstruction companies, private sector banking, broadcasting, commodity exchanges, credit information companies, insurance, print media, telecom and satellites.
    Of these, insurance, banking and air transport were under the automatic route and investment proposals needed only the sectoral regulator's approval. Now, the automatic route is shut, and investment proposals will have to be vetted by the government as well as the sectoral regulator. The new move adds a layer of scrutiny, thereby making the process cumbersome.
    Government approval is also called for when ownership or control of any company in any of these sectors is transferred to a non-resident entity as a "consequence of transfer of shares to nonresident entities through amalgamation, merger or acquisition". "Press Note 3 applies where there exists sectoral cap and transfer of shares from Resident (R) to Non-Resident (NR), resulting into transfer of ownership or control. In such cases, such transfer would require prior FIPB approval," Samir Kanabar, Partner, Ernst & Young, said.
    The approval is needed if an Indian company is being established with foreign investment and is owned by a non-resident entity or controlled by a non-resident entity and control or ownership of an Indian company is being transferred to a non-resident entity.

Recession will be worst since 1930s: Greenspan

1 of 1Full Size

By Kristina Cooke

NEW YORK (Reuters) - Former U.S. Federal Reserve Chairman Alan Greenspan said on Tuesday the current global recession will "surely be the longest and deepest" since the 1930s and more government rescue funds are needed to stabilize the U.S. financial system.

"To stabilize the American banking system and restore normal lending, additional TARP funds will be required," Greenspan said in a speech to the Economic Club of New York. The U.S. Treasury's Troubled Asset Relief Program designed to help bail out banks has been partially successful, he said.

Despite his prognosis on the current downturn, Greenspan said the pace of economic deterioration "cannot persist indefinitely."

He reiterated, however, that a housing recovery is a necessary condition for the end of the financial crisis, and said that "the prospect of stable home prices remains many months in the future."

The stock market, meanwhile, is being suppressed by "a degree of fear not experienced since the early 20th century," Greenspan said. "Certainly by any historical measure, world stock prices are cheap. But as history also counsels, they could get a lot cheaper before they turn."

A recovery in the equity market driven by lessening fear could be "a seminal turning point of the current crisis," he said.

Citing the Japanese experience of the 1990s, Greenspan said U.S. authorities need to assure the repair of the financial system before major fiscal stimulus takes hold.

"Unless we are successful at that, in my judgment, the positive impact of a fiscal stimulus will peter out after its scheduled completion," he said.

He said the real test of fiscal stimulus is whether it "primes the pump" for private demand.

Greenspan said the Federal Reserve's myriad emergency lending programs and the Treasury's TARP funds have the potential of being unwound eventually without leading to inflation or great cost to the taxpayer.

He warned, however, that politics could be an obstacle.

"At the first signs of stabilization and a flattening of the unemployment rate, I presume the Federal Reserve will start to rein in much of its credit extension," Greenspan said.

"However, Congress is likely to strongly object to any tightening of credit prior to full employment being restored. Policy reversals on the fiscal front are nearly certain to meet stiff resistance," he said.

The U.S. Treasury will have to heavily issue debt to fund its stimulus package, and while at the moment the Treasury is having no difficulty finding buyers for it, there is a limit to the expansion of the federal debt, he said.

Greenspan, a proponent of self-regulation, said he was "deeply dismayed" when in August 2007 the premise that firms had the enlightened self interest to monitor their own risk exposure "failed."

"I see no alternative to a set of heightened federal regulatory rules for banks and other financial institutions," he said.

"Even with the breakdown of self regulation, the financial system would have held together had the second bulwark against crisis, our existing regulatory system functioned effectively. But under crisis pressure it, too, failed," Greenspan said.

That said, he still believes self-regulation is a first line of defense for market effectiveness.

"We need not rush to reform. Private markets are imposing far greater restraint at the moment than would any of the current sets of new regulatory proposals."

Answering a question after his speech on whether he would have done anything differently during his tenure as Federal Reserve chairman to try and prevent the housing bubble, Greenspan said, "I think it would be desirable to find a way to suppress asset bubbles.

"But I am skeptical that it can be done."

