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With news coming in everyday of all major industries in India slowing down from their historic levels of growth in the last few years, everyone in business (including me) is losing our sleep over the state of our businesses and the economy in general. Real-Estate, Cement, Auto, IT, Retail, Travel – all have slowed down in the recent months. No Amount of Liquidity infused by Government/RBI have been able to make banks lend (or) companies to borrow and expand.
With this background, I thought the record monies (spent by owners and sponsors) spent on last year’s IPL will come down to ground-level (what everyone will call sustainable) this year. In fact, I thought the whole sheen associated with IPL (as a matter of fact, I loved the games last year) will be down this year due to the overall slowing economy – people will be worried about their jobs, companies will be worried about liquidity and market rather than to sponsor. All these fears have been put to rest for now (we still don’t know how the public will receive IPL this year) with the all time high prices paid by team owners for the players in last week’s auction in Goa. See the chart below, US$1.55 Million was paid each by Bangalore and Chennai team owners – wow!
If at all this kicks off overall consumer demand and market confidence, it will be great. [Come on, this is my blog and who say's I can't think wishfully here]
Early this month I travelled to Hong Kong while returning from USA. When I converted my money to Hong Kong Dollars to spend locally, I noticed they had a difference. Unlike currency notes of other countries say India, US or UK which are issued by Central Banks of those countries, the Hong Kong currency notes seems to be issued by authorized private banks like Standard Chartered, Bank of China, HSBC and others. All these are legal tenders in Hong Kong.
Like everyone else I get unsolicited unsolicited calls on my mobile phone. What is more irritating is when you are already a customer with the bank that is calling – they don’t even check whether someone is their customer or not, instead they randomly call numbers. To communicate our displeasure with this, if we decide to switch banks, it is not so easy to do. And almost all private banks and insurance companies in India seems to be doing this, so you will not be able to find a company that doesn’t. I bank mostly with Public Sector banks but for some convenience like Web Banking, Credit Cards and ATM I bank with a private bank. As consumers we need a remedy to this problem.
About a year or so back, TRAI introduced the National Do Not Call Registry (NDNC Registry). Telemarketers are needed by law to check with the NDNC database before making a call or face a penalty. You can register in NDNC by sending a SMS with text "START DND" to 1909 or register in your Mobile Service Provider’s website (for me it will be Vodafone). Apart from TRAI’s NDNC Registry, RBI recommended about 3 years for all Banks under it to have an individual DNC registry with them, you can register in each of them by going to their respective websites. I have registered myself in all of these sites, after registering the number of calls I get have certainly come down. If you still get calls you can complain to the callers that they are violating law by calling a DNC number.
Last week on a single day I got two marketing calls from ICICI Bank and one call from ABN Amro. Irritated I was looking for a remedy, I found a page in ICICI website to complain if you keep getting calls even after registering. I emailed to the id donotcall at icicibank.com that was in the page quoting the time, my mobile number and the phone numbers from which I got the call. I added in the email that if I continued to get calls I will seek remedy by lodging a complaint to RBI Ombudsman and TRAI consumer cell. I was not hopeful of any reply, but I was pleasantly surprised to get a reply within 2 days from ICICI stating that they have taken note of my complaint, apologized and assured that I will not get any further calls. I was certainly impressed by this service from ICICI and I hope other banks will follow this good practice.
Today Indian Stock exchange lost its recovery from earlier the week to below 10,000 and closing at 4-digit marks. I was curious on how this journey was, so I downloaded the data for last 10-years from Yahoo! India finance and plotted the below chart. It was interesting to see:
- It took nearly 2 years for it to climb from 10,000 (7/Feb/2006) to 20,000 (26/Dec/2007)
- The downward from 20,000 (15/Jan/2008) to below 10,000 (17/Oct/2008) was over 9 months
- Ten years before from today SENSEX was at just 2848.11 (16/Oct/1998) which is still 3.5 times from today’s value
I was surprised by the first page of Economic Times newspaper today. First there was no colour it was all Black, then the headlines. For about 15 to 20 minutes I was left scratching my head trying to make sense of the headlines I was reading and re-reading.
