New Indian Modi BJP Government to Boost Foreign Investor Sentiment

IndusView, Friday 16 May 2014 (London): India is about to get a new government with the final vote to be unveiled today, with investors expecting measures for revival of the economy, business-friendly policies and good governance from the new government. 

A number of exit polls are suggesting that the nationalist Bharatiya Janata Party (BJP) leader Narendra Modi, the leader of India's main opposition party, is poised to win a landslide majority a majority of seats as the ruling Congress party concedes a historic defeat. It would be the first time in 30 years that a single party has a clear majority in India.

The rupee rose by eight paise to its 10-month high of 59.96 against the dollar in early trade at the Interbank Foreign Exchange market.

In its election manifesto, the BJP said it would welcome foreign direct investment in all sectors that create local jobs, except for supermarkets, a setback to global chains such as Wal-Mart Stores Inc and Carrefour.

“India needs a Chief Executive Officer as a Prime Minister that Modi represents,” said Bundeep Singh Rangar, Chairman of London-based consulting firm IndusView. “Modi has captured the Indian vote by combining charisma and clearly pronounced policies and successfully tapped into an anti-incumbency sentiment.”

Capital investment contributes nearly 35% to India's $1.8 trillion economy, but it barely grew in the fiscal year that ended in March as delays in clearances from various ministries and funding issues grounded many major projects.

Indian leaders had targeted $1 trillion in infrastructure investment over five years to close gaps preventing growth in manufacturing but policies still inhibited foreign investment.

Growth in Asia's third-largest economy has almost halved to below 5% in the past two years on weak investment and consumer demand, the worst slowdown since the 1980s. India ranked a poor 134 out of 189 countries as a place to invest and start a business.

India's current tax base represents fewer than 35 million, or a dismal 3% of its population. That contrast the size of its middle class estimated to be 250 million people that’s expected to reach 600 million by 2030.

"The more integrated India is into global markets and into the economic architecture of Asia, the more India’s economy will grow and benefit the entire global economic system," said Rangar. “Investors expect policy measures from the new government to put India on a high-growth path on a sustainable basis.”

India will get tougher on territorial disputes with China and in its old rivalry with Pakistan if opposition leader Narendra Modi becomes the prime minister. Modi, a Hindu nationalist who is the front-runner to win the five-week election starting on April 7, has taken an aggressive tone against the two neighboring nations. On the campaign trail, he has warned Beijing to shed its "mindset of expansionism" and in the past he has railed against Pakistan, an Islamic state, for attacks by Muslim militants in India.

India has fought three wars with Pakistan and had a 1962 border skirmish with China. It came close to a fourth war with Pakistan in 2001 but since then, its foreign policy has been mostly benign.

However, Modi’s supporters counter that he offers a vision of prosperity for India, given that he engineered a remarkable economic renaissance in Gujarat, a program that included billions of dollars in investment by foreign companies and economic growth that exceeded the national rate.

The party has promised to set up a Price Stabilisation Fund to check inflation, ensure fiscal discipline and pursue banking sector reforms to deal with the problem of rising bad loans.

With regard to the agriculture sector, the manifesto promises to create a single 'National Agriculture Market' and increase public investment in the farm sector.

Prime Minister Manmohan Singh has already said he will step down after the elections and the Congress is being led by Rahul Gandhi, the latest member of the influential Nehru-Gandhi dynasty.

The election began on 7 April and has been held in nine phases for security and logistical reasons. With 814 million eligible voters, it is the largest democratic election in history.

Toronto Filtration Firm Faces Unchartered Waters in Outsourcing Manufacturing - Toronto Star

NanoStruck Technologies is profiting off the backs — or rather, the shells — of sea creatures.   

The Mississauga-based firm has built its business around technology that mimics how shells filter out contaminants in polluted water.   

It uses a powder made of absorptive molecules derived from the shells of crustaceans like shrimp, lobster and crab fish. These nanometer-sized polymers act as molecular sponges and can be custom-programmed to absorb specific particles.   

This makes them extremely effective in industrial wastewater remediation, an eco-friendly means of removing toxins, heavy metals, hydrocarbons or organic waste.   

