Time to “Recognise Private-Universities’ Role” in putting “India on the Global Education Map” | by: Ashish Dhawan | The Economic Times

Private universities in India are often treated with suspicion for providing poor quality education and being most focused on making money. While this may be true in some cases, they are playing a significant role in fulfilling our country’s growing demand for quality higher education. 60 % of college-going students in the country today are enrolled in private institutions…

Rapidly increasing demand for higher education in India is part of a global trend with worldwide enrolment expected to rise from 100 million in 2000 to 260 million in 2025. Many countries are encouraging private institutions as a viable way to ensure that students are offered this opportunity. For example, Brazil recognized that the public sector cannot meet its youth’s demand and therefore encouraged and supported private education..

Currently, over 75% of Brazilian students go to private institutions and the largest higher education firm, Kroton, has over a million students…

Similarly, developed countries such as Japan and Korea have over 70% students enrolled in private universities, while developing countries such as Malaysia have over 50%. China invested in top private universities through Project 985 to build a few world-class universities, but is struggling to provide education for students at the base of the pyramid. Recognizing this gap, China has also enacted a Law for Facilitation of Private Education in 2002.

This led to the number of higher education institutions doubling and enrollment increasing five-fold over the past decade…

New Chapter:

The Indian higher education system consists of three tiers: elite public institutions, second-tier public and private institutions, and finally private institutions providing mass education. In most developing countries, elite institutions are publicly owned and heavily subsidized..

In India too, the government spends a significant amount per student for IITs and IIMs. Commercial private players often do not have the same motivation to incentivize education, and have therefore not pursued quality higher education actively.

However, with rapid economic growth, the private sector has reacted to the needs of our workforce and set up a large number of professional colleges, especially in engineering and management. The Indian School of Business, for example, created an innovative one-year MBA programme for students with work experience, relative to the traditional model at the IIMs. Recently, we have seen an emergence of philanthropic universities such as Azim Premji University and Shiv Nadar University that are offering quality education.

Private universities in higher education are also breaking conventional paradigms in education. Ashoka University offers a liberal education to students, allowing them to break down borders of arts and sciences, theory and practice, and take courses across to craft their own interdisciplinary major. Such institutions can serve as models for other institutions that focus on developing 21st century skills, critical thinking, communication and leadership.

These initiatives point to the emergence of a new breed of private institutions in India that can complement elite public institutions and establish international standards of excellence in Indian higher education.

While it is encouraging that the Union Budget 2014 committed resources to replicating apex institutions such as IITs, IIMs and AIIMS across the country, our government should look at the higher education system more holistically to increase the gross enrolment ratio (GER) and uplift quality..

Hard Taskmaster:

The government should move beyond being the primary service provider in education and play a catalyzing role in improving quality of higher education in India. It can do so by tightening licensing standards and improving quality assurance, without impinging on the autonomy of private institutes..

The government must invest in a regulatory architecture that can improve the standards of all institutions, public and private, dramatically. The National Assessment and Accreditation Council should be strengthened and the rating framework of institutes should shift focus from infrastructure and inputs to student learning outcomes..

Given the fiscal deficit our country faces and the need to rapidly increase higher education institutions to meet demand, our government should recognize that private institutions are a large part of the ecosystem and play a significant role in achieving a high GER…

We need the best of public and private efforts to make Indian higher education globally competitive..!!

“Tekla India & RICS promote” Building Information Modeling “(BIM) Technology”, to “Engineering & Construction Markets”| Realty Plus

“Tekla India, a leader in bringing Building Information Modeling (BIM) software to the engineering and construction markets of India, today announces its strategic alliance with the Royal Institution of Chartered Surveyors (RICS) and the RICS school of Built Environment….” 

The main objective of this partnership is to build a critical-mass of  “Quality Talent Pool” and create better Employment Opportunities for Young professionals across the construction and infrastructure industry, in the region..!!

This collaboration will help reach out to the student and education community to educate them on BIM technology using Tekla Structures through the Real estate and Construction Management courses offered by RICS School of Built Environment in their campuses in India…

As a part of this 2 year course, the program will provide students with a firm foundation on Tekla Structures Building Information Modeling (BIM) software…. Tekla India as a strategic partner will also be part of RICS’s conferences and workshops through the year across the major metro cities of the country..

