You Can’t Be Too Big To Fail

#1
Telecom Commission’s M&A guidelines; another blow for Indian pharma; and more....

The Reserve Bank of India has set in motion a process to identify what are known as Domestic Systemically Important Banks (D-SIBs). Simply put, these are banks whose woes can put the entire financial ecosystem at risk of a crisis of the kind one saw play out during the course of the global financial meltdown; the costs of a bailout are way too high.

It is early days yet, but Indian banks with size as a percentage of GDP over 2 per cent are expected to figure on the D-SIB list. Also on the cards are policies aimed at creating a level-playing field between SIBs and non-SIBs, by reducing the competitive advantages of the former in the funding markets; and to curb amplification of risk-taking and reduce competitive distortions. The D-SIB system will kick off from 1 April 2016 in a phased manner and be fully effective from 1 April 2019.— Raghu Mohan

Media Makes Headlines

Several editors have been in the media spotlight over the past two months
In the recent past, the media has been making news for all the wrong reasons. The most recent has been Tehelka’s Tarun Tejpal being hounded and debated much like the very people Tehelka had targeted in the past. The mass revulsion was mainly because Tehelka has so far been seen as an institution that stood for social causes. Previously, a woman employee of the Dainik Bhaskar Group’s My FM accused the CEO of similar sexual violence. Women’s issues aside, in October, The Hindu’s Siddharth Vardarajan created waves by quitting over Twitter, saying the owners decided to “revert to a family-run and edited newspaper”. Soon after, Open’s Hartosh Bal tweeted his termination letter. In the past two months, countless TV hours, print columns and tweets have reminded us that the Fourth Estate is in the dock. With its role as the nation’s conscience keeper considerably eroded, it’s time for media to turn the spotlight on itself and do a bit of soul-searching.
— Gurbir Singh

The Telecom Games Have Just Begun the Empowered Group of Ministers (EGoM) has stuck to what the Telecom Commission had approved on the mergers and acquisitions (M&A) guidelines in the telecom sector. But, to think that it will lead to any M&A activity before end-2014 is foolhardy. For starters, the acquiring telco will have to pay the government market value for spectrum over the base 4.4 MHz that the acquired operator has. Then, it has to pay the operator it acquired. That makes acquisitions expensive in a market of low returns. Telcos will wait for the new government at the centre before going in for acquisitions. While M&A is a longer term goal, in the interim, existing operators will opt for spectrum trading. So, an operator with spectrum but fewer subscribers in a circle can lease that out to other players. But a decision on spectrum usage charges is still waited. Slowly, the blocks seem to be falling in place, but it will be a while before any major M&A takes place.— Anup Jayaram

Looking Beyond WTO

When it comes to global trade facilitation, India needs to look beyond the 159-member World Trade Organisation (WTO). It may be the most representative global forum for trade negotiations and multilateral trade agreements, but it’s certainly not the most active, given that, over the years, concrete agreements at the WTO have been few and far between.
The recently concluded WTO summit in Bali, Indonesia, failed to take up the whole gamut of issues on the Development Agenda

Outside WTO, there is a Transatlantic Trade and Investment Partnership (TTIP) in the making. This aims at bringing together the two key economic blocs — the US and the European Union — under a common set of trade principles. There is also the proposed Trans-Pacific Partnership (TPP) agreement, which will link the US and other major economies such as Japan, Canada, Malaysia, etc., under a similar set of trade standards. The two notable absentees in this global trade rule-making process (TTIP and TPP will cover 80 per cent of the global economy) are India and China. While the latter has the economic clout to negotiate its own terms, it may not be the case with India. Thus, fruitful negotiations at WTO are not the only task for India. It needs to deepen its engagement with its bilateral trade partners in all possible ways. — Joe C. Mathew

And, Another One Bites The Dust

Indian drug firms and the US Food and Drug Administration (USFDA) seem to have a love-hate relationship. While the US is the world’s largest drug market, Indian drugs command the largest marketshare in the US. Yet, more and more imports from Indian drug facilities are being banned by the USFDA for failing to meet manufacturing standards and data inconsistencies. Most recently, it was Wockhardt’s Chikalthana facility in Aurangabad. In May, the USFDA had banned imports from its Waluj facility. Ranbaxy, Sun Pharma’s Caraco and Taro arms, Lupin and Granules India have all faced USFDA action. For Wockhardt, the timing is most inopportune since it was just restructuring its business to focus on the US market, which registered a 78 per cent growth in FY12. Now, its business has gone topsy-turvy. It’s high time other Indian pharma firms take USFDA standards seriously, before more bans come their way.— P.B. Jayakumar

Tata Sons was a frontrunner for a banking licence. If it thought it wise to withdraw, will others follow? A Harbinger Of Things To Come?

