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Aditya Ghosh reveals how he ended up in Oyo

3 hours 18 min ago
Led by Ritesh Aggarwal, Oyo has been making headlines for its audacious moves. Sharing his vision is Aditya Ghosh, CEO, India & South Asia, Oyo Hotels & Homes. He wants the company to do in hospitality what Indigo, from where he resigned as president in 2018, managed to do in aviation — cut costs, standardise quality and become accessible to millions. At Oyo’s corporate office in Gurgaon, Ghosh speaks to Malini Goyal on the journey so far and the road ahead. Edited excerpts:You have been in Oyo for nine months. What has the transition been like?I came to Oyo for two reasons. One, I wanted to put myself out of my comfort zone completely. Two, I wanted to create a story out of India, build a global company with global presence. Both have come true. That keeps me buzzing and alive. At Indigo, I was there from day zero and had 10-12 years to get used to. At Oyo, I had to do that within weeks. I had to demonstrate that I will be fighting in the trenches with them and be open to challenges. Every day, I learn so many new things. It’s a lucky place to be in. This has been an extremely fulfilling opportunity.Oyo is trying to solve a really hard problem and growing at an exponential pace. This isn’t just about creating fantastic business. Oyo wants to quickly make living spaces much more accessible and affordable. Keeping customers at the centre, it is throwing two important resources — intelligent mind and technology — to achieve it. A broken market, a large number of consumers and technology – Oyo is about the interplay of all these.What are your biggest challenges? Platform companies like Oyo and Zomato have of late seen a surge in protests and boycotts.First, I want to clarify that we are not a platform business. We are not an aggregator. We take ownership of our customer experience.Currently, franchisees are 75% while we own 25% of the properties. However, in the future, that ratio will change. We will increase our share (of owned properties).We are on a mission to make our product inexpensive and accessible. It will impact legacy businesses because they are inefficient. Over the last 15 years, we have seen these protests impact many legacy industries — travel agents, legacy airlines, telecom, auto and many consumer companies. Indigo, Reliance Jio, Bajaj Auto — with each of these companies we heard the same arguments we are hearing today from legacy players. But newer businesses came and made things better. It will be grossly unfair that just because you have gotten away with inefficient business so far, you expect me to protect you.When large-format stores came, people said kirana stores will vanish. They haven’t. If you are not running business efficiently and not offering at a price point that consumers want, you will feel the pain. Vested interests react. I am used to it. Oyo is impacting many individuals and businessmen. The key is how do we explain ourselves to partners and the government. What I know is that finally what wins is what consumers want. 71236427 Has anything significantly changed since you arrived? What are your focus areas?I believe this is about making Oyo an accessible and profitable business, and not burning cash. We are steadfastly focused on bringing down the losses. Our profitability is moving up. Two years back, our losses were 45% of our topline. A year back it was 20%. This year hopefully it will be 10% or we can even get rid of that. We are on track to building a sustainable business. We added over 200 cities to our portfolio in the last eight months. We are trying to become more efficient — get better at revenue management, introduce dynamic pricing, focus on fundamentals of the business and make money.How is Oyo growing?There was a need to set out our priorities at Hotels & Homes. Safety and security are critical. We have done many things such as introducing an SOS button on our app to improve safety. We are growing rapidly. At Oyo Hotels & Homes, we will add 3,000 employees in India alone this year. As we get deeper into tier-2 and tier-3 cities, we have to focus on how we use tech to get to our customers and serve their needs well. This is a supply-constrained market. Since January, we have grown at 50%. Being a market leader, we have a responsibility to play a larger role in CSR and it is part of my office. One of the initiatives we undertook was water problem in Shimla. Early this year we decided to create rainwater harvesting at all our hotels in Shimla. We have already managed to make some impact.Our franchisees struggle with operational excellence, funding, etc. We have rolled out a partner-engagement programme to deal with some of these issues. We are focusing on more product supply, a more consistent customer experience and using technology to grow faster.We have a very focused India team. One of our priorities is to also grow talent for the world. I am constantly looking at our supply, technology and people — do we have the right organisational structure to take us forward. On brands and products, we ask if there is clarity on what we are promising and delivering. Hope is not a plan. How do you break it down into execution? Ritesh (Agarwal) is fantastic on this.What is it like to work with Ritesh Agarwal, the 25-year old Oyo founder? What difference have you managed to make?That’s a question perhaps Ritesh should answer. I believe my team and I have been able to release some of his time. Ritesh is much wiser than his years, so much so that sometimes you forget he is just 25. Entrepreneurs have a deep understanding of their business and a very strong gut feeling. It is very enviable. For a professional CEO (like me) to understand and get that gut instinct is very difficult.Ritesh stands out for his drive for execution. He is able to do reviews once a month and yet go deep and see the larger picture. He sleeps even less than me, and I sleep only 4.5-5 hours every day.Going forward, where do you see Oyo?It is a combination of three-four things. Quality living at an affordable price is a secular demand in hotel business globally today. We have a very unique play between consumer, technology and real estate, with our hotels, co-living and homes. We are poised to become one of the largest hospitality brands in the world. 71236457 71236464 You took a long break after Indigo. What did you do after quitting?In a long career, taking six months off isn’t a big deal. I was fortunate enough early on in my career to get a leadership role at Inter-Globe. I was 28 when it began and by 40-41 I had spent 13-14 years in leadership. In those six months, I wanted to do things without a plan, things I always wanted to do but never had the time. Learn new things. I spent a lot of time with startups, both unicorns as well as small ones. I went driving, hiking and trekking. I binged on films that I had waited for years to watch. I have gone to watch movies alone at 11 am on a Monday. Before I began rethinking, I wanted to clear my mind and get some space for myself. I met and talked to friends from across walks of life, including musicians. (When I quit) I had an open mind. But I was clear about a few things — one, I am not going to decide on 200 things. Two, whatever I do has to be outside my comfort zone. This meant no airline job.What did you discover about yourself in those six months?That I cannot be a unidimensional person. I am the happiest when I am doing 500 things at a time. I have tonnes of passion — film, sports, travel, reading, walks, photography, learning a new instrument or going to concerts. In those six months, I even considered not working full-time. During those months, even when I worked as a senior advisor with Tata Trusts, I realised that I wanted to be in the thick of things, that anything to do with a large number of customers and India as an emerging market excited me. I must mention that I did consider entrepreneurial options — like running an established business or working with a PE firm, not-for-profits or startups.How did Oyo happen?I first met Ritesh at The Economic Times’ event 40 Under Forty. After I quit Indigo, he called me. The first day we met, we were talking for five hours and it continued till midnight. We decided to continue our conversation the next evening. We met at 8 pm. Eventually, we had to move out of the hotel and drive down to my place where we got finished at 4.30 am. We joke that we were together for 13 hours on our first date. This was more about understanding the business. After that we talked for weeks. About things like what’s the need for anyone since Ritesh was doing a phenomenal job. I told him to take me out of the equation and then let’s talk. What struck me most about Ritesh is his audacity to dream big with great humility. Just look at how many great leaders he has been able to attract. 71236499 What helped you make the decision to join Oyo?One is Ritesh. Chemistry with founders is very important in these roles. The ability to express oneself and disagree is critical. As I learnt more about Oyo I also realised that they have some very impressive people in talent, which is so much in short supply these days. I have had an opportunity to help build an airline like Indigo. But due to regulations in India we couldn’t go overseas. At Oyo, I saw an opportunity to create a global brand.Indigo and Oyo are two very different companies. How is it to work inside the two?The biggest difference is that Oyo is a new-age, very tech-driven company, operating at a global scale and growing at very fast pace. I see a lot of similarities between the two. For example, the type of customers we are looking for. Air travel was once an expensive affair. We (Indigo) made it affordable. In 2006, we had about 18 million air travellers annually. Now, there are about 18 million people travelling every month. Oyo, too, is working to make something that is expensive more affordable at a massive scale. In India alone, we have close to 200,000 people sleeping on Oyo pillows.What’s life for you outside work?I work long hours. I am travelling a lot more now — about 10 days a month. But I find time for myself and family. I get up at 4 am and am very regular with my workout — weight training and swimming. I have been doing it regularly for eight-nine years now. I make time for my two kids. I get them ready for school, help them with their homework, go out for latenight burger outings.
Categories: Business News

The 72-hours story behind FM's booster dose

3 hours 18 min ago
The decision to go ahead with path-breaking cuts in corporate tax rates was finalised on Wednesday afternoon and officials given the go ahead to complete legal and constitutional requirements prior to finance minister Nirmala Sitharaman's press conference in Goa on Friday.The officials prepared the paper work for the exception from Cabinet approval that was later signed by Prime Minister Narendra Modi and also worked on fine-tuning and re-examining all fiscal implications of the tax cuts. The preparation of the ordinance to amend the Income Tax Act then got under way.As they worked in secrecy, officials were able to get the ordinance ready only in the pre-dawn hours of Friday when all procedures in the finance ministry were completed. The ordinance was then sent to the PMO and as the morning advanced, to Rashtrapati Bhavan for President Ramnath Kovind’s assent.In the meanwhile, finance ministry officials and Sitharaman reached Goa where the GST Council was to meet. The press conference scheduled ahead of the meeting at 10 am attracted attention but the purpose was unclear beyond expectation of another round of measures to boost the economy.The press release to accompany the announcement had been readied but was available only to a handful of officials. It was made available to the media once the finance minister completed speaking about the main points of the decisions that had been taken over the past few days.The Presidential approval was received ahead of Sitharaman's press conference. Earlier, the discussion in government had centred around whether it is time for a big-bang announcement intended to overhaul the official thinking on the economy rather than more fixes and immediate measures.The scope of the tax concessions, it was felt, should not be seen in the short term but as initiatives to accelerate the economy and also change its character. The strong majority in Parliament and a conviction that the current slowdown could be used as a launch pad for deeper reforms motivated the government.
Categories: Business News

