“Extra” charge for Viber and Skype?

Recently Airtel has increased the tariff for some of the internet services like Viber and Skype. After a couple of days later, they have reverted the rates back. The analogy given in Economic times on 30th Dec is quite interesting. How would you feel if the Toll booth guy on the highway stops your Maruti Swift and says, “Sorry, we have decided to charge more for Maruti Swifts, can you pay double the rate now for the toll?” How would you feel?

network (image taken from it watchdogs.com)

Lets see what Net Neutrality is: ISPs and governments need to treat all data equally, irrespective of service provided by the data, type of user – because Internet is a public resource. A logical question from Airtel’ perspective can be right: how internet is a public resource?, how about my cost of fibre, towers, etc. An ISP has every right to recover those costs of investment, but there is a thin line of difference between right to determine the price and right to differentiate the traffic. As he built the highway, a toll booth guy can demand a toll price for a car, but he don’t have right to differentiate price among cars as all cars occupies same space on road.

Similarly, fibre network is different and Internet is different. An ISP to convert fibre cables to internet infrastructure, it needs internet resources like IP addresses that are public property. When you have access to public property, you cannot determine the usage of it on your terms, or for your business interests. Innovation is a right path to navigate through the new challenges in market instead of raising the charges for Viber and Skype calls in a lazy way. It is not really appreciated a kind of good “business strategy”

The above article is analyzed from ET, 30th Dec

Small and Medium Enterprises (SMEs) are key

 

Certainly, India is on a growing path. However, our economy still struggles to generate enough employment to match the eligible population. One reason is because the economic and financial institutions are not able to provide support the small and micro enterprises (SME). It seems banks are able to support only 4% of this small and micro enterprises sector. I have mentioned the significance of the small and micro enterprises in one of my previous articles: http://thekalyan.com/2014/05/29/india-should-focus-on-micro-small-and-medium-enterprises-now/

SME

(image taken from “The Hindu”)

As per the statistics, these small and medium enterprises provide 90% of employment to decentralized manufacturing, services industries. Majorly known as “unorganized”, this sector is owned by self-employed people. Also the numbers shows that 45 per cent of GDP is contributed by this sector. Once properly recognized, trained, this sector can be of great value to our nation.

Some of the recent positive events can help SME develop

  • Sebi has proposed that bank funding to listed SMEs. This move will give a huge boost to the SME trading platform and eases the financing needs of smaller companies. Another
  • As a part of its strategy to strengthen itself in India, foreign lender DBS is now focusing on SMEs as well, typically one that has a loan requirement of Rs. 5 crore or below.
  • The recent comments by Joe Hockey, Australian treasurer that SMEs can play a major role in strengthening trade ties between Australia and India has made us remind the significance of SMEs.

Well, “Make in India” initiative by our PM is majorly to improve the manufacturing areas of SME sector, we hope there will be new initiatives also taken for other areas of SMEs.

When oil price falls

Currently the oil price is around $80 per barrel.

In the past, whenever there is a fall in crude oil prices, Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia used to cut production to ensure that supply fell and the respective prices were maintained. This time it did not happen. For some reason Saudi says “ We do not seek to politicize oil…for us, it’s a question of supply and demand, it’s purely business.” But one can easily see that the actual reason being that US and Canada has seen an increase in Shale oil production in their countries. (Shale oil – A substitute for traditional crude oil, one can comfortably use for power generation etc. ) This boom has led to the United States and Canada producing much more oil than they were a few years back. However, the production of Shale oil is very expensive and it is economically reasonable for US and Canadian oil companies to produce Shale oil only if the crude oil price is between $50 and $75 per barrel. Hence, by ensuring low oil prices the Saudis wants to ‘kill’ the shale oil producing companies in Canada and United States.

Oil picture Kalyan

The Saudi’s strategy is already working. It seems The International Energy Agency (IEA) has said that the investment in shale oil fields will fall by 10% next year, if oil prices continue to remain at $80 per barrel.

On a positive side, for countries like India, it is evident that fall in oil prices it is beneficial. Calculations say that, a $20-per-barrel drop in oil prices transfers $6-700 billion from oil producing nations to consumers worldwide or nearly 1% of world GDP. Falling oil prices are also benefiting the airline and shipping industries, where fuel is their biggest expense.

On the other side of the world, the countries that may get into trouble if the prices continue to stay low are mainly Russia and Iran. Russia and Iran relies heavily on exports of oil and gas. Saudi is giving a tough competition. Again the stats show that Russia and Iran compete with Saudi Arabia in the international oil market, and both need oil prices to be roughly $110 a barrel in order to balance their budgets.

– Analyzed from articles in firstbiz website, IndianExpress and The Economic Times

 

So it’s happening: E-Commerce / E-tail / Online retailing

Probably, you might have seen couple of headlines in the yesterdays and todays newspapers on the conflict between the views of traditional retail companies and that of online retail companies.

