TDB September 2014 Magazine Issue

www.thedollarbusiness.com Vol.1 Issue 9 September 2014 100 $5 EXCLUSIVE INTERVIEWS Rajeev Kher Commerce Secretary, Ministry of Commerce & Industry, Government of India Demba Camara Counsellor of Economic and Commercial Affairs, Embassy of The Republic of Senegal in India Tomas Ernberg Managing Director, Volvo Cars India Anil K. Gupta Chairman & Managing Director, Container Corporation of India Ltd. (CONCOR) ...and more! FOREIGN TRADE . EXPORTS . IMPORTS ICD Tughlakabad It’s flowing traffic at this dry port The largest dry port in Asia serves as a focal point for most traders in North India Olive oil It’s not called Liquid Gold for nothing Rising demand and limited supply have made it a lucrative import proposition Although relatively new and less spoken about because of confidentiality issues, LPO is now a multi-billion dollar industry globally, and growing faster than imagined LEGAL PROCESS OUTSOURCING Is it the next big thing?

LETTER FROM THE EDITOR–IN–CHIEF A RESCUE MISSION... I have grown. A couple of numbers will elucidate the labyrinth of RTA “spaghetti bowl” inside which India’s outbound ships seem to have lost direction. Contrary to what was naturally expected by our policymakers (that our outbound trade with RTA partners will outshine that with non-partners), our imports from RTA partners have actually grown at a faster pace (12.3%) as compared to those from non-partners (11.5%). To be specific, as compared to FY2005, India’s trade deficit with the ASEAN bloc increased by 1,625% to $8.15 billion in FY2014, and that with non-ASEAN and non-SAFTA RTA partners rose by 262.33% to $4.56 billion. RTAs have therefore only worsened the equation for India. Though the deficit with India’s RTA partners represent just 10% of its total trade short- fall, the negative balance cries out for a closer inspection. The embarrassing truth that these numbers mask (only partly so) is that, India is still a nation that largely survives on imports. The cure to this malady will come in the form of India being groomed to accelerate in the manufacturing race. I say ‘groomed’ because we’re not yet ready to make the big leap. Recently, there was much talk about how India “could” take advantage of the impending supply vacuum in Russia due to the ban imposed by it on food items imported from US, EU, and many other nations over a sanctions row. Reality check: India till date wasn’t even seriously treating Russia as a consumer market in most of these categories. To make some quick references, India’s contribution to Russia’s imports of automobiles (in 2013) stood at less than 0.3%, plastics – less than 0.5%, aircraft parts – 0.2%, iron & steel – 2%. These indicate that the idea of making merry under the Kremlin sun is just a reverie! Much of this incapability is born out of the fact that manufacturing in India wasn’t considered a serious affair till date. Neither cost competitiveness nor quality differentiation can be overwhelmingly talked about when it comes to our manufacturing sector and on a global platform. Forget exports, India’s manufacturing capabilities have been straitjacketed to such an extent that in another five years, our electronics import bill will surpass our oil bill, with manufacturing in India meeting just 25% of the total domestic demand. FTAs that favour partners over the host and a fractured manufacturing infrastructure – either, can never be the starting point if we are to usher in an era where India will officially be celebrated as a trillion dollar merchandise-exporting nation. A foreign onlooker will confess that India is piggybacking solely on its low-cost labour advantage. Still. Times have changed. Globally, exports is no longer viewed as a surplus function of manufacturing. The present WTO database is littered with examples of nations who have manufacturing units on a massive scale and count, purely dedicated to exports. Sadly, such a realisation has not dawned upon India. This idea that has to be hammered into the heads of our think tanks. Measures to infuse fresh lives into Export Oriented Units and greater sops to Electronic Hardware Technology Parks and SEZs can be a start. Incentives to exporters through schemes in the new FTP and allowing transferability of duty free scrips could be another. These would even come as an inviting sign to foreign investors who are on the lookout for an opportunity to overlook compliance-related hurdles in India’s manufacturing sector. India cannot forever continue eating more than it can cook. Can it? At least not if we want to live the reality of ‘Proudly Made in India’! t’s been more than a decade-and-a-half since India got caught in the Regional Trade Agreement (RTA) hysteria. RTAs (a parallel term used to describe Free Trade Agree- ments; FTAs), was born out of hope for reciprocity. Years later, we stand to realise that the expectations and imaginations of our many trade negotiators – responsible for 15 RTAs over the years – were skewed towards finding neverland! In the last decade, our exports to two dozen-plus RTA partners have increased by just 12.2% y-o-y – almost equal to the rate at which our exports to non-RTA geographies (11.8%) India’s manufacturing sector has been straitjacketed to an extent that in another five years, our electronics import bill will surpass our oil bill. India cannot forever continue eating more than it can cook. Can it? Steven Philip Warner Editor-in-Chief, The Dollar Business steven@thedollarbusiness.com www.thedollarbusiness/blogs/steven @SPWarner SMS your views to +91-888-633-1947 SEPTEMBER 2014 II THE DOLLAR BUSINESS 1

Volume: 01 Issue: 09 September 2014 www.thedollarbusiness.com facebook.com/tdbIndia twitter.com/TheDollarBiz in.linkedin.com/in/thedollarbusiness/ EDITORIAL & RESEARCH Editor-in-Chief: Steven Philip Warner Editor: Manish K. Pandey Executive Editor: Shakti Shankar Patra Deputy Editor (Online): Bidhu Bhushan Palo Senior Editors: Jayashankar Menon, Satyapal Menon Assistant Editor: Sisir Kumar Pradhan Special Correspondent: Neha Dewan Principal Correspondent: Sachin Manawaria Senior Correspondent: Purba Das Editorial Coordinatior: Deepa Pandey EDITORIAL CONSULTING BOARD Founder & Editor: Anil Goyal Publisher: Avnish Goyal Chief Consulting Editor: Dr. A. K. Sengupta (Former Dean, IIFT) 92 RENDEZVOUS RAJEEV KHER, COMMERCE SECRETARY, GoI What the nation can expect from the yet-to-be-revealed Foreign Trade Policy 2014-19 32 BRAND ACTIVATION & RESPONSE Vice-President (North and East): Aninda Mondal Senior Manager (West and South): Varun Jakhetia Manager (West and South): Umesh M. Khollam Manager (North and East): Vikas Kumar OVERSEAS TALK DEMBA CAMARA, COUNSELLOR OF ECONOMIC AND COMMERCIAL AFFAIRS, EMBASSY OF SENEGAL Discusses India-Senegal trade ties in detail 18 GLOBAL MANAGER TOMAS ERNBERG, MANAGING DIRECTOR, VOLVO CARS INDIA Ernberg talks about the company’s vision for India and how it plans to increase its market share in the country ART & PHOTOGRAPHY Art Director: Sujesh Kumar G. Senior Designer: Sonia Kholgade Photographer: Dileep Kumar THE DOLLAR BUSINESS ONLINE Senior Web Developer: Bhanu Prakash Web Developer: K. Naveen Web Designer: S. Vamshi Krishna Associate (Web & Network): C. Dileep Reddy COVER STORY 42 BIG IDEA CHINA Why China is an attractive export destination too! CIRCULATION & DISTRIBUTION General Manager: S.S. Sudesh Asst. Manager: M. Vinay Kumar, Buddhisagar Pandey, Sanjeev Jain Senior Executive: G. Madhan Rao 28 EXCLUSIVE INTERVIEW LPO – Is it the next big thing? Although relatively new, and less spoken about because of confidentiality issues, Legal Process Outsourcing (LPO) is now a multi-billion dollar industry globally, and growing faster than imagined 74 FINANCE & LOGISTICS Manager: Parchuri Jhansi Associate: Raj Jarikote GLOBAL CORPORATION PRAJ INDUSTRIES Is it time to trust the Praj management and bet on a turnaround? 36 ANIL K. GUPTA, MD, CONCOR Talks about CON- COR’s evolution, PRINTER Kala Jyothi Process Pvt. Ltd., 1-1-60/5, RTC Cross Road, Musheerabad, Hyderabad, Telangana 500020, IN MONOLOUGE PEOPLE SPEAK Highlighting opinions & thoughts of policymakers and think-tanks on global trade and foreign policy GLOBAL TRADE - THIS MONTH US-ECOWAS trade agreement, APEC joining hands to curb corruption and much more POLICY FOCUS EPCG Pre-export EPCG scheme versus Post-export EPCG scheme 05 06 76 PUBLISHED AT 5-2-198/4, Distillery Road, Ranigunj, Secunderabad, Telangana 500003, IN upcoming projects and what’s happening at ICD Tughlakabad BESTSELLER GYM EQUIPMENT Rising awareness & zero duties in US – what more can one ask for? 58 © Copyright 2014 No part of this magazine may be reproduced in whole or in part without an ex- pressed permission of the publisher. The information on this magazine is for information purpose only. The Editor-in-Chief & Editor are responsible for the selection of news and content under PRB Act. Vimbri Media Pvt. Ltd. assumes no liability or responsibility for any inaccurate, delayed or incomplete information, or for any actions taken in reliance thereon. The information contained about each individual, event or organisation has been provided by such individual, event organisers or organisation without verification by us. All disputes are subject to exclusive jurisdiction of competent courts and forums in Hyderabad, Telangana. Printed and published by Avnish Goyal for Vimbri Media Pvt. Ltd. Published at 5-2- 198/4, Distillery Road, Ranigunj, Secunderabad - 500 003, Telangana. PRIME FOCUS ANTI DUMPING Are prevailing laws more anti free trade than dumping? 82 80 INDIA TRADE - THIS MONTH From hike in sugar import duty to power trade agreement with Nepal, from tea exports to new development in Indo-Pak trade SPOTLIGHT MEXICO With over 80% of its exports still directed to United States, Mexico doesn’t seem to have learnt much from the past 10 16 D. K. NAIR, SEC’Y GENERAL, CITI Explains what’s ailing India’s textile industry IMPORT’ONOMICS OLIVE OIL Rising demand has made olive oil a lucrative import proposition 62 NEWGEN NEWSMAKER AVISHEK MODI MD, Suvino Exports, talks about his salt exports business 88 all that needs to be done to help it achieve its full potential Printed at: Kala Jyothi Process Pvt. Ltd., 1-1-60/5, RTC Cross Roads, Musheerabad, Hyderabad - 500 020, Telangana. INFOGRAPHIC UMBRELLA Umbrella exports, a multi-billion dollar industry dominated by – no prizes for guessing – China! GLOBETROTTER LAOPALA How La Opala RG has left trade pundits dumbfounded and made its stock darling of the Dalal Street 24 22 FOR EDITORIAL/CONTENT QUERIES Email: editorial@thedollarbusiness.com . Tel: +91-40-6677 0766 DOCKYARD ICD TUGHLAKABAD It’s flowing traffic at this largest dry port in Asia 66 DATE BOOK Indian and foreign trade fairs you shouldn’t miss 90 FOR ADVERTISEMENT QUERIES Email: ads@thedollarbusiness.com . Tel: +91-40-6677 0765 FOR SUBSCRIPTION QUERIES Email:subscription@thedollarbusiness.com . Tel: +91-40-6677 0765 2 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 3

inbox editorial@thedollarbusiness.com SMS your views to +91-888-633-1947 WE VALUE YOUR FEEDBACK, WHETHER CRITICISM OR APPRECIATION. AND HERE ARE A FEW THAT HIT OUR MAILBOXES IN AUGUST 2014 T graphic. The contents of product pages were very informative. The contents are different from what we usually see in other business magazines. It’s unique. The cover page looked like an ad to me though. I fumbled a bit trying to reconcile to the cover page design. I wonder if it is the font treatment that threw me off? Or, the four blurbs at the bottom third? MARY CATT Assistant Director – Communications, Cornell University ILR School he issue looked great! It’s lively, with lots of colour and photography. Enjoyed the info- www.thedollarbusiness.com Vol.1 Issue 8 August 2014 100 $5 EXCLUSIVE INTERVIEWS Nicola Watkinson Minister Commercial (India) and Senior Trade and Investment Commissioner (South Asia) at Australian Trade Commission Sanjay Budhia Chairman, CII National Committee on Exports & Imports Manikam Ramaswami Chairman, The Cotton Textiles Export Promotion Council (Texprocil) www.thedollarbusiness.com Vol.1 Issue 8 August 2014 100 $5 RNI: APENG/2014/54643 FOREIGN TRADE . EXPORTS . IMPORTS With the Union Budget done, it’s time for the government to present the new Foreign Trade Policy and set the ball rolling towards achieving FOR THE ULTIMATE GAME CHANGER Kamarajar Port – what makes erstwhile Ennore special Although still small in terms of cargo handling, it has got much in place to make the big leap achche din Lentils – more than just a bowlful of delight for importers Rising demand and static production have made this commodity a lucrative import proposition become a role model to be replicated, specifically in the case of unviable state-owned ventures. V. SRIDHAR Hyderabad I ments to your accomplished team for the excellent publication. I look forward to The Dollar Business scaling new heights. S. R. DAMANI Damani Brothers, Chennai t’s a well-detailed publication, with good insights into the world of exports and imports. My compli- T clearly spells out how the new Foreign Trade Pol- icy is likely to help India achieve $500 billion per annum export figure. Congratulations to The Dollar Business team, this time too, you have come up with various facets of FTP including focus and promotion, exemptions and remissions, EPCG, Export Promotion Zones, Services and Deemed Export. You can’t ask for more. SUNIL_KENATH@YAHOO.COM he cover story, titled: ‘For the Ultimate Game Changer’ is very informative in the first place. It T learn that 90% of the T-shirts exported from India are made in an otherwise nondescript town called Tirupur. As the saying goes, ‘If there is a will, there is a way’, many budding entrepreneurs and exporters can learn a lesson or two to emulate the Tirupur model of success. EV PRASAD CEAT Shoppe, Chennai he article on T-shirts, titled: ‘Dressing Up The World’ made wonderful read. It is heartening to T purchased over two decades back. I always used to wonder how it was phased out despite its dura- bility and reliability. I got the answers in the story. My compliments to you for featuring a two-wheeler product that for many years remained popular amongst a majority of Indians. AMEETS13@GMAIL.COM he Bajaj story was quite interesting. I continue to use the good old Bajaj scooter, which I T tisation of ports. With its corporate structure and functioning creating potential for performance and revenue earning capability, Kamarajar Port has he feature on Kamarajar Port was a revelation. It proves the feasibility and viability of corpora- 4 THE DOLLAR BUSINESS II SEPTEMBER 2014