NanoStruck now sells water-filtration plants — which typically cost between $1 million to $2 million, depending on flow-through rates and the nature of contaminants — and charges a fee on top for maintenance. Alternately, it leases out units and charges customers on a price-per-litre basis.   

Its clientele include an ice cream maker with waste rich in dairy that can contaminate the surrounding water and air; municipalities dealing with wastewater leaching from landfill sites; and it’s in talks with a transportation company, which needs to treat its bus-cleaning wastewater.   

To keep costs down, NanoStruck is seeking to outsource manufacturing of its filtration plants overseas, where labour is cheap. But the theft of its patented technology is a major concern.   

“We want to follow the Apple model, which is to focus on design and engineering, and manufacture our product elsewhere,” CEO Bundeep Singh Rangar explains. “But because of the risk of intellectual property theft we won’t get the best bang for our buck.”   

On top of wastewater remediation, NanoStruck believes its molecular sponge technology can offer a potentially economical way to recover base metals and precious metals such as of gold, silver and platinum from mine tailings, the finer particles stored in ponds after chunkier parts of metals have been mined.   

The tailings recovery side of the business is still in the development stage, but NanoStruck sees it as an avenue for substantial growth. About $20 billion was left behind in tailings in 2012, according to company estimates. “Even if you capture a small slice of that, you’re still getting good revenue,” Rangar says.   

Within the world of wastewater remediation, NanoStruck’s patented nano-technology sets it apart from competitors, whose solutions are based on the use of membranes and reverse osmosis to treat water.   

NanoStruck doesn’t want to manufacture its own remediation plants. “We can scale up faster if we focus on winning business by dealing with samples, analyzing them and configuring solutions specific to client requirements, then designing a machine and giving that design to a company to build it for us,” Rangar says.   

Asia is the most obvious choice of destinations to which it can outsource its manufacturing, given the cheap labour costs and production capability in the region. Problem is, Rangar says, “the risk of intellectual property pilfering is highest in Asia, particularly China.”

   Whereas Apple has “deep pockets” and can vigorously fight IP infringement, Rangar notes that NanoStruck is still getting established. “We want to focus on the commercialization and deployment of our technology, not spend time and cash fighting patent infringement cases.”

NanoStruck needs to find a location where it can have its treatment plants manufactured in a cost-effective way but where its intellectual property will be protected. “(IP) is ultimately where the long-term value is for our company,” says Rangar.   

Intellectual property consultant and lawyer Marcel Mongeon suggests NanoStruck partner with a multinational Asian manufacturer that has operations in Canada. “This ensures there is someone locally that NanoStruck could deal with, and potentially sue locally, if problems develop.   

Rangar hopes to do just that: find an Asian manufacturer with a Canadian subsidiary it can contract to manufacture its treatment plants. “The (IP) protection comes through the Canadian subsidiary, and we’re able to optimize costs by having manufacturing done via the Asian partner. You get the best of both worlds.”   

NanoStruck also builds safeguards into its equipment to thwart copycats. The waste treatment units have dummy parts, for example, making them difficult to reverse engineer. And the company assigns Internet protocol codes to its machines, to monitor performance remotely but also disable the machine if tampering is suspected.   

At the moment NanoStruck is manufacturing its treatment units in-house, at a GTA-based factory. But Rangar says the company soon plans to transfer production to a locally-based company.   

“That way we’re close to where the treatment plants are getting manufactured and can supervise and oversee things — and be protected by Canadian (patent) laws.”   

Rangar says outsourcing further will have to wait for the right partner.   

“We’ve got to bite the bullet on the cost right now,” he says. “It’s just too risky.” 

- See more at: http://www.starbusinessclub.ca/technology/toronto-nanotechnology-filtration-firm-faces-unchartered-waters-in-outsourcing-manufacturing/#sthash.reDve5dw.dpuf

Happy Holi from IndusView!!

Mississauga Nanotechnology Company Makes Waves in Clean Water Industry

MISSISSAUGA — When most people look at a shrimp they see a tasty party snack that goes well with garlic dip. But to the folks at Mississauga tech firm NanoStruck, they are one of nature's finest filtration devices — and one they're using to clean water around the world.

The small but ambitious firm, based in the city's north end, is using a pioneering "molecular sponge" based on compounds found in the shells of crustaceans like shrimp and lobster to develop filtration systems that can take filthy water from industry and clean it so it can be reused.   