The headlines were:
- Sensex hits year’s low at 2832 points (I even checked the latest stock market figures in TV after reading this)
- Now, pay your bills via ATM (haven’t this feature been there for years now? )
- Infosys income rises 115% to Rs.98.43 cr (Something was wrong here, they do more than that figure in a week now)
- Incoming calls are now free and Rs.4 /min for outgoing calls (This is when I started becoming suspicious)
- Crude Near $10 (Now I know for sure this is a prank, looking up the mast-head I saw the date as September 1998)
It turned out to be a prank by Economic Times to “Commemorate 10 years of the Economic Times Awards” and the great journey Indian Inc. has made in the last 10 years. Very nice work by ET, kudos to their team who imagined and pulled off this coup.
More than 70% of Indian IT Exports are to United States and exports outside of United States as well are mostly priced in US Dollars (USD). So the movement of USD with respect to Indian Rupee (INR) is of paramount importance to the industry. The economical concept at play here is very simple, gains made by USD are better for us – we get to make more Rupees per Dollar of revenue. In other words we favour INR to depreciate. This is directly opposite to what the Indian Government and other importers will desire – as for every dollar they import they have to pay more Rupee. Government is the largest importer especially of Oil which is mostly priced in Dollars.
Unlike the bigger players in the Industry, SME companies like Vishwak have little room to maneuver to get end customer prices (marked in USD) increased, most of the time our contract prices are negotiated a year in advance. We can improve productivity and reduce operational costs, but their impact is limited to few percentage points, nowhere near the 10% swing that has happened in the last one year in Dollar value. Till about few months we were worried due to strengthening of Rupee, but in the last two quarters the trend reversed. Today the Dollar hit a high note of Rs. 44.89, compared to Rs.40.63 exactly a year before – exactly a 10% swing the other way. One of the financial instruments available for exporters is Forward contract (Hedging).
Forward Contract: It is a contract between the bank and its customers in which the exchange/conversion of currencies would take place at a future date at a rate of exchange agreed in advance under a contract. The essential idea of entering into a forward contract is to peg the price and thereby avoid the price risk.
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RBI allows you to take these forward contracts for next 12 months (sliding window). Like many other SMEs at Vishwak we normally cover say 60-70% of our receivables for next 12 months. This has been helping us when the Dollar kept depreciating like it did for the first half of this year and whole of last year. But since the trend reversed in the last two quarters we have started losing nearly Rs.4 per dollar (10%) – of course this risk was always there just like in any other financial instruments. Our Hedging taken last year (in July/August ’07 for July ’08 and so on) for this financial year (Apr ’08 to Mar ’09) has been at various levels around Rs.39 to Rs.41, but the current rate is Rs.44.89.
This made me interested to dig into this a little deeper, so I headed to RBI’s archive site and pulled out last 13 months data and plotted it into a chart in Excel (you can download the excel sheet I prepared from here). Below is the chart – you can see clearly the wild swings of Dollar.
I noticed the following few points of interest from the above chart:
- Dollar made a decline from Rs.41.24 to Rs.39.91 between 29/Aug/07 to 20/Sep/07. Nearly Rs.1.33 change.
- Continued to stay in the band of Rs.39 for next 7 months till 23/Apr/08
- Dollar made a rise from Rs.39.95 to Rs.42.56 between 23/Apr/08 to 26/May/08. Nearly Rs.2.61 change.
- Dollar made a rapid rise from Rs.42.82 to Rs.44.21 in just 15 days between 14/Aug/08 to 01/Sep/08. Nearly Rs.1.39 change.
- Dollar continues to rise with hitting a high note at Rs.44.89 today
If you are following US Business news you would have read about Starbucks closing over 600 of their stores around USA. I am wondering on what took them so long to do it.
For instance every time I visit Seattle (their headquarters) I am puzzled on how come Starbucks have nearly half-a-dozen stores in the downtown area around WA State convention Center. Aand all of them in walking distance to one another. In one of the streets for every block they have a Starbucks store. Naturally each of their store will eat into their other stores – if it is carpet bombing strategy against competition, I don’t find it impressive.
Here is the full list of stores that they are closing.
Recently I received a report on the vision of Tamilnadu Government for how the business climate should be in year 2025 in the state. The report was a joint work by CII (Confederation of Indian Industries) and Tamilnadu Government (TN Gov).
I saw one interesting statistics that stood out among the report’s many pages. It was the number of days it takes to start a business in Tamilnadu (to a large extend it is same across India) – it is currently a whooping "41" days. I was not surprised, since I run my own business for last 10 years and have been through these hurdles of bureaucracy many times.
Most recently I had to do this (starting a business) once more, this time for my family business and it took me nearly 5 to 6 weeks. At this time we still we have VAT registration pending. To be fair, few days out of this was due to my end delays as well.