(Editing by Leslie Adler)

CBI probe ordered into Satyam scam

Rajeev Deshpande | TNN

New Delhi: A CBI probe into the Satyam mega corporate fraud has been ordered with the Centre clearing a formal request from the Andhra Pradesh government received over the weekend. The decision was taken after the CBI agreed to accept the case. The agency is expected to form a special investigation team (SIT) to probe the scam.
    The relevant file was cleared on Monday raising hopes that the probe into the fraud may proceed in a more transparent manner given the obstacles faced by the Securities and Exchange Board of India (Sebi) in even questioning Satyam's founder Ramalinga Raju, his brother Suryanarayana Raju and chief financial officer S Vadlamani who are currently in judicial custody.
    The state government's decision to recommend a CBI probe comes a good five weeks after Raju confessed he had been cooking up accounts and is seen as part of chief minister Y S Rajasekhara Reddy's efforts to shield himself from the political fallout of the scam with the opposition TDP alleging Satyam's links with the Congress.
    Given that multiple agencies—AP police, Sebi and the serious fraud investigations office—were investigating Satyam, the Centre feels that the CBI will have to pool expertise and set up an SIT to probe the scam.
    Faced with allegations that Satyam was given "sweet deals'' in infrastructure projects, Reddy wrote to Prime Minister Manmohan Singh more than a week ago expressing his readiness for a CBI probe, an offer that seemed to have been made on the nudging of the party leadership.

WHO’S SMILING AND WHO’S NOT

The Interim Budget does not have any major announcements that affect the industry, except for some measures such as extension of interest subsidy (on pre- and postshipment credit) to boost exports in sectors such as textiles, leather and gems & jewellery. A slew of measures were announced as part of the stimulus packages in early December 2008 and January 2009. While some of these measures are positive for the respective sectors, the excise duty reduction (by 4%) across sectors has been mostly passed on to consumers. In the following sections, we assess the impact of all these measures, including announcements in the Interim Budget, if any
    Automobiles
The net impact of various policy changes is marginally positive across auto segments. However, lower economic growth prospects, weak consumer sentiment, high interest rates and stringent disbursement norms will continue to impact automobile demand. Due to the 4% reduction in excise duty announced in December 2008, and lower fuel prices and car finance rates, (partly offset by the increase in prices by some car manufacturers in January 2009), the cost of ownership for a typical compact car has declined by 3%.
    Banking Banks: Several liquidity enhancing measures have been announced since October 2008. However, the relaxation in nonperforming loan norms in real estate and corporate sectors may lead to weakening of asset quality and exert greater stress on the sector. The monetary easing measures combined with fiscal stimulus would be effective provided there is revival in both business and consumer confidence. With economic recovery expected to be protracted, these measures would have limited impact on the banking sector.
HFCs & NBFCs: The fiscal measures announced focus on facilitating credit availability, but implementation and revival in business and consumer confidence remains the key for these measures to be effective. Like banks, the fiscal stimulus would have a limited impact on HFCs and NBFCs.
    Cement
The government had lowered the excise duty on packaged and bulk cement by 4% in the fiscal stimulus package announced on December 7, 2008. Cement producers passed on the cutback in duties by reducing prices. Consequently, the impact of lowering of excise duty is neutral for the sector. The imposition of customs duty on imported cement, which was announced in the fiscal stimulus package announced on January 2, 2009, will not have a major impact as India's cement imports are negligible.
    Construction
The allocation of Rs11,840 crore under JNNURM will ensure greater focus on urban infrastructure development. The amount sanctioned is higher than Rs 6870 crore sanctioned in the previous budget. However, the crucial factor is the actual outlay. With IIFCL being authorised to raise Rs 10,000 crore via tax-free bonds, delays in order execution of construction companies on account of developers not achieving financial closure will reduce.
    Consumer durables/Household appliances
Impact of the reduction in the excise duties on consumer durables from 16% to 12% announced in the government's fiscal stimulus package in December 2008 is neutral, as a significant portion of the production of major consumer durable manufacturers come from excise free zones. Other producers have partly passed on the excise duty cuts.
    Housing
The fiscal stimulus package in early December 2008 classified loans under Rs 20 lakh as priority sector lending. The new classification of loans is aimed at encouraging banks to lend. However, due to the deterioration in the job market scenario owing to the prevailing slowdown, especially in the IT/ITeS and financial services sectors, banks may continue to hesitate to increase their advances. However, the Rs 4000 crore re-finance facility for NHB will ensure availability of loans for the sector. The reduction in home loans rates by PSU banks to 8.5% for loans up to Rs 5 lakh (10% margin) and 9.25% for loans in the range of Rs 5-20 lakh (15% margin) has prompted large private players such as HDFC and ICICI Bank to cut rates by 50-75bps.
    Paper
The government reduced excise duty on paper from 8% to 4% for most varieties of paper. The overall impact is neutral as producers have passed on the duty cuts. The government also exempted newsprint, uncoated paper and light weight coated paper used for printing newspapers / magazines from customs duty on February 11, 2009. The impact of this is also neutral as domestic newsprint prices are lower than the landed costs even post the duty cuts.
    Roads and Highways
IIFCL will refinance 60% of commercial bank loans for PPP projects with an investment of Rs 1,00000 crore over the next 18 months. This will improve the availability of credit for infrastructure projects such as BOT road projects undertaken by private players. Despite a budgetary allocation of Rs 9900 crore for national highways and Rs 4000 crore towards the development of rural roads, the implementation of projects may be slow due to policy ambiguities and land acquisition delays.
    Steel
Steel players will benefit marginally from government measures such as bringing HR coils under the restricted category and levy of import duty on flat products. The reduction in excise duty will not have any impact, except in cases where the output is sold directly to the consumer, as most steel sales are MODVAT'able. The withdrawal of export duty on iron ore fines and export duty reduction on iron ore lumps and pellets will encourage iron ore exports.
    Textiles
The extension of the interest subvention on pre-shipment and post-shipment credit till September 30, 2009, will benefit exporters through lower interest costs on working capital loans. The impact of the acrossthe-board excise duty cut of 4% is negligible on the cotton textiles chain, as CENVAT is optional; the reduction in excise duty on polyester and other man-made fibres to 4% has been passed on. The increase in the duty drawback rates on fabrics and the extension of the DEPB scheme till December 31, 2009 will benefit exporters. Powered by: CRISIL, India's leading Ratings, Research, Risk and Policy Advisory company. www.crisil.com 