The construction industry is the second largest industry of the country. It makes a significant contribution to the national economy and provides employment to large number of people…!!

The use of various new technologies and deployment of project management strategies has made it possible to undertake projects of mega scale. In its path towards automation, the industry has to overcome a number of traditional and technical challenges. 

Hence, professional training opportunities in this field is a must as this will help them do their jobs better, while achieving greater accuracy, efficiency, and cost management”.
Nirmalya Chatterjee – COO & Business Director, Tekla India said, “We are very proud to announce this one of its kind industry-academic partnership with RICS India. Volume of construction and infrastructure is only increasing in India and use of BIM technology can lead to enormous gains for the industry. 

“Qualified BIM professionals are the need of the hour. It is thus important that we train the younger generation joining the construction & infrastructure industry in their nascent stage…

This tie-up is a step forward to benefiting the student community as well as providing the industry with a larger talent pool. We along with RICS ensure that the best of professional education is offered to aspiring students keen on joining this vibrant industry”…!!

Sachin Sandhir, Managing Director, RICS South Asia said, ” We are honored to be associated with Tekla as it will further enhance our education curriculum at the RICS School of Built environment by providing our students with expertise and knowledge to improve their skills and giving them an edge in an increasingly competitive market ” ….

With advancement in technology, a new era of automation in construction industry has rolled in which clearly shows a huge growth from the manual representations to the 3D modeling and digital level of engineering. The introduction of the newest version of Tekla’s BIM software has improved construction workflow efficiency by providing the means to better organize models, manage tasks and avoid structural clashes..

Construction is about collaboration. As BIM penetrates construction industry processes, architectural trends produce increasingly complex shapes, and buildings include more refined technology, information exchange becomes progressively more important…!!

While information management remains at the core of BIM, building today’s structures requires more information than ever before. The new professionals need to well equip with the latest developments and technologies in the rapidly growing sector..

“Online Pricing”; the “Dilemma before #ConsumerElectronics Brands” | Shyamanuja Das | ET Retail

” If they do not keep up with the times, someone else will…Maybe, that someone is already here…??

Ironic it may sound ; but even as “electronic products” have emerged as the ” Top selling category “in ” #IndianRetailE-Commerce, the top electronic brands are engaged in a proxy battle with the online retailers, ostensibly on behalf of the brick-and-mortar retailers and distributors. The contentious issue is, of course, the pricing of products by online retailers, which are offering huge discounts to consumers. The offline / Brick and Mortar, Retailers, are finding it difficult to compete and the OEMs are taking on the E-tailers / E-commerce companies, on their behalf…!!

But the difference in “approaches of Two sets of OEMs is hard to miss”…

The first group, for whom consumers are just one of the target segments-such as Lenovo, Toshiba, and even Canon-has come out in the open with war cry against e-tailers. Some of them have issued advisories to consumers saying they may not be getting warranty and services while buying from online retailers. Many have even warned consumers of the possibility of ending up with fake products.

The other group, consisting mostly of #ConsumerFocusedBrands (read phone makers) like Samsung, Apple and Nokia, is far more measured in its approach. These brands understand the criticality of online channels and selling and strengthening their brand through those channels and hence have preferred the path of discussion and negotiations with them, without coming out in the open.

Yet, they also seem to be worried about the phenomenon. The Economic Times reported some time back that senior official of the #TopThreePhoneMakers, met to discuss the issue, even as they keep fighting fiercely in the market place. That itself is a good pointer to how serious the issue has become for them. As the article rightly points out, it is similar to the situation which united the book trade in the US when it faced the Amazon challenge..

One up in Pricing:

But what enables the e-tailers to offer such huge discount? Part of the reason-and this also happens to be the more politically correct part to quote in this big debate-is the inherent efficiency of their model. With no brick and mortar stores in prime real estate, their overheads are low. This, coupled with tight supply chains with little inventory, make them more efficient.

The other, that cannot be ignored, is the scale. Many of them such as WS Retail-the retail arm of Flipkart-have a much larger scale, say in selling mobile phones, than any of the offline stores, modern or traditional. That allows them to be aggressive on margins…!!