GLOBAL TRADE THIS MONTH News & Analyses News & Analyses US-AFRICA TRADE EXPORT PUSH Killing two birds with one stone CHINA GRAIN IMPORTS To feed over a billion China has decided to import grain to tide over spiraling prices at home, and also ensure sufficient stocks. The imports, according to Chinese official sources, will cut down unexpected supply risks and ensure long-term food security. “Interna- tional cereal prices are much lower than those prevailing in the domestic markets. Demand for various cooked wheat food goes up in China between January and July. Due to lower prices in global markets, the nation has increased its imports,” said Li Guoxiang, Deputy Director of the Rural Development Institute at the Chinese Academy of Social Sciences in Beijing. He added that “rising grain imports do not pose any threat to the nation’s food security.” According to reports, China imported 11.34 million metric tonne of cereals between January 1 and July 31, 2014, up 80% year-on-year. The nation’s grain imports mainly cover wheat, rice and corn. Although China’s grain production has been rising every year for the last 10 years, it has never been enough to meet the domestic demand. Interestingly, in 2006 China had introduced price floors for farm products to safeguard farmers from price volatility. The government buys for the State reserve only when the market price falls below the price floor. AUSTRALIAN EXPORTS RUSSIAN BAN Going down... down under Vladimir Putin President, Russia Russia’s ban on import of agricultural products from Australia have put the latter at sea, literally. As a result of the ban, Australian export goods – comprising agricultural products, raw materials and foodstuff – are either stranded at sea or in transit to Russian markets, although government officials have initiated measures to divert them to alternative destinations. The concern about taking con- tingent measures is quite justified, since most of them are perishables. According to the Australia’s Depart- ment of Agriculture, total agricultural trade with Russia was valued at AUD 404.7 million in 2013. Of this, a majority were in the meat, livestock and animal products category, followed by dairy, sea- food, cereals and pulses. In the FY2013- 14, Russia accounted for about 1% of total Australian agricultural exports. With the dual objective of providing impetus to domestic small businesses and also expand the country’s footprint globally, the Export-Import Bank of the United States has announced a record package of $1.7 billion to finance US exports to Sub-Saharan Africa. According to the bank, this would facilitate small businesses to sell their products in the international markets, apart from supporting more than 10,000 American jobs. The announcement came during the US-Africa Leaders Sum- mit convened by US President Barack Obama, which was also attended by the bank’s Chairman and President Fred P. Hochberg. “Export Import Bank is firm- ly committed to equipping US exporters to realise the vast economic opportunities emerging throughout Sub-Saharan Africa, which is home to seven of world’s 10 fastest-growing markets,” Hochberg said and added, “Each transaction we support creates jobs for local US businesses and strengthens our relationship with a region that has a strong prospect for long-term economic growth.” The bank also declared that it will keep aside $3 billion to finance US exports to Sub-Saharan Africa over the next two financial years. COLD WAR 2.0 RUSSIAN RETALIATION No longer a one way traffic The spat between Russia and the West is snowballing into a tit-for-tat trade war, with Russian President Vladimir Putin signing an order that puts a one year ban on imports of agricultural and food products from countries that have imposed sanctions on the Russian Federation. The products that have been banned include meat, poultry, dairy products, sea food, vegetables and fruits from United States, European Union, Canada, Norway and Australia. The embargo, however, does not include infant foods and goods. Reacting to the ban, European Union’s foreign ministers reiterated that “the grounds for the imposition of restrictive measures against the Russian Federa- tion remain valid.” In a joint statement, the ministers said, “In order to ensure unity of the international community and uphold international law, the Euro- pean Union expects developing nations and candidate countries to refrain from measures which are aimed at exploiting new trading opportunities arising from the introduction of these measures,” adding that “the Council, together with the Commission and the HR/ VP, remains engaged in the monitor- ing and assessment of these measures and remains ready to consider further steps, in light of the evolution of the situation on the ground.” Pricing of food grains has been a very controversial issue at the WTO, with developing and developed countries at loggerheads over subsidies Australian exports to Russia Dominated by meat and dairy products Russian meat imports Russian meat imports have grown at a CAGR of 11.61% in the last 10 years 23% Chinese cereal imports Chinese cereal imports have been surging since the financial crisis of 2008 8 39% 7 6% 6 6 7% 5 5 4 4 9% 16% 3 3 2 Meat and Edible Meat Offal Dairy Products, Eggs, Honey Raw Hides and Skins Machinery, Nuclear Reactors, Boilers Live Animals Other 2 1 1 Barack Obama President, USA 0 0 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 Source: International Trade Centre; figures in $ billion Source: International Trade Centre; Breakup for CY2013 Source: International Trade Centre; figures in $ billion 6 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 7

GLOBAL TRADE THIS MONTH News & Analysis News & Analysis US-ECOWAS FRAMEWORK AGREEMENT Gearing up for an African Safari The United States has signed a Trade and Investment Framework Agree- ment (TIFA) with the Economic Community of West African States (ECOWAS). The TIFA will provide a mechanism for expanding trade and investment between United States and the 15 ECOWAS member states, and across the entire ECOWAS region. The signing took places alongside the White House’s announcement that major American companies have committed to invest $14 billion in Africa’s future. “This is a tremendously exciting and formative time for US-Africa trade relations,” US Trade Representative Michael Froman said. “Africa is an increasingly critical trading partner for United States, and the signing of the Trade and Investment Framework Agreement with the 15 countries of the Economic Community of West African States is emblematic of our commitment to strengthening the economic bonds that connect America and the African community,” he added. US exports to ECOW- AS member states were worth $9.9 billion in CY2013, with mineral fuel ($3 billion), automobiles and auto parts ($2.1 billion), machinery ($1.2 billion), and wheat ($977 million) being the dominant components. To- tal United States-ECOWAS trade was valued at $23.3 billion in CY2013. AFGHANISTAN DROP IN EXPORTS Election takes its toll on purse The Afghanistan Chamber of Com- merce and Industry (ACCI) has announced that exports from the war-ravaged nation have dropped by almost 20% since the start of 2014. Unending violence and political instability seem to be the root cause of this big drop. ACCI officials claim that exports from Afghanistan were worth just $90 million during the first three months of the year as compared to $120 million during the same period last year. Officials in the Ministry of Fi- nance of Afghanistan have also ex- pressed concerns regarding the delay in the announcement of presidential election result. The officials said the delay in announcement of the result of the presidential election has led its customs revenue decrease by as high as 25% in 2014. Rows of Land Rovers queued at Southampton Docks in UK awaiting export BRITAIN CAR EXPORTS Racing ahead in top gear Thanks to rising demand for luxury car brands like Volkswagen-owned Bentley and BMW-owned Rolls Royce, car exports from Britain are on a roll. In fact, according to the Society of Motor Manufacturers and Traders (SMMT), car exports from Britain rose 3% y-o-y in July to the their best ever levels for the month. This, as global demand for top-end cars continued to grow. Britain manufactured over 1,03,000 cars during the month and the total number, along with those manufactured for domestic sales, reached 1,32,750 units, up 2.8% y-o-y. The SMMT said rising exports were primarily due to new models being made in Britain and increasing popularity of premium and specialist brands, including that of the Tata-owned Jaguar and Land Rover. The SMMT expects about 1.6 million cars to roll off UK production lines in 2014 and if this growth rate continues the production is expected to surpass the 1.92-million record set in 1972 by 2017. Interestingly, today about 8 out of 10 cars manufactured in UK are exported. Michael Froman US Trade Representative APEC CURBING CORRUPTION Joining hands to catch the crooks NEW ZEALAND BEER EXPORTS Cheers to Asian giants! The Australian and New Zealand Banking Group (ANZ) claims that New Zealand craft beer exports might triple over the next decade as Asian consumers have started developing a taste for boutique brews. ANZ’s central region General Manag- er (Commercial and Agri) John Bennet believes fast-growing economies like China and India offer huge export opportunities for Kiwi brewers. “The potential for exporters is enormous – up to 300% growth in the next 10 years – but New Zealand brewers and hop growers will need to significantly expand production if they are to take advantage of the opportunity,” Ben- net said. It’s worth mentioning that the output of New Zealand craft breweries is expanding at about 25% per annum, while the domestic consumption has been increasing just 10% annually. Sleuths Asia-Pacific Cooperation (APEC) are sharpening their tools to curb prevalent corruption that is impact- the market. APEC Network of Anti-Corruption Author- ities and Law Enforcement Agencies, or ACT-NET, have opened a ground-breaking new channel for the exchange of sensitive case information, which would significantly enhance their ability to combat large scale corruption and bribery affecting the Asia-Pacific market. Officials shared detailed insights into on-going criminal investigations and prosecutions for the first time on an APEC-wide basis during the inaugural meeting of the ACT-NET. A secretar- iat, to be initially hosted by China, will manage information-sharing in an institutional capacity. “As domestic anti-corruption efforts intensify, corrupt officials flee abroad and remain at large by taking advantage of legal differences between our jurisdictions,” said Fu Kui, Vice Minister of China’s National Bureau of Corruption Prevention. He further stated it was a serious challenge to each economy’s rule of law. “By building a multilateral platform to strengthen work-level exchange and case cooperation, we can cut off the escape route for corrupt fugitives to a large extent,” Fu Kui added. belonging to Economic A safeguard investigation seeks to determine whether increased imports of a product are causing, or is threatening to cause, serious injury to a domestic industry. During a safeguard investigation, importers, exporters and other interested parties may present evidence and views and respond to the presenta- tions of other parties. A WTO member may take a safeguard action, i.e., restrict imports of a product temporarily, only if the increased imports of the product are found to be causing, or threatening to cause, serious injury. MALAYSIA STEEL PLATE IMPORTS Another day, another protectionist attempt The World Trade Organisation (WTO) has reported that Malaysia has launched a safeguard investigation into the import of hot rolled steel plates to determine whether rising imports are causing harm to the domestic industry. In the last five years, Malaysia’s imports of iron and steel structures like plates, rods and angles have risen at CAGR of 22.73%, a majority of them from China. The WTO has said that the local industry has to submit their responses within 30 days of the publication of the notice in the Government Gazette of Malaysia if they want their views and submissions to be considered. i n g Malaysian imports of iron and steel structures Malaysian iron & steel structure imports have seen a sharp rise in the last 5 years 450 400 350 300 250 200 150 100 50 0 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 File photo of a Boutique micro brewery with steel equipment Source: International Trade Centre; All figures in $ billion 8 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 9