Bombay House’s decision to bid adieu to its banking dreams is a wake-up call to others in India Inc with similar ambitions. Tata Sons’ statement is revealing: “The current financial services operating model best supports the current needs of the group’s domestic and overseas strategy, and provides adequate operating flexibility to its companies, while securing the interests of the group’s diverse stakeholder base”.

Under the Reserve Bank of India’s licence terms, all financial arms and the would-be bank of a corporate group will have to reside within a non-operative financial holding company. And the bank under it cannot dispense credit to associated firms of the group. Given the size and scale of the Tatas’ operations — local and global — all interconnected financial arrangements will need to be revisited and unwound if found to be in conflict with private bank licensing norms.

What’s true of the Tata group on this front may well hold good for other aspirants as well. The Tatas were seen as frontrunners for a licence; if they have reason to rethink and pull out of the race (the other is M&M Financial Services, which decided not to apply), it may not be misplaced to deduce that you will hear of more such pullouts. — Raghu Mohan

Second String Colleges Lose Out To E-learning
Online education seems to be fast taking over the business of second- and third-rung colleges. In a span of 18 months, around 300 colleges have reportedly shut shop or are struggling to survive.

The All India Council for Technical Education has received requests from 50-60 colleges for shutting down operations and using the campus for other purposes. Already plagued by concerns like the quality of education, low student interest and insufficient teaching staff, the space seems to be getting over-run by online counterparts. There are 30-35 online education sites that have sprung up in the past two years, including the likes of Simplilearn and Edureka. Kunal Walia of Kethal and Agarwal advisers says that while the online-only education sites cannot replace the experience a college provides, they are more likely to act as a replacement to tier-2 and tier-3 technical colleges. — Shrutika Verma

20% is the gain by feeder funds, against the Sensex’s 8% Looking ‘Out’ For Returns

Investors who have cashed in on the surge in feeder funds floated by asset management companies (AMC), which invest in overseas equities, seem to be flying high. And, why not? Twenty-two of 30-odd international funds have beaten the Sensex by a wide margin — while the 30-share Sensex has posted an annual return of 8 per cent, over a dozen international funds have yielded over 20 per cent. Feeder funds investing in the US markets have been the biggest gainers, with the top four — ICICI Prudential MF, Franklin Templeton, DSP Blackrock and Motilal Oswal Asset Management — listing gains in the 43-52 per cent range over the past one year. But amid such high spirits, investors should bear in mind that there’s a dual risk — market underperformance and currency volatility. There is no certainty that overseas markets will continue to perform better than domestic markets in the long run. Besides, if the rupee gains strength on the back of improved fundamentals, investors in feeder funds could be staring at “watered down returns” or even losses. After all, in the markets, past performance is no indicator of future results.*— Shailesh Menon

Shopping Gets A Breath Of Fresh Air

A brand new format. A rush to try it out. And then... Well, the jury is still out on the latest format in malls — open-air shopping. DLF Cyber Hub in Gurgaon, the upcoming Neo Mall in Bangalore and the Reach Airia project on Sohna Road, Gurgaon, are just some of the projects that promise a claustrophobia-free shopping experience. The model emerged in the late 1990s in the UK, in response to strict planning controls driven by energy efficiency. The US, Australia and New Zealand are among other countries that are successfully running open-air malls. However, it’s a big question mark over how far this will succeed in extreme weather conditions of the National Capital Region — hot and cold. And, a lot of rains, lately.
— Ankita Ramgopal