But is that all ?? Come to India, circa 2013-14 and you have the harsh reality-harsh for offline retailers, that is. Unlike them, many of the large online retailers are backed by huge VC money…Offline retailers accuse that they use part of that money to buy market share-by offering huge discounts. The accusation is not entirely untrue, though it may not explain the entire phenomenon..

Actually, it is a Combination of All THREE and possibly more…

One of the factors – and which is the official line taken by the sites like Flipkart, Amazon, and Snapdeal-is the marketplace model. These sites maintain that being neutral marketplaces, they do not have any control over end-user pricing, as that is decided by the numerous retailers who sell on their platforms. However gamesman-like it seems, the claim is factually correct. Of course, they vehemently deny the accusation by some OEMs that fake products get sold on their platforms. Many of the sellers, it must be pointed out, are small time offline retailers who see online as yet another inexpensive new channel to sell their products..

To the uninitiated, it must be mentioned that the ” #Marketplace-Model “, which has “emerged as the default model in India for retail e-commerce”, has less to do with any inherent strength in the model and more to do with FDI regulations, which stipulates no FDI in retail (B2C) e-commerce.

Most e-tailers changed to the “marketplace model” to comply with this “marketplace”, where they do not sell directly to the end users..

The brand at stake :

While for the IT OEMs such as Lenovo, Dell and Toshiba, the battle is all about protecting their long time loyal offline partners, for consumer brands like Samsung and Nokia, it is also a question of brand dilution, to be sold at such heavy discounts. At the same time, they also do not want to be seen by consumers as fighting with the channels (online retailers) against something that is clearly in consumer’s favor-low prices. In the day of # TwitterAndFacebookCconsumerActivism, it could even do significant damage to their #BrandPerception.

Instead of coming out with aggressive, sometimes unsubstantiated statements, the OEMs must be seen to be acting in a fair manner that is in the interest of the consumers. Some of the questions that they need to examine and answer to themselves, consumers and the community at large is as follows…

How are the advisories that they have issued urging the consumers not to buy from online sites in the interest of consumers ?

Why should they withdraw the warranty that is offered with the products, whether it is from online or offline channels? Is it legal to do so ? Why should they make the consumer suffer ? They may probably offer additional warranty if consumers buy the products from offline stores. But how and why should they withdraw the basic warranty ?

Can they substantiate the claim that some online channels are selling fake or smuggled products ? If they can, they must come out in public with specifics and, with the help of legal system, must take strong action against the erring sellers. This will establish their credibility. The failure to do so will put serious question marks on their credibility.

They must seriously examine if online retailers are doing any price cutting using VC money to buy market share, as many offline retailers accuse. If the e-tailers are resorting to any unfair means of competition and violating any provisions of The Competition Act 2002, they must be dealt with using the law of the land. In any case, it is not a single player who is using its market power or staying power ; it is a large set of players which are accused of buying market share…

The future is already here:

But more than just fairness and long term brand dilution fears, the top phone makers have a bigger challenge at hand-something that regional middle level managers can be made to appreciate much better-market share…Many executives in the consumer electronics companies-especially phone makers-admit that it is a choice between the present and future. They have no doubt that online is here to stay and is increasingly going to take away market share.

The question that they are really struggling with is : how far is tipping point ? But big changes seldom happen without a disruptive challenger. A new challenger has no legacy and hence pushes the new, more efficient model to create an advantage in its favor.

That may already be happening-ironically spearheaded by a company, which is the oldest mobile phone company in the world, though now starting almost afresh. Motrola Mobility, now owned by Gooogle, and now the challenger in the mobile phone market, has probably taken the most decisive step in this direction. It has chosen to sell its newly released Moto series of phones in India exclusively through Flipkart, India’s biggest online retailer-ironically, at a time when other electronic brands are fighting a turf battle with the online retailers…

It is not an entirely new strategy though. Others have tried out similar strategy. Noted among them is Nokia, which tried it out in China. It had signed a deal in December 2012 with second largest Chinese e-tailer 360buy.com (now JingDong).. whereby the latter agreed to procure 2 billion yuan ($320 million) worth of mobile phones in one year..!!