"If you think of a shrimp in a dirty harbour, the shrimp is kept alive even if the harbour is very polluted and dirty because the shell around it is very effective as a filter in nature," explained NanoStruck CEO Bundeep Singh Rangar. "Scientists have known for years that this is a very effective answer in nature for water filtration. The question is how do you take that shell and repurpose that for human purposes and industrial purposes?"

The answer was cracked by scientists at the University of Saskatchewan who spent eight years developing a power-like "nano-media" that can be tuned to trap particular contaminants at the molecular level and bind to them, making them inert.

NanoStruck uses the technology in conjunction with other techniques like ultrasonic waves and electrical coagulation that break down organic particles and oils.

Rangar believes the innovation will allow the company to significantly reduce the costs of cleaning water in industrial and private settings because it doesn't use chemicals and is more energy efficient than other filtration technologies.

So confident is the company in the system that in October it changed its name from BlueGold to NanoStruck to emphasize the nanotechnology aspect of its product lines.

The company has already installed the technology in the Mexican city of Zapopan, where it is being used to turn runoff from a landfill site into water clean enough to be used in agriculture. Closer to home, it has also struck a deal to clean the wastewater generated by a Go Transit vehicle cleaning facility in Halton.   

In addition to cleaning water for reuse, the company has identified a potentially lucrative sideline in recovering the tiny quantities of precious metals, such as gold and platinum, left in wastewater from the mining industry. Estimates put the value of these so-called "tailings" sitting in artificial ponds and lakes around the world at as much as $1 trillion, but it has proven difficult to find an economically viable method of extracting them. NanoStruck believes it can use its molecular sponge to mop up the traces of gold, silver and platinum and turn them into a potential cash cow for the mining industry.  

"In many cases the tailings are not even sitting on a company's balance sheet as value," said Rangar, "They have already expensed this before as waste."

NanoStruck says its tests on water samples from mining operations in southern Africa have shown it can retrieve more than 80 per cent of some of the precious metals they contain.

Season's Greetings!

Raising Interest Rates: Questionable Tool To Fight Inflation

IndusView, Wednesday 18 December 2013 (London): The Reserve Bank of India (RBI) took the market completely by surprise, keeping the repo rate unchanged in the face of overwhelming expectations of an increase citing the tenuous state of the economy. 

Raising interest rates, however, are likely to be a weak tool to combat inflation.

Increasing interest rates to fight inflation that occurs due to rising demand of goods and services could be effective as it makes credit expensive for purchasers. Surging demand is not the case right now given India’s sluggish economy. When used to combat inflation that’s based on rising costs, however, rate increases are ineffective. India’s inflationary pressures on inflation are due to higher world oil and food prices, value added tax and other tax increases as well as delayed effects of a depreciated currency exchange rate.

“When The RBI increases its interest rates, it’s as if it is using a cat to calm the herd,” said Bundeep Singh Rangar, chairman of London-based advisory firm IndusView. “A belief that raising interest rates will rein in inflation that’s propelled by cost factors is dangerous and ineffective. The only effect will be to suppress growth, something India’s economy can ill afford.”

Estimations of the effects of interest rates on inflation, often carried out within central banks, suggest that the effects are small. A typical finding is that a one-percentage-point higher interest rate maintained for one year could reduce inflation by about 0.2 percent.

Costly vegetables, particularly potato and onion, pushed the November wholesale inflation to a 14-month high of 7.52%. The consumer prices rose 9.84% year-on-year in September, the fastest pace in three months.

“A repo rate cut was needed for growth and other tools could have been deployed to fight the menace of inflation,” said Rangar. “Given that growth in the economy is at a low point, business confidence is weak and new investments have ebbed, the new RBI governor should have initiated measures to enthuse the market participants, boost investor sentiment and bring confidence back in the economy.”

Other emerging markets like South Korea have tried another approach, with the central bank leaving interest rates unchanged and increasing their flood of foreign capital, which can help absorb inflationary pressure.

South Korea Central Bank data showed short-term foreign borrowing, mostly by banks, jumped by a net $6.72 billion in March, the third monthly increase in a row and the biggest gain since August 2008.

“India needs to attract more inward investment from its 25 million strong overseas diaspora who sent twice as much money into India last year than FDI and FII combined and better collect tax,” added Rangar.