INDIA TRADE THIS MONTH News & Analysis News & Analysis HYUNDAI INDIA EXPORTS TO EUROPE India’s loss is Turkey’s gain Korean auto giant Hyundai Motors has announced that it will no longer export cars to Europe from India. Instead, it has decided to cater to the European markets from its plants in Tur- key and the Czech Republic. The announcement is being seen as a blow to India’s ambitions of emerging as a major auto hub. It is also a major blow to the Chennai Port, which used to cater to most of the company’s exports. Hyundai India’s Chennai plant has a production capacity of around 6.8 lakh units/year and a big chunk of the total production was exported to the European market. A company official said the decision was made to meet growing domestic demand. Hyundai India has been India’s largest auto exporter, accounting for around 45% of India’s total car exports. The decision is expected to help the company save on transport costs and avoid import duties levied by European nations. However, the company claims that cars produced at the plant will continue to be exported to Latin America, the Middle East, Australia and Asia. It’s worth mentioning that Hyundai India started exporting cars from India in 1999 and its cars manufactured at its Chennai plant have been exported to around 120 countries across the world. INDIA-AUSTRALIA TRADE URANIUM EXPORTS Only for the right reasons During his forthcoming visit to India in September, Aus- tralian Prime Minister Tony Abbott is expected to sign a deal to sell uranium to India. This follows multiple rounds of talks between Indian and Australian officials, wherein India managed to convince Australia that the uranium won’t be used to make nuclear weapons. Selling uranium to India is a politically sensitive issue in Australia as the former is not a party to the Nuclear Non-Proliferation Treaty (NPT). Opposing the move, Australian senator Scott Ludlam said, “Australia will be directly complicit in fuelling the nuclear arms race between India and Pakistan.” He also offered an alternative solution by which Australia could play a role in India’s fight against perennial energy crisis. “Instead of fuelling this arms race, the Australian industry should be partnering with India’s vibrant solar sector,” Ludlam added. It’s worth mentioning that India runs a massive trade deficit against Australia, mostly because of rising coal imports from the country down under. Tony Abbott Prime Minister, Australia Workers on the assembly line at a car manufacturing facility India’s car exports India exported over $5 billion worth of cars in FY2014 6,000 5,000 4,000 3,000 2,000 1,000 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 NEPAL POWER EXPORTS ‘Power’ in return for power Ten Nepalese communist groups have joined hands to oppose a plan of the government of the Himalayan kingdom to sign a power trade agreement with India. Similarly, they have also made it clear that they are opposed to a project development agreement (PDA) involving hydro-power projects, including the Upper Karnali Project. “The government has agreed to sign both agreements within 45 days of Indian Prime Minister Narendra Modi visiting Nepal, giving monopoly to India on Nepal’s water and power development, which is objectionable,” they said in a joint statement. On the other hand, General Secretary of CPN-ML, which is a partner of the current coalition government in Nepal, P. Mainal said, “We are not against signing the deals with India but they should be done ensuring Nepal’s interests and on the basis of national consensus.” Estimates suggest that it is possible to generate 83,000 MW from Nepalese rivers, while the kingdom barely has a demand of about 1,000 MW – something that has not gone unnoticed by India. Source: Ministry of Commerce, GoI; figures in $ million A woman picking tea leaves at a tea garden in Darjeeling, West Bengal INDIAN TEA GREEN PEACE As safe as its popularity Following a recent sampling and testing of a variety of Indian tea products by Greenpeace to evaluate the level of residues of plant protection formulations, The Tea Board of India issued a press release, which said that all the samples tested comply with Indian laws and regulations. “Indian tea, which is very highly regarded all over the world, is totally safe and follow very stringent standards,” the release said. It’s worth noting that the Indian tea industry, led by the Tea Board of India, has been taking several steps to make tea cultivation more profitable and reduce reliance on synthetic plant protection products. It had recently organised a seminar that enabled Greenpeace to interact with the small tea growers. INDIA-CHINA FREE TRADE AGREEMENT Wining and dining with the dragon Attempts to tap Nepal’s hydro-power potential might get a setback following the opposition The Federation of Indian Exports Organisations (FIEO) has made a brave request. Pitching the idea that a free trade agreement (FTA) with China would actually be more beneficial to India than China, FIEO President Rafeeq Ahmed recently said, “Why are we afraid of China? If we enter into a FTA with China, it will benefit us. The government should not hesitate to talk about this. If Thailand can have an FTA with China, why not India? India should seriously look at this.” It’s worth noting that despite initiating the highest number of anti-dumping investigations, India’s trade deficit with China continues to spiral out of control – staying above $35 billion for each of the last three financial years. Rafeeq Ahmed’s recent statement assumes significance since there have been indications by the new government in New Delhi that India might take it easy when it comes to signing new FTAs. What’s interesting is that in 2012, FIEO had said that exports to countries with which India has signed FTAs, has shown a decline. The Department Of Industrial Policy & Promotion (DIPP) too has been opposing such pacts as they impact manufacturing negatively. 10 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 11

INDIA TRADE THIS MONTH News & Analysis News & Analysis INDO-PAK TRADE GAS PIPELINE For a brighter tomorrow, literally India’s Minister of State for Petroleum & Natural Gas Dhar- mendra Pradhan has informed the Rajya Sabha that negotiations are on between GAIL and Pakistan’s Inter State Gas Sys- tems (ISGS) as per which GAIL will supply five million metric standard cubic metres a day (MMSCMD) of lean gas to Paki- stan for a period of five years. Under the proposal, GAIL will lay a 110-km pipeline from Jalandhar to Amritsar/Atari border. Details related to the technical feasibility of laying the pipeline to Lahore from the Atari border has already been assessed by both the parties. The project discussion will also include commercial aspects. While Pakistan has been negotiating with India on the pricing front, India has sought sovereign guarantees from the Pakistani government. If negotiations work out, GAIL is expected to procure imported liquefied natural gas (LNG) at Jalandhar from its terminals in Maharashtra or Gujarat. It’s worth noting that Pakistan currently doesn’t have LNG import facilities. ADVANCE AUTHORISATION (AA) / DFIA AMENDMENT IN FTP - NOTIFICATION 31 A move sans logic? For over a year now, many processed food exporters in India were hoping that they would be relieved from the rather unnecessary noose that was forced around their necks in August last year in the form of Notification 31. [The notification allowed duty free imports of “only” inputs that were actually used in manufacturing the export product.] It was hoped that the notification that enforced non-transferability of authorisation or duty free inputs against it – which was in direct conflict with para 4.2.6 (“Transferability”) of FTP – would be revoked. What occurred on August 21, broke hearts. The new notification (No. 90; RE-2013/2009-14) imposed a limit on even the ‘quantity’ of input to be allowed under DFIA/ AA (in proportion to the quantity of inputs actually used in production). Of more significance than the very notification is the fact that it indicates the inten- tions of our August group of policymakers, and right before the new FTP is to be released. Looks like the Notification 31 nightmare will continue to haunt exporters. SAFEGUARD DUTY PIPES AND TUBES IMPORTS Safeguard or protectionism? India has imposed a safeguard duty on imports of seamless pipes and tubes. The decision was taken after thorough con- sideration of a petition filed by Jindal Saw Ltd. and ISMT Ltd., seeking imposition of safeguard duty on imports of tubes, pipes and hollow profiles made of alloy or non-alloy steel. The petition claimed that increased imports are causing and/ or threatening to cause serious injury to the domestic producers. The petition was also supported by Maharashtra Seamless Ltd. (MSL). The Director General (Safe- guard) arrived at the decision after hear- ing the pleadings of the petitioners and importers. It’s worth noting that oil & gas companies like ONGC have been given special licenses by the Director Gener- al of Hydrocarbons to import seamless pipes and tubes at ‘nil’ customs duty, when imported to specific areas. The government, after considering the findings of the Director General (Safeguard), imposed the duty via Noti- fication No. 02 /2014-Customs (SG). The safeguard duty will be imposed at a rate of 20% in the first year (if imported between August 13, 2014 and August 12, 2015), 10% in the second year (if imported between August 13, 2015 and August 12, 2016) and at the rate of 5% in the third year (if imported between August 13, 2016 and February 12, 2017). This notification shall apply to imports of Seamless Pipes and Tubes from countries notified as developing countries under clause (a) of sub-section (6) of section 8B of the Customs Tariff Act, other than the People’s Republic of China. The ongoing negotiations might hit a roadblock after India recently called-off Foreign Secretary level talks Narendra Modi Prime Minister, India SUGAR IMPORTS HIKE IN DUTY Between a rock and a hard place Coming to the rescue of Indian sugar mills, which are struggling to clear sugar- cane arrears due to low prices and excess stock and now sugar surplus in global markets, the government has hiked the import duty on sugar to 25% from 15%. This comes a couple of months after Food Minister Ram Vilas Paswan first in- dicated that the duty could be hiked to as high as 40% if the situation doesn’t improve. It is believed that prices of sugar in global markets are currently trading well below the production cost of sugar in India, thanks to a surplus sugar production in many sugar producing nations. Like most other agri-commodities, sugar continues to be highly regulated in India, with political interests ensuring high minimum support prices (MSPs) that, often, lead to production costs ending up way higher than the prevalent market price for sugar. NARENDRA MODI MAKE IN INDIA For exporting out of trouble In his first address from the ramparts of the Red Fort, Indi- an Prime Minister Narendra Modi has invited companies from around the world to setup manufacturing facilities in India and export goods around the world. During his speech on Independence Day, Modi said, “Come, manufacture in India. Sell in any country of the world but manufacture here. We have got the skill, talent, discipline and the determination to do something.” A few days after the speech, he addressed a conference of Board of Gover- nors and directors of Indian Institute of Technologies and urged them to help in the manufacturing of those goods on which India is heavily dependent on imports. “I refuse to believe that India does not have the talent to make these things,” he said, asking the IITs to take up the challenge. The growing desperation in the voice of the Indian pre- mier to increase exports and reduce imports is being seen as a repercussion of India having trade deficits of over $100 billion for the last several years. In fact, for the last several years, Indian trade deficit continues to be one of the highest in the world, behind US and Hong Kong. India’s LNG imports India is the world’s fifth largest importer of LNG Indian sugar imports Indian sugar imports are mostly a function of government whims than market dynamics 1,400 9,000 8,000 7,000 6,000 1,200 5,000 1,000 4,000 800 3,000 600 2,000 400 1,000 200 Ram Vilas Paswan Food Minister, India 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Source: Ministry of Commerce, GoI; figures in $ million FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Source: Ministry of Commerce, GoI; figures in $ million 12 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 13

SPOTLIGHT MEXICO MORE THAN JUST BURRITO & DRUG LORDS Sharing boundary with a giant like US might act as a boon as well as a bane. And there’s no better example of this than Mexico. This second-largest Latin American economy was one of the biggest victims of GFC that started with the collapse of Lehman Brothers in US. Not to forget the illegal drug trade. However, with over 80% of its exports still directed to US, Mexico doesn’t seem to have learnt much from the past! INDIA’S EXPORTS TO MEXICO MADE IN INDIA Cars with engines > 1500 cc < 3000 cc .......19% Aluminium Ingots .............................................5% Copper Cathodes ............................................5% Iron and Steel Pipes ........................................3% Cars with engines > 1000 cc < 1500 cc .........3% Other ..............................................................65% MADE IN MEXICO Crude Oil ...................................................81% Videophone .................................................3% Power Project ..............................................1% Digital Processing Unit ................................1% Traction Motor .............................................1% Other .........................................................13% Source: Ministry of Commerce, GoI; Breakup for FY2014 INDIA’S IMPORT FROM MEXICO As is the case with India’s trade relations with any petroleum rich country, over 80% of Mexico’s exports to India in CY2013 was nothing but the black gold While cars are India’s biggest exports to Mexico, base metals and base metal products too account for a substantial chunk. Overall, Indian exports to Mexico are scattered across several product groups Electrical & Electronic equipment .....................................................................20% Automobiles & Auto accessories .......................................................................20% Nuclear reactors, Machinery, Boilers ................................................................14% Mineral fuels ......................................................................................................13% Optical, Photo, Medical apparatus ......................................................................3% Others ................................................................................................................29% Electrical & Electronic equipment .....................................................................22% Automobiles & Auto accessories .........................................................................9% Nuclear reactors, Machinery, Boilers ................................................................16% Mineral fuels ........................................................................................................9% Plastic & Plastic articles ......................................................................................5% Others ................................................................................................................39% 20% 20% 5% 16% 9% 9% 3% Mexico’s top trading partners View of pyramids at Teotihuacan in Mexico 29% 13% 14% 39% 22% MEXICO’S MEXICO’S ITALY EXPORTS TO THE WORLD IMPORTS FROM THE WORLD TAIWAN Source: International Trade Centre; Breakup for CY2013 Source: International Trade Centre; Breakup for CY2013 SOUTH KOREA Despite being a major exporter of crude oil, Mexico is a major importer of refined petroleum oils and natural gas Electronic equipment, vehicles and mineral fuels represented the highest dollar value in Mexican global shipments in CY2013 JAPAN GERMANY Indo-Mexican trade Mexico’s merchandise trade BRAZIL 4,500 450 400 350 300 250 200 150 100 50 4,000 CHINA 3,500 3,000 SPAIN 2,500 2,000 CANADA 1,500 1,000 USA 500 0 0 0 50 100 150 200 250 300 350 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 Imports Exports Imports Exports Indian exports to Mexico Indian imports from Mexico Source: International Trade Centre; figures for CY2013 ($ billion) Source: Ministry of Commerce, GoI; figures in $ million Source: International Trade Centre; figures in $ billion Mexico seems to believe in a very balanced approach when it comes to international trade with its exports and imports running almost hand in hand While USA is by far the biggest trade partner of Mexico, the latter is USA’s third-largest trading partner. USA’s merchandise trade deficit with Mexico was over $54 billion in CY2013. A very distant second is China, which had a surplus of over $50 billion against Mexico in CY2013 For the last eight years Mexico has had a trade surplus with India, thanks to crude oil exports that crossed the $3-billion mark in CY2013 16 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 17

OVERSEAS TALK DEMBA CAMARA, COUNSELLOR OF ECONOMIC & COMMERCIAL AFFAIRS, SENEGAL “OUR MAIN FOCUS IS TO BRING TOGETHER THE PRIVATE SECTORS OF INDIA AND SENEGAL” Photography by Varun Choudhary SENEGAL HAS STARTED IMPORTING A LOT OF INDIAN PRODUCTS, BUT OUR EXPORTS (TO INDIA) IS RESTRICTED TO JUST ONE OR TWO PRODUCTS A region more known for ethnic strife, sectarian violence and malnutrition, West Africa is slowly trying to break out of these shackles and pave the way towards prosperity. And among all West African nations, Senegal seems to be the one with the best potential to not only help itself but also the entire region in this journey. In this context, and to know all about India-Senegal trade ties, The Dollar Business caught up with Demba Camara, Counsellor of Economic and Commercial Affairs, Senegal in New Delhi. Excerpts from the conversation: INTERVIEW BY NEHA DEWAN TDB: India has set a target to expand bilateral trade with Africa to $100 billion for 2015. In what way is Senegal planning to capitalise on this? Demba Camara (DC): The partnership between India and Africa is growing at a rapid pace, and with respect to the volume of trade, a target of $100 billion has been set for 2015. Even if I look at just India and Senegal, I would say the bilateral trade between the two is on the right track. Since 2011 India has become one of Senegal’s largest trading partners. And this partnership is growing very quickly – from $425 million in FY2009 to $860 million in FY2013. During FY2013, while trade between India and Africa grew by just 0.4%, the same between India and Senegal grew by 9%. We also know that we can gain a lot from our partnership with India. India’s exports to Senegal include items such as rice, cereals, machinery equipment, pharmaceutical products and iron & steel, among last decade. What, according to you, are the factors behind this sharp growth? DC: In Senegal, we have improved our business environment. Since 2008, we have taken several new measures to attract FDI into the country and have completely opened up our markets. Today, everyone knows that Africa is growing and is an attractive destination for business. We have also initiated a big marketing project in India. We have visited several major states like Gujarat, Tamil Nadu, etc.. We are actively participating in trade fairs to show our products and connect with Indian entrepreneurs to help them explore business opportunities in Senegal. We are also organising in- teractive sessions with the private sector in India through industry bodies such as CII, ASSOCHAM and FIEO to showcase business opportunities in Senegal. It has helped a lot of Indian businessmen understand regulations in Senegal. The Em- bassy of Senegal in India also helps them others. We want this partnership to prosper not only when it comes to trade but investments as well. In fact, India and Senegal have already set up a joint commission and its next session will be held in Senegal, hopefully before the end of this year. Currently, we have started linking the commerce representatives of both countries. We have put Federation of Indian Export Organisations (FIEO) and our Chamber of Commerce in Da- kar together to negotiate and sign a MoU in order to promote trade between the two countries. We are planning to or- ganise a big session in Senegal this year, with important business delegates in at- tendance. Even the Engineering Export Promotion Council (EEPC) had visited Senegal last year and met buyers and other trade partners. We want to promote more such tours to Senegal. TDB: Indian exports to Senegal have grown at a CAGR of 19.94% over the 18 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 19