GDP is a flawed way to measure economy, but it matters

3 hours 18 min ago
A group of statesmen sat around a table 100 years ago to hammer out an agreement. World War 1 had just ended, and the Treaty of Versailles, signed in June 1919, was meant to make the loser pay. Germany would have to disarm, give up territory and pay reparations. The amount came to 132 billion marks — which would be US$442 billion today.Germany did not have that money. Their only way out was to print it. Germany printed so much of it that it led to hyperinflation: a loaf of bread that cost the equivalent of 26 cents in 1919 rose to US$100 billion by the end of 1923. This was not just a tax on the poor, as inflation always is, but a war on the citizens of Germany. Out of the resultant bitterness and anger rose Nazism, Adolf Hitler and World War II: the unintended consequences of a poor treaty and bad economics.Some saw it coming. John Maynard Keynes wrote a book called The Economic Consequences of the Peace in 1919, in which he explained why those clauses of the treaty would lead to disaster. He also pointed out one problem that economists of that time faced: they did not have a measure for national income. The concept of the gross domestic product (GDP) did not then exist.There are two points I want to make in telling you this story. One, economics has humanitarian consequences. Two, metrics matter.The original impetus behind measuring national income was statist. The state needed to know how much money it could extract from its subjects, often for the purpose of fighting a war. There had been efforts made to calculate national income from the 17th century, but this task gathered momentum during the Great Depression of the 1930s. President Franklin Roosevelt planned to revive the economy through increased government spending — but there needed to be a way to measure it first. A group of economists led by Simon Kuznets got to work. The metric was formalised just as WWII approached.The creation of GDP has been described as ‘the Manhattan Project of economics’, but its utility extended beyond the war, and beyond economics. It became important in geopolitics, where the optics of the Cold War led the two sides to fight over whose economy was bigger. Any metric can be gamed, and there were ample geopolitical incentives to game the GDP: a high GDP could get you entry into exclusive groups like G8 and G20, and a low GDP could get you more foreign aid.As far as domestic politics was concerned, how does one measure the economic performance of a government? The GDP is the obvious measure, which explains why arguing over the GDP has become, as the Greek economist Andreas Georgiou pointed out, “a combat sport.”There are many things wrong with GDP. Its pioneer, Kuznets, felt that any such metric must measure welfare and not just output. He was opposed to government spending being counted in GDP, but was over-ruled by the government. That meant that bombs and biscuits are both counted in the GDP. The predatory state can divert money from productive uses in its citizens hands to useless ones in its own. Government spending, even if it leads to a net loss for society, will still be counted in the only metric we use, creating an illusion of progress.Besides this, there is the question of what GDP cannot measure, summed up so well by the Widower Paradox: If a widower marries his domestic help, and thus stops paying her, the nation’s GDP goes down. GDP also cannot measure many of the intangible ways in which our lives are better: I might buy a cheaper mobile phone today than I did 20 years ago, but the value I derive from it is so much more because of technology. Even if GDP is not an accurate measure of welfare, it is a good indicator of it. It correlates with alternative metrics, such as the UNDP’s Human Development Index. But it does need to be measured accurately.In India, GDP measurement has been shady. Firstly, the informal sector is most of our economy, and measuring this is hard. Secondly, the methodology the government uses is opaque, even arbitrary, and cannot be independently verified. We have to take the government’s word for it — and all governments in a democracy have an incentive to lie. If, despite this, our GDP growth rate has dipped so much recently, that is a cause for alarm.Economics has consequences. Bad economics kept millions in our country poor for decades. The liberalisation of 1991, partial though it was, showed us the power of GDP growth. Today, we know that every one percent of GDP growth takes over two million people out of poverty. Thus, a falling growth rate is not just an economic problem but a moral failure.
Categories: Business News

How plastic ban will affect the businesses and consumers

3 hours 18 min ago
The first thing you notice about the waste-collection centre is the absence of stink you associate with mounds of garbage. That’s because this municipal corporation facility at Malad in suburban Mumbai is only for segregated dry waste.It’s around noon on a weekday and two trucks, which have collected rubbish from around the neighbourhood, are being unloaded as a third one pulls in. There’s everything from a mattress to a travel bag in the trash that was dumped here a few days ago.Three workers look for recyclable plastic in the refuse, including packaged water bottles and soft drink bottles, and shampoo and handwash containers, which will later be sent to a recycling unit. These plastics are shredded and turned into clothing, toys and trash cans, among others. But there is a lot of plastic here that cannot be recycled & the most common is multilayered plastic (MLP) packaging, used for chips, biscuits, chocolates, etc. 71237317 MLP, along with thin grocery bags, straws, cups, glasses and cotton buds, among others, are called single-use or disposable plastics. Water bottles are used only once in advanced economies but in India they are often reused; nine out of ten of polyethylene terephthalate (PET) bottles are recycled in India. In June 2018, Prime Minister Narendra Modi announced that India would eliminate single-use plastics by 2022. Canada and the European Union have since said they would get rid of some single-use plastics by 2021. 71237327 Modi reiterated his position last month when he called for the first big step in the fight against disposable plastic to be taken on October 2, the 150th birth anniversary of Mahatma Gandhi. Since that statement, there has been a lot of speculation on whether the government will ban or announce a phasing out of some single-use plastics on that day.How hard will it be to implement a plastic ban? What will it mean for businesses and consumers? Will they find a way around it? According to Reuters, the government could ban six items, including bags, cups, straws and certain sachets. Another news report pegged the number of items to be outlawed at twice as many. These reports have pushed industry lobbies to issue statements highlighting the adverse impact of a ban and to take out advertisements in newspapers in defence of plastic. 71237333 “If an industry has been operating following all the rules, you cannot suddenly say that its products will be banned,” says Anil Reddy Vennam, whose Hyderabad-based firm Nayastrap manufactures stretch film used to cover boxes and foods . 71237337 India’s plastic-processing industry has over 30,000 units and an annual turnover of Rs 2.25 lakh crore, according to the All India Plastic Manufacturers’ Association (AIPMA). The industry also employs over 4 million people. The government will have to carefully weigh the impact of a ban, in terms of plant closures and job losses, at a time of economic downturn.The Big TrashThere are few materials as versatile as plastic, most of which is made from oil, natural gas and coal. It makes packaged foods last longer on store shelves and withstand extreme temperatures while being transported. Packaging accounts for a third of India’s plastic consumption, according to Ficci, an industry body. And 70 per cent of plastic packaging is turned into waste in a short span, as per a report by the Ministry of Housing and Urban Affairs. 71237341 India generated 26,000 tonnes per day (TPD) of plastic waste in 2017-18, the latest year for which data is available, according to the Central Pollution Control Board. Of that, 15,600 TPD, or 60 per cent , was recycled. The rest ended up as litter on roads, in landfills or in streams. Uncollected plastic waste poses a huge threat to species on land and in water.Around eight million tonnes of plastic waste enter the ocean every year. The river Ganga alone took 1.15 lakh tonnes of plastic into the ocean in 2015, second only to China’s Yangtze, according to a research paper published in Nature Communications magazine. 71237344 It’s also common to see garbage being burnt on the sides of roads, adding to our cities’ air-pollution woes. Some plastics take hundreds of years to decompose. That means a polyethelene shopping bag made in 1965, the year it was patented by a Swedish company, could still be at a landfill or in the ocean. 71237352 India’s plastic recycling rate is 60 per cent , three times higher than the global average of 20 per cent , and India’s per capita plastic consumption — at 11 kg in 2014-15 — is less than half the global average of 28 kg. In 2016, India said it wanted to increase the per capita plastic use to 20 kg by 2022. Since half the plastic now produced is meant to be used only once, India has to figure out what plastic it wants to use and ban — and how it will recycle all that trash. Use & ReuseA key step in that direction was Extended Producer Responsibility (EPR) under the Plastic Waste Management Rules, 2016, which were amended last year. As part of EPR, producers, importers and brand owners — like fast-moving consumer goods (FMCG) and pharma companies — are supposed to take back the plastic waste generated by their products, with the help of waste-management companies like Ahmedabad-based Nepra Resource Management. Nepra works with the likes of Nestle, PepsiCo and Colgate to collect plastic waste from collection centres like the one at Malad in Mumbai. 71237358 Nepra transports around 70-80 million tonnes of plastic, most of which is MLP, from the facility to cement kilns in Dhar in Madhya Pradesh, 570 km north-east, every month. MLP is hard to recycle since it has multiple types of plastic, aluminium and, in some cases, paper. So it is used as an alternative for fossil fuels in cement kilns.Sandeep Patel, cofounder of Nepra, says that despite MLP being non-recyclable, the government cannot ban it since there is no alternative yet . 71237363 “Companies are trying to shift to single-polymer packaging, which would make it recyclable.” Global FMCG giants Unilever and Nestlé plan to have 100 per cent recyclable or reusable packaging by 2025.Hindustan Unilever, the Indian arm of Unilever, collected and disposed of more than 20,000 tonnes of MLP waste in partnership with nonprofits and startups in more than 30 cities across India, and plans to expand it to more cities, says a company spokesperson. PepsiCo plans to have 100 per cent recovery of its MLP in India by 2021.The ChallengeWhile India is one of 63 countries with EPR, its guidelines for the same continue to be vague, says Roshan Miranda, cofounder of Hyderabad-based Waste Ventures. “There isn’t much clarity on how much of single-use plastic a company puts out needs to be taken back by it,” he says. Afroz Shah, a lawyer and environmental activist known for his beach clean-up drive in Mumbai, concurs. “There is no mechanism to implement EPR.” Around 95 per cent of the trash he and his volunteers pick up on beaches is disposable plastic. 71237369 Even if the government chooses to ban certain plastics, there is a big question mark on how effective it will be. “Plastic is cheap and convenient, and as long as there is demand for it, people are going to manufacture it,” says Abhijit Bangar, Nagpur’s municipal commissioner.A national ban will have to be enforced by local bodies. Bangar says that unlike urban local bodies, gram panchayats may not have the resources to do routine checks on plastic use. Maharashtra is among the 23 states that have fully or partially banned plastic bags, but that has not stopped people from using them. 71237377 Moreover, the fact that five years after Modi launched the Swachh Bharat Mission, only 56 per cent of our urban solid waste is processed and only two-thirds of the wards have 100 per cent segregation of waste at source shows that implementing a plastic ban is going to be far from easy.There is also no clear evidence that curbs on plastic use have the desired results. A 2018 analysis by the United Nations Environment Programme of bans and levies on plastic bags and Styrofoam in 60 countries found that there was not enough data available on their impact in half the cases. In 30 per cent of cases, there was a drop in usage of those products, but in 20 per cent , there was little to no impact. Emails sent to the Environment Ministry did not elicit a response. 71237389 A ban would most likely target plastic cutlery, straws, cups and glasses, which, Miranda says, are mostly made by the unorganised segment. Ram Vilas Paswan, Union minister for food and consumer affairs, recently told ET that plastic bottles for water will stay till an affordable alternative is found. But there have been reports that the government could put an end to 200 ml water bottles. The airline Vistara in July decided to stop giving small water bottles on its flights; state-owned Air India will soon follow suit. 71237398 Besides airlines and FMCG companies, ecommerce and food-delivery firms also have to reduce the use of plastic in their deliveries. Walmartowned Flipkart plans to eliminate single-use plastics by March 2021. Its competitor Amazon aims to do the same by June 2020. But if India decides to ban them in October, the companies will have to advance their deadlines. “We are aggressively developing plastic-free alternatives for packaging mailers, bubble bags, stretch wrap and tape used in packaging,” says Akhil Saxena, vice-president of customer fulfilment at Amazon India. Only around 7 per cent of the packaging material at its fulfilment centres is single-use, and 95 per cent of its deliveries do not carry the invoice in plastic. 71237404 Food delivery company Swiggy says it helps the restaurants it works with find eco-friendly packaging alternatives to plastic, like paper and glass. Flipkart did not respond to ET Magazine’s questions nor did Zomato. Besides the most obvious plastic items like bags and cutlery, there is the cigarette butt, which one does not often think of as plastic. The butts have filters made of a plastic called cellulose acetate; this can be recycled by mixing it with other polymers into shipping pallets and benches.The cigarette butt is the most commonly found litter on beaches and in rivers and lakes. A global coastal clean-up drive in 2018 found 5.7 million of them. Questions sent to ITC, India’s largest cigarette maker, went unanswered. 71237421 Environmental considerations were not a factor in the decision-making of many companies till recently. But chief executives are now being forced by governments, investors, customers and activists to be more responsible. “Companies will have to start thinking of the real cost of products in Rs 1-2 sachets,” says Shah. While those living in slums do not have much of an option in how they discard their waste, companies are taking an informed call on the plastic packaging they use, he adds. However, banning smaller-size packets of chips, chocolates and shampoos means taking those products out of the reach of millions of consumers and giving up a sizeable chunk of the market. Clearly, it’s not an easy choice for companies. 71237427 There are efforts underway to make sustainable alternatives commercially viable. The past few years have seen a lot of starch-based substitutes for conventional plastic, but there are still concerns over how long they take to break down once they are discarded. Bamboo-handle toothbrushes and edible seaweed packaging are becoming more popular, but they are still not used at scale. The next few years will likely see some of these products being adopted by the masses, but plastic is very much here to stay.While restricting the production and use of some harmful plastics in a phased manner is essential, equally crucial is figuring out how to handle our plastic waste better. When even parts of India’s financial capital, Mumbai, do not segregate dry and wet waste, not much can be said of our smaller cities and towns, which are hardly prepared to handle the surge in refuse. But the biggest challenge when it comes to the use and disposal of plastic is changing behaviours. 71237430
Categories: Business News