Pranab’s Predecessor PC Talks Of ‘Can Do’ Spirit, But Taxpayers Left Holding The Can

This parliament session was supposed to have a Budget but no Economic Survey. By a little past noon on Monday, it became clear that there was in fact an Economic Survey, read out at length by stand-in finance minister Pranab Mukherjee, but no Budget to speak of. Politicians are seldom accused of being shockingly proper, but Mukherjee's refusal to use the Interim Budget to even mildly flirt with the voter was almost Victorian in its primness.
    Even as P Chidambaram, who presented the previous five budgets as finance minister, said the Budget showed the UPA's 'can do' spirit, disappointed investors and taxpayers lamented the acting FM's refusal to tweak tax rates along populist lines. He did not even—unlike Jaswant Singh in a similar situation in 2004—promise any if the UPA were to come back. On the contrary, Mukherjee insisted that "constitutional propriety requires that (the) new government formulates the tax and expenditure policies for 2009-10."
    The contrast with Singh's 2004 speech was also highlighted by the two completely different constituencies they addressed. Where 2004 was all about India Shining and the brave new metropolitan Indian taking on the world, Mukherjee's speech was clearly focused on convincing the rural masses that his government had done a lot for them in the last five years.
    Still, Mukherjee's Budget left industry, middle class tax payers and the market with a lingering sense of disappointment. In his speech he did allude to the ''extraordinary'' economic crisis facing the world. Why did it not then merit an extraordinary response, asked many. Why did he not set strict convention aside and provide a stimulus that might have lifted the ponderous economic gloom?
    Since the ''no-change-in-policy'' stance closed the option of any major changes in spends, the budget estimates (BE) for 2009-10 are only somewhat different from the revised estimates (RE) of 2008-09. Thankfully for the UPA, since the RE for the current year is already much higher than BE in many of the electorally sensitive heads, like the National Rural Employment Guarantee Scheme or fertilizer subsidies, this was not really a big constraint.
    The absence of sops—at a time when they could have easily been justified on the grounds of providing a stimulus to a flagging economy — meant that appeals to the voter had to take the form of a reminder of all that the UPA has done for the aam admi. Huge increases in spending on NREGA, Bharat Nirman, the National Rural Health Mission, Sarva Shiksha Abhiyan over the years were what he sought to highlight.
    Not surprisingly, much of his speech recalled the first four years of UPA's tenure. References to the grim economic situation were prefaced by reminders that the crisis was global.
Crushed Expectations
No changes in tax rates, exemption limits
Slowdown, Pay Commission impact tax revenues and spending, fiscal deficit for 2008-09 zooms to 6% of GDP against 2.5% target. Revenue deficit four times higher than budget estimate of 1% at 4.4%
Government borrowing jumps to two-and-a-half times the budget estimates of Rs 1.3 lakh cr to touch Rs 3.3 lakh cr
Fiscal responsibility rules set aside till economy revives, fiscal deficit for 2009-10 at 5.5% of GDP, revenue deficit at 4%
Defence outlay up 34%, but much of it will be spent on higher pay and pensions
Gross budgetary support for next year maintained at the level of Rs 2,85,000cr as reported by TOI last week
MKTS CATCH CHILL
The sensex sank 329 points to close at 9,305 and Rs 90,000 crore of investor wealth was eroded on Monday as the market realized that its hopes of a stimulus package in the Interim Budget were doomed to disappointment. Investors were also unnerved by the minister's acknowledgment that the fiscal deficit in this financial year could be as high as 6% of GDP, given the global slowdown. P 11 

'Aam admi' focus of Interim Budget, says PM

New Delhi (PTI): Terming the Interim Budget as "people's budget", Prime Minister Manmohan Singh on Monday said it showed that aam admi has been centre of the UPA government's planning process.