The change is already happening…The choice before the brands is between accepting it gracefully versus accepting it bitterly…Trying to stop an idea whose time has come is unfair and is against the spirit of competition…

Ultimately, it is against the interest of customers. It is like forcing metro rail services to increase their fares because private bus services are getting impacted…Why should globally respected brands be indulging in something like that …?

“Corporate-Governance Reform in India”: Gauging Impact on Investors | Aligning Listing, with Companies Act 2013 | CFA Institute

Approval of all material related-party transactions by independent share-holders (i.e., related parties have to abstain from voting) is standard in many markets around the world and considered a best practice. Now, listed companies in India will abide by this rule beginning in October 2014 as part of a slew of corporate governance reforms announced recently, by the Securities and Exchange Board of India (SEBI). Will these new measures bring much-needed relief to minority shareholders, or is it just old wine in a new bottle ??

SEBI consulted industry participants in January 2013 to revise and overhaul Clause 49 of the Equity Listing Agreement that deals with the corporate governance norms for listed companies in India….CFA Institute, in conjunction with the Indian Association of Investment Professionals (IAIP), officially responded to the consultation by highlighting our policies and global best practices. The recently revised SEBI norms are expected to enhance the corporate governance framework to reflect global best practices. The requirements in certain areas, including independent directors and related-party transactions, are more stringent than the new Companies Act 2013.

Some of the significant changes are discussed below : 

 

Aligning Listing Agreement with the Companies Act 2013 – Companies Act requirements on issuing a formal letter of appointment, performance evaluation, and conducting at least one separate meeting of the independent directors each year and providing suitable training to them are now included in the revised norms of SEBI. Independent directors are not entitled to any stock option, and companies must establish a whistle-blower mechanism and disclose it on their websites.

Restricting Number of Independent Directorships – Per Clause 49, the maximum number of boards a person can serve as independent director is seven, and three in cases of individuals also serving as a full-time director in any listed company. The Companies Act sets the maximum number of directorships at 20, of which not more than 10 can be public companies. There are no specific limits prescribed for independent directors in the Companies Act.

Although SEBI reforms seem to be moving in the right direction, these limits may initially pose challenges in sourcing qualified independent directors for listed companies.

Maximum Tenure of Independent Directors – Based on the Companies Act as well as the new Equity Listing Agreement, an independent director can serve a maximum of two consecutive terms of five years each (aggregate tenure of 10 years). These directors are eligible for reappointment after a cooling-off period of THREE years.

Can a director who has served two five-year terms be considered independent after a cooling period of three years ? CFA Institute recommends that board members limit their length of service on a specific company board to no more than 15 years to ensure new board members with fresh insights and ideas are elected.

Board-Mix Criteria Redefined – Per Clause 49 of the Equity Listing Agreement, 50% of the board should be made up of independent directors if the board chair is an executive director. Otherwise, one-third of the board should consist of independent directors. Additionally, the board of directors of a listed company should have at least one female director.

While it is a welcome change that SEBI mandates a female director, will it make a huge difference to the effectiveness of boards ?

CFA advocates that diversity should be embraced from all angles, such as diversity of backgrounds, expertise, and perspectives, including an increased investor focus to improve the likelihood that the board will act independently and in the best interest of shareholders.

Role of Audit Committee Enhanced – The SEBI reforms call for two-thirds of the members of the audit committee to be independent directors, with an independent director serving as the committee’s chairman. While the Companies Act requires the audit committee to be formed with a majority of independent directors, SEBI has gone a step further to improve the independence of the audit committee.

The role of the audit committee also has evolved to incorporate additional themes from the Companies Act, such as reviewing and monitoring auditor independence, approval of related-party transactions (RPTs), scrutiny of inter-corporate loans, valuations, and evaluations of internal financial controls and risk management systems.

More Stringent Rules for Related-Party Transactions – The scope of the definition of RPTs has been broadened to include elements of the Companies Act and accounting standards :

  • All RPTs require prior approval of the audit committee.
  • All material RPTs must require shareholder approval through special resolution, with related parties abstaining from voting.
  • The threshold for determining materiality has been defined as any transaction with a related party that exceeds 5% of the annual turnover or 20% of the net worth of the company based on the last audited financial statement of the company, whichever is higher.