Saudi oil attack: Where are we a week on and what happens next?

3 hours 18 min ago
By Julian LeeOn Sept. 14, Saudi Arabia suffered the single-biggest blow to its oil infrastructure in the country’s history when critical processing facilities were attacked.After a roller coaster week for the global oil market, what follows takes stock of everything that happened, where we are now, and what to watch in the weeks ahead.At about 4 a.m. local time, oil processing facilities at Abqaiq and Khurais in Saudi Arabia were attacked by what was initially reported as a swarm of armed drones. The resulting fires were extinguished within hours, but the drama had only just begun.There were at least 17 points of impact at Abqaiq, the world’s largest oil-processing facility, and more at Khurais.Damage to the two sites reduced Saudi Arabia’s oil production by 5.7 million barrels a day, from about 9.8 million. As a single-impact event, it was probably the largest disruption to the oil market ever.Abqaiq is the world’s largest oil-processing facility and handled about half Saudi Aramco’s production last year. It treats the crude from some of Saudi Arabia’s giant onshore fields, removing sulfur and volatile hydrocarbons that vaporize at atmospheric pressure to stabilize the crude before it’s pumped to refineries or export terminals. It was operating at a rate of about 4.5 million barrels a day before the attack.Khurais is Saudi Arabia’s second largest oil field, with the capacity to pump about 1.45 million barrels a day of Arabian Light crude. It was running at a rate of 1.2 million barrels a day before the attack.Most of Saudi Arabia’s lighter crude streams are produced at its onshore fields. Other deposits such as Manifa and Safaniyah, which don’t depend on Abqaiq for processing, produce the heavier grades.Photos of the aftermath of the attacks at Abqaiq, released by the U.S., show puncture marks on tanks that form part of the process to remove gas before the crude can pass to the stabilization towers.Apportioning BlameWithin hours, Houthi rebels in Yemen claimed responsibility, as they did for strikes against Saudi Arabia’s East-West pipeline in May, and the Shaybah oil field in August. Saudi Arabia started a devastating bombing campaign in Yemen in 2015 — with some U.S. backing and weaponry — after the Houthis took control of the capital and other parts of the country. Despite thousands of civilian deaths, terrible human rights abuses on both sides, and a humanitarian catastrophe, the war has settled into an ugly stalemate. Yemen’s Houthi rebels have stepped up retaliatory attacks against Saudi Arabia and say they will target all countries involved in the conflict.U.S. Secretary of State Mike Pompeo dismissed the Houthis’ claim, pinning the blame on Iran. “There is no evidence the attacks came from Yemen,” he tweeted. French Foreign Minister Jean-Yves Le Drian also dismissed the Houthi claims.Iran has denied responsibility.Twenty-five pilotless aircraft and cruise missiles of Iranian origin were used to attack the two sites, the Saudi Defense Ministry said at a press briefing four days after the incidents, where it displayed the remains of some of them. The range and accuracy of the weapons were beyond the capabilities of the Houthis, spokesman Turki al-Maliki said. The kingdom was still working “to determine the exact position of the launch point,” he added.Repairs and RestorationSaudi Arabia initially expected to re-start most lost oil output within days of the attack, but that early optimism was tempered after evaluation of the damage. Energy Minister Prince Abdulaziz bin Salman and Saudi Aramco CEO Amin Nasser still painted a positive picture of the kingdom’s ability to restore oil production and exports after the attack at a briefing on September 17. Here’s a summary of the key takeaways from the briefing:Production from the Khurais field restarted 24 hours after the attack, with output running at about 360,000 barrels a day.Abqaiq was processing 2 million barrels a day - 41% of its pre-attack throughput - and “its entire output is expected to be restored to prior rates by the end of September.”Saudi Arabia’s oil production capacity will be restored to 11 million barrels a day by the end of September and to 12 million by the end of November.Oil production will reach 9.8 million barrels a day in October, in line with the volume the country has been pumping in recent months.There will be zero reduction in flows of crude to customers.Oil analysts have been less optimistic. Repair of the Abqaiq facility is unlikely to be completed by end-September as planned and will instead take months, consultant FGE said in a report September 18, with production likely to average 8 million barrels a day this month. Full restoration of pre-attack capacity at Abqaiq will only be completed “as we approach the end of the year,” according to Rystad Energy.Exports Continue, Saudi Arabia Seeks FuelThe attack could affect flows of both crude oil and refined products, as Saudi Arabia cuts deliveries to its own processing plants in order to maintain exports. It will also shift the balance of Saudi crude supply toward its heavier grades from offshore fields at the expense of the lighter supplies mostly produced onshore and processed at Abqaiq.Saudi Aramco “will be able to meet all its commitments to customers this month by drawing on its crude oil reserves,” the energy minister said during his briefing. Those stood at 180 million barrels at the end of July, according to the Joint Organisations Data Initiative. It’s unclear how much of this will be available for sale and how much is needed as a minimum operating level. 71241798 But some customers have already been informed of delays to some cargoes scheduled to load in early October, while others have been asked to accept heavier crude grades than those originally specified. Aramco’s head of Japan has assured Japanese refiners that the company will meet its contractual obligations. Aramco has accepted all crude nominations from Japanese refiners for loading in October, but some cargoes for Idemitsu Kosan have been delayed by several days.In order to maintain crude exports, Saudi Arabia’s refineries are expected to run at lower rates as the country scours global fuel markets for refined products. Aramco Trading Co., which buys and sells fuels on behalf of the state oil company, purchased diesel cargoes and also sought one-off supplies of aviation fuel in the days after the attack, according to people involved in those markets. Fuel oil, which can be used instead of crude for power generation, has also been bought, while exports of naphtha -- a building-block product for making gasoline and plastics -- have been disrupted.Few other suppliers have the ability to boost crude production to offset such losses from Saudi Arabia, which was the holder of most of the world’s spare oil production capacity. Two nearby countries that can raise output are the United Arab Emirates and Kuwait. Both have offered to supply more crude to Asian refiners. Saudi Arabia’s cut in supplies of lighter crude grades may favor sales of U.S. barrels as refiners seek comparable replacements.U.S. President Donald Trump authorized the release of crude from the Strategic Petroleum Reserve after the attack. The International Energy Agency Executive Director Fatih Birol said Wednesday that the oil market remains well supplied but that his agency remains vigilant about risk of disruptions and stands ready to act.Oil MarketThe attack created turmoil on oil trading desks from Tokyo to Houston. “Sunday and Monday were probably the most intense day and a half in the oil market I have had since 2008,” said Doug King, co-founder of the commodity hedge fund Merchant Capital. Order volumes were sky high and hedge funds, refiners and oil trading houses had their top traders staffing operations, according to interviews with multiple market participants. Brokers put special teams in place to beef up skeleton weekend crews.Brent crude jumped the most on record in dollar terms when oil markets opened after the attacks, adding as much as $11.73 a barrel to reach an intraday high of $71.95. But that only took it back to a price level last seen in May in a market that remains concerned by the prospect of weakening oil demand growth amid ongoing U.S. trade wars and slowing global economic growth.Asian countries, the biggest buyers of Saudi crude, will be hardest hit by any disruption, with India the most exposed as its own crude stockpiles are the smallest among those of the kingdom’s main customers, according to Wood Mackenzie research director Vima Jayabalan.Impact on SaudiThe attacks had “zero” impact on Saudi Arabia’s revenue and won’t affect its economy, according to Finance Minister Mohammed Al-Jadaan. Growth in the kingdom, where the oil and gas sector accounts for about 50% of gross domestic product, was on track to slow to 1.9% this year even as the non-oil economy showed signs of revival, according to the International Monetary Fund.The fallout could still test Saudi Arabia’s economic defenses. But low public debt and net foreign assets in excess of $500 billion offer significant ammunition. The stockpile of reserves “gives the monetary authority the ability to intervene in the markets at any time,” the central bank’s governor, Ahmed Abdulkarim Alkholifey, said on Tuesday. Saudi Arabia’s central bank said it’s prepared to inject liquidity in the financial system if needed to help the economy cope with the aftermath of this week’s major attacks on Aramco’s oil facilities.The attack could have consequences for a planned Saudi Aramco IPO. A prospectus published in May ahead of the company’s first international bond sale identified the importance of Abqaiq, noting that “the Company also depends on critical assets to process its crude oil, such as the Abqaiq facility which is the Company’s largest oil processing facility and processed approximately 50% of the Company’s crude oil production for the year ended 31 December 2018.”But a successful, deliberate attack was not listed under the operational risks and hazards that could have a significant impact on operations. The vulnerability of the kingdom’s most important oil asset will now be a focal point for investors.Global ImpactThe reverberations of the attack on the heart of Saudi Arabia’s oil industry have potential to drain the remaining risk appetite from global markets.Higher oil prices will inevitably feed through into the prices consumers pay at the pump for gasoline and diesel, and to the cost of home heating oil and feedstocks for making plastics and the other products that depend on oil-based chemicals. But the oil shock alone won’t lead to a global recession, according to RBC Capital Markets’ Global Macro Strategist Peter Schaffrik.Response ScenariosSaudi Arabia’s Crown Prince Mohammed bin Salman and U.S. Secretary of State Mike Pompeo have agreed that Iran must be held accountable for the attack. Possible responses range from doing nothing to open military conflict.The tougher the response, the more oil is likely to move higher. At the same time, a non-response could embolden whoever was responsible for the attacks.President Trump has announced new sanctions on Iran’s “national bank,” but declined to say Friday whether he is planning for military action. Pompeo visited Saudi Arabia and United Arab Emirates to “build out a coalition to develop a plan to deter” Iran.Saudi Arabia could accept the Houthi claims that it launched the attack and step up its military action in Yemen, specifically targeting Houthi drone and missile capabilities, but that “might require a larger military commitment from Saudi Arabia at a time when it wants the opposite,” according to Emily Hawthorne, Middle East and North Africa analyst at Texas-based advisory firm Stratfor Enterprises.Or it might continue to pin the blame on Iran and seek talks with the Houthis to bring the Yemen conflict to an end and deprive Iran of a proxy on its southern border.A call for direct military strikes on Iran, from Republican Senator Lindsey Graham among others, are seen as unlikely to be the preferred avenue for retaliation. U.S. or Saudi military strikes on Iran would lead to “all-out war,” Iran’s foreign minister Javad Zarif said in an interview with CNN.(This column does not necessarily reflect the opinion of economictimes.com, Bloomberg LP and its owners)
Categories: Business News