OVERSEAS TALK DEMBA CAMARA, COUNSELLOR OF ECONOMIC & COMMERCIAL AFFAIRS, SENEGAL in exporting to the Senegalese market. In fact, we are also planning to set up an independent Office of Economy to assist Indian traders looking at Senegal in either New Delhi or Mumbai. Moreover, since 2008, India and Africa have put up a new mechanism – Duty Free Tariff Preferential Scheme – for least developing countries in Africa. This scheme has also opened the market for India and has helped trade grow substantially. Indian imports from Senegal Dominated by phosphoric acid imports 4% 1% 3% 5% Indian exports to Senegal Dominated by rice and other cereals 29% 14% Aerial view of the city of Dakar, the capital and largest city of Senegal. Its position – Dakar is the westernmost city on the African mainland – is an advantageous departure point for trans-Atlantic and European trade and has aided its growth into a major regional port 46% 3% 3% 5% 73% 14% TDB: What are the key areas where Senegal wants India to focus on in order to foster this relationship? DC: One of our main focus is to bring the private sectors of both India and Senegal together to develop this partnership. We realise that there is no large and efficient partnership between the private sectors of the two countries. We are pushing the Chamber of Commerce in Senegal to connect with Indian industry bodies such as ASSOCHAM, FICCI, FIEO and others, to improve cooperation between the private sectors of the two countries. FIEO has already sent a draft MoU to the Chamber of Commerce and this draft will focus on the promotion of trade. We see a lot of opportunities for India in Senegal. Last year, we had organised a big trade fair in Senegal, which had seen the participation of thirty Indian companies. Ten were members of FIEO and the rest were members of ASSOCHAM. It was a fantastic opportunity for them to exhibit their products, meet buyers and explore business opportunities in Sene- gal. I should also take this opportunity Cereals Cotton Iron & Steel Pharmaceutical Products Apparel & Clothing Accessories Other Phosphoric Acid Cashew Nuts in Shell Iron & Steel Waste and Scrap Aluminium Waste and Scrap Copper Waste and Scrap Other Source: Ministry of Commerce, GoI; Breakup for FY2014 Source: Ministry of Commerce, GoI; Breakup for FY2014 to remind everyone that we have a trade agreement with India in place since 1974. In 2008, we signed a new agreement with India for the promotion and protection of investment because we have big In- dian conglomerates like the Tata Group now investing in Senegal. Moreover, several Indian real estate companies are exploring the market in Senegal as there is a huge market for low-cost housing. al years. However, it has turned into a big deficit since 2011. We have started importing a lot of Indian products, but our exports is restricted to just one or two products, like phosphoric acid. Hence, this deficit. But as I mentioned earlier, we are looking at strengthening the partnership between private players of both India and Senegal to reduce the trade deficit. We have our trade promotion agents who are putting in a lot of effort to promote Senegal in countries such as US and Europe. We are also seriously looking at our tourism sector, which we think has enormous potential. Also, we want to export more of cotton and minerals. Gold is another commodity that we want to export to India. A lot of European and Israeli companies are currently exploring gold mines in Senegal. In fact, a delega- tion of Senegalese trade agents would be vising India in March next year to create awareness about Senegal. Further, a lot of Senegalese traders too are not aware of the opportunities that India offers. We are also trying to educate our exporters as to which sectors they should look at when it comes to India. In the long run, I am sure these initiatives will help reduce our trade deficit. TDB: Is there anything in the pipeline when it comes to collaboration between Indian and Senegalese SMEs? DC: We have started looking at this aspect too. Last year, in March, the Di- rector General for SMEs in Senegal was in India to forge a partnership with local SMEs. We are also looking at signing MoUs with the government and see how a partnership can be developed that will benefit both Senegalese and Indian SMEs. We are optimistic that the MoU will be signed before the end of this year. The Director General of a Senegalese bank had also visited India early this year to sign an agreement with the Indi- an Overseas Bank, which would help a few Indian SMEs to come to Senegal. earner for Senegal. One of our key focus areas is, actually, tourism. We will soon start educating Indian private players regarding opportunities in the tourism sector in Senegal. We have a 700 km long coastline and have strategies in place to develop it to promote tourism. We have specific agencies who are developing the tourism sector in Senegal. Unfortunately, Indians still don’t consider West Africa as a tourist destination. Indian tourists typically visit Kenya, Uganda or South Afri- ca but not West African countries. West African countries are still developing as tourist destinations. Last year in June, we participated in a commercial session to show how tourism in Senegal offers a plethora of opportunities to investors. We have been in talks with the Taj Group in this context. extending continuous LoC to Senegal for various projects and the cumulative amount has now crossed the $200-million mark. In Senegal, sectors such as education, agriculture and rural electri- fication have benefitted from the project. TDB: Which Indian products have good potential in the Senegalese B2B and B2C markets? DC: I think automobile spare parts have a huge potential. Although a small quantity is exported to Senegal today, there’s much bigger market that can be tapped. Similar is the case with pharmaceutical products. We want to import generic medicines but regulations are not allowing Indian pharmaceutical companies to export much to Senegal. India can, and I am sure will, export real estate services to Senegal in the not so distant future. TDB: Senegal has had a trade deficit of at least a billion dollars for the last several years, largely due to imports of finished and semi-finished products. How do you plan to reduce it? DC: We have been facing trade deficits because we are not an industrialised economy. Despite this, we have had a mi- nor surplus with India for the past sever- TDB: What are your expectations from the new government in New Delhi? DC: Diplomatic relationship between Senegal and India started way back in 1962. It’s an old partnership. The new In- dian Prime Minister too knows African countries very well. You will find several Gujarati companies in Africa. I am sure the next India-Africa Forum will see new opportunities to develop India-Senegal relationship. We respect the new government and have a lot of expectations from it. Hopefully, we will see a lot of investment coming in from India to Senegal in the near future. Indo-Senegalese trade India has had a strong surplus against Senegal in the last three years TDB: In what way do you think has the Team 9 project (in 2004 India had launched an initiative called Tech- no-Economic Approach for Africa–In- dia Movement together with 8 energy & resource rich West African nations) helped foster economic cooperation between India and West Africa? DC: Team 9 continues to help develop India’s trade partnership with West Af- rica, including Senegal. A lot of devel- opmental projects have become a reality in West Africa only because of India’s generous Lines of Credit (LoC) offered to West African nations. India has been TDB: What are the main challenges that hinder Senegal’s trade and investment relationship with India? How do you think these can be addressed? DC: As I said earlier, the private sectors of India and Senegal are not connected. I believe it is a big hurdle that we need to overcome. Also, we have to set up a proper mechanism to facilitate trade between companies. The regulatory framework in India is also a challenge since different states have different rules. We certainly need to develop a mechanism to address this challenge. 600 500 400 300 200 TDB: To what extent is tourism being looked at to encourage Indian investment? What initiatives are being taken to promote ‘Destination Senegal’? DC: If you look at our economic data, the tourism sector is the second largest forex 100 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Indian exports to Senegal Senegalese exports to India neha@thedollarbusiness.com Source: Ministry of Commerce, GoI; figures in $ million 20 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 21

INFOGRAPHICS UMBRELLA Top exporters of umbrella Breakup of India’s umbrella imports 1% 1% 1% 1% A 13% Netherlands Italy Belgium Austria 14% 1% 1% 1% 1% 85% China Poland Spain USA Hong Kong 73% 2% 5% Germany WHEN IT RAINS, AND... DOESN’T Other From the Queen of Britain to a farmer in Bengal, from a fisherman in Goa to a billionaire’s trophy wife in the Upper East Side of Manhattan, everyone uses an umbrella – some to protect themselves from the sun and the rain, some as a fashion statement. The result is a multi- billion dollar industry dominated by – no prizes for guessing – China! Source: International Trade Centre; Breakup for CY2013 Umbrellas with telescopic shaft Garden umbrellas As is the case with most products, the factory of the world China dominates trade in umbrellas. The country accounted for a stunning 85% of global umbrella exports in CY2013. The next best couldn’t manage even 5% of what China did during the year Other umbrellas Source: Ministry of Commerce; Breakup for FY2013 Breakup of global umbrella trade B India’s umbrella trade 26% 14 12 10 42% 8 32% 6 4 2 TOP IMPORTERS OF UMBRELLA 0 Umbrellas with telescopic shaft Garden umbrellas FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Other umbrellas Exports from India Imports to India Source: International Trade Centre; Breakup for CY2013 Source: Ministry of Commerce, GoI; figures in $ million No surprises here! A dormant manufacturing sector means the need for imports is rising in India and umbrellas are no different In CY2013, India’s umbrella imports were dominated by the user-friendly telescopic shaft variety, which is more a necessity than a luxury in large parts of the country A 6% 5% 12% Average price of umbrella (exported) C 19% 14,000 39% USA France Spain Japan South Korea Canada Germany UK Other Hong Kong Italy While it’s difficult to imagine that one-fourth of umbrellas spotted in India are of the “garden” variety, this category accounts for a significant chunk of global umbrella trade. B 12,000 Germany 10,000 Austria Developed economies of US, Japan, Germany, France and UK are the biggest importers of umbrellas. Becomes obvious therefore, that the product is today more of a want than a need. USA Belgium 8,000 Italy Poland 6,000 Spain 4% China is serious about volumes in umbrella trade. Value – not much. It is almost non-existent when it comes to exporting high-end umbrellas. Germany, of course, known for its high-priced technology, proves the obvious here C China 4,000 3% 3% 3% 3% 3% 2,000 0 Source: International Trade Centre; Breakup for CY2013 Source: International Trade Centre; figures for CY2013 ($/MT) 22 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 23

GLOBETROTTER LA OPALA RG GLOBETROTTER LA OPALA RG La Opala RG’s net profit has grown at an astounding CAGR of over 65% in the last five years, thanks to rising sales and increased efficiency its flagship brand, used to market opal glass tableware. And second, Solitaire, the high-end brand, used to market lead crystal glassware. In FY2009, a third brand was added to the portfolio – Diva – to market premium segment opal glass tableware. After launching Diva, La Opala RG ventured into an area, it had almost always shied away from – advertising. Roping in the sensuous Bipasha Basu as the brand ambassador for Diva, the company launched an advertising blitzkrieg across several general enter- tainment TV channels. This is reflected in the annual report of FY2009 as the company’s advertisement and sales promotion expense shot up by over three times (y-o-y). Since then, it’s advertisement and sales promotion expense, as a percentage of net sales, has headed in only one direction as the company has realised the power of advertising, particularly in the segment its products were in. While advertising and the global economic recovery did indeed help matters, they were in no way central to La Opala RG’s turnaround. LA OPALA HAS TURNED ZERO DEBT AFTER PRE-PAYING THE LOAN TAKEN FOR THE SITARGUNJ PLANT most three-fold in the five years between FY2009 and FY2014, its EBITDA has grown nine-fold in the same period. BACK TO ROOTS In many ways, La Opala today has got almost everything that any corporation would dream about. It’s in a segment, which is assured of growth thanks to rising consumerism. Its operational efficiency is improving by the day. It doesn’t have any debt. And more importantly, it has shifted focus to the buoyant domestic market almost at the perfect time. Not that this domestic push has come at the expense of exports, it’s just that the domestic business is growing at a faster clip than exports. For example, in FY2009, 29.6% of La Opala’s net sales, i.e., Rs.19.34 crore out of Rs.65.26 crore came via exports. By FY2014, although its exports had almost doubled to Rs.34.24 crore, they represented just 18.7% of net sales. BY SHAKTI SHANKAR PATRA RISING FROM THE ASHES BY SHAKTI SHANKAR PATRA S RG Ltd., India’s top opal glass tableware manufacturer, seems to be on a mission to prove these words right. Some would say, he’s already done it. For, until 2009, La Opala was known more as a brand and less as a business. La Opala dinner sets had become synonymous with fine dining, at least for a large chunk of middle-class Indians. But very few knew that the company, whose products had become a symbol of quality and so- phistication, was anything but that. For, in the eight years between FY2001 and FY2009, La Opala’s sales grew at a CAGR of just 7.87%, profits were in single-digit hakespeare once famously said, “Let me embrace thee, sour ad- versity, for wise men say it is the wisest course.” And Sushil Jhun- jhunwala, Managing Director, La Opala crore and even the most ardent of Dalal Street bulls had given up on it. As compared to this, in the five years between FY2009 and FY2014, La Opala’s sales have grown at a CAGR of 22.98%, EBITDA margin has improved by almost 12 percentage points, and net profit at an unprecedented CAGR of 68.5%. This has not gone unnoticed by the market as bulls have lapped up its shares with both hands, resulting in a stunning appreciation of, hold your breath, 6,291% (between January 1, 2009 and August 8, 2014). So, what caused this tectonic shift? What made it the cynosure of all eyes from being an also-ran? EFFICIENT EFFICIENCY Over the last five years, the kind of efficiency that La Opala RG has managed to bring to its operations is simply astounding. For example, while material cost and packaging material consumed was 27.07% of net sales in FY2009, it col- lapsed to 20.18% of net sales in FY2014 – that’s almost Rs.7 saved for every Rs.100 worth of sales. Similarly, when it comes to power and fuel cost, the kind of efficiency that the company shows now, is simply unbelievable. For, while power and fuel cost, as a percentage of net Sales, was 27.01% in FY2009, it has more than halved by FY2014 to just 13.2% – that’s another Rs.14 saved for every Rs.100 worth of sales. All this means that even while La Opala’s sales have grown al- ANTI-DUMPING BOON But is the domestic business growing at a faster pace just a coincidence? And why has La Opala taken its foot off the pedal when it comes to exports, particularly since export incentives were the difference between it making money and dip- ping into the red in FY2009? The answer to this lies in Notification No. 103, issued by the CBEC on November 23, 2011. As per the notification, the Ministry of Fi- nance levied anti-dumping duties rang- Its products had always been aspirational for middle class India, but its financial health was anything but inspirational. Then came 2008. As was the case with most companies, the financial crisis wreaked havoc on La Opala RG and it managed to stay in the black only thanks to export incentives provided by the government. But the turnaround the company has seen since, has left many pundits dumbfounded and made its shares the darling of Dalal Street A CASE STUDY Until FY2008, La Opala RG had just two brands to boast about. One, La Opala, 24 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 25