Since SEBI Clause 49 requires shareholder approval for all material RPTs, with no exception for transactions in ordinary course of business or at arms-length, companies feel that this will result in practical difficulties (i.e., compliances costs and delays), particularly for those that regularly transact business with subsidiaries.

The ultimate effectiveness of such legislation will depend upon the degree and quality of enforcement, or the monitoring capabilities of the regulator.

Improved Disclosure Norms – In certain areas, SEBI resorts to disclosure as an enforcement tool. Listed companies are now required to disclose in their annual report granular details on director compensation (including stock options), directors’ performance evaluation metrics, and directors’ training. Independent directors’ formal letter of appointment/resignation, with their detailed profiles and the code of conduct of all board members, must now be disclosed on companies’ websites and to stock exchanges.

E-voting Mandatory for All Listed Companies – Until now, resolutions at shareholder meetings in listed Indian companies were usually passed by a show of hands (except for those that required postal ballot). This means votes were counted based on the physical presence of shareholders. SEBI also has changed Clause 35B of its Equity Listing Agreement to provide e-voting facility for all shareholder resolutions.

We think this is a pertinent change as it will allow minority shareholders to express their voices at shareholder meetings without having a physical presence. CFA Institute has advocated for company rules that ensure each share has one vote.

Enforcement – SEBI is setting up the infrastructure to assess compliance with Clause 49 to ensure effective enforcement. Companies need to buckle up and assess the impact of these reforms and step up compliance.

Industry Impact – I asked Navneet Munot, CFA, CIO of SBI Mutual Fund and advocacy director for IAIP, to gauge industry reactions. Mr. Munot was optimistic about SEBI boosting investor confidence through these sweeping changes, especially the potential to empower minority shareholders through e-voting, enhanced disclosures on remuneration that is aligned with global best practices, and by requiring independent share-owner approval for related-party transactions. Given India’s humongous need for risk capital, regulatory reforms and better enforcement are critical for market integrity and building investor trust, he said.

CFA Institute, along with the IAIP, is currently working on an investor’s guide to shareholder meetings in India to help retail and institutional investors understand the rights, role, and responsibilities of shareholders…

“APG & Xander Launch $300 million India office fund” : buy “income-generating office-assets” in India’s office markets | The Economic Times

“Dutch pension fund manager APG Asset Management & PE firm Xander have launched a $300 million ( Rs 1,800 crore) fund that will buy high quality income-generating office assets in India’s main office markets..”

” Over time, if buying opportunities continue to emerge, the venture’s size may be increased to $500 million,” a statement from APG and Xander said.

The venture aims to benefit from the demand for office space coming in from companies across sectors such as IT and financial services and will solely focus on built, and significantly leased office assets in Mumbai, NCR, Bangalore, Hyderabad, Chennai and Pune.

” In spite of the recent slowdown, India’s top 6 cities have consistently witnessed the largest net absorption of office space in the Asia-Pacific region, and perhaps globally. This, combined with limited new development starts for office projects in India, creates a unique demand-supply gap for good quality office space that our venture aims to target,” said Head of non-listed real estate for Asia-Pacific at APG in Hong Kong.

APG had invested Rs 180 crore in Lemon Tree Hotels and another Rs 470 crore in a JV with the company in 2012 to build and manage hotels. It recently increased its stake in the company from 5.66% to 13% by investing an additional Rs 300 crore.

It also joined hands with Godrej Properties to set up a Rs 770 crore residential development platform which will focus primarily on development of mid-income residential projects in Mumbai, NCR, and Bangalore and may opportunistically invest in Pune and Chennai.

Rohan Sikri, partner at Xander Investment Management, Singapore said : ” While the Indian office market has been relatively resilient through the bad economic environment of the last few years, buyers of Indian office assets need to have the skill to identify and address complex title, construction and regulatory risks, and sweat the real estate after acquisition to preserve and create value…It requires patience, attention to detail and local real estate expertise.”

Corporate demand for office space has picked up pace in the last two months with office space leasing rising 58% in the January to March quarter, according to property advisory firm Cushman & Wakefield.