Brave New World: Oil holds ground; US growth may flatline in '20

3 hours 18 min ago
Ritesh Jain, a Dalal Street veteran, trend watcher and Global Macro Investor, captures global macro investment opportunities and economic, business and financial trends with charts and commentaries in this space. Geopolitical risks keep oil prices elevated even as some of the more immediate Saudi supply concerns start to ease.Brent staying about $5 a barrel above pre-attack levels. 71242294 The South Korean economy is closely watched because its exports are said to be a lead indicator of global economic activity. Now, according to data released last week, the Consumer Price Index (CPI) in South Korea decreased by 0.04% in August from a year earlier. It is the first time that South Korea has experienced consumer price deflation since statistics began to be compiled in 1965. 71242305 Softbank’s $95 billion Vision Fund 1:$25 billion came from Softbank itself, $60 billion came from Saudis and Abu Dhabi and $10 billion from others. Of the 80 investments made, 5 were IPOs, out of which 4 are below IPO price and only 1 (Guardant Health) is up. As much as 66 per cent of Softbank’s “profits” came from paper gains in illiquid holdings, $4billion of gains came from Oyo whose “valuation” doubled from $5-10 billion. The biggest investor was Oyo’s founder (financed by debt from Japanese bank consortium, who count Softbank as big fee-paying customer) (Josh Wolfe). 71242312 Pictet believes that Q1 2020 US GDP growth could be closer to 0% and similar outlook for corporate earnings. 71242327
Categories: Business News

As US & China fight it out, can Modi turn the tables and cash in?

15 hours 21 min ago
There are many ways to look at Prime Minister Narendra Modi’s first US visit in his second term — from the transactional to the strategic, from the politically symbolic Texas event to the more substantive outcomes like the trade deal or, if you may, from talking up potential to getting real.On the first count, there is now a broad consensus that an India-US partnership makes eminent strategic sense. That a Democrat US president (Bill Clinton) and the first BJP prime minister (Atal Bihari Vajpayee) laid the initial foundation; and a Republican president (George W Bush) and a Congress PM (Manmohan Singh) gave it depth as well as ambition through the nuclear deal only underscores the bipartisan nature of this consensus in both countries.Similarly, the role and influence of the Indian-American community is a known big positive for India. The Texas event is an attempt to showcase the magnitude, prosperity and reach of this community as well as Prime Minister Modi’s political connect with them.It is the third aspect, of turning potential into reality, where there has been unexpected sluggishness. Modi is, perhaps, the first Indian PM who views a strong US relationship as a benefit, not a disadvantage, in electoral terms. Yet by 2018, a drift had set into the relationship, almost making it seem like the two countries were arraigned against each other.The tension over trade multiplied, even though issues which dotted that conversation accounted for very little in numbers. While US exports to India grew by about 29% in 2018, roughly two-and-a-half times faster than Indian exports to the US, the inability to find a resolution to a bunch of tariff issues involving dairy goods, medical devices and ICT items led to the US withdrawing GSP (generalised system of preferences) benefits to Indian entities.These were compounded by differences over India’s e-commerce policy and data localisation issues. That row has escalated into a whole debate on free flow of data, resulting in a further widening of the gap.If this wasn’t enough, the US started courting Pakistan because it needed help talking to the Taliban to strike a deal that will enable President Donald Trump to reduce American troop commitments in Afghanistan. Suddenly, it appeared Islamabad had fresh leverage in Washington as it pitched for Trump’s intervention on Kashmir.This was also the period when Trump heaped praise on Chinese President Xi Jinping with the hope of striking a trade deal with Beijing. When posited against the tough talk on India and withdrawal of GSP benefits, the overall picture appeared grim.The differences weren’t as big as they were being made out to be. The fix on trade was always possible, but somehow the channels of communication weren’t working. Arguments led to quarrels rather than resolution of problems. As a result, India found US shifting its stance on granting an exemption to the purchase of S-400 missile defence system from Russia. Gradually, an environment of doubt and suspicion set in as bureaucracies on both sides failed to arrest the drift.The fact is, these issues turned problematic due to mismanagement, and not because of any big picture shift. If anything, the big picture held good despite these challenges. The US stood with India against Pakistan-sponsored terrorism, getting the United Nations Security Council to sign off on a statement that for the first time acknowledged an attack on armed troops in the Kashmir Valley (Pulwama) as an act of terrorism. And in that context, it also recognised India’s right to take counter-terror retaliatory measures in the form of the Balakot strikes.PM Modi began his second term with an approach to resolve these irritants that had acquired exaggerated prominence in the relationship as was evident when he met Trump in Osaka and later in Biarritz. His visit, thus, must aim at catapulting the relationship from this management phase to a more productive, somewhat creative, phase.There is a need to get ambitious. Perhaps trade challenges could be approached differently. Exploring a preferential tariff arrangement for a basket of American goods might be one option.Instead of getting into what weapon system to buy or not from Russia, a better approach would be to scale up bilaterally and look at bigger Make in India options, especially since India is now an STA-1 (Strategic Trade Authorization) country like Japan and Korea.In defence, the US has secured $18 billion worth of contracts from India in the last decade. Highend, expensive purchases, like the armed Sea Guardian drones, are in the pipeline. So, business has flourished in favour of the US and may be now it is time for long-term investments.As Modi reaches the US, there is already a setback in Trump’s outreach to Taliban, China is nowhere close to working out a trade deal and the strategic pendulum is nearly back to where India wants it. And there is a reason for that. American domestic politics won’t allow any president or party to compromise on countering both terrorism and the Chinese economic onslaught.Therein lies the opportunity for India. The challenge for Modi is to convert this into a game-changing, strategic moment for India, like China did in the 1970s and the 1980s amid Cold War rivalry.
Categories: Business News