The Need For A Combo Shot

The Indian drug regulator has approved, for the first time in the world, a low-cost (biosimilar) version of Roche’s breast cancer medicine Herceptin. The medicine, co-developed by home-grown Biocon and US-based generic drug major Mylan, is perhaps the most complex biotech product for which India has offered a therapeutically effective alternative. The market for the drug will be currently restricted to India as, unlike generic versions of chemical drugs, regulatory pathways for generic versions of biotech products are still being finalised in most developed countries. While the country has seen other biosimilar products being developed by Indian firms — interferon alpha, human insulin, etc. — in the past, it is for the first time that India has pioneered such a development, that too through an international research partnership. As more biosimilar products find acceptance in global markets, similar alliances and product developments are going to define India’s role in this medicine category. The future of medicines lie in biotech products, and India can only benefit from more such alliances. — Joe C. Mathew

Sow, But You Shall Not Reap

The Orissa government is in the ‘final stages’ of levying a forest development tax (FDT) on companies. The tax will be to the tune of 12-15 per cent of the net present value of the trees and foliage in a mining area. The state claims this levy could help it rake in over Rs 1,000 crore. But what’s the use of levying one tax after another, if the money isn’t used for the purpose for which it is collected? Previously, Karnataka and Goa had both levied similar taxes, but neither has any development work to show for them. Rs 964 crore of the Karnataka FDT lay unused in FY13 and Sesa Goa, among those that paid the tax, hasn’t got clearance to start work. So, where’s the money going?— Moyna

An Expense In Futility

24 mt is the estimated iron ore import for FY14(Bloomberg)
The ban on iron ore mining in Goa and Karnataka is hitting the steel industry hard. Thanks to the ban — due to the cases of illegal mining that came to light over the past few years — India’s iron ore output fell 13 per cent to 140 mt this fiscal. And, from exports of 101.5 mt of iron ore in 2010, this year the figure is down to just over 8 mt till September. Now, according to the steel ministry’s mid-year review, India may turn into a net importer for the first time, with ore imports estimated to increase eightfold this year, estimated to touch 24 mt by FY14. Higher imports coupled with the weakening rupee will increase costs for local steelmakers. The irony in all of this, of course, is that India has the reserves to meet most of its iron ore demands, but is unable to access them because of bans. And while it’s okay to import raw materials when needed, doing it despite local availability just reflects regulatory inefficiency.*— Moyna

Charged Up To Go...

Recently, when the Centre rolled back all subsidies on electric cars, it raised doubts about whether India was serious about electric cars. But things may be looking up, starting with Bangalore. Bangalore International Airport has tied up with Mahindra Reva to set up over 100 charging stations for electric cars, also giving users a discount on parking charges. In addition, the Centre intends to roll out subsidies of Rs 2,000 crore a year starting April. Hopefully these plans, if executed, will prove to people that electric vehicles are here to stay. — Vishal Krishna

Is It Time To ‘Wake Up’?

Monster.com, the online job portal, is usually known for its to-the-point advertising. But it’s latest campaign ‘Wake Up’ has raised many a quizzical eyebrow. That’s primarily because it targets lateral hiring — that is, those who already have a job, but still ought to be looking out for a change.

The timing of these fairly humorous ads seems off, since the job market is as bad as last year, and there are many unemployed job seekers — whom the campaign does not target. The company itself seems a bit unsure of its decision, since it has decided to restrict the campaign to the online platform for now. Sanjay Modi, Monster’s MD, though, justifies the campaign saying, “If two years back we had two jobs for every one person, today we have one for every 10 people and, hence, the earlier one wakes up to the competition, the better the chance of him/her finding a better opportunity.”
— Shrutika Verma
 
#2
You better tell us now how will be the world in the current state after COVID panic which we for sure do not know when will end, correct? Your article is entirely good, but I do not see what is what absolutely and possibly here, so move on please.
 
#3
You better tell us now how will be the world in the current state after COVID panic which we for sure do not know when will end, correct? Your article is entirely good, but I do not see what is what absolutely and possibly here, so move on please.
That user posted it in 2013...I hope you realized that.
 
#4
Haha :) It's always funny to find people who answer to old posts and all like:"Here, in modern reality, your concept doesn't fit bla bla...". Well, you know what I mean)) I think the previous commentator didn't even realize how funny his answer was.
 

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