GLOBETROTTER LA OPALA RG “THE SHIFT IN FOCUS BACK TO THE DOMESTIC MARKET WAS STRATEGIC” ing from 36.73% to as high as 110.17% on opal glassware imports from China and UAE. And since this will remain in effect till mid-2016, La Opala has at least two more years before any serious competition can show up. It’s not that it is unprepared for rising competition. In fact, with zero debt in the balance sheet, modernisation of the Madhupur unit almost complete and expansion work at the fully-automatic Sitargunj unit sched- uled to complete next year, the company is up for any challenge. Anti-dumping duties levied on Chinese and other opal glass manufacturers has meant that La Opala’s focus is back to the domestic market WHERE THE MOUTH IS There’s an unwritten rule in Wall Street – buy when insiders are buying, sell when insiders are selling. And a look at La Opala’s shareholding pattern reveals that promoters were always bullish about the future and were consistently ramping up their holding when it was not even on the radar of most investors. For example, as on March 31, 2001 the promoter group held just 53.42% of the outstanding shares of La Opala. This number had swelled to 64.32% by March 31, 2009 and had risen further to 68.15% by March 31, 2014. While the ramp-up in these last five years might not seem like a lot, it, without a doubt, shows the kind of confidence the promoters have in the business, even going forward. But that doesn’t mean there’s not a single cause for concern when it comes to La Opala. Firstly, scalability is always a question for the segment that the company is in. Secondly, if anti-dumping duty is not extended beyond 2016, one never knows what kind of supply can suddenly show up from China. And lastly, while a While the rebound in global equity markets since the 2009 lows has been astounding, not many companies can boast of their shares rallying by 6,000% in these five years! To figure out why investors did exactly that to the shares of La Opala RG, we caught up with the company’s MD, Sushil Jhunjhunwala TIMELINE dip in the growth rate of exports can be ignored in the short run, things can hit a bit of a bump going forward if it’s due to something systemic. Despite these minor concerns, there is absolutely no doubt that La Opala has been a mirac- ulous turnaround story. And, if one goes by the confidence that the promoters and the top management have in the company, there’s no reason why the next five years can’t be as magical. 1988: Sets up Opal Glass plant in Madhupur, Bihar (now in Jharkhand) 1991: Becomes the first Indian tableware exporter 1995: Goes public, lists on the BSE 1996: Sets up Crystal Glass plant in Madhupur; launches Solitaire brand 1997: Starts exporting Solitaire brand 1999: La Opala Glass merges with Radha Glass and Ra Opala RG comes into existence 2005: Recognised as an Export House by GoI 2007: Sets up a fully-automatic state of the art facility at Sitargunj, Uttarakhand 2008: Launches the high end brand Diva 2012: Completes expansion of Sitargunj unit 2014: Becomes zero debt and awarded Forbes Asia Award in the ‘Best under a Billion’ category INTERVIEW BY NEHA DEWAN tableware made of glass, ceramic or similar material. How are products of La Opala, being an Indian company, perceived in global markets? SJ: As we are only in tableware and not in kitchenware, we have no competition from Germany. The quality of our products is perceived as world class and is comparable with any of the other top tableware manufacturers in the world. Hence, our exports are increasing con- tinuously, with almost 75% of the total production under the Solitaire brand being exported. TDB: Since the term loan for the Si- targunj unit has been paid off and you have become a zero debt company, can we expect even lower interest outgo in FY2015? SJ: Yes, interest outgo is expected to be much lower in FY2015. shakti@thedollarbusiness.com Advt. & Sales Promotion La Opala is now spending big on ads TDB: Despite a big rise in absolute terms, your exports as a percentage of sales are far way off the FY2009 high of 29.6. Is it a strategic decision to focus more at home or are there challenges abroad? SJ: Yes, it was a strategic decision to focus more on the domestic market. 12 25 10 20 8 15 6 10 4 5 2 Sushil Jhunjhunwala MD, La Opala RG Ltd. TDB: The La Opala brand has always been something aspirational for the Indian middle class. What kind of response have your high-end brands got in the domestic market and abroad? SJ: Our high-end brand Solitaire, which is 24% Lead Crystal Glass, is getting very good response from both domestic, as well as international buyers. 0 0 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Advertisement & sales promotion (Rs.crore, L-axis) Advertisement / net sales (%, R-axis) TDB: Last year, sales promotion and advertising expenses for you crossed the 10% threshold. What platforms do you primarily use for advertising and what’s the logic for it? SJ: We advertise both in print and tele- vision media. We also do below the line activities for trade promotion. TDB: As you have grown in size, your margins have continued to improve. Is it just a function of efficiency of scale or there’s something more to it? SJ: Much of it is from our experience of the industry as I myself have 48 years of experience in the glass industry. The strong brand value having high customer recall, also contributes notably to the topline. Apart from efficiency of scale, our state-of-the-art technology and high quality products have also helped in increasing the top and the bottom lines. Sales, OPM and Profit Margin La Opala’s OPM has risen by 1200 bps in the last five years 200 Sensex vs. LaOpala (since 2009) Since 2009 La Opala has been one of the best performing stocks 70 30 180 60 25 160 50 140 20 TDB: In FY2014, La Opala didn’t make or lose any money from forward contracts. Don’t you hedge raw material costs and receivables anymore? SJ: We partly hedge our receivables and the rest is naturally hedged against our imports. FY2014 forex losses are only on the book as we have secured our receivables through hedging. 120 40 TDB: The last five years have been excellent for La Opala. Can we expect similar growth over the next five years? SJ: Yes, but we feel the growth will be good subject to unforeseen circumstanc- es. We are taking up a major expansion of our Uttarakhand plant this year, which is expected to be completed in FY2016. 100 15 30 80 10 60 20 40 5 10 20 0 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Oct/09 Oct/11 Oct/12 Oct/13 Jan/09 Apr/09 Jul/09 Jan/10 Apr/10 Jul/10 Oct10 Jan/11 Apr/11 Jul/11 Jan/12 Apr/12 Jul/12 Jan/13 Apr/13 Jul/13 Jan/14 Apr/14 Jul/14 TDB: China and Germany are, by far, the biggest exporters of kitchenware/ Net sales (L-axis) NPM (%, R-axis) EBITDA margin (%, R-axis) Sensex La Opala Source: Company’s BSE filings; Sales in Rs.crore Source: Company’s BSE filings 26 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 27

seat in the Security Council. In fact, the country today is an important member of numerous formal and informal multilateral organisations, including WTO, AEPC, BRICS, Shanghai Cooperation Organisation, BCIM and G20. gradual liberalisation of prices, fiscal de- centralisation, increased autonomy for state enterprises, creation of a diversified banking system, development of stock markets, rapid growth of the private sector, and opening up of trade relations. In fact, China’s private sector has expanded enormously since then. Today, there are over 30 million private business units in the country. The restructuring of the economy and the resulting efficiency has contributed to a more than ten-fold rise in the GDP since 1978. Other salient features of the expanding economy also deserve a mention. For instance, the average annual GDP per capita growth from 2000 to 2011 was 9.5%; the average annual GDP growth from 2000 to 2011 was 10.2% (however, since then the Chi- nese economy seems to be losing steam with growth rate falling to 7.7% in 2013). Interestingly, between 2007 and 2011, China’s growth rate equalled that of the G-7 bloc. So, what is the secret behind China’s rise to economic superpower? WAKING TO MARKETS Being a one-party country China’s move towards a market-oriented liberal economy was quick. Any dissent was dealt in the communist way. Reforms began with the phasing out of collectivised agriculture, and expanded to include the WORLD’S WORKSHOP... It is manufacturing that has made Chi- na what it is today. China accounted for 19.8% of world manufacturing output in 2012. This means every fifth product (in terms of value) in the world is manufactured in China. Major industries in China include: mining & ore processing, iron & steel, aluminium, coal, machinery, armaments, textiles & apparels, petroleum, cement, chemical fertilisers, food processing, automobiles and other transportation equipment including rail cars and locomotives, ships & aircraft, consumer products including footwear, toys, electronic & electrical equipment, telecommunication & allied equipment. In short – almost everything! China is also the most preferred destination for the relocation of manufacturing facilities. Among the various industrial branches, machine building and metallurgical industries have received the highest priority. These two areas alone now account for 20-30% of the total gross value of industrial output. BY DR. A. K. SENGUPTA The Great Wall of China is one of the most recognised landmarks, not only in China but also across the globe. Among other things, it was used to impose duty on goods transported through the Silk Route ... AND THE TOP TRADER During the past few decades China has gradually opened up its market to the outside world, and in due course been able to attract increased foreign investment. This has helped the country in- IN CY2013, CHINA’S EXPORTS WERE WORTH 80% MORE THAN THAT OF OTHER FOUR BRICS COUNTRIES PUT TOGETHER SEPTEMBER 2014 II THE DOLLAR BUSINESS 29