FM's mega plans for a quick fix may fall short

15 hours 21 min ago
Readers should recall a tale from their childhood while debating the corporate tax rate. Once a wolf found itself with a bone stuck in its throat that no amount of huffing or puffing or gagging could bring out.It pleaded for help and a crane came to its rescue. The crane put its beak into the wolf ’s gaping mouth, thrust it all the way down into the throat and pulled the obstruction out. As the wolf began to walk away without a backward glance at the crane, the bird exclaimed, “Not even a word of thanks, leave alone a reward!” At this, the wolf turned around and said, “Look, you’d put your head into my mouth, you should thank me for not biting it off.” The government expects the industry to be grateful that it has graciously reduced the corporate tax rate.OECD, the club of rich countries, does many useful statistical services, one of which is compiling data on taxes among the major nations of the world. India has the distinction of having the highest rate of corporate tax in the world: 48.3% before the latest reform, including the tax a company pays on the dividends it distributes. Ideally, dividends should be taxed in the hands of the shareholder.Over three-fifths (58 jurisdictions) of the 94 in the OECD database had statutory tax rates greater than or equal to 30% in 2000; it was less than one-fifth (18 jurisdictions) in 2018.The general trend around the world has been to bring down the burden of corporate tax. In India, the effective tax rate went up from 23.22% in 2013-14, the last full year for which the UPA managed the fisc, to 29.49% for 2017-18, and even higher today, before the tax cuts. The latest announcement brings the rate down to 25.17%, still higher than the level in 2013-14, not counting the dividend distribution tax, which went up from 10% to 15%.The revenue from corporate tax was 3.56% of GDP in India for 2018-19. The share of direct taxes, including personal income tax, was 6.4% of GDP. Regressive indirect taxes still account for more than 60% of all tax collections in India, including by the states.A tax is called direct or indirect, depending on whether the taxpayer can shift the tax to someone else. If you have to pay income tax at the rate of 30% plus surcharge, if any, you have to pay it, you cannot make anyone else bear the tax. In the case of taxes on commodities, customs duty or GST, the tax is levied on the seller but it is passed down the chain of sales till it reaches the end consumer, who ends up bearing the tax.Mukesh Ambani and his driver pay the same amount of tax when each buys a box of matches. Indirect taxes will take up a larger share of the disposable income of the poor than it will of the rich. That is why these taxes are regressive and should be a lesser source of revenue than direct taxes, whose higher marginal rates on higher incomes have an element of progressivity built-in.However, corporate tax is non-transferable only in a formal sense. Companies look for a post-tax rate of return. They can calibrate their pricing to take into account a high rate of corporate tax, thereby passing on the burden of high corporate tax to the consumer. The only way this can be prevented is if the market is very competitive, eliminating the luxury of raising prices above the competition. In India, thanks to high levels of protection, which has steadily gone up under this government, it is entirely possible to pass on the burden of high tax to consumers by raising prices, in a variety of goods and services.Therefore, it makes sense to have low, uniform rates of import duty, and low rates of corporate tax comparable to those in other, similarly placed economies. The statutory rate is 20% in a number of Asian countries, 17% in Singapore, although it is 25% in China, without taking into account various allowances that would be available to bring the effective rate of tax down.The most exciting part of the new tax proposals is the lowering of the tax rate to 15% (effectively 17.01%) for manufacturing companies incorporated after October 1, 2019. But why limit this to manufacturing companies, when the share of services is gaining ground in the economy with every passing day? John Deere, American tractor maker, has so much software in its machines now that it argues that when it sells a tractor, it is effectively licensing use of that tractor and does not part with the authority to carry out repairs, which it says cannot be left to anyone but its own engineers. If a tractor is a machine-as-aservice, what quite is manufacture? Should India’s tax structure look to the future or to other countries’ past, in which they made it to assorted manufacturing supply chains?Will the tax cuts now suffice to reverse the ongoing economic slowdown? That calls for sustained investment. The loan melas that banks have been ordered to carry out (never mind the promise to make banks board-run) will put some purchasing power in rural hands. But for that to result in a sustained boom, investment in infrastructure must pick up. That calls for fixing the broken financial mediation mechanism — banks burdened by bad loans, tottering non-banking financial companies and a dysfunctional debt market — and for the government to start releasing payment for the work done for it, besides a new, healthy model of public-private-partnership in big projects. Tax cuts are good news, but hold on a bit before you start jumping for joy.
Categories: Business News

A peek into India's plan for semi-high-speed pvt trains

15 hours 21 min ago
The Indian Railways (IR) is set to embark on a new journey by embracing private passenger trains and divesting its near-total monopoly. The plan, as it stands now, is ambitious enough to change the very landscape of the railway network and alter the government-run transporter’s basic tenet of overarching control on trains, tracks and manpower.People might soon have the option to travel on a swanky private train instead of waiting for the one operated by the government transport behemoth to arrive at the platform. The concept of waiting list for tickets might also become history in at least some routes as there would be more trains, if the IR’s plans are implemented.In New Delhi’s Rail Bhawan, the IR is getting ready with a set of bidding documents to invite private train operators — including global players — to run trains and fix their own fares in 150 routes. The blueprint, seen by ET Magazine, sets the deadline of late 2020 for awarding the contracts so that the new train-sets can hit the tracks by 2023-24. 71237943 Private companies already operate and run container trains in India. But passenger operations have been the preserve of the IR. The plan to allowing private players in passenger operations won’t be a piecemeal exercise, going by the IR’s plans. Private operators might even be allowed to bring in their own loco-drivers, though with a caveat that the drivers will have to be certified by the IR for security and safety reasons.“The railways will have 150 private trains, to begin with,” says Railway Board Chairman Vinod Kumar Yadav in an exclusive interview with ET Magazine on the introduction of private trains. “We will run those in Delhi-Mumbai and Delhi-Howrah corridors and also in other viable stretches. There will be a regulator to decide on disputes on routes, fares et al.”The operators will be allowed to either import coaches and locomotives or to get those on lease from the IR, he adds.ET Magazine also spoke with two other senior officers connected with the development to understand the nitty-gritty of the groundbreaking initiative of the transport behemoth — the fourth largest in terms of network (68,000 route-km) after the US, China and Russia. The IR, the officials say, will take a haulage charge from the private operators for using its platforms, tracks, signalling and other infrastructure. Electricity charge will be calculated separately so as to give incentives to operators who bring in new-age trains that consume less power.There is no clarity as yet on which global railway operators are showing interests in running train in India. The IR hasn’t publicly spelt out the conditions for the private entry. But a back-of-the-envelope calculation shows the initiative may straightway fetch the IR Rs 16,000 crore in private investments. If, as Yadav says, 150 private trains are introduced and each has 16 coaches, it would make 2,400 coaches in total. Assuming each coach costs Rs 6.5-7 crore, according to industry estimate, the IR should be able to attract Rs 15,600-16,800 crore in private investments.The IR’s latest train — Vande Bharat, or Train 18 as it was earlier called — has 16 coaches. It was manufactured at the Integral Coach Factory (ICF) under the Make in India banner and was inaugurated on February 15. The semi-high speed train can reach 160 km an hour, had automatic sliding doors and other latest technologies that set it apart. Though it received wide publicity, the train faced criticism for consuming more electricity. It also sparked differences between the Indian Railways’ electrical and mechanical wings over issues related to weight and other specifications.The private trains will most likely be run by a consortium of train operators, rolling-stock suppliers and investors, says Harsh Dhingra, a management consultant who had earlier served as chief country representative of Bombardier in India. Else it might be difficult to get the technical, operational and financial expertise together for a successful operation. “A supplier like Bombardier can at best be a part of a special purpose vehicle, but the lead has to be taken by a train operator,” Dhingra adds. 71237956 Deutsche Bahn AG (Germany), SNCF (France), MTR (Singapore), Virgin Trains (UK), First (UK) and Renfe (Spain) are among the famous train operators across the world.The IR is likely to allow public sector train companies, like SNCF, to take part in the bidding.The government had on its part, as was articulated by Railway Minister Piyush Goyal in the Lok Sabha last month, said it would place private trains under the larger bracket of public-private partnership. After all, tracks, signalling, stations and other infrastructure will continue to be with the IR. And the government won’t give away its existing trains to private players.Dhingra also anticipates Indian companies directly or indirectly connected to railway networks — for example, Tata, Adani and Larson and Tubro — may join the bandwagon. The India managing director of Talgo, Spain-based high-speed passenger train maker, Subrat Nath says he has been receiving enquiries from Indian companies on a possible tie-up. “Our company is bullish on India. If the Indian Railways offers buzzing routes for private operators, why not? We would like to be part of a consortium and bid for it. We feel the early birds will have profitable businesses.” He adds that Talgo India has the potential to grow bigger than its parent company, Talgo Spain. The IR has tested Talgo trains on its tracks, but the Spanish train manufacturer is yet to make any business from India. For private operators, the key to profit will be through routes and time slots. They will have to get routes that have heavy passenger traffic but ensure there are no delays, for quick turnaround of trains.As it stands today, the IR may bid out several routes and time slots in the Delhi-Mumbai and Delhi-Kolkata corridors for private players, apart from handpicking other viable routes such as Bengaluru-Chennai, Bengaluru-Mysuru, Secunderabad-Vizag, Nagpur-Secunderabad and Howrah-Vizag, according to officials in the know. 71237981 The selection of routes won’t be random. IR has estimated that both the eastern and western dedicated freight corridors (DFCs) — connecting mainly Delhi and Kolkata and Delhi and Mumbai — would be ready by December 2021. That means, 90% of the freight traffic on the existing corridors, which carry passengers and freight, will shift to the DFCs, where 120 trains will run daily at 70-80 km per hour, up from 40 now. Also, in the next four years, the Delhi-Mumbai and Delhi-Kolkata passenger corridors will be upgraded for trains to run at 160 kmph, from 130 now. The cabinet has given approval to upgrade the tracks. So, by 2023-24, the IR will need a large number of semi-high-speed trains to fill up the void in the passenger corridor.The private operators are expected to play a role here. An IR official says busy routes other those in the Delhi-Mumbai and Delhi-Kolkata corridors too need to be put out for bidding to woo big train operators. After all, bigger players will enter into the Indian railway market only if they see volumes. The initiative makes sound financial logic for the IR, as private trains will not erode money from its exchequer.There is no doubt that the IR’s financial health continues to be a concern. Its earnings have not improved. Besides, 63% of its expenditure is now incurred on account of salary and other allowances (40%) and pension (23%), according to the budget estimate of 2019-20. Fuel accounts for 15%.No wonder, the operating ratio of the IR was 96.2% in 2018-19, which is marginally better than 98.4% in 2017-18. That means, the IR uses more than Rs 96 of every Rs 100 it earns for its day-to-day expenses. This leaves aside virtually nothing to re-invest.Given this situation, there is an argument that it would make sense for the IR to get private players instead of going ahead with its plan to replace 43,000 outdated ICF coaches with Linke Hofmann Busch (LHB) ones. Not only will the IR struggle to find the money for this replacement, but LHB coaches are an outdated technology globally, say experts. Private trains, on the other hand, will bring in newer coaches and the latest technologies. At present, LHB coaches are used in trains such as Rajdhani and Shatabdi.The introduction of private passenger trains, however, is not going to be easy considering the potential opposition from railway trade unions and political parties. Though the IR has for the last 13 years allowed private players to operate container trains on its tracks, the very words “privatisation” and “private train” sit uneasily among a section of the railway fraternity. The first hurdle for the IR would be to convince its own workers and trade unions that getting private trains won’t rob them of their jobs. The IR has a staff strength of a little over 1.2 million against the sanctioned strength of 1.5 million. The fear among the workers is that the entry of private train operators will curtail their strength even further.“We will oppose any move to privatise the railways,” says Shiva Gopal Mishra, general secretary of All India Railwaymen’s Federation. “Why should we get trains from private operators when we have quality trains such as Shatabdi and Vande Bharat? Had trade unions not been there, the railways would have long been a loss-making entity, just like Air India.”The trade unions are also threatening nation-wide protests. The move to invite private operators, once it is announced, may witness massive political opposition as well.Interestingly, the IR was during the major part of the British Raj developed and operated by private companies such as East Indian Railway Company, Great Indian Peninsula Railway and the Bombay, Baroda and Central India Railway, among others. But it has been under the Government of India’s control since 1924. After 1947, there was no attempt to bring in private passenger trains, though foreign companies with Indian partners were allowed to run civilian airlines.So what will be the impact of private trains? Statistically speaking, the introduction of 150 private trains is unlikely to upset the functioning of the humongous Indian railway apparatus that operates 13,542 passenger trains a day and carries 23 million passengers. Private trains will account for just 1.1% of passenger trains a day. Yet, the deployment of 150 technically superior and faster train-sets will give the IR a facelift. Punctuality is also likely to see a major improvement.After all, if one Vande Bharat Express had caught the imagination of the entire nation, imagine what 150 stylish ones will do. Untitled Carousel 71237366 5 Questions on Private TrainsVivek Sahai, a former Railway Board chairman, has posed these queries to Indian Railways on its plans to start private trains:1. IRCTC was created for better catering services. Has it been selected to operate trains because it has achieved that objective?2. If private trains are introduced, who will control the fare? Also, why has railways not been able to raise passenger fares?3. Will profitable routes be given to private operators?4. Why is railways only planning 160-kmph trains? Why not 200-kmph trains?5. Private trains may be a success in Japan, but what is the guarantee the same model will work in India? Has our purchasing power reached a level it can sustain trains with better amenities but also higher fares?
Categories: Business News