"The interim is a fine balancing act between the need to restore economy to its optimum growth path and the Constitutional constraints of a pre-election budget," he said in a statement.

Singh, who watched the presentation of the budget by Finance Minister Pranab Mukherjee on television, said he had no doubt that the continued stimulus for various flagship programmes of the government would provide relief to all sections — especially the aam admi.

The Prime Minister said since the UPA government took over, "aam aadmi has been the centre of our planning process. This focus continues and the interim budget clearly indicates the next steps".

Singh, who is recuperating after a cardiac bypass surgery, said "it continues to be a people's budget."

Complimenting Mukherjee for his "effective response to a difficult economic situation", Singh said the benefits of the stimulus for industry and the export sector announced earlier continued to be available.

"Our stress on increasing the investment on infrastructure and employment generation has been clearly underlined. All this will result in positive turn around in economic activity and levels of confidence," he added.

Highlights of interim budget

New Delhi (IANS): Following are the highlights of the interim budget presented by Minister for External Affairs Pranab Mukherjee in the Lok Sabha on Monday:

* Total expenditure for 2009-10 pegged at Rs.953,231 crore (Rs.9.52 trillion)

* Plan expenditure for 2009-10 at Rs.2,85,149 crore (Rs.2.85 trillion)

* Non-plan expenditure at Rs.668,082 crore (Rs.6.68 trillion)

* Provision for subsidy on food, fertiliser and petroleum at Rs.95,579 crore (Rs.955.79 billion)

* Defence allocation increased to Rs.141,703 crore (Rs.1.417 trillion)

* Urban renewal spending pegged at Rs.11,842 crore (Rs.118.42 billion)

* 2009-10 gross budgetary support at Rs.2,85,000 crore (Rs.2.85 trillion)

* Substantial relief of about Rs.40,000 crore (Rs.400 billion) due to tax cuts in 2008-09

* Rural job schemes to get Rs.30,100 crore (Rs.301 billion) in 2009-10

* Rural sanitation spending at Rs.1,200 crore (Rs.12 billion)

* National rural health mission spending at Rs.12,070 crore (Rs.120.7 billion)

* Rural infrastructure development outlay at Rs.14,000 crore (Rs.140 billion)

* Midday meal scheme spending at Rs.8,000 crore (Rs.80 billion)

* India remains second-fastest growing economy in the world

* Economy expected to grow 7.1 percent this fiscal

* Need to make economic growth inclusive

* Government spent Rs.70,000 crore (Rs.700 billion) on 37 infrastructure projects in 2008-09

* Under public-private partnership (PPP), 54 central infrastructure projects approved

* Total expenditure of PPP projects estimated at Rs.67,700 crore (Rs.677 billion)

* India Infrastructure Finance Company to raise Rs.10,000 crore (Rs.100 billion) by end-March

* India has weathered inflation crisis, but no room for complacency

* Country's agriculture outlook is encouraging

* Focussed attention to agriculture

* Plan allocation for farm sector hiked 300 percent in past five years

* Three-fold increase in short-term agriculture credit to Rs.250,000 crore (Rs.2.5 trillion) in 2007-08

* Farm debt worth Rs.65,300 crore (Rs.653 billion) waived of 360 million farmers.

* Government will continue to provide additional subsidy to farmers

* Corpus of Rural Infrastructure Development Fund hiked to Rs.14,000 crore (Rs.140 billion) from Rs.5,500 crore (Rs.55 billion)