BIG IDEA WHAT? WHERE? WHY? China, it feels betrayed due to the inva- sion in 1962. This, despite being one of the first countries to recognise the new People’s Republic in China in 1950. Bor- der disputes pertaining to Arunachal Pradesh and the status of Tibet have also threatened to spiral out of control on more than a few occasions. However, none of these have ever affected trade relations between the two most populous countries in the world. Until about a decade back, bilateral trade between India and China was not as skewed in favour of China as it is today. In fact, if one goes by Interna- tional Trade Centre data, India actually had minor trade surpluses in CY2003, CY2004 and CY2005. But a decade of Chinese manufacturing dominance and Indian conspicuous consumerism has meant that this surplus has now turned into a massive deficit of well over $30 billion. This has led to alarm bells ringing in the corridors of power, something that can be judged from The Economic Sur- vey of India – 2014. As per it, India needs to step up exports to China, especially in sectors where identified potential has not been adequately realised. These in- However, over 90% of it was shipped to China. This makes it clear that if the new government can get the house in order, tens of billions of dollars are waiting to be pocketed. Similarly, when it comes to petroleum oils, China’s imports in CY2013 were worth over $31 billion and India’s exports were worth $67 billion. But India’s exports to China were a dismal $96.68 million – less than 0.5% of China’s total imports of petroleum oils. Another area where India should defi- nitely try and tap the Chinese market is pharmaceutical products (HS Code 3004). In CY2013, while China imported $10.82 billion worth of medicaments, India exported roughly an equal amount of it. But India’s exports to China were a shockingly low $8.57 million – less sumption and keeps betting on exports, its economy will implode sooner rather than later. At the same time, due to pressure from across the world, China is slowly but surely letting its currency appreciate against its peers – CNY/INR has appreciated over 40% since 2009 – from about 7 in August 2009 to the current levels of 10. And if the above mentioned reasons and low-hanging fruits aren’t enough, all an exporter needs to do is take inspiration from India’s most popular export to China – Buddhism! than 0.1% of what China imported. Even when it comes to cars, China is one of the biggest importers in the world and India’s exports were worth over $5.5 billion in CY2013. But what was the value of India’s car exports to China? Less than half-a-million. Interestingly, if you add the potential export opportunities for Indian exporters in just these 28 categories, you arrive at a number which is over $399 billion – nearly 119% of India’s total exports to the world in CY2014. Need we say more? clude items like machinery, mechanical appliances, pharmaceuticals and chemical based products. CHINA HAS HAD A MERCHANDISE TRADE SURPLUS OF OVER $100 BILLION IN EACH OF THE LAST NINE YEARS LOW-HANGING FRUITS Although it’s a known fact that China is mostly an importer of raw materials and exporter of finished goods, a detailed The Dollar Business Intelligence Unit analysis reveals that there are 28 multi-billion dollar export opportunities for the taking. To arrive at this list, we analysed all products (broken down to 4-digit HS codes), where Chinese imports were worth at least $1 billion, Indian exports were worth at least $1 billion and still there existed an opportunity of at least $1 billion in CY2013. One of the most startling commodities in this list is iron ores and concentrates (HS Code 2601). In CY2013, being the manufacturing powerhouse that it is, China imported over $105 billion worth of iron ores and concentrates from all over the world. But rampant corruption and mining bans in India coupled with a very high export duty on iron ore exports ensured that India exported just $1.63 billion worth of it in CY2013. troduce advance technology and in turn transform and upgrade domestic industries. In 1978, the total value of China’s trade was only $20.6 billion, putting it at the 32nd place in the world. By 2013, this figure had surged to a whopping $4.15 trillion – $1.95 trillion of imports and $2.20 trillion of exports – placing it at the top. In fact, China has been the world’s largest exporter for the last five years, with US and Germany constantly fighting for the second spot. Last year, China had a trade surplus of over $260 billion, second only to Germany. LEARN FROM HISTORY Over the last couple of years, several top economists and organisations have warned China that if it doesn’t start working on strengthening domestic con- editorial@thedollarbusiness.com Dr. A. K. Sengupta Chief Consulting Editor, The Dollar Business; Former Dean of The Indian Institute of Foreign Trade (IIFT), New Delhi Low-hanging fruits – count and weigh the ‘massive’ opportunities Items imported by China in large numbers, exported by India in large numbers... yet offering massive opportunities HS Code 0202 0306 1006 1001 2601 2710 2707 2902 2933 3004 4202 5201 5205 5407 5402 6403 7102 7202 7208 7210 7403 8481 8504 8542 8708 8703 8803 8802 Product Frozen Bovine Meat Crustaceans Rice Wheat and Meslin Iron Ores and Concentrates Petroleum Oil Oil & Other Products of High Temp Distillation Cyclic Hydrocarbons Heterocyclic Compounds Medicament Mixtures Leather Trunks, Suit Cases, Camera Cases Cotton (not carded or combed) Cotton Yarn Woven Fabrics of Synthetic Filament Synthetic Filament Yarn (not put up) Leather Footwear Diamonds (not mounted or set) Ferro Alloys Flat Rolled Products of Iron (not clad) Flat Rolled Products of Iron (clad and/or plated) Refined Copper and Copper Alloys (unwrought) Tap, Cock, Valve for Pipe, Tank Electric Transformer, Static Converter Electric Apparatus for Line Telephony Automobile Parts and Accessories Cars Aircraft Parts Aircraft and Spacecraft China’s imports India’s exports from the world 1,201.84 1,426.67 1,052.04 1,865.84 105,114.58 31,785.07 4,837.28 23,863.67 2,791.53 10,820.76 1,563.67 8,444.83 6,315.54 1,848.90 1,474.79 1,206.73 7,034.33 3,352.14 2,110.03 2,960.85 24,392.62 7,902.41 15,615.80 46,904.77 24,161.60 47,464.45 2,081.24 20,895.87 India’s exports to China Opportunity to the world HINDI-CHINI BHAI BHAI India and China have always had a love-hate relationship. While India feels proud for having exported Buddhism to 4,410.95 2,976.79 8,169.51 1,260.27 1,635.18 67,075.18 1,599.24 2,671.64 1,575.17 10,313.98 1,216.23 4,513.41 4,773.11 1,248.76 1,331.76 1,964.72 28,952.10 1,969.25 1,913.94 2,195.61 2,354.17 1,213.10 1,006.34 3,444.64 3,912.78 5,556.47 1,527.03 2,590.25 0.00 57.01 0.01 0.00 1,201.84 1,369.66 1,052.03 1,865.84 103,639.68 31,688.39 4,836.28 23,537.40 2,682.21 10,812.19 1,547.85 6,204.47 4,295.35 1,842.37 1,472.22 1,184.37 5,322.88 3,043.62 2,107.36 2,960.82 22,521.14 7,823.87 15,556.77 46,858.10 24,108.14 47,464.02 2,080.00 20,895.87 Chinese merchandise trade China’s trade surplus crossed the $250-billion mark in CY2013 India-China trade India’s trade deficit with China has risen 25x in the last decade 1,474.90 96.68 1.00 326.27 109.32 8.57 15.82 2,240.36 2,020.19 6.53 2.57 22.36 1,711.45 308.52 2.67 0.03 1,871.48 78.54 59.03 46.67 53.46 0.43 1.24 0.00 60 2,500 50 2,000 40 1,500 30 1,000 20 500 10 0 0 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 Exports Imports FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Indian exports to China Indian imports from China Source: International Trade Centre; figures in $ billion Source: Ministry of Commerce, GoI; figures in $ billion Chinese farmers working at a paddy field. One of the first steps the Chinese government took, when it embraced free-market forces, was dismantle agricultural collectivisation Source: International Trade Centre; figures for CY2013 ($ million) # Criteria: Chinese imports of more than $1 billion, Indian exports of more than $1 billion, opportunity of more than $1 billion 30 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 31

GLOBAL MANAGER “WE TAKE OUR TIME. AND WE DO IT THE VOLVO WAY” TOMAS ERNBERG, MANAGING DIRECTOR, VOLVO CARS INDIA TDB: Volvo has been present in the In- dian market for over eight years now. How has the journey been so far? Tomas Ernberg (TE): I am quite optimistic and positive. If you look at the Indian market, demand for luxury goods has increased quite tremendously. If you see from Volvo’s point of view, we have been the fastest growing luxury car brand in India for the last three years. We are growing very fast and we appreciate the market. The future is very bright. Although the luxury market is very small in India today, it is expected to expand phenomenally in the near future. not been able to catapult itself into the same league yet? TE: I think we need to make two com- parisons here. You may be partly right. In India, the three German brands, you mentioned, might have a better image than Volvo cars. When you think of luxury, you might first think of these three brands. But if you look outside India, Volvo is a luxury brand that fights with the best in the business. The position that we took here three years ago was exactly that – let’s get up and fight and take our place in the Indian market. And slowly, we have increased our segment share to 5%. We are aiming to have 10% segment share by 2018, and a 15% market share by 2020. That is the right target and the target that we have in mind worldwide, which is 15% of luxury brands. So, you are right from one point of view. We started a bit late. Mercedes-Benz has been here for a very long time. The Ger- mans have also become more aggressive, a lot more aggressive. But Volvo is also not the kind of brand that will open up hundreds of dealerships in a short span of time. So, we take our time, we do it the Volvo way. We make sure that when we get a new dealer, it is for the long term. WE ARE AIMING TO HAVE 10% SEGMENT SHARE BY 2018, AND A 15% MARKET SHARE BY 2020. AND IT’S ACHIEVABLE strengthen our base in Mumbai as well. Mumbai is a very big market. We have a new dealership and will be coming up with two new facilities in Mumbai. In Delhi, we had just one showroom for the last many years. Now we have four, if we add the one at T3 terminal as well. Swedish luxury car maker Volvo plans to ramp up its share in the Indian luxury car market from 5% at present to 15% by 2020. On course are strategies to rev up brand awareness, meet ambitious sales targets and identify buyers via a very personalised approach. In a freewheeling interaction with The Dollar Business, Tomas Ernberg, Managing Director of Volvo Cars India, talks, among other things, about the company’s vision for India and how it plans to achieve this ambitious target with competition pouring in from all sides. Excerpts: TDB: Major German auto brands – Mercedes-Benz, BMW and Audi – have a strong presence and recall among In- dian luxury consumers. Why has Volvo TDB: At one point in time, speculation was rife that Volvo might be considering shutting its operations given the low sales graph. What really has led to the change in strategy in India? TE: No, that was never the case. I think where you are coming from is that at one point in time we were owned by Ford Motor Company. And Ford was in dire straits before Alan Mulally came to the helm of its affairs. Mulally had three targets: Ford, Ford and Ford. Land Rover and Jaguar were sold off to the Tatas; Aston Martin and Volvo were also sold off. Ford had no interest in investing in India as its interest was to sell off Volvo. So, we actually could not do what we wanted to do in India. Post that there was also the global financial crisis. So, we thought it’s better to take a step back before we invest further. But by end of 2012, we realised the growth potential in India. New ownership was the biggest change for us. With the Geely Holding Group taking over, today we feel 100% independent. We can actually take our own decisions and also be accountable for them. When we were part of Ford, we were part of a very big motor company. But in Geely, there is nothing else. The new design language of Volvo is smaller engines but with higher mileage and higher horsepower and torque. Volvo will now only produce four cylinder cars that will be environmental friendly and deliver what the customers want. We won’t be producing cars that pollute as much as competition does. We now have INTERVIEW BY NEHA DEWAN INTERVIEW BY NEHA DEWAN TDB: How do you plan to scale up and achieve this 15% market share target by 2020? TE: We have been achieving our targets for the last three years in India and we will continue to do so. Next year, we will almost double this year’s volume, with the help of new models, increased net- works and increased brand awareness. Nothing is easy in the world, but reaching the target is not impossible. It can be achieved with the right strategy in place. TDB: Does your strategy also include newer, untapped markets within India? TE: Of course. Today we are not present in Orissa, Jaipur, Vijayawada and Udaipur. These are some markets that we are looking at. Some of them do have the absorption power for luxury goods. And we will tap them one by one. This year, we are entering Surat. Kolkata will be opening up this month as well. For next year, we are looking at Baroda, Ra- jkot and the rest of Gujarat. We want to 32 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 33

GLOBAL MANAGER TOMAS ERNBERG, MANAGING DIRECTOR, VOLVO CARS INDIA SUBSCRIBE NOW! The Dollar Business magazine Read this exclusive platform on foreign trade and get an unbeatable edge in the business of exports-imports. Welcome to globalisation! our cars the way we want. What I mean is that they are priced competitively and we don’t lose much. We don’t price ourselves out of the market. Photography by Varun Choudhary TDB: You still don’t have a manufacturing/assembly plant in India, while your competitors do. Will that be a reality anytime soon? TE: We do more than just toy with the idea. We are seriously researching the idea and we do understand the benefits of setting up an assembly plant, considering the high duties. I don’t know when it will be a reality since I am not in charge of the project. All I can say is that we haven’t arrived at a decision yet. At the same time, it’s not just about saving, say 30% on duties. To set up a plant, you also have to invest in buying land, building a factory. There are also running costs involved. And you need to have a certain volume to support that. So, hopefully one day, it will be there. However, it in no way reflects any lack of seriousness from our end towards the Indian market. SPECIAL DISCOUNT ON OFFER! SUBSCRIPTIONS GET UP TO 65% Print version No. of Issues Cover Price e-Magazine No. of Issues Cover Price Total Price Discount You pay 12 1,200 12 1,200 2,400 55% 1,080 INR 24 2,400 INR 24 2,400 4,800 60% 1,920 36 3,600 36 3,600 7,200 65% 2,520 12 60 12 60 120 55% 54* USD 24 120 USD 24 120 240 60% 96* 36 180 36 180 360 65% 126* No additional delivery charges apply to India-based subscribers. *Rates exclusive of airmail charges for all international subscribers. [Applicable annual additional charges: $80 for SAARC nations; $120 for other countries.] Rates valid during the issue month only. NOTE: All approved subscriptions include both Print and e-Magazine offers. No request for standalone Print or e-Magazine subscription(s) shall be entertained. some of the least CO2 emissions among all luxury car brands in the world. In In- dia, government policies don’t take note of this yet, but I think sooner or later cars will be taxed based on emissions that they let out. This will put us in an advantageous position. We will also produce cars that will guarantee you that you will not lose your life. By 2020, if you sit in a Volvo car, and you have the Volvo seat belt on, we promise you that you will not die or get injured. No other luxury car brand can promise that. Only Vol- vo can say this. Even today, our cars are the safest in the world. etc. We now have our own ‘By Invitation’ lounge at the T3 terminal in New Delhi. We are also trying to find specific luxury malls where we can build our presence. Of course, we buy databases as well. So, we have a lot of creative ideas on how to strengthen our foothold in India. Home visits are also quite common, especially in Delhi and Mumbai where prospective customers ask us to send the car home since they don’t have the time to visit a showroom. Even in rural areas customers often want the car to be sent home to them. I think many feel a bit intimidated coming to our showrooms and find it a lot easier if the car is sent to their homes. So, we focus on going to them instead of them coming to us. TERMS & CONDITIONS TDB: In India, the Volvo name is still more synonymous with buses than luxury cars. What branding initiatives have you undertaken to come out of the shadows of Volvo buses? TE: Volvo buses have been here since 1999, so that’s natural. In fact, I think going forward this will actually benefit us. Volvo is investing a lot of money in initiatives such as increasing the dealer network, special service stations and exclusive showrooms, etc. We want to be seen where the luxury buyers are spending their time. 1. This is a limited period offer. 2. The Dollar Business and Vimbri Media Pvt. Ltd. will not be held responsible in case of any postal / courier delay in delivery of any issue of the magazine. 3. The Dollar Business and Vimbri Media Pvt. Ltd. will not be held responsible in case of any production delay that leads to late delivery of any issue to its subscriber(s). 4. If for any reason, a certain issue of The Dollar Business is not published, the subscription will automatically be extended by a month. 5. The Dollar Business and Vimbri Media Pvt. Ltd. reserve the right to terminate any subscription or accept or reject any request for subscription. 6. Disputes, if any, are subject to the exclusive jurisdiction of courts in Hyderabad only. 7. Any change in periodicity of The Dollar Business magazine may apply to existing subscribers. They will continue receiving the same number of issues they had originally subscribed to. They duration between issues may however stand duly altered. 8. Any change in the cover price of The Dollar Business magazine will not apply to existing subscribers. They will continue receiving the same number of issues they had originally subscribed to. 9. It is the sole responsibility of the subscriber(s) to report delay in delivery of any issue of the magazine to the subscription department of The Dollar Business within 14 days of the issue release date. 10. It is the sole responsibility of the subscriber(s) to report non-receipt of any issue of the magazine to the subscription department of The Dollar Business within 30 days of the issue release date. 11. Terms and conditions may be altered without notice to the subscribers. 12. For Delivery, Return and Refund Policies, and for more information on Subscriptions, please log on to www.thedollarbusiness.com For subscription-related queries, please write to us at subscription@thedollarbusiness.com or call us on +91 40 66770765. We’d love to hear from you! You can also write to us at: The Dollar Business, Vimbri Media Pvt. Ltd., 5-2-198/4, Distillery Road, Ranigunj, Secunderabad, Telangana – 500 003, IN Subscription for 1 Year (12 issues) INR 1,080 / USD 54* 2 Year (24 issues) INR 1,920 / USD 96* SUBSCRIBE BY LOGGING ON TO WWW.THEDOLLARBUSINESS.COM AND PAYING ONLINE (MANDATORY FOR ALL INTERNATIONAL SUBSCRIBERS) OR FILL THE BELOW-MENTIONED PARTICULARS OF PAYMENT THROUGH CHEQUE / DD MODE 3 Year (36 issues) INR 2,520 / USD 126* TDB: So, how are you reaching out to the crème de la crème of India? TE: We try to understand what our target customers do, what kind of businesses are they into, hobbies that they have, TDB: What are your hopes from the new government here in India? TE: I think the Modi government is working on a very positive India. I am sure the country will be in a very different stage five years from now. The new government might move slowly, but it will be good. And car sales will also increase. I think the new government will work towards improving infrastructure, which will also be good for the growth of automobile industry in India. SIMPLY ENCLOSE YOUR BUSINESS CARD OR FILL THE BELOW-MENTIONED FIELDS TO SUBSCRIBE Name: Address: TDB: The import duty on fully assem- bled luxury cars in India can be as high as 200% or even higher. How does this impact your volumes? TE: In India, we have to pay about 60% import duty. But over and above that, there is tax on tax on tax! So, finally duties end up adding up to 112-113%. The ones that you mentioned – 200% and higher – are for cars above a certain in- voice value, which Volvo cars don’t fall into. But despite this, we are able to price I am enclosing a Cheque / DD No:.................................. dated drawn on......................................... ......................................................................................... for INR1,080 / INR1,920 / favouring Vimbri Media Pvt. Ltd. payable at Hyderabad Add Rs.50 for non-Hyderabad cheques (not required for At Par cheques). Please write your name and address on the reverse of the cheque/DD. Do not send cash. Please send the filled form to: BY 2020, IF YOU SIT IN A VOLVO CAR WITH THE SEAT BELT ON, YOU WILL NOT DIE OR GET INJURED! City: State: Pin code: Telephone no.(s): Email: Date of Birth (DD/MM/YYYY): Company Name: SUBSCRIPTION REQUESTS CAN BE PLACED BY LOGGING ON TO WWW.THEDOLLARBUSINESS.COM, FILLING-IN NECESSARY DETAILS IN THE APPLICATION FORM GIVEN AND MAKING PAYMENTS USING CREDIT CARDS/ DEBIT CARDS OR VIA NET BANKING INR2,520 The Dollar Business, Vimbri Media Pvt. Ltd., 5-2-198/4, Distillery Road, Ranigunj, Secunderabad, Telangana – 500 003, IN neha@thedollarbusiness.com TO SUBSCRIBE ONLINE: www.thedollarbusiness.com 34 THE DOLLAR BUSINESS II SEPTEMBER 2014