How plastic ban will affect the businesses and consumers

15 hours 21 min ago
The first thing you notice about the waste-collection centre is the absence of stink you associate with mounds of garbage. That’s because this municipal corporation facility at Malad in suburban Mumbai is only for segregated dry waste.It’s around noon on a weekday and two trucks, which have collected rubbish from around the neighbourhood, are being unloaded as a third one pulls in. There’s everything from a mattress to a travel bag in the trash that was dumped here a few days ago.Three workers look for recyclable plastic in the refuse, including packaged water bottles and soft drink bottles, and shampoo and handwash containers, which will later be sent to a recycling unit. These plastics are shredded and turned into clothing, toys and trash cans, among others. But there is a lot of plastic here that cannot be recycled and the most common is multilayered plastic (MLP) packaging, used for chips, biscuits, chocolates, etc. 71237317 MLP, along with thin grocery bags, straws, cups, glasses and cotton buds, among others, are called single-use or disposable plastics. Water bottles are used only once in advanced economies but in India they are often reused; nine out of ten of polyethylene terephthalate (PET) bottles are recycled in India. In June 2018, Prime Minister Narendra Modi announced that India would eliminate single-use plastics by 2022. Canada and the European Union have since said they would get rid of some single-use plastics by 2021. 71237327 Modi reiterated his position last month when he called for the first big step in the fight against disposable plastic to be taken on October 2, the 150th birth anniversary of Mahatma Gandhi. Since that statement, there has been a lot of speculation on whether the government will ban or announce a phasing out of some single-use plastics on that day.How hard will it be to implement a plastic ban? What will it mean for businesses and consumers? Will they find a way around it? According to Reuters, the government could ban six items, including bags, cups, straws and certain sachets. Another news report pegged the number of items to be outlawed at twice as many. These reports have pushed industry lobbies to issue statements highlighting the adverse impact of a ban and to take out advertisements in newspapers in defence of plastic. 71237333 “If an industry has been operating following all the rules, you cannot suddenly say that its products will be banned,” says Anil Reddy Vennam, whose Hyderabad-based firm Nayastrap manufactures stretch film used to cover boxes and foods . 71237337 India’s plastic-processing industry has over 30,000 units and an annual turnover of Rs 2.25 lakh crore, according to the All India Plastic Manufacturers’ Association (AIPMA). The industry also employs over 4 million people. The government will have to carefully weigh the impact of a ban, in terms of plant closures and job losses, at a time of economic downturn.The Big TrashThere are few materials as versatile as plastic, most of which is made from oil, natural gas and coal. It makes packaged foods last longer on store shelves and withstand extreme temperatures while being transported. Packaging accounts for a third of India’s plastic consumption, according to Ficci, an industry body. And 70 per cent of plastic packaging is turned into waste in a short span, as per a report by the Ministry of Housing and Urban Affairs. 71237341 India generated 26,000 tonnes per day (TPD) of plastic waste in 2017-18, the latest year for which data is available, according to the Central Pollution Control Board. Of that, 15,600 TPD, or 60 per cent , was recycled. The rest ended up as litter on roads, in landfills or in streams. Uncollected plastic waste poses a huge threat to species on land and in water.Around eight million tonnes of plastic waste enter the ocean every year. The river Ganga alone took 1.15 lakh tonnes of plastic into the ocean in 2015, second only to China’s Yangtze, according to a research paper published in Nature Communications magazine. 71237344 It’s also common to see garbage being burnt on the sides of roads, adding to our cities’ air-pollution woes. Some plastics take hundreds of years to decompose. That means a polyethelene shopping bag made in 1965, the year it was patented by a Swedish company, could still be at a landfill or in the ocean. 71237352 India’s plastic recycling rate is 60 per cent , three times higher than the global average of 20 per cent , and India’s per capita plastic consumption — at 11 kg in 2014-15 — is less than half the global average of 28 kg. In 2016, India said it wanted to increase the per capita plastic use to 20 kg by 2022. Since half the plastic now produced is meant to be used only once, India has to figure out what plastic it wants to use and ban — and how it will recycle all that trash. Use & ReuseA key step in that direction was Extended Producer Responsibility (EPR) under the Plastic Waste Management Rules, 2016, which were amended last year. As part of EPR, producers, importers and brand owners — like fast-moving consumer goods (FMCG) and pharma companies — are supposed to take back the plastic waste generated by their products, with the help of waste-management companies like Ahmedabad-based Nepra Resource Management. Nepra works with the likes of Nestle, PepsiCo and Colgate to collect plastic waste from collection centres like the one at Malad in Mumbai. 71237358 Nepra transports around 70-80 million tonnes of plastic, most of which is MLP, from the facility to cement kilns in Dhar in Madhya Pradesh, 570 km north-east, every month. MLP is hard to recycle since it has multiple types of plastic, aluminium and, in some cases, paper. So it is used as an alternative for fossil fuels in cement kilns.Sandeep Patel, cofounder of Nepra, says that despite MLP being non-recyclable, the government cannot ban it since there is no alternative yet . 71237363 “Companies are trying to shift to single-polymer packaging, which would make it recyclable.” Global FMCG giants Unilever and Nestlé plan to have 100 per cent recyclable or reusable packaging by 2025.Hindustan Unilever, the Indian arm of Unilever, collected and disposed of more than 20,000 tonnes of MLP waste in partnership with nonprofits and startups in more than 30 cities across India, and plans to expand it to more cities, says a company spokesperson. PepsiCo plans to have 100 per cent recovery of its MLP in India by 2021.The ChallengeWhile India is one of 63 countries with EPR, its guidelines for the same continue to be vague, says Roshan Miranda, cofounder of Hyderabad-based Waste Ventures. “There isn’t much clarity on how much of single-use plastic a company puts out needs to be taken back by it,” he says. Afroz Shah, a lawyer and environmental activist known for his beach clean-up drive in Mumbai, concurs. “There is no mechanism to implement EPR.” Around 95 per cent of the trash he and his volunteers pick up on beaches is disposable plastic. 71237369 Even if the government chooses to ban certain plastics, there is a big question mark on how effective it will be. “Plastic is cheap and convenient, and as long as there is demand for it, people are going to manufacture it,” says Abhijit Bangar, Nagpur’s municipal commissioner.A national ban will have to be enforced by local bodies. Bangar says that unlike urban local bodies, gram panchayats may not have the resources to do routine checks on plastic use. Maharashtra is among the 23 states that have fully or partially banned plastic bags, but that has not stopped people from using them. 71237377 Moreover, the fact that five years after Modi launched the Swachh Bharat Mission, only 56 per cent of our urban solid waste is processed and only two-thirds of the wards have 100 per cent segregation of waste at source shows that implementing a plastic ban is going to be far from easy.There is also no clear evidence that curbs on plastic use have the desired results. A 2018 analysis by the United Nations Environment Programme of bans and levies on plastic bags and Styrofoam in 60 countries found that there was not enough data available on their impact in half the cases. In 30 per cent of cases, there was a drop in usage of those products, but in 20 per cent , there was little to no impact. Emails sent to the Environment Ministry did not elicit a response. 71237389 A ban would most likely target plastic cutlery, straws, cups and glasses, which, Miranda says, are mostly made by the unorganised segment. Ram Vilas Paswan, Union minister for food and consumer affairs, recently told ET that plastic bottles for water will stay till an affordable alternative is found. But there have been reports that the government could put an end to 200 ml water bottles. The airline Vistara in July decided to stop giving small water bottles on its flights; state-owned Air India will soon follow suit. 71237398 Besides airlines and FMCG companies, ecommerce and food-delivery firms also have to reduce the use of plastic in their deliveries. Walmartowned Flipkart plans to eliminate single-use plastics by March 2021. Its competitor Amazon aims to do the same by June 2020. But if India decides to ban them in October, the companies will have to advance their deadlines. “We are aggressively developing plastic-free alternatives for packaging mailers, bubble bags, stretch wrap and tape used in packaging,” says Akhil Saxena, vice-president of customer fulfilment at Amazon India. Only around 7 per cent of the packaging material at its fulfilment centres is single-use, and 95 per cent of its deliveries do not carry the invoice in plastic. 71237404 Food delivery company Swiggy says it helps the restaurants it works with find eco-friendly packaging alternatives to plastic, like paper and glass. Flipkart did not respond to ET Magazine’s questions nor did Zomato. Besides the most obvious plastic items like bags and cutlery, there is the cigarette butt, which one does not often think of as plastic. The butts have filters made of a plastic called cellulose acetate; this can be recycled by mixing it with other polymers into shipping pallets and benches.The cigarette butt is the most commonly found litter on beaches and in rivers and lakes. A global coastal clean-up drive in 2018 found 5.7 million of them. Questions sent to ITC, India’s largest cigarette maker, went unanswered. 71237421 Environmental considerations were not a factor in the decision-making of many companies till recently. But chief executives are now being forced by governments, investors, customers and activists to be more responsible. “Companies will have to start thinking of the real cost of products in Rs 1-2 sachets,” says Shah. While those living in slums do not have much of an option in how they discard their waste, companies are taking an informed call on the plastic packaging they use, he adds. However, banning smaller-size packets of chips, chocolates and shampoos means taking those products out of the reach of millions of consumers and giving up a sizeable chunk of the market. Clearly, it’s not an easy choice for companies. 71237427 There are efforts underway to make sustainable alternatives commercially viable. The past few years have seen a lot of starch-based substitutes for conventional plastic, but there are still concerns over how long they take to break down once they are discarded. Bamboo-handle toothbrushes and edible seaweed packaging are becoming more popular, but they are still not used at scale. The next few years will likely see some of these products being adopted by the masses, but plastic is very much here to stay.While restricting the production and use of some harmful plastics in a phased manner is essential, equally crucial is figuring out how to handle our plastic waste better. When even parts of India’s financial capital, Mumbai, do not segregate dry and wet waste, not much can be said of our smaller cities and towns, which are hardly prepared to handle the surge in refuse. But the biggest challenge when it comes to the use and disposal of plastic is changing behaviours. 71237430
Categories: Business News