* Outlay for higher education hiked 900 percent for 11th Five-Year Plan

* Country's social security net will be strengthened

* New scheme unveiled for young widows in the age group of 18-40

* New disability pension scheme introduced for age group of 18-40

* 15-point programme for welfare of minorities set up

* Record foreign direct investment of $32.4 billion attracted

* Global economic situation not encouraging

* Extraordinary situation merits extraordinary measures

* Need to consider additional fiscal measures in regular budget

* Financial sector reforms need to be accelerated

* Non-performing assets (NPAs) of public sector banks have declined

* State-run banks see NPAs drop from 7.8 percent to 2.3 percent in four years

* Number of loss-making state-run units down from 73 to 58

* Profit-making units up from 143 units to 158 units

* In past three years, India grew by average of over 9 percent

* Per capita income expanded by 4.7 percent per annum

* Fiscal deficit was brought down from 4.5 percent to 2.7 percent

* Revenue deficit was cut from 3.6 percent to 1.1 percent

* Exports increased 26.4 percent per annum

* Foreign trade increased from 27.3 percent to 35.5 percent

* Tax to gross domestic product ratio expanded by 9.2 to 12.5 percent

* Agriculture grew by 3.7 percent per annum

* Revised estimates for 2009-09 peg plan expenditure at Rs.282,957 crore (Rs.2.83 trillion)

* Central plan increased for host of areas like telecom, rural development

* Tax collections expected to fall to Rs.627,949 crore (Rs.6.28 trillion)

* Revised revenue deficit is 4.4 percent of GDP against 1 percent

* Revised fiscal deficit at 6 percent of GDP against 2.5 percent

Budget 2009-10

Local buyers to take a huge goodwill hit

Indian acquirers'a/cs will have to reflect erosion in goodwill,an intangible,of their foreign targets bought during boom time

Sugata Ghosh MUMBAI

    SHAREHOLDERS, analysts and Dalal Street watchers should make a mental note of the sudden and dramatic shocks that await many Indian companies that have gone in for overseas acquisitions in the past few years. These might surface when the local company has to absorb the 'goodwill' loss suffered by the foreign firm that was bought when the going was good.
    No Indian corporate has so far encountered such an accounting hit. But this year, many will, when they consolidate the books of their foreign acquisitions. Goodwill of several overseas companies has taken a knock due to the economic meltdown and a trade downturn. But the erosion in goodwill, though an intangible, will not be confined to the balance sheets of the foreign firms. It will also find its way into the profit and loss accounts of the listed Indian company.
    Local shareholders could suddenly discover that the net profits of the company have been wiped out — such losses, which accountants call 'goodwill impairment', could run into billions of dollars. But this may not be a reason to panic: such hits don't mean a cash drain or reversal of fortune for the acquirers. Rather, it's a fallout of stringent accounting rules that force a firm to bluntly admit that the company it bought is less valuable than what it had paid when times were different.
    While acquiring a company, the buyer works out the enterprise value (EV) of the target firm — the minimum someone would have pay to buy it. The EV is calculated by estimating the fair value of the net assets of the target firm and adding its loans to the number.
DEAL DRAWBACK WHAT IS 'GOODWILL'?
Additional money forked out for an acquisition above enterprise value is considered 'goodwill' in the accounts. It reflects the extra the buyer pays due to synergy benefits, innovation & excellence
HOW DOES IT AFFECT INDIAN ACQUIRERS?
Though an intangible, loss of goodwill will find its way into their profit and loss a/cs
IS THERE REASON TO PANIC?
Not necessarily
because the hits don't mean a cash drain or reversal of fortune for the acquirer. It's a fallout of strict accounting rules that force a firm to admit the company it bought is less valuable than it was at the time of acquisition Accounting norms tight
    THE extra money that is forked out over and above the EV is captured in the books as goodwill. Goodwill reflects the extra the acquirer is paying due to synergy benefits, innovation and excellence which have not been factored in the fair value.
    A few companies will have to announce the goodwill loss sooner than others if the foreign company has publicly traded securities. According to corporate circles, the market will get a taste of it this month, when a few local companies disclose the goodwill decline suffered by their foreign subsidiaries.
    How would Indian investors take it? Sanjay Aggarwal, executive director at KPMG, says: "Investors typically focus on EPS. Additionally, it is essential to focus on sustainable earnings, particularly in relation to the extent and quality of investments in assets, including intangibles, goodwill and the like. Therefore, although changes in carrying values of such assets impact current earnings, these are not generally expected to be recurring items that would impact sustainable earnings of an enterprise."
    Even though it's an accounting impact, an acquirer will see its reserves shrink due to the goodwill loss of the foreign subsidiary. So, the company will start the next financial year with a lower opening reserves which has to be gradually replenished with new profits.
    While there are many differences between Indian and other accounting standards (US GAAP and IFRS), accounting for goodwill, the amortisation and/or impairment thereof is a significant area of difference. The important issue is impairment is a provision made on the basis of estimate of cash flows in the manner prescribed by the various generally accepted accounting standards.
    A provision could be temporary and is qualitatively very different from a write-off of assets or permanent diminution in assets. However, some accounting standards are extremely stringent on writeback of such impairment provisions.
    sugata.ghosh 
    @timesgroup.com 