India's economic growth rate picked up in the most recent quarter, according to official figures. The economy expanded at an annual rate of 4.8% in the July-to-September period, up from 4.4% in the previous quarter. Yet, this is the fourth quarter in a row that India's annual growth rate has been below the 5% mark, and the previous quarter's rate of 4.4% was the lowest for four years.

The World Bank slashed India’s economic growth in its April forecast to 4.7% from an earlier projection of 6.1%, a cut of 1.4 percentage points.

The Bharti-Walmart Breakup: Where Does FDI in India Go Next?

After a seven-year partnership, Walmart and Indian retail partner Bharti Enterprises last month issued a terse joint message saying they were ending the 50/50 joint venture launched by the two firms in 2006 and had reached an agreement to independently own their business interests in India.

The move wasn’t entirely unexpected. Days before the statement was released, Walmart Asia CEO Scott Price told the media during an Asia-Pacific Economic Cooperation meeting in Bali that “the existing franchise to Bharti is not tenable as the base” for Walmart in India. Both sides were looking at the best way to move forward, he added.

Under the agreement reached by the two firms, Bharti will acquire Walmart’s indirect stake in the Easyday chain of retail stores through acquisition of compulsory convertible debentures of Cedar Support Services, a Bharti group company. In turn, Walmart will acquire Bharti’s stake in the 50/50 Bharti Walmart joint venture, which is a cash-and-carry business-to-business operation under the Best Price marquee. India has allowed 100% foreign direct investment (FDI) in the cash-and-carry segment since 2006. “Given the circumstances, our decision to operate independently will be beneficial to both parties,” said Price.

Even though the split was no big surprise, it didn’t make much sense to many observers. Walmart has been leading the campaign to get government permission for 51% foreign holding in multi-brand retail. In single-brand retail, 100% FDI has been allowed since September 2012. The FDI policy in retail has been extremely controversial and the Manmohan Singh government had to stake its survival on the issue. “The Walmart withdrawal is a victory for small traders,” says Praveen Khandelwal, secretary general of the Confederation of All India Traders, an anti-FDI organization.

But according to Wharton lecturer Edwin Keh, India may actually have little to do with Walmart rethinking its strategy in the country. “I suspect the current moves in India are part of a larger shift by Walmart to put focus back on its domestic business,” says Keh, who was formerly chief operating officer and senior vice president of global procurement for the retail giant. “In the current environment of a recovering U.S. economy, the opportunities may be back at home.”

Even though the divorce was no big surprise, it didn’t make sense to many. Walmart has been leading the campaign for 51% foreign holding in multi-brand retail.

Keh cites other recent Walmart moves to support this theory. “India, China and Mexico have been the countries where Walmart is ‘rebalancing’ its stores,” he notes. However, he sees Walmart’s total business in China as poised for growth with its investment in online grocery retailer Yihaodian. Walmart has a 51% interest in Yihaodian and plans to integrate its logistics operations with that of the latter.

Yet everything is not black and white. The retail giant has recently run into problems with the U.S. authorities over allegations that Walmart de Mexico had bribed its way to market dominance in that country. Even as this investigation was proceeding, further accusations were made about similar transgressions in India, China and Brazil.

Probe in India

Unlike in the U.S., lobbying is illegal in India, and there was significant outcry when Walmart disclosed to the U.S. Senate and the House of Representatives that it had been indulging in India-specific lobbying. Opposition lawmakers in India forced the government to take action, and a retired judge was appointed to probe the issue. While initial indications are that the findings have been inconclusive, a new controversy has arisen. The prime minister’s office has declined to give sought-for details of meetings of the prime minister and his officials with Walmart lobbyists. While this exemption can be claimed under India’s Right to Information Act, it has strengthened the arguments coming from the anti-Walmart contingent.

The Walmart-Bharti separation was orchestrated with unnecessary controversy on another front. In early July, the head of Walmart’s operations in India, Raj Jain, was let go. The announcement was made by Price at a town-hall meeting and came as a big surprise to the employees, who assembled on short notice after a summons via e-mail. Jain had been a trusted general of the company for seven years, and his departure was read as action against those accused in the bribery allegations. The New York Timeshad earlier reported that the joint venture “had suspended several senior executives and delayed the opening of some stores in the country as part of an internal bribery investigation.” Now, many were sure that the kingpin had been identified.