Arguments:

Traditional retail companies’ claim:
The ‘predatory pricing’ followed by e-retailers like Flipkart, Amazon, Snapdeal hurts the traditional brick and mortar retailers. The discounts provided by them are far below the landing price (the minimum price that is offered in retail shops). This has impacted 25-30% of the businesses of traditional retailers and have lost it to e-retailers in last 6 months. This may impact lakhs of jobs in the traditional retail industry.
Traditional retailers are also concerned if the owners of online retailers have funded the sellers to boost the sales. Boosting the traffic on these websites provide e-retailers higher valuation, hence more investments and improving their business.

 

E-retailer companies’ claim:
E-retailers provide only a ‘marketplace’ where sellers and consumers meet. They provide a website , a portal where the consumers can view the products from sellers and the respective prices from sellers. They do not own inventory or decide the prices for the products.

etail2image courtesy: mytokri.com

 

Point of view from traditional retailers
E-retailers sell brands indirectly. Once has to be cautious about it. Assume premium products getting sold for low prices in a consistent way, that will impact the brand value.
As per the basic concept of marketing, any business selling at below cost like that of predatory pricing following by e-retailers now is unsustainable. They have to be cautious that such business model will fall down eventually.
Only way traditional retailers can sustain the competition from e-retailers – move to omni-channel capabilities. These days all retailers also have an online portal available. We have also seen signs of some small kirana stores now offering online ordering and delivering facilities.

Point of view from e-retailers:
At the same time, online markets have enabled small sellers, retailers take their products to customers. People living in small towns have access now to the same selection of products as that in metros. E-retailers can reach to larger customer base using a fraction of the capital they would require for traditional retail store. Adding with the low cost of sales and distribution compared to traditional retailers has contributed to higher profits.

E-commerce is not only a meeting place for consumers and sellers. It is also improving the logistic and courier companies, which employ lacks of people.

Summary:
As per stats, Indian retail market will gear up from current $650 million to $1 trillion by 2020 and there are a lot of opportunities for both offline and online retailing.

 

Featured Image courtesy :www.business2community.com

Boosting solar usage in India

Today one of the TV programs was highlighting the importance of Solar Power in India. Meerwada, a small village in Madhya Pradesh is one of first villages to completely operate with Solar Power for their household activities. The power is round the clock. This is a motivating factor to rest of India to use solar power. What made it more inspiring is that the monthly electricity bill for each household is Rs. 75/- that was equal to the Kerosene consumption for the lighting lamps before. A point to note is that the electricity bill is also not subsidized.  A California-based solar power service company has chosen 150 villages to light them up with Solar power.

Solar plant

 

(image copied from treehugger)

At the same time, many places in Gujarat and Rajasthan are also successful in implementing these solar powered models. A small solar plant and the own people of Village manage it.

PM’s decision of spending 1500 crores two days back is quite a good one to cherish. 40% of India’s population has no access to reliable electricity. This should be of great good for those people. The amount will boost the use of solar power, building ultra-modern solar power plants. Also this helps in powering farm irrigation pumps, and to lay solar panels across the banks of canals. Based on the technology used, a typical 1MW power plant that can cater the needs of nearly 1000 homes, needs 5-6 Acers of land and the plant has life time is 25 years.

Also the decision to double the tax on Coal producers is an indication to incline the investments towards renewable energies.

How far Bullet Train is feasible in India

Though, the high-speed train proposition has been initiated by Mr. Lalu Prasad in 2008, the then Railway minister, it seems that current government looks anxious in completing the project. Lalu has proposed Mumbai Ahmedabad as one of the high-speed rail corridor with 160-200KMPH. But Modi’s govt is making it a full speed corridor with the speed of 300KMPH in line with Japan’s bullet trains.

BulletTrain

 

(image taken from hdnux website)

Bullet train is obviously a sign of growth for Railways. Well, with most of benefits like less travelling time and high-end infrastructure and other amenities like Wifi etc, there comes lot of questions and risks involved in building the project.

  • Reaching the common man: With the commercials mentioned below, it is evident that the travel in bullet train is not for common man. With the recent hike in railway charges, and reducing passenger subsidies even to the poor, it may not be wise to set up a bullet train where fares have to be subsidised.
  • Feasibility of the project commercials: Critics question the creation of 60,000 crore project when Railways are short of money. The Rs.60,000 crore project has to earn a minimum surplus of 6,000 Crore, annually to service debts and the capital.  To generate profit of 6,000 Crore annually, with an estimate of 10 lakh passengers (no. as per Railway info) travelling in the corridor, the annual servicing cost of the investment would have to be Rs. 60,000 per journey. Experts feel this math is nearly impossible.
  • Land acquisition: A huge amount of land should be acquired and it may take up to 5 years as per experts. The cost of project will be increased for every passing day. The bullet train runs in a populated line where land acquisition rate will be high.
  • One more point to note is with respect to bullet trains in China: except the Beijing and Shanghai line, rest all bullet train facilities are operating in losses for years. We should be cautious and learn not to repeat the mistakes they did.

Having said, all these, government would have considered all these challenges and hence let us wish and wait to see how our government will overcome these.