Agencies nail fund diversion at Satyam

CRORES DIVERTED TO MAYTAS, FRONT COS

INVESTIGATING agencies probing the Satyam Computer Services scam have proof that money was diverted into Maytas Infra, Maytas Properties and various front companies linked to B Ramalinga Raju, the disgraced promoter of the software firm, and his family members.
    While thousands of crores could have found their way out of the software firm's books, key agencies, including the Serious Frauds Investigation Office (SFIO), will soon assess the quantum of diversion, based on records seized from all these firms.
    SFIO's interrogation of Raju, his brother Rama Raju and former Satyam CFO Vadlamani Srinivas on Saturday and two auditors of Price Waterhouse on Sunday could provide clues on the modus operandi.
    The investigating agency is understood to have questioned Raju and his brother Rama Raju on the mystery of the missing Rs 1,700 crore from the company's account in an overseas branch of a state-owned bank.
    Raju's elder son Teja Raju runs Maytas Infra while the younger son, Rama Raju Jr, runs Maytas Properties. Raju and his family also floated 350-odd front companies, mainly for land deals.
    "Investigations show that the intercorporate loans and investments made by Maytas Infrastructure and Maytas Properties far outstripped the limits laid down under the Companies Act, raising suspicion on diversion of funds to benefit the promoters' companies," said an official involved in the investigation.
    Under the Companies Act, a firm needs shareholders' approval to make any loan or investment, give a guarantee or provide security beyond 60% of its paidup capital and free reserves, or 100% of its free reserves, whichever is higher.
    Maytas Properties had a paid-up capital of only Rs 5 lakh. However, in 2007-08, the firm made investments to the tune of Rs 90 crore and had loans and advances totalling Rs 419.63 crore. The company also received funds through unsecured loans for about Rs 600 crore. It used the borrowed funds for inter-corporate investments and loans.
    Besides, the firm made investments in preference shares and debentures at an interest rate lower than the prevailing bank rate, violating provisions of the Companies Act. "Various balance sheets of the subsidiaries of Maytas Properties show they disclosed high amounts of share premium received from the holding company without any corresponding cash and bank balances. Land and property were sold at inflated prices without corresponding amounts in cash and bank accounts, thus increasing the reserves and profits to artificially show high net worth," said the official.
    Similarly, Maytas Infra had several transactions with group companies in FY08, in violation of the Companies Act. FOCUS OF PROBE
Ramalinga Raju's modus operandi of falsifying Satyam's accounts Involvement of directors, managers and officers of the company in falsification Involvement of other entities (Maytas Infra, Maytas Properties, 350-odd front cos) in the scam Siphoning off of funds from Satyam; diversion of Rs 1,700 cr from an overseas bank account Role of internal and statutory auditors Maytas was last straw
    AGAINST a paid-up capital of Rs 301.42 crore, the company made investments of over Rs 256 crore and loans and advances to group companies of around Rs 102 crore.
    Satyam, too, would have violated the norms had it acquired Maytas Infra and Maytas Properties. The cost of acquisition was put at Rs 7,920 crore, though Satyam could make investments only up to Rs 2,000 crore based on its accounts for FY08. "The aborted Maytas deal was the last attempt to fill up the fictitious assets with the real ones," Raju had said in his confessional statement on January 7. Investigating agencies are baffled as several front companies have asked Satyam to repay Rs 1,230 crore.