After the break-up, however, Jain was given a vote of confidence from Bharti via a post as advisor to the firm’s retail division. When Rajan Mittal, vice chairman of Bharti Enterprises, made the announcement at yet another town-hall meeting, the employees — who had heard Price in stunned silence — broke out in applause. Jain was unavailable for comment.

Walmart’s discomfiture with its Indian partners is familiar territory for multinationals, according to Keh. “Some countries may prove to be too difficult for multinationals,” he notes. “Multinationals are often held to higher standards and so are often handicapped when competing with national operators.”

Anand Sharma, India’s commerce minister, says that Walmart has already been given plenty of opportunities in the Indian market. “Walmart got enough space,” he notes. “There will be no further steps to woo the company.” With its cash-and-carry venture, Walmart has retained a toehold in India, and observers feel it will make a comeback in multi-brand retail when the regulations are relaxed further. (The company also has the option, of course, of divesting Best Price and getting out of India altogether.)

Finance Minister P. Chidambaram says more relaxations are unlikely. “We have a policy,” he told business channel CNBC-TV18. “A genuine investor must work within that policy. It may not be the ideal policy from [the company's] point of view. But this is the policy that we have today. You have to take it as it is.”

Policy Pains

What is it about the FDI rules that Walmart is finding difficult to accept? The trouble in India is that every policy is accompanied by subsequent clarifications, some of which are difficult to digest. Swedish furniture maker IKEA’s $2 billion proposal to set up single-brand stores in India was stalled because it wanted to operate cafes and restaurants in its stores. According to the government, this would make it multi-brand retail, logic officials first used while rejecting a Marks & Spencer application. IKEA ultimately received the approval move forward; the chain is allowed to sell coffee but only for consumption on store premises. The first IKEA store in India is expected to open in 2017-2018.

Walmart is facing a different obstacle. A contentious clause says that multi-brand foreign retailers must source at least 30% of their products from small industries. This may be possible in textiles and handicrafts, but what about electronics?

The second problematic clause relates to investment. The policy states that 50% of investment must be in back-end infrastructure. The clarifications issued by the Department of Industrial Policy and Promotion state that this must be entirely for green-field assets, meaning Walmart’s investments in India thus far do not count toward meeting that mandate.

With its cash-and-carry venture, Walmart has retained a toehold in India, and observers feel it will make a comeback in multi-brand retail when the regulations are relaxed further.

“It is now clear that foreign players will have to create capacities from scratch. This means that they will need to go back to the drawing board, assess their appetite for investment and rethink their strategies,” Ankur Bisen, vice president for retail at New Delhi-based research and consultancy firm Technopak Advisors, told Knowledge@Wharton in an earlier interview.

Bisen noted that the new set of clarifications has “added more rigidity and disincentives and will result in further delay in investment decisions.” And according to a KPMG study: “These clarifications may pose additional road blocks for global retail players.”

Not Just Walmart

The Walmart-Bharti breakup is not the only recent severing of ties between multinationals and local partners. Fast-food giant McDonald’s, which has a 50/50 joint venture called Connaught Plaza Restaurants, has accused Indian partner Vikram Bakshi of looking after his own business interests in preference to those of the joint venture. On August 30, McDonald’s issued a public notice that deposed Bakshi as managing director. The company would henceforth be run by the board, it said. The affair has ended up with the Company Law Board.

Meanwhile, a year-old 30/70 partnership between Australian coffee chain Di Bella Coffee and Indian entrepreneur Sachin Sabharwal is now embroiled in legal suits and defamation charges. The 26-year-old joint venture between the Munjals and Honda of Japan broke up in 2010, albeit with much less acrimony. Other joint ventures said to be on the rocks include Gillette India (with key shareholder and chairman Saroj Poddar) and German stationery maker Faber-Castell (with partner and managing director Anup Bhaskaran Rana).

Traditionally, JVs break up mainly because of incompatibility issues or big egos. But in India, it may be more the external environment than the internal environment that is causing separations. “In the Bharti-Walmart case, I suspect it is more the FDI policy and possibly the U.S. Foreign Corrupt Practices Act (FCPA) investigation which led to their decision,” says Pradeep Mukherjee, India head and CEO of global HR consultancy firm Mercer.