Overcome immediate hurdles in IT industry

With the new economic activities in US, there has been a growth in jobs in US, at the same time more work offshored to India. Also the positive sentiment is shown in Britain and Europe that in turn helps India in getting more work. A global economic recovery is good news for those who are relying on the IT budgets. Even the Software product development companies are also benefited with this trend. These all looks like a positive trend in the IT industry.

IT-industry-bcbay

(image taken from trackworks website)

But, there are two main reasons that are having a negative impact on the growth of IT industry in a short term. It is majorly on the decreased margins or the increased costs with relatively less increase in topline.

  • The annual pay raise to its employees
  • Higher visa costs for the employees in the customer locations

Solution: The way the margins can be increased is by:

  • Automation of routine tasks, so that increases in staff productivity will stay ahead of costs
  • Indian IT companies should gain confidence of the clients’ core activities such as research and development areas so that those core activities can also be offshored, increasing the work that can be offshored.

There is a very possibility that Indian IT companies can cope up with the margins, but as mentioned, it may be difficult to have it done in the first quarter.

RBI vs Government!!

The decision by Rajan, not to alter the repo rates has been a good sign not only from economic perspective, but also from the political understanding between the RBI and the government.

Modi Rajan

Image is taken from financialexpress website

Rajan was always keen in controlling the inflation from the time he has been the RBI Governor – he has achieved it by increasing the repo rate with minimum 25 bps every time in the policy, there by controlling the banks not to lend more funds from RBI. This in turn reduced the flow of money in the market there by reducing the inflation.

On the other side, the new government, mainly Modi, is known to be aggressive in driving the investments, flow of funds to boost the infrastructure.

This time Rajan did not touch the repo rates with no increase. It looks like he is relying on Modi’s government to deliver and compensate the supply side, to neutralize the inflation effect. As mentioned in my previous posts (http://thekalyan.com/2014/02/04/what-are-hawks-and-doves-in-finance/), right now RBI is slowly moving to Dovish mode.

Also by reducing the SLR by 50 bps (SLR:  statutory liquidity ratio : a minimum proportion of their Net Demand and Time Liabilities that a bank has to maintain as liquid assets in the form of cash, gold at the end of every business day) and by maintain the cash reserve ratio at 4%, (pls check http://thekalyan.com/2013/12/16/rbi-what-is-repo-rate/ for CRR), Rajan is giving path to investors and allowing flow of money again.

Overall this gives a positive sign that both RBI and government are in targeting for flow of funds, while controlling the inflation.

India should focus on Micro, small and medium enterprises now

Meeting the employment needs of crores of young people is one of the major responsibility of the government now. As discussed in my previous post http://thekalyan.com/2014/05/24/jobs-are-growing-but-not-in-all-sectors/ major set of workforce are in need of employment is in manufacturing, construction, tourism sectors etc. Micro, small and medium enterprises (MSMEs) have a great potential to meet this requirement. Next to agriculture, this sector, contributes to 8% of the overall GDP. Most of the people in this sector are entrepreneurs

smallKalyan: (image taken from rediff) for the article

While the government is helping this sector through financial, technological and marketing assistance, assistance in conducting tool rooms, there are still some bottlenecks. Key problems are related to labour laws, taxation, market uncertainty and majorly the skill level of the workforce.

  • For instance, MSMEs have multiple, stringent labour laws to follow. This means they have to employ additional staff with financial and legal expertise to comply with the laws that adds to their costs.
  • MSME’s face tough competition. As they don’t have any assured information on regular supply of raw materials for production. So they will be vulnerable to price fluctuations.
  • Inadequately trained staff also has an impact on the MSME’s – with the limitation pertaining to infrastructure from government training institutes.

 

What needs to be done?

  • Provide a careful analysis of markets and projections keeping global trends in mind. Like that in agriculture sector, dedicated radio and TV programs like Krishi Darshan can be broadcasted for MSMEs.
  • More Subsidies, tax concessions.
  • Service MSME’s require less finance than that of manufacturing, but can generate quick jobs. So concentrating more on it.

Jobs are growing, but not in all sectors

Few days back it was reported that a sample of elite manufacturing companies has seen a growth in workforce of 3% every year over the past decade. Not going into the details of what companies were considered, how many were considered in the sample, the 3 % growth is a significant one, experts say.

Jobs

 

image taken from: quickbase

But there is fundamental question – what type of jobs were created that saw an increase in % in workforce? Evidence shows that most of these jobs are white-collar’ed jobs.  Information technology techies, CA’s and MBA’s are contributing to the increase in this workforce %. While this is a very good sign, majority of people out in the nation, seeking for jobs does not have these qualifications. They are more likely to fit in the blue-collar, shop-floor jobs. With the automations and re-engineering emerging, the blue collar jobs are shrinking. – The question resurfaces. Is the employment situation in nation is improving?

Manufacturing, textile, construction, tourism are some industries that require more blue collars jobs. It is time to have polices, that boost more growth in these sectors. Also with reference to my previous blog http://thekalyan.com/2014/05/20/why-rupee-should-not-appreciate-against-dollar/ it is vital that we export more that have more scope in manufacturing, textile industries.