Interim budget to decide market direction

THE GREENSPAN idea that monetary and regulatory policy cannot prick asset price bubbles but should deal with the consequences when the bubble has burst — now looks dangerously quaint. The intellectual justification for the Greenspan idea — was that identifying equilibrium levels of asset prices is difficult; and policy tools to prick or limit bubbles are limited. The unmentioned but perhaps real rationale is a kind of implicit market fundamentalism: markets value assets best, and even if markets make mistakes, policymakers can never be sure in advance whether and to what extent mistakes have been made. Such "asymmetric" policy responses are out.
    But if they are to be replaced by more symmetric, counter-cyclical policies, then explicit or implicit target or guidance zones for the prices of all main assets — shares, housing, exchange rates and perhaps even oil — are unavoidable. However, the wreck that is today's financial system is testimony to the catastrophically flawed nature of that doctrine. Policymakers have no choice but to have a view on what constitutes a reasonable or equilibrium level of all asset prices. Of course, determining such levels is subject to uncertainty. It is prudent to contemplate that policymakers should determine not reasonable levels but reasonable zones for asset prices. One of us has in the past argued for exchange rates to have target zones with a margin of 10% around the central estimate.
    Unfortunately, we are in the midst of a global economic crisis. But much of this is already in the price of global financial assets. This is not to say we are on the cusp of a sustainable rally in global equities and credits. There is room for disappointment with regards to how long the recession lasts. But it is now important to realise that while global equity rallies will be dragged back by the economic news, we are probably not too far from the bottom either. We are close to the bottom because policy makers are finally fumbling towards a "bad bank" solution to the crisis. The "bad bank" is the tried and tested solution to previous crashes. Bad assets are put into a government funded pool without an accounting or funding requirement to sell assets early, removing distress from the markets and giving private investors confidence to return.
    Indian capital markets was largely flat last week with marginal gains in Nifty as well as Sensex. Global news-flows largely dominated the sentiment, especially news pertaining to president Obama's fiscal stimulus of $789 billion. However volumes were still lacking from larger institutional players indicating a cautious mood.
    On the domestic economy front, the minus 2% growth in the index of industrial production (IIP) for December 2008 is the lowest on record since 1993, when the index was first compiled. The sharpest slowdown, of minus 12.8% , came in consumer durables — the fate of consumer non-durables was also negative, at minus 0.1%. The consumer durables sector has borne the burnt of consumers shying away from taking loans at very high rates in difficult times. Needless to say, manufacturing has taken a hit on account of the interest rate regime, which needs to urgently factor in global and domestic realities. Perhaps the silver lining in all the dismal numbers surrounding the economy is the steadily falling rate of inflation — now down to 4.3%. The latest figure is for the week ended January 31, which would have only incorporated the first-round effect of the fuel price cut.
    On the other hand due to surging expenditure bill and dwindling tax revenues, the government announced its intention to borrow additional Rs 46,000 crore from the market over the next two months. RBI must respond soon with bath rate cut and liquidity increasing measures, if the economy is to avoid a worsethan-possible 2009-10. An insufficient response means we may end up short.
    This week the market will eagerly await the expected relief in both direct and indirect taxes,from the interim budget on monday. Expectations are building around possible announcement of tax free infrastructure bond issuance by infrastructure or infrastructure financing companies in the public sector for boosting infrastructure spending. From the current trend of retail investments, it can be safely concluded that such instruments will be greatly in demand and should succeed in raising significant amount of funds from retail. Market would also welcome removal of irritants like securities transaction tax. Appropriate budgetary measures aimed at providing boost to growth will definitely be appreciated by the market.