Several large institutional investors including Blackstone, GIC, Indiareit, and others have been picking up income-producing assets across the country in the last few years.

In a recent transaction, Embassy Office Parks, which is a joint venture between Blackstone and Bangalore-based Embassy group, paid Rs 1,951 crore to acquire a controlling stake in Vrindavan Tech Village, which has a potential built-up-office area in excess of 15 million sq ft with 1.9 million sq ft already complete..

“Consumer confidence in India highest since 2012”, “54% says good time to buy things” : Nielsen | ET Retail

Despite Macro-economic and political uncertainty,India continues to be the Second Most Optimistic Country in the world” and recorded its highest confidence level since the Fourth-quarter of calendar 2012, a new global study by market researcher Nielsen said…

India’s consumer confidence level increased six points in the first quarter of the current calendar year (January-March) with a score of 121, trailing only Indonesia, the most upbeat country for more than a year with 124 points.

According to the survey, 68% of urban respondents in India feel the country is going through a recessionary phase, and within this 54% say the country will be out of it in the next 12 months…

“Consumers are reconciled to the negative economic conditions and despite the challenge of inflation, are hoping for a better year,” Nielsen India President Piyush Mathur said in a statement. ” They are optimistic that overall sentiment and investment will pick up gradually.”

This flies in the face of the current state of the economy, with growth stuck in a slump and a looming threat in the form of a monsoon that might be below average, possibly adding to inflationary pressures, which, in turn, could mean the central bank will be forced to keep interest rates high.

The survey said three-fourths (74%) of respondents in India are optimistic about job prospects over the next 12 months and sentiment is up by 4 % points from the last quarter.

March quarter earnings don’t reflect too much of the consumer confidence, with most firms including Hindustan Unilever, Godrej Consumer Products and Marico posting muted numbers. “Consumer confidence is high on the hope that a strong government will come in and announce progressive policy decisions.

But actual consumption numbers are not necessarily reflecting this confidence, whether it’s consumer goods, real estate or cars,” said Zubair Ahmed, managing director of consumer goods maker GlaxoSmithKline Consumer Healthcare, maker of Horlicks and Sensodyne toothpaste.

Nielsen said more than half (54 %) of online respondents said it was a good time to buy things they want and need. On the other hand, the intention of online respondents to invest spare cash in savings is up by 6 % points to 68 % from last quarter. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism.

Kishore Biyani, promoter of the Future Group, which runs the country’s largest modern retail chain Big Bazaar, expressed optimism that consumption would accelerate over the next few quarters. ” We are a young population which wants to step up consumption across categories. India will continue to grow… We have always been optimistic about that”, Biyani said.

Half the respondents said they are looking to invest in new technology products and buy new clothes. About a third (32 %) indicated they would invest in a retirement fund, a 9 % point increase from last quarter. Further, 36 % said they planned to invest in the stock market and in mutual funds, up from 29 % in last quarter. This is borne out by what’s happening on the stock market. Shares have been on a tear over the past few months on expectations that a Narendra Modi-led BJP will be well placed to form a stable government after the ongoing election.

“Overall discretionary spending is higher than the last FOUR – Quarters and there is a renewed focus on savings for the long term. Consumers are also anticipating the outcome of the elections and the impact will reflect in subsequent months,” Mathur said.

” Stable government leads to consistency in policies which jump start investment across sectors. Increased investment will improve customer sentiment as more employment will be created in addition to increases in Per-capita income leading to increased customer spending,” said Senior Vice President, sales and marketing, Hyundai Motor India. Improved “investment climate and consumerism will bolster business confidence too”.

Indonesia leads the global index with 124 points and the Philippines is third with 116. ” India had been the world’s most optimistic market for nine consecutive quarters until the April-June 2012 period “, when it ceded the title to Indonesia. The Nielsen Global Survey of Consumer Confidence and Spending Intentions, established in 2005, measures consumer confidence, major concerns and spending intentions among more than 30,000 respondents with Internet access in 60 countries.

In the latest round of the survey, conducted in the February 17-March 7 period, consumer confidence increased in 60 % of the markets measured by Nielsen, up from 43 % in the preceding quarter !! 