- We started with registering the new "Private Limited" (Limited Liability Company) with Registrar of Companies (RoC). For this the first step is to get name clearance (name of the company shouldn’t be conflicting with the said/unsaid guidelines or with other existing businesses). This took some time.
- Then comes the actual registration which involved multiple iterations of submission of our MoA and AoA (Memorandum of Articles and Article of Association). Each time we had to take a print, sign the paper, scan it, then digitally sign it and then upload it as a PDF file to the site. Once approved, you need to follow this by a hard-copy submission(sometimes they may ask for the hard-copy for each iteration as well) of the documents. Once this is done.
- First board meeting and resolutions to be passed
- Followed by getting an Income Tax PAN Number
- Then comes opening of a Bank Account
- Then comes applying for Service Tax Number or TIN (Tamilnadu VAT Number) and CST (Central Sales Tax). The choice between Service Tax and Sales Tax registration is depending on the nature of your business.
After all this only you can start your functioning. There will be more steps if you are involved in manufacturing, which depending on the industry has various other registration formalities. Compare all this is the time it took to open a business in USA – we opened our 100% subsidiary sitting from India in less than few days through the help of a CPA locally in India – everything happened through online. I remember reading that New Zealand, Canada and Australia with USA tops for the shortest days required to open a business. For information on doing businesses around the world, see this world bank funded site.
With the above experience I should say it is definitely commendable of Tamilnadu Government to even dream a "2" day timescale for this by 2025.
According to Taxman in India, from 1st June 2008 (after this year Union Budget was passed) a licensed software like Adobe Photoshop or Microsoft Office is both a Service and a Product. While world over taxes are being simplified, streamlined and modernized keeping pace to technology – in India our Finance Ministry has proven its fondness for complicating existing laws and getting into legal word tangles. This is in spite of record tax collections in the last few years, this year TDS (with holding tax) collection were up by a whopping 60% from last year.
While change of classification of software may seem insignificant it has real impact on the tax that a consumer/business is charged while buying a software package. Earlier all Packaged Software/License were treated as a sale of product and charged VAT @ 4% to 12% (varied by state). Now all software are treated as a services as well. It is not reclassified from Product to Service but classified to be both – strange is India’s tax laws!. The industry is suffering for the last few weeks with all major dealers and distributors waiting for some clarity from government as this change will result in a tax of 24% on licensed (legal) software, which is absurd. In India Service Tax is Central (Federal) subject, VAT is State subject – so both don’t want to clarify this situation.
This week I couldn’t buy a software that I needed because of this issue. My regular dealer refused to give me a quotation for few products that I wanted because of this legal mess. He said in his 25 years of being in the business this is the first time he has stopped billing for over 3 weeks. What is even more strange is that none of the software industry bodies are vocally raising this issue to the government – may be they feel the government has no ears to serious issues like these, they are busy listening to the daily threats from the left parties 
After much deliberation and delay, Govt. Of India has increased the retail fuel prices – Rs.5 for Petrol, Rs.3 for Diesel and Rs.50 for Household LPG. Though delayed for long we need to praise the Prime Minister for finally biting the bullet – especially with all the political compulsions of coalition politics he has and for getting the powerful finance ministry to agree for deep tax and duty cuts.
On the other side, I am wondering why Government has to be involved in fixing the price of retail fuel. Other than Household LPG, the fuel price should be left to free market. Just like anything else the fuel price has to be determined purely on demand and supply economics. With Oil prices at record levels of $135 from levels of $30 before 4 years, retail price have to naturally increase. You cannot make Oil Marketing companies loss over Rs.200,000 Crores and make the common shareholders in those companies suffer (Disclaimer: As on date I have no investments in ONGC, IOC, BPCL or HPCL). It doesn’t make any sense to buy oil at ever increasing prices and keep selling it at loss, eventually sinking the Oil companies. Leaving it without a price increase the loss would have been ultimately burdened on the miniscule compliant Tax payers in India. Somehow political parties in India are of opinion that increase in taxes affects only the rich and any burden on them is allowed – if you keep doing that, there will be no investments by companies and eventually no new jobs.
There is other side to the need to increase the prices and that is Environment. India is consuming Oil at historic levels that definitely has significant green house effects. The logical answer according to me is to increase the fuel price even more so that people feel the pinch and start reducing their consumption; and government can use the increased income to build on war footing world-class mass transport facilities in all cities.
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