Not everyone's invited to FM's big tax party

September 21, 2019 - 9:51pm
PANAJI: The government has taken adequate care to ensure that the proposed 15% tax rate is available only to new investment in manufacturing, putting in safeguards so that old investment is not recycled or repackaged to claim the benefit.The fine print of the amendment to the income-tax law shows that entities formed by splitting up or reconstruction of a business already in existence shall not be eligible under the new regime. Exception would be made in situations of natural or manmade calamity, riot or fire wherein an entity needs to be re-established, reconstructed or revived on or after October 1.Finance minister Nirmala Sitharaman cut corporate tax rate to 15% for new manufacturing outfits that are set up on or after October 1, 2019 and commence manufacturing before March 31, 2023.The move is largely aimed at attracting manufacturing companies that are looking to diversify their production out of China. With this new scheme, the country has now become among the lowest tax jurisdictions in South and Southeast Asia.Under the proposed rules, investors will not be able to use more than 20% machinery or plant previously used for any purpose in the new investment.However, used machinery or plant brought from overseas shall not be treated as old. But companies should not have claimed any deduction on account of depreciation in respect of such machinery. To get the tax benefit, they should not also use any building previously used as a hotel or convention centre.“…in order to curb any misuse of the beneficial tax rate by the existing manufacturing companies, appropriate safeguards have been put in place. These conditions will make sure that only the newly set-up companies can avail (of) the relaxed rate of corporate tax,” said Rakesh Nangia, managing partner at Nangia Advisors (Andersen Global).
Categories: Business News

Corp tax cut to have 'minor' impact on fiscal deficit

September 21, 2019 - 9:51pm
MUMBAI: The Rs 1.45-lakh crore tax giveaway is unlikely to widen fiscal deficit much as the shortfall will be met through increased tax collections due to higher growth which the massive tax cuts are expected to achieve, Niti Aayog Vice Chairman Rajiv Kumar said here on Saturday.On Friday, the government had announced tax cuts for corporates by 10-12 percentage points, bringing down the effective corporate tax to 25.17 per cent inclusive of all cess and surcharges for domestic companies. The new tax rate will be applicable from April 1, involving a revenue loss of Rs 1.45 lakh crore this fiscal."I don't think tax cuts will leave a gaping hole in the fiscal numbers. There will be some, which will be minor," Kumar said at an event.Budget had estimated fiscal deficit at 3.3 per cent of the GDP for the current fiscal but many analysts have pegged it overshooting by at least 70 bps to 4.1 per cent as the quantum of the giveaways is worth 0.7 per cent of the GDP.Significantly, it can be noted that neither the finance minister or her senior cabinet colleagues who talked to the media after the announcement took questions on the shape of fiscal deficit numbers post the tax cuts.Even, Reserve Bank Governor Shaktikanta Das had lapped it up as growth boosting just a day before warning the government that it has no leeway to undertake any fiscally expansionary measures.It can be noted that while the GST collection has been ebbing below the desired Rs 1 lakh crore mark all through the year expect one month, the direct tax mop-up for the first half lagged way behind the target. It grew a paltry 4.7 per cent in H1 of this fiscal at Rs 5.5 lakh crore against a budgeted target of 17.5 per cent growth in collections for the full year.Kumar said direct and indirect tax revenues are expected to go up with growth picking up after these tax cuts."There is buoyancy in growth. In the past, our tax buoyancy has been very good. Therefore, both direct and in direct tax collections will go up with growth," he said.Kumar said another area for his optimism is the government focus on divestment which he budgeted at Rs 1.05 lakh crore."Asset sales will yield an additional Rs 52,000 crore over the budget estimate. Then you have got another Rs 50,000 crore from the RBI which was not included in the Budget," he said.The higher revenue from tax and non-tax fronts will help the government finance the fiscal deficit, he added.Kumar said the 5 per cent GDP growth is not yet a crisis and the first quarter number marks the bottoming out of the cycle."We will achieve a nearly 6.5 per cent growth this year and we will be on track for doubling up our per capita income in the next five years," he added.
Categories: Business News

Shareholders approve HCL Comnet, 3 other subsidiaries' merger scheme with HCL Tech

September 21, 2019 - 9:51pm
IT major HCL Technologies on Saturday said its shareholders have approved the scheme for merger of four of its subsidiaries, including HCL Comnet, with itself."The meeting of equity shareholders of HCL Technologies Ltd (Transferee Company) was held on Saturday, September 21, 2019...to seek their approval to the scheme of amalgamation amongst HCL Eagle Limited, HCL Comnet Limited, HCL Technologies Solutions Limited, Concept2Silicon Systems Private Limited and HCL Technologies Limited and their respective shareholders and creditors...," the company said in a statement."The scheme was approved by the requisite majority of equity shareholders of the transferee company," the filing said.The proposal to merge HCL Comnet, HCL Eagle, HCL Technologies Solutions and Concept2silicon Systems into HCL Technologies was earlier approved by the IT company's board.All these companies are direct or step-down wholly-owned subsidiaries of HCL Technoligies."The scheme of amalgamation would enable optimum utilisation of resources, synchronisation of synergies and an optimised legal entity structure by reducing the number of legal entities in the group structure," the company had earlier said a filing.
Categories: Business News

Tax aside, FM may have fixed another big problem for India

September 21, 2019 - 6:51pm
NEW DELHI | KOLKATA: The government’s decision to reduce corporate tax is likely to bring cheer to the depressed job market.The announcement has infused hope across sectors before the festive season, according to a host of industry experts ET spoke to. They expect the government move to help boost businesses and create employment. Profitable companies in sectors like consumer, retail, industrial manufacturing and construction would see addition of jobs, they said. In industries such as auto and auto-ancillary that have been hit by a severe slowdown, this may come in as much-needed relief and help protect employment before leading to addition of jobs.“This move will have a positive impact on investments in manufacturing, which, in turn, increases economic activity, augments production and creates jobs,” ManpowerGroup Services India president Manmeet Singh said.Most India Inc executives sounded bullish about the impact, but a few also cautioned that the positive effect on the job market could take some time to materialise.“Looks like Diwali is here,” tweeted Pawan Goenka, the managing director at SUV and tractor maker Mahindra & Mahindra.Prashanth Doreswamy, the country head of tyre maker Continental India, said the tax break would allow companies to improve their working capital for the next financial year, giving the industry an opportunity to invest back into the business. “This would also have a positive impact on the job market,” he said.“Just when the economy and Street were losing hope, the finance minister in a veritable Goddess Laxmi avatar has offered succour to millions of countrymen who were praying for a revival in the economy and a return to prosperity,” RPG Enterprises chairman Harsh Goenka said. He also expects the move to help revive capital spending and create jobs.There has been a slowdown in the jobs market in the past couple of quarters. One of the sectors that witnessed large-scale job losses was auto, where industry insiders and recruiters said an improvement in hiring sentiment might take more time than in profitmaking domestic consumption-driven businesses such as FMCG, consumer durables and retail.“Early to say, but if today’s announcement results in business growth, then it may definitely change the hiring sentiments over a period of time as currently there is a hiring freeze across most auto companies,” said Pawan Goenka’s colleague Rajeshwar Tripathi, the chief people officer at Mahindra. “Jobs could be created only if the auto sector bounces back on track,” he said. 71228893 Santrupt Misra, the global director for HR at the Aditya Birla Group, said any positive step from the government encouraging investment and enabling companies to invest in the current economic climate was welcome. “As regards consequences for jobs, stable jobs and sustainable employment happen when companies operate their business. So, the real job impact will be back-ended as investments fructify,” he said.Dabur India too is bullish, though the direct benefits for the company would be limited as most of its production facilites are in tax-free zones. “We hope that this would translate into an improvement in sentiments by way of enhanced consumer buying. This is likely to have a positive cascading effect in the medium to long term, leading to capacity addition and job creation,” executive director-HR V Krishnan said.Sugata Sircar, the chief financial officer at Schneider Electric-India, said the tax cut would provide “a fillip to manufacturing investments in the country, impacting the requirement for skilled professionals”.While there is cheer all around, employees may have to wait some more time for a salary hike, said job market experts.
Categories: Business News

How much tax do top cos pay? Here's the tally

September 21, 2019 - 6:51pm
An exemption-free tax rate of 22% — 25.17% including cesses and surcharge — sounds attractive, but an analysis of the tax liability of firms listed in Sensex suggests more than half have reason to stick to the existing tax regime.Budget data shows the average effective tax rate (ETR) — taxes as a percentage of pretax profits — for roughly 8.4 lakh firms that filed returns for 2017-18 was just over 29%. A TOI analysis of the 21 nonfinancial firms in the Sensex shows only 10 faced an ETR of over 25% in 2018-19. The remaining 11 had an ETR below the 25.17% that they would have to shell out if they migrated to the new regime.Banks and financial sector firms were excluded from the analysis because their taxes are calculated somewhat differently (mainly because of provisioning) and including them might have distorted the overall picture. After excluding the nine financial sector firms in the sensex, the overall average ETR worked out to 22.9% in 2018-19. But individual ETRs vary widely — from Sun Pharma with a negative tax burden of 13.5%, to Tata Steel, which paid 35% of its pre-tax profits as tax. 71233425 The actual tax paid can, however, include refunds for extra tax paid in earlier years or additional liability for deferred taxes (ETR1 in the accompanying graphic). We therefore looked also at the current tax as a percentage of the profit before taxes (ETR2 in the graphic). By this measure, the average for these 21 firms was 25.7%, close to what the new regime would offer.Again, about half the firms might not have a compelling reason to make the shift. Even firms just over the 25% mark in this chart might think twice since once exemptions are given up they cannot be availed of in future. Having said that, a number of corporate tax specialists TOI spoke to said most large companies would transition to the new regime because over the last several years, exemptions have been whittled down.Notably, almost all IT firms are below the 25% ETR level — clearly because of tax incentives given to the sector — as is Reliance Industries, the company paying the highest taxes on this list but with an ETR of barely 20% if one looks at the current tax liability.
Categories: Business News

Are steps on personal income tax coming?