GLOBAL CORPORATION PRAJ INDUSTRIES TIME IS RUNNING OUT. AND FAST! A India’s most celebrated investor Rakesh Jhunjhunwala and his wife Rekha had divested a majority of their holding in Praj Industries – over 1.45 crore shares, representing over 8% of the outstanding shares of the company – via open market transactions. This brought an end to an era of over a decade, when the Jhunjhun- walas were Praj’s biggest non-promoter shareholders. The reason, why this should be of great importance to anyone even remotely interested in Praj, becomes clear by taking couple of months back, a few minutes before 2 PM on the 9th of June to be precise, an announcement hit the stock exchanges. As per the announcement, a look at the company’s shareholding pattern. At the end of Q1 FY2015, the promoter and promoter group, held just 32.96% share in the company. While this is a significant improvement from the 23.02% they held five years earlier, it still doesn’t answer the question as to why should outsiders trust a company, when promoters themselves don’t seem to like it enough to hold a majority! RAKESH JHUNJHUNWALA RECENTLY SOLD OFF A MAJORITY OF HIS HOLDING IN PRAJ INDUSTRIES There are not many listed non-technology, non-pharmaceutical companies in India that can boast of earning a majority of their revenue from exports. But one which can – Praj Industries – has not really been setting Dalal Street on fire; what with its revenues stagnant and profits lower as compared to what they were five years back. Does this mean one should write off Praj or is it time to trust the management and bet on a turnaround? is suffering from an identity crisis. The market just doesn’t know which segment the company should be categorised in! While this is bad enough, the fact that the identity crisis has been accompanied by extremely poor financial performance has made matters only worse. For example, in the last five years, Praj’s sales have grown at a CAGR of 0.28%, profits have more than halved and ROCE (Return on Capital Employed), a measure of efficiency, has dropped 80% – numbers that are bound to give nightmares to even the biggest of optimists. So, what exactly went wrong with Praj in the last few years? And more importantly, are some of these damages reversible? LOST DECADE Praj is one of those companies, which once exhibited immense potential, but somehow has failed to live up to it. It basically is an amalgamation of two businesses – the core ethanol and brewery business and the emerging business, which includes Critical Process Equip- ment and Systems Division, the Water and Water-waste Treatment Division and Praj HiPurity Systems (erstwhile Neela Systems). In fact, going forward, its Executive Chairman Pramod Chaud- hari feels that it will be recognised as a bio-engineering specialist and the new emerging businesses will contribute almost 50% to revenue, with the rest coming from the core engineering business of setting up beer and ethanol plants. While getting into new and emerging businesses that have growth potential cannot be questioned, the fact remains that Praj, at least in the last few years, BY SHAKTI SHANKAR PATRA Setting up breweries and ethanol plants continue to be the primary business of Praj Industries, though it’s now diversifying into several other areas THE RISING SUN Despite a significant rise in the contribution of other businesses to total revenue, particularly in FY2014, the bread and butter for Praj is still the ethanol business, which contributed more than 2/3rd to revenues last year. And with the BJP-led government (which had initiated the process of ethanol blending with petrol in 2003) back in power, there are expectations that ethanol blending will be taken up more seriously and gradually scaled up to 20% by 2017 (from the current mandate of 5%). If this becomes a reality, the chances of which are very high looking at India’s burgeoning trade deficit, Praj Industry’s revenues are bound to get a major boost. Even on the exports front, from which Praj earned over 56% of its revenues in FY2014, it has set its eyes on geographies like Mexico. The Latin America nation is expected to need 1.5 billion liters of ethanol per year (at a 3% blending mandate for about 50 billion liters of petrol consumption per year). Africa, too, has the potential of being a major market for Praj Industries, with 12 African coun- Praj Industries roughly spends about 2% of its revenue on R & D and has set up a state-of- the-art R & D centre near Pune by spending over Rs.100 crore 36 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 37

GLOBAL CORPORATION PRAJ INDUSTRIES tries ratifying ethanol blending recently and the company having recently successfully commissioned a distillery in Sierra Leone. When it comes to the brewery business, with beer consumption in India growing at double digits for the last five years, things are not looking too dark for Praj, particularly since it is already in the process of setting up two plants for beer majors Heineken and SABMiller in Myanmar and Namibia respectively. Revenue breakup The ethanol business continues to be the top revenue earner for Praj Shareholding pattern Low promoter holding continues to be a turn off for potential investors 27% 32.96% 36.82% 6% 67% 10.09% 14.81% SAVE GANGA While things might be looking brighter for Praj’s core ethanol and brewery businesses, the fact remains that they have always looked so and if the company can really turn a corner, it has to do it via its emerging businesses. And Prime Minis- ter Narendra Modi making all the right noises about cleaning up River Ganga means Praj Industries might just have stumbled upon a treasure, with it having ramped up its industrial waste-water treatment capabilities substantially over the last few years. Similarly, with Indian pharmaceutical companies being on the constant radar of the USFDA, a lot of opportunities should soon open up for Praj HiPurity Systems, which is in the business of providing value-added solutions to pharmaceutical, biotechnology and the food & beverage industries. 5.32% Ethanol Brewery Emerging Businesses Promoters Mutual Funds/UTI FIIs Corporate Bodies Other Source: Company Presentation; Breakup for FY2014 (Consolidated) Source: BSE Filings; As of June 2014 – another sign that expenses are rising and Praj, probably, doesn’t have the pricing power as it used to have half-a- decade back. has been the case for Praj for over four years now. To find what needs to be done if Praj has to improve on the operational efficiency front, we went through the Annual Report of the year when it last had an EBITDA (earnings before interest, taxes, depreciation and amorti- sation) margin in the teens – FY2010. And some of the cost escalations that have happened in these four years are simply shocking. For example, while in FY2010, other expenses that include overheads like site expenses, freight and transport and sales commission etc., were just 15.5% of net sales, by FY2014 they had shot up to over 25%. And there is no way a company can be as profitable as earlier if it spends 10 paisa more for every rupee worth of sales. Similarly, when it comes to wages, salaries and bo- nuses, while in FY2010, they accounted for about 9.3% of Net Sales, in FY2014, they accounted for over 12% of net sales BOTTOM LINE With increased focus on ethanol blending all over the world and attention in India on cleanliness – as was evident even in India’s PM’s speech on I-Day – higher revenues shouldn’t be an issue for a company like Praj Industries. What it really needs to do, however, is focus on cost-controls if it wants the Jhun- jhunwalas of the world to come back to it. What should also work in favour of Praj Industries is the fact that it spends tonnes of money on R&D, which if you believe market grapevine, is going to pay off very soon and help Praj emerge as a solid bioengineering specialist. CUTTING COSTS While all these opportunities, if properly tapped, should go a long way in helping Praj’s topline, there’s no way that a company can turnaround significantly operating at single-digit margins, which ARE YOU MISSING THE BIGGER PICTURE? Do you care enough to keep reading? shakti@thedollarbusiness.com Sales, OPM and Profit Margin of Praj Praj is now operating at single-digit margins Exports by Praj Industries Last year, Praj earned over 56% of its revenues from abroad 500 60 900 25 450 800 50 400 20 700 350 40 600 300 15 Foreign trade is an alluring, lucrative obsession. In the world of exports-imports, each shipment counts. Make your obsession a ‘real’ business by learning million-dollar ideas unshared & precious, few facts untold. Our expertise, your business. Our analysis, your fortune. Subscribe today to give your business The Dollar Business edge. 500 250 30 400 200 10 20 300 150 200 100 5 10 100 50 0 0 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FOREIGN TRADE EXPORTS IMPORTS Net Sales (L-axis) Profit Margin (%, R-axis) EBITDA (%, R-axis) Exports (L-axis) Exports as a percentage of sales (R-axis) Source: Company’s BSE filings; Sales in Rs.crore (Standalone) Source: Company Annual Reports; Exports in Rs.crore www.thedollarbusiness.com 38 THE DOLLAR BUSINESS II SEPTEMBER 2014