S U D I P BA N DYO PA D H YAY Director & CEO, Reliance Money

INDIA’S THE growth engine

Unilever, Philips, Nestle, PepsiCo, Coke, GM, VW & Microsoft bet big on country

John Sarkar & Mansi Tiwari NEW DELHI

A FEW weeks ago, a senior Hindustan Unilever (HUL) executive sat hunched over his computer screen, poring over an e-mail from Paul Polman, CEO of consumer goods major Unilever. "None of us should underestimate how tough the next year will be," Polman had written. "We need to think growth in everything we do," he urged. And if the HUL executive is to be believed, Polman's words weren't exactly generalisations.
    Developing markets, a major chunk of which is India, make up almost half of Unilever's group sales. And hit by the global economic recession, demand for consumer goods in the US and European markets are unlikely to bounce back anytime soon. The same applies to other sectors as well. Consider this: In the appliance category, industry estimates revealed that the US market has declined by around 25-30% and demand has also fallen by 20-35% in main European markets. As a result, most companies — from auto makers to shampoo sellers — are resorting to scrapping targets and cutting costs. For instance, South Korean consumer durable firm LG Electronics has recently proposed to cut costs by $2.2 billion globally. And Unilever just scrapped its targets. Big decisions these, but where do they lead the MNCs?
    India is the likely answer. And here's why: Both Polman and LG's CEO Nam Yong told reporters recently that despite the slowdown their developing markets are still growing. And closer home if hints from these MNCs are anything to go by, the domestic market still offers plenty of opportunities. Moon B Shin, LG Electronics India's MD said: "Compared to other markets India is not much affected by recession and its projected growth rate is quite positive. India is a very strategic market for
    LG globally and I personally believe that if a company is strong in India and is a market leader, it will be able to do well globally as well because India is a mix of various countries due to its diversity." And Shin, who expects a growth of 15% this year, isn't the only one to believe that India can deliver. Senior officials in MNCs such as, Philips Electronics, Nestle, PepsiCo, The Coca-Cola Company, Wrigley, General Motors, Volkswagen, Microsoft, Perot Systems, Nokia, Dell and Samsung are also on the believer's list.
    Murali Sivaraman, CEO & MD of Philips India, told SundayET that he has been briefed by his Netherlands-based headquarters to drive growth for his company. "My brief is to drive growth, quarter by quarter," Sivaraman emphasised.
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WE will be hiring more people and branching out into new areas soon." Similarly, a senior official with confectionery firm Wrigley India held up Sivaraman's point. "This is among the top four focus countries for Wrigley," he said. "The companies that have been in India for a long time are now looking at this market to drive growth for the parent. And this is not because India is a stable economy, but because other economies are not doing well."
    So how important is India for these MNCs? Says Rajan Anandan, MD, Microsoft India: "The economy has a healthier outlook in India than in many economies around the world — as segments like the public sector and telecom continue growing, as do areas like education. And given that India is key to Microsoft both from a talent and market perspective, the company will continue to invest in long-term growth and innovation in the country."
    Talking about investments, here is a quick glimpse: Chicago-based Wrigley plans to invest close to Rs 200 crore in the Indian market in the coming year. Nestle has plans of investing close to Rs 600 crore in another 2-3 years.
    PepsiCo on the other hand plans to invest a much larger Rs 2,500 crore over the next three years. Even consumer durable firm Samsung is ready with Rs 100 cr this year with close competitor LG planning an infusion of Rs 200 crore.
    And even in the automobile sector, certain MNCs are busy ramping up operations here while Detroit and the rest of the world bleed. "Carmakers such as Hyundai, Volkswagen (VW), General Motors (GM) and Fiat are likely to up the ante in India," says Ian Fletcher, a UK-based auto analyst with IHS Global Insight.
    "Many global automakers still have a largely limited exposure to the Indian vehicle market, so there are still chances for them to grab market share from more established local competitors," he adds. General Motors, for instance, is looking to launch a cheaper model than its current popular Spark model. It is also not hesitating to invest, which will eventually see it turn its operations in to an engine and transmission hub for the Asian region. When contacted Karl Slym, president & MD of GM India agreed. "We are ramping up assertively and all our plans for India such as, opening new plants and launch of new models are on track," said Slym.
    Fletcher also forecasts that Korean carmaker Hyundai will benefit locally and in the export market from the i20 as it has done with the i10 already. And that due to some automakers toning down their planned investments (Nissan/Renault), or pushing their completion dates further into the future (Toyota, Honda) — auto firms such as, Volkswagen (which should be opening its new plant in the next few months) and Fiat (which has also ratcheted up its investment with Tata) will get room to find their feet as they expand their own market share in the country.
    And the others are not too badly off either. Sample this: Muhtar Kent, the president & CEO of cola major Coca-Cola Company, wants India to be one of the top five markets for his company. Close competitor PepsiCo is pushing its local arm to triple its business here in the next five years. Points out a PepsiCo India official: "A testimony to India's growing significance is the recent visit by the 26-member PepsiCo executive committee to India. And our recent elevation to a 'region' status also shows the increasing importance of the India business in the global context."
    Sameer Garde, country GM, Dell India has no qualms in saying that India is among the most important commitments for the PC maker. Says Garde, "India has been among the fastest growing Dell markets. We believe that the next one billion users to come online will mainly be from the emerging countries such as China and India. Dell has more employees in India than any other location outside of the US. We have seen tremendous growth here and will continue with significant initiatives."
    And Garde is bang on target, feels Anurag Jain, MD for APAC, Perot Systems, a US-based IT solutions provider. "The financial epicenter of the world is moving eastward," he says. "There has been approximately 50-60% jump in the Indian revenues."
    And this is just the tip of the iceberg, feel experts. And who better to sum it up than Unilever's Polman, who says that in 20 years' time the BRIC countries along with Mexico, Indonesia and Turkey will constitute a population of 6 billion plus — equal to today's global population, with most likely a significantly higher level of wealth. Well, now with all these plans on the anvil, the slowdown doesn't seem all that slow anymore, does it?

We need to think growth in everything we do. None of us should underestimate how tough next year will be
Paul Polman,
CEO, Unilever

We are ramping up our operations assertively and all our plans for India are right on track
Karl Slym,
President & MD, GM India

My brief is to drive growth quarter by quarter. We'll be hiring more people & branching out into new areas
M Sivaraman,
CEO & MD, Philips India

Compared to other mkts, India is not much affected by recession & its projected growth rate is positive
Moon B Shin,
MD, LG India

We want India to be one of the top five markets for our company in the future
Muhtar Kent,
President & CEO, Coca-Cola Co