September 21, 2019 - 6:51pm
NEW DELHI: The sharp cut in corporate tax rate has triggered demand and speculation about more measures particularly on the personal income tax side. The government has a report of the task force on direct tax to chart out any future measures on the personal income tax.The report was submitted to finance minister Nirmala Sitharaman last month and indications are that the government would want a discussion on the report before accepting the recommendations. Against the backdrop of the slowdown, suggestions have also been made by some experts to put on hold the super rich surcharge for sometime to boost sentiment but it is unlikely that a decision on this will be taken anytime soon.Sources said that the slowdown offers an opportunity to push through deep structural reforms such as aggressive strategic sales in state-owned firms, asset monetisation in PSUs, structural reforms in the farm sector. They pointed out that some measures on structural reforms could be expected in the weeks to come.The government on its part would wait and watch how the deep cut in corporate tax rate cut plays out. The view is that it will help drive away the negative sentiment and help revive the investment cycle which in turn will help drive demand.
Categories: Business News

Chandrayaan-2 has achieved 98% objectives: ISRO

September 21, 2019 - 3:50pm
BHUBANESWAR: Indian Space Research Organisation (ISRO) Chairman K Sivan on Saturday said the Chandrayaan-2 mission has achieved 98 per cent of its objectives, even as scientists are working hard to establish contact with lander 'Vikram'.Sivan also said Chandrayaan-2 orbiter is doing well and performing scheduled science experiments."Why we are saying Chandrayaan-2 achieved 98 per cent success is because of two objectives -- one is science and the other technology demonstration. In case of technology demonstration, the success percentage was almost full," he told reporters at the airport here, before heading to IIT- Bhubaneswar to attend its 8th convocation ceremony.Sivan said ISRO is focusing on another moon mission by 2020."Discussion is on about the future plan... nothing is finalised. Our priority is on an unmanned mission by next year. First, we have to understand what exactly happened to the lander," he said.He said a national-level committee comprising academicians and ISRO experts are analysing the cause of the communication loss with 'Vikram'."We have not been able to establish communication with the lander yet. As soon as we receive any data, necessary steps will be taken," Sivan saidNoting that the orbiter was initially planned for a year, the ISRO chief said there is every possibility that it will last for another seven-and-a-half years. "Orbiter continues to perform scheduled science experiments to complete satisfaction. There are eight instruments in the orbiter and each instrument is doing exactly what it is meant to do," he added.
Categories: Business News

Auto industry has to find its own balance to enhance demand: SIAM

September 21, 2019 - 3:50pm
Industry body SIAM on Saturday said the auto industry would have to "find its own balance" to boost demand, with the GST Council declining to cut rates for the sector."The auto industry was very hopeful of GST reduction. It is clear that there is no reduction of GST rate on vehicles from 28 per cent to 18 per cent," Society of Indian Automobile Manufacturers (SIAM) President Rajan Wadhera said in a statement.The industry has to find its own balance to enhance demand, he added.The GST Council, which met in Goa on Friday, did not cut tax rates on automobiles. The industry had been demanding a GST rate cut from the current 28 per cent to 18 per cent in order to revive sales which have been facing a prolonged slowdown.The auto components industry too had demanded a uniform GST of 18 per cent. At present, 60 per cent of auto components are taxed at 18 per cent, while the rest are in the 28 per cent slab.Wadhera expressed hope that the festive season would help in ushering in positive consumer sentiments.He said the reduction of GST compensation cess for the sub-segment of 10-13 seaters with length less than 4 metres is positive step as the industry had been demanding it for a long time."SIAM had requested for abolishing compensation cess for the whole segment of 10-13 seaters vehicles, however, the benefit has been partially met," Wadhera said.He also expressed hope that the recent measures taken by the finance minister will support growth and once the market stabilises and revenue rises to comfortable levels, the government would be able to rationalise GST levels and reduce rates on vehicles.The all-powerful GST Council on Friday announced a slew of measures, including slashing the tax rate on hotel room tariffs and more than doubling the tax on caffeinated beverages to 40 per cent.
Categories: Business News

Panagariya on why he is not worried on the fisc post tax cut

September 21, 2019 - 3:50pm
If the Indian car manufacturers cannot be competitive even 30 years after liberalisation, then the time has come that consumers get to import these cars., says Arvind Panagariya, Former VC, NITI Aayog. Excerpts from an interview with ETNOW’s Tamanna Inamdar.The finance minister has been announcing one major reform after the other. The latest corporate tax cut, last announced four years ago with certain path and direction, finally has taken place. Is this a major boost and the big bang reform that we have been talking about? My answer is completely unequivocal on this. This is a bit of a reminder of the 1991 reforms to some degree because it is really a very clean reform. All exemptions are ended and the tax rate reduced to effectively what will be about 25% including the surcharges; for fresh investment, it has been brought down to 15%. This is truly a mega reform. I am delighted. What happens from here on? The finance minister has explained that the revenue forgone because of this measure and others including rolling back a tax on buybacks, will be about Rs 1.45 lakh crore. What happens to the fiscal deficit target of 3.3%? Can we really afford this kind of a loss in revenue at this point?I have two responses to that. First, if we take the estimate as the likely impact, it would increase fiscal deficit, there is no doubt. But if there is ever a good reason to bite the bullet and let it be, it is this. This is a huge reform. My second response is not to underestimate the power of the reform itself. Number one, tax revenues may not fall as much if the growth really does pick up. I admit these effects happen with a bit of a lag. Immediately, we may not see the impact. But over the longer run and even medium or even shorter than medium run, we will see some impact on economic activity. I suspect that it will cut down some of the evasion that goes on once the tax rate is more reasonable. The incentive to evade tax payment declines as a result. Also remember that in our country, a lot of bribe taking goes on and when the tax rate is reasonable, then people will prefer to pay tax rather than evade it by paying bribes. So, all that could eventually help in raising revenues also. Therefore, the impact of the cut might be not as large as it is being estimated right now. My third point is that the impact of this announcement on the sentiment is huge. This step is being taken at a time when the economy is a bit low and therefore it was a very powerful move. Is this mostly a sentiment booster? Where does it go beyond being a sentiment booster? Big corporates have a cushion now but what they do with that cushion is the question. I am an economist. I believe in prices. If you get larger profits, you invest more. It is like demand curve sloping down, meaning if the price falls, we all buy more. If that principle fails, then we are in a lot of trouble, so that is one. More seriously, where I see really big prospects is that I hope we can carry this reform a bit forward. Right now, we have excluded the foreign companies, so supposedly this is applying to domestic companies only. But even so, foreigners can also incorporate in India and become a domestic company. So foreign investment could get boosted big time. For those foreign multinationals currently operating in China who are looking for alternative locations -- both because of the ongoing US-China trade war and because of high wages -- , this could really be a big game-changer. So what would matter is for those companies that relocate to, whether the system provides enough flexibility to be incorporated as a company in India and take advantage of the low rates. Currently, of course they can take advantage of the 15% rate for new manufacturing units. So, it could be a huge game changer and for foreigners which have companies that are already incorporated as domestic companies in India, there would be greater incentive. This coincided with the 25% bps interest rate cut in the United States which also changes the incentives a little bit in favour of India as opposed to the United States. All in all, I see this as a substantive impactful reform. It is not going to be just limited to this sentiment effect alone. After the tax cuts in the United States in 2017-2018, a large number of corporations did not boost investments as was hoped for. They did not increase employment as it was hoped. This could happen in India as well. How can one ensure that the corporate tax cut really makes a difference? Also, what do you do to improve consumption demand?Let me take the consumption side first. A very important thing that the companies need to become competitive is export more. The world economy is very large and if you become more profitable and you feel domestic consumption demand is not strong enough, go to the global market. The global export market is six or seven times the size of our economy.So be competitive, sell there and surely, if profitability has gone up, it is not that profits will accrue to you only if you sell in the domestic market to domestic consumers; your profits will also be subject to the lower taxation when you are exporting. So go export; that is what the companies have to learn. Even within the auto sector, Rajiv Bajaj says that I export 40% of my two-wheelers and therefore if my domestic demand is a bit tepid, I go more aggressively in the export market. Indian passenger cars sector has 0.9% share in the global market and so you know they have not done their work and they have been not competitive enough. So, either they shape up or make way for other industries that are more competitive for manufacturers who can perform in the global markets. This is a message that needs to go to the industry also. This whole attitude of our industry that somehow it is the government’s responsibility to boost consumption demand is all wrong. Why should the government always have to boost consumption demand? The government has given this sort of a tax cushion right before the festive season. At least, some companies can pass this on in the form of deep discounts and push demand over there but you need wage growth also. In this situation, when they are turning the wheels, they have to look at that side as well. What do we need to do on the consumption side, on the demand side?If policy needs to play a role there, I would do it through the financial markets. One of the sources of weakness currently has been from the financial markets, both the banking as well as the NBFC sectors. They have been in a weak stage and reforms have been ongoing but we cannot underestimate the impact of the NPAs on the financial sector. It is huge because on the one hand those who previously were able to borrow just because they were well connected can no longer borrow and so the banks are looking at the projects much more carefully. Similarly, the banks also have to do better evaluation and therefore there is an issue there. Likewise, the NBFC sector has been in difficulty, but that is where the effort has to concentrate. The finance minister was right to do the Rs 70,000-crore recapitalisation as a part of earlier packages. But perhaps we can do more of that. I do not like the government intervening at the sectoral level to address these demands because I would rather that the consumers make that decision that they want to spend and choose the product they want to spend it on. But insofar as borrowing impacts the consumption demand, one can go in and do something in the financial markets. That is where I would focus. Why are you so tough on the auto sector? You are saying their claims are not credible. They have been crying for a GST cut which they have not got. But the government never said that they will cut the GST rate for the auto sector. If people are waiting, it is because the auto industry itself has conveyed that message to the people. So they cannot blame it on the government for that. But look, I am for a full GST reforms.I would like to actually see us move to two GST rates -- 12 and 18%. I certainly do not think that we have to do it for a specific sector. I know that you are picking this in the lighter vein but the auto industry does need to shape up as they are highly protected. If they cannot really be competitive even 30 years after liberalisation, then the time has come that consumers should get to import these cars.
Categories: Business News

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