“U.S. companies entering into a JV are required to have a clear understanding of their duties and responsibilities under the FCPA,” adds S. Raghunath, professor of corporate strategy and policy, and dean of administration at the Indian Institute of Management, Bangalore. “We also know that compliance issues affect U.S. company executives and heighten corruption risk. They are, therefore, extremely concerned about the potential impact of corruption on their business.”

This is the reason why when Raj Jain was shown the door, speculation immediately started that the change was evidence of Walmart trying to “clean up its act” in India. In recent times, several CEOs of multinational subsidiaries in India have been let go. Reebok India’s managing director Subhinder Singh Prem was even arrested for fraud.

“The Bharti-Walmart case is completely different,” says Raveendra Chittoor, professor of strategy at the Hyderabad-based Indian School of Business. Pointing out that the partners in the joint venture came together based on certain assumptions on the regulatory front, Chittoor notes: “For Walmart, their proposed business model does not fit in with the new regulations.”

Traditionally, JVs break up mainly because of incompatibility issues or big egos. But in India, it may be more the external environment.

A joint venture is a partnership between two companies, each bringing its own strengths — “local market knowledge from one and international best practices from the other,” says Bundeep Singh Rangar, chairman of Indusview, a London-based advisory specializing in business opportunities in India for multinational firms. ”Like all relationships, however, one party might fail to fulfill its share of responsibilities, which leads to a breakup.”

Chittoor observes that the breaking up of alliances is very common, both globally and in India. “According to various studies, almost 60% to 70% of joint ventures fail. Failure can be due to many factors. For instance, the objectives of the partnership may not have been thought through or articulated clearly; lack of planning and lack of articulation leading to misunderstandings; different leadership styles; information asymmetry leading to ideological and cultural differences [or] HR issues.”

He makes a distinction between partnerships that spin out of control and those that are designed from the very beginning to break up. Pepsi started in India with the Tatas (Voltas). The moment the laws were changed, the two abandoned the venture. Procter & Gamble-Godrej and Tata-IBM came to an amicable end because the objectives set out at the beginning of the relationship were achieved.

“There is no clear evidence as to how many of the partnerships that break up are by design or because of actual failure,” Chittoor notes. “So even if there are more partnerships breaking up today in India, it is important to see how many of them are a natural progression because the objectives have been met.”

Rangar adds that it would be “unfair” to cast most of the joint ventures being dissolved as acrimonious breakups. “The reason for having a JV is that the overseas company needs handholding as it understands the nuances of doing business in India, and the Indian company needs to learn the best practices in product development and adopt manufacturing technology from the overseas entity,” Rangar says. “When the purpose of the JV is achieved, the partners don’t feel the need to piggyback on each other.”

Raghunath sees a different set of reasons for incompatibility issues between multinationals and Indian partners. “Foreign investors often have deep pockets, a longer-term view of a joint venture’s financial returns and a willingness to reinvest profits and increase capital, while the Indian partner often has a more short-term view and relatively shallow pockets,” Raghunath notes. “The result can be different priorities for investments and a lack of cooperation, both between the JV partners and within the joint management team.”

The bigger issue today for India, which is currently being crippled by a huge current account deficit, is the impact on FDI inflows. “Walmart will be a speck in India’s retail market,” says Chidambaram. “Its absence won’t make any difference to the country.” Rangar is also optimistic. “As long as the broader investment case for an India entry is compelling and overseas companies are patient enough to commit to India for five-to-seven years to see stability in their Indian operations, FDI will keep flowing in,” he predicts. “What’s more, the Indian companies that have deep domestic execution skills will find themselves being courted by overseas companies, not necessarily for a joint venture but on a project-by-project basis.”

But Chittoor sees Walmart as a key player. Since the FDI rules were amended more than a year ago, India has not received a single application for multi-brand retail. “The impact of the Bharti-Walmart breakup on FDI depends on what Walmart plans to do now,” he says. “If it decides to continue in India on its own, it means that it is confident of the potential of the Indian market. That is very positive for FDI. However, if it decides to pull out of India completely, it could have a negative impact.”

Happy Diwali from IndusView!