“India’s Trade (FTA)” pact’s queer “Pitch for Electronics, Appliance makers” | Business Standard

Around 70 % of Microwave Ovens sold in India are imported, mostly from Chinese manufacturers that make these cheap because they make too many. Also, India’s Duty-structure makes microwaves 15-20 % cheaper to import than manufacture here. Despite the Indian Rupee’s recent tumble.

The myth of India’s manufacturing prowess shows up starkly in consumer electronics Air-conditioners, Television sets, Set-top Boxes, Cameras, Music-systems, even Pencil Batteries. According to the Consumer Electronics and Appliances Manufacturers’ Association (CEAMA), 30-40 % of the over Rs 50,000-crore electronics and appliances sold in India are imported.

Free trade agreements (FTA), especially with Asean, the inverted tax structure and lack of government support have led to a surge of imports,” says a worried CEAMA secretary-general and a veteran in the business !!

He has reason to be worried. Around 65 % of all air- conditioners sold in India are imported and those that are not have a large import content. Compressors and indoor units of split air-conditioners are not made in the country. Only LG has a compressor plant here. “We have to import compressors because they are not available in India. Sales volumes in India do not warrant setting up compressor plants,” says Shantanu Das Gupta, senior vice-president of Whirlpool India. He points out that compressors constitute a quarter of the bill of materials for an air-conditioner.

 

Every second television set sold in the country has an LED or LCD panel, and a quarter of these are imported. Sony, which has off and on talked about manufacturing display panels in India, prefers to import these from its facility in Malaysia. Under a free trade agreement with the country, Sony has to pay a mere three per cent duty. “Manufacturing here is not viable,” says Kenichiro Hibi, managing director of Sony India…

Even those companies that assemble flat panel television sets in India add only 30 % value locally. The most expensive bit of these sets is the display panel, which has to be imported because there are no manufacturers in India. “While 95 % of our LED (panels) are assembled in India, 85-90 % of the components have to be imported because these are not available here,” says S Manish Sharma, managing director of Panasonic India.

A television manufacturing company executive says it takes $1 billion to set up a display panel plant, and technology is moving fast. It makes little sense to set up a plant in India because the market is not big enough. He gives the example of an Indian picture tube manufacturer that decided to invest in plasma technology just around the time these television sets were being phased out globally.

One reason for a weak component industry is the size of the market. In 2013, only 1.3 million microwave ovens were sold in India, for just over Rs 1,000 crore. Only 2-3 % of Indian households have air-conditioners.

Also, the government has made no effort to encourage local production. Domestic microwave manufacturers recently petitioned the government to allow them to import five key components at “zero duty”, instead of 7.5-10 %. In return, they promised at least 70 % of the ovens in the country would be made in India. But their proposal has met with silence from the government.

The commerce ministry has moved a proposal for a free trade agreement with China. That, say Indian consumer electronics companies, will cripple local production. China’s scale in manufacturing allows its companies to charge rock-bottom prices and could flood the Indian market. “Even Japan gave protection to its consumer electronics industry. But India opened it through free trade agreements and is now also thinking of China. The smaller companies will import. We, of course, have global operations, but the LCD panels that we make in India have 80 % imported components,” says Venugopal Dhoot, chairman of Videocon Industries.

In some areas, a nudge from the government would have helped. For instance, India’s broadcasting industry projects that the country will need over 75 million set-top boxes. Yet nearly Rs 12,000 crore will be spent on importing these from China, Taiwan and South Korea, among other countries. Local companies can make the boxes and match the Chinese price. But they must pay 12.5 % as value-added tax, which importers do not. Set-top box makers have petitioned the government but have had no response.

The issue is more acute in the Rs 10,000-crore home appliances market, dominated by small players that manufacture for large brands. As much as 30-40 % of components here are sourced from the grey market without paying duties. The government has not been able to stop the proliferation of the grey market. This is not only killing small appliance manufacturers but also the component industry that supported them.

India has become a dream market for electronics and appliance manufacturers as  consumers splurge on television sets, refrigerators and air-conditioners. It is already Sony’s fourth largest market worldwide, a target LG also hopes to meet. Yet, that growth is heavily dependent on imports, of finished goods and components…