GLOBAL CORPORATION PRAJ INDUSTRIES “OUR CRITICAL PROCESS EQUIPMENT BUSINESS HAS UNLIMITED DEMAND” fact, these businesses do have an international revenue stream as well and we have plans to scale them up in the very near future. Critical Process Equipment & Systems business chiefly addresses the oil & gas, petrochemicals and fertilisers and the chemicals industries. Much of the business is from EPC companies or multinational firms sourcing from India for projects overseas. In fact, we see no restriction on the demand side for this business. We expect these businesses forming 50% of our enhanced revenue over the next three years. The most exciting of stories are those about comebacks, or in business parlance, turnarounds. And having taken it upon himself to script one big comeback for his company is Gajanan Nabar, CEO and Managing Director, Praj Industries. Speaking exclusively to The Dollar Business, Nabar reflects on the things that have gone wrong in the recent past, but more importantly, sounds extremely confident and optimistic about the future TDB: If one discounts inflation, Praj Industries’ revenue growth has actually been negative in the last five years. What have been the main reasons for this? What kind of growth can we expect in the next five years? GN: On an average, 50% of our revenue comes from the international market. Since 2008, several major international regions have seen a slowdown in new capex formation. Further, over the past two years, India too has been seeing a similar situation. INTERVIEW BY SACHIN MANAWARIA TDB: For an average investor, cate- gorising Praj Industries into one particular sector has become difficult. Can you address this confusion for our readers? Gajanan Nabar (GN): Praj is recognised as a bioengineering specialist engaged in environment, energy and agri-processing led solutions. It is recognised for its credible strength in innovation driven technologies, integration engineering and delivery excellence, including manufacture and supply of critical equipment and project management. Praj already has a very strong recognition as a global supplier for ethanol and brewery plants and is fast gaining recognition for its critical process equipment & systems, water & wastewater treatment systems and for high purity systems for pharma, biotechnology and cosmetics applications under PrajHiPurity Systems Limit- ed (formerly Neela Systems Limited). businesses that would be pursued under these verticals. Other than this, Praj is also scaling up the 2nd Generation Cellulosic Eth- anol Process. 2nd Generation ethanol is produced from agricultural residues like bagasse, cane trash, corn cobs, corn stover and even wood chips. Praj is in the process of setting up a 50 tonne/ day demonstration plant. The objective is to enhance the viability of 2G cellulosic ethanol process developed at the one ton biomass/day pilot plant located at Praj Matrix, our R&D Centre, and demonstrate the same for the benefit of the industry. TDB: Along with revenue, even margins have taken a beating and you are now barely operating at 9%. Do you have a strategy in place to go back to the 15%-20% margin range? GN: Yes, we do have a strategy in place. Going forth, we will look at increasing revenue and margin through enhanced business from the Emerging Busi- ness group; through internationalising emerging businesses rapidly and through modernisation and retrofit business in the 1st generation ethanol and also taking the brewery business overseas. TDB: Please elaborate a bit more on what exactly you mean by a bioengineering specialist. GN: We call ourselves bioengineering specialists as many of our businesses have biotechnology elements in them. Ethanol too, being a biomass based process involving bio-fermentation and application of micro-organisms, qualifies as an industrial biotechnology business. Taking forth from there, we are also looking at monetising the work of Praj Matrix, our R&D Centre. One such business which is still in the incubation stage is the Livestock Health & Nutrition business. We have developed several probiot- ic and immune-enhancer products that improve livestock health and productiv- ity. It is being manufactured at our biotech production unit at Jejuri, near Pune. As a business, ethanol as well as water and wastewater solutions can directly be categorised as environment businesses. At the same time, ethanol is also a form of energy used in transport fuels. Going forward, we will look at more and more TDB: You have said that in the future, about 50% of your revenue will come from your Emerging Business. By when do you think this will be a reality and how scalable are these businesses? GN: Emerging Business includes Criti- cal Process Equipment & Systems, Wa- ter & Wastewater Treatment Systems and PrajHiPurity Systems. These businesses currently account for 28% of the topline (FY2014). These businesses address a range of industries and can be taken to the international markets. In any, to monetise them. GN: On an average, we invest up to 2% of our revenue on R&D. Other than that, we have invested nearly Rs.100 crore in a state-of-the-art R&D Centre in Pune called Praj Matrix. The R&D Center has three broad work streams. One supports the current businesses through analytics and development of new technologies. The second is working on the 2nd Gen- eration Cellulosic Ethanol Programme. And the third is working on the future pipeline of bio-products. Of these, Live- stock Health & Nutrition product is already commercialised. TDB: In FY2014, over 56% of your revenue came from abroad. Which geographies are contributing to the incre- mental growth and which markets do you think hold potential? GN: Most of the international business comes from South East Asia, Africa and South American region. TDB: Would you like to talk about any other strategy initiative that could enhance earnings visibility of the company going forward? GN: We recently undertook a value maximisation exercise in consultation with a renowned MNC consulting firm. The exercise is currently underway. OUR EMERGING BUSINESS SEGMENT WILL SOON ACCOUNT FOR HALF OF OUR ENHANCED REVENUE TDB: You have been emphasising a lot on R&D. Give us an idea of your R&D spend over the years and your plans, if sachin@thedollarbusiness.com 40 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 41

COVER FEATURE LEGAL SERVICES WHILE INDIAN LPOs INITIALLY HANDLED ONLY INCIDENTAL MATTERS, TODAY THEY DEAL WITH ‘BET THE COMPANY’ CASES AT YOUR SERVICE, LEGALLY The day General Electric, American Express and Texas Instruments started outsourcing their back office work to India in the early 1990s, the world knew that it was just a matter of time before more core and complex work would start flowing out of the West. It happened. What started as a trickle of mundane administrative work, has now turned into an avalanche of ever existential matters on which the very survival of a corporation depends – legal issues. Although relatively new, and less spoken about because of confidentiality issues, Legal Process Outsourcing (LPO) is now a multi-billion dollar industry and growing at a rate that would put to shame even its more glamorous peers BY SISIR PRADHAN H course, you must have. For those who haven’t, the movie is a dramatisation of Erin Brockovich – a beauty queen with ‘no brains’ or ‘legal expertise,’ working for a small law firm and successfully fighting the mighty Pacific Gas & Electric Company (PG&E), which led to the then highest ever settlement in a direct-action lawsuit in US history. The movie is about how PG&E knowingly contaminated the ground water in the South Californian town of Hinkley by using hexavalent chromium and discharging the wastewater to unlined ponds, which is believed to have been the cause for several cases of cancer in the area. And while doing odd jobs for a small law firm, Erin ave you watched the bi- ographical movie Brockovich, in which Julia Roberts plays the title lead, and for which she got an Oscar? Of Brockovich did then, sitting in a cozy office half way across the world? cess Outsourcing (LPO) firms do exactly that. As a result, not only have Indian LPOs managed to draw the attention of large corporate and law firms in the West but the cost differential has also ensured that their hands are, today, almost full. The success of India’s IT, ITeS and BPO sectors also helped Indian LPOs in the initial years as mega corporations in the West had already understood the concept of outsourcing and developed a certain amount of confidence and comfort. Similarly, maturing of the outsourcing industry over a period of time – and its gradual handling of more complex work like data analytics – has cemented the idea that a lot more can be done while sitting out of remote locations. This led to the Knowledge Process Outsourcing (KPO) industry coming into being and once it became a hit and made a name for itself, LPO was the logical next step. Brockovich finds herself passionately investigating the case, motivating the lo- cals to take on the company and collecting evidence – the main one being an in- ternal PG&E letter, which acknowledged that it was indeed contaminating ground water in Hinkley. That was the 1960s. In today’s day and age, when virtually every communication, contract and financial transaction is happening over the In- ternet, isn’t it possible to replicate what Erin ONE STEP AT A TIME Although the idea of being able to win the confidence of clients and managing to convince them to outsource legal work half way across the world was something that was laughed at in the initial years, an army of well trained, English-speaking lawyers have helped India’s Legal Pro- 42 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 43

COVER FEATURE LEGAL SERVICES without letting out a single thing about a client or case, also helped matters. For, despite the success of the IT industry, the security of sensitive data and information was still a concern and not many lawyers were yet comfortable to divulge confidential legal matters to LPOs. But over a period of time, as confidence developed, Indian LPOs started finding themselves management to them. A task like drafting of a contract is time consuming and has very little to do with the strategic goals of a company. This is where LPOs came in handy. For, all that was need to do a proper job of this was understanding necessary guidelines and pointers provided by the clients and of course, LPOs were more than equipped for this. getting involved in more complex projects, which required fact finding based on data mining and analysis. COMING OF AGE A big transformation in the way LPOs were perceived came when legal departments of large corporate houses started outsourcing work related to contract “THE CREDIT FOR THE SUCCESS OF LPOs GOES TO OUR STRONG EDUCATION SYSTEM” T giants started outsourcing their most protected asset, i.e., patents. Initially, there were a lot of doubts regarding the security of the information they were sharing. The obvious question was: How can a company outsource an invention/discovery to a country half way across the world? It won’t be awake to see if his/her hard work is being discussed in the Indian market or being sold even before it enters the patent office, isn’t it? The outsourcing work was, initially, given only to a select group of individuals through close references, long acquaintances or after very careful due diligence on data security and facilities. When I say data security, unlike BPOs, this is of much higher grade. This, since the leak of even one single aspect of an invention could lead to billions of dollars of losses! Slowly, work started flowing in and in a few years the entire IP (intellectual property) department of a few firms were being outsourced to Indian service providers. Today, since the Americans and the English have developed a sense of trust with Indian service providers like us, the flow of orders is quite smooth. When it comes to growth rate of the industry, it would be difficult to put a number. But I can assure everyone that several top quality service providers are not only thriving, but are also expanding at a phenomenal rate. The ones, who might be witnessing a thinning of clientele, must be suffering from quality challenges. The reason why India has become a preferred LPO destination is the same one why NASA has huge numbers of Indians working at its facilities or Facebook fighting against its own government to get more Indians onboard – the credit goes to our education system, which empowers us with great analytical skills. I think it won’t be easy for anyone to withdraw their legal work from India and pass it on to another nation. This, because there might be several countries that might have developed their own system and might be competitive, but none is as skilled as us. As far as the IP industry is concerned, I can safe- ly say that other nations will have a very hard time competing against our skills, particularly at our wages. Patent, for example, is all about technology. And technical knowledge, along with that of law, is required to be able to practice it. In fact, it will be impossible for another country to produce as many engineers as us, to begin with. I would also like to add that the government should strengthen law enforcement in India to curb piracy and copying. This would go a long way in helping LPOs flourish. And my message to corporations and law firms looking out for LPOs in India is to rely only on known sources. Any attempt to try inexperienced service providers, to save a bit on expenses, might lead to them burning their hands badly. MAULIK SHARMA Managing Partner, he legal process outsourcing industry in India started during the first half of the last decade when a couple of LPOs – EVS and Intellevate – started operations in 2001-02. The industry’s big break came after a couple of years when a few tech XPAT In the initial years, most LPOs got their orders through personal acquaintances and past connections AN EXCLUSIVE CLUB The reason why there aren’t a lot of players in this sector (except in patent support services) is because any new entrant will require a thorough understanding of the legal and regulatory system prevalent in the West, patience to analyse heaps of documents, ability to innovate and develop newer methodology and processes to find facts that could give a definitive edge to the front-end counsel and also deliver them on time. In the initial years, what worked for the LPO industry was nothing but cost arbitrage. It was more of process-driven para-legal work, in which Western law firms and corporations wanted to save time so that they could focus on strategic legal matters. That it also helped saved money, was an added advantage. The time difference between India and US also helped American lawyers to as- sign a task to an India-based LPO in the evening and find it done by the time he/ she arrived at work the next morning! Agrees Khaitan & Co. Director (Busi- to California, is it also applicable to New York? If yes, to what extent? Initially, these were the kind of jobs that were given to Indian LPOs. For example, an American law firm would send a request to an Indian LPO asking precedence research on environmental clearances for a residential housing project in a particular region. The LPO would then scan through all case documents and regulatory findings related to environmental clearances in a particular jurisdiction and submit a report to the law firm. The fact that it was possible to outsource this kind of research work ness Strategy) Ashutosh Gupta when he tells The Dollar Business, “During the formative years, lawyers and law firms in US started using the services of Indian LPOs because of (a) inherent cost arbitrage, given the significantly lower manpower cost in India; and (b) favourable time difference, leading to much better operational efficiencies. By the time an Indian LPO responded to a request sent by a US lawyer at the end of his/ her work-day and sent the report back, it would be morning over there. So, by the time the lawyer arrived at work the following morning, he/she would find the completed research on his/her desk.” TIME DIFFERENCE BETWEEN THE US AND INDIA WAS CRUCIAL FOR THE INDUSTRY’S GROWTH IN THE INITIAL YEARS PROBING MORE The most common model that is followed at law firms abroad is that lawyers use the services of first year associates and para-legal professionals to scan through expensive databases like West- law and find precedence. For example, this would typically involve something like finding out if one law is applicable 44 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 45

COVER FEATURE LEGAL SERVICES modes – onshore, near shore and offshore – depending on the client’s requirement and comfort level. Research and drafting related to a project that doesn’t require physical presence is usually done through the offshore model, an area where Indian LPOs thrive. In- dustry insiders agree that a large pool of English-speaking and well-trained law graduates has helped the LPO sector grow in India. Although other countries like Philippines, Sri Lanka and even South Africa are slowly entering the market, India continues to have the best LPO-friendly environment. “Though we have onshore, near shore and offshore project execution capabilities, 75% of our business comes via the offshore model,” consistently been able to earn the respect of the best law firms and that’s the reason why we get a lot of repeat work from them,” Ram Vasudevan, CEO, QuisLex tells The Dollar Business. Bob Gogel, CEO of Integreon, one of the top litigation support and electronic data discovery (EDD) company, tells The Dol- lar Business. What also help Indian LPO firms is that many of them keep innovat- ing to add value. Vasudevan of QuisLex says his company keeps investing in and developing technology driven processes to deliver the highest value to its clients. services include early assessment of a particular case, collection of related data, data analysis, data management through indexing and managing content, data mining and extracting resourceful data and preparing the fact-finding report for the front-end counsel. These findings are the most resourceful information for a counsel to plan court-room strategy and Indian LPOs have now graduated to this more critical and lucrative aspect of legal services outsourcing. Another form of legal services outsourcing is what companies like Kroll, a multinational due diligence, risk and security advisory company, with a workforce of just 25-30 people in India, do. The company has been able to manage operations with such a small workforce because it has sub-contracted work to several small law firms and its in-house team primarily consists of project man- agers, who supervise these law firms. THE IDEA BEHIND LITIGATION SUPPORT SERVICE IS TO HELP THE END-COUNSEL BETTER PRESENT THE CASE THE PINNACLE On top of the ladder of services that LPOs provide is litigation support services. It involves research and analysis to help the front-end lawyer present the case better. The process, typically, starts with E-Dis- covery, which is one of the most used electronic data review system among LPOs. It enables them to scan through thousands of pages of documents for relevance, privilege, confidentiality, and identify priority documents. E-Discov- ery is, generally, followed by document review, which might involve areas like product liability, commercial disputes, bankruptcy, class actions and patent litigation. Top LPOs like them provide enhanced issue coding, deposition sum- maries, preparation of witness binders and assist with redaction and privilege log creation. Typically, litigation support Basic level of contract management includes reviewing guidelines, outlining employment contracts, reviewing housing leases and other such mundane stuff. Outsourcing them gives a corporation the freedom to use its in-house lawyers to focus on core legal and regulatory issues. “At the end of the day, it doesn’t matter whether the work is done at home or in India. Corporations choose us because of our strong capabilities. Not a single project is delivered to a client unless it meets our process control guidelines, which have been carefully laid down by our Six Sigma team. Moreover, for the client, the end result matters the most and we have “HIGH COST OF LEGAL EDUCATION IN UNITED STATES WILL ENSURE THE GROWTH OF LPOs IN INDIA” A maintain relationships, sometimes very regular relationships, with legal service providers that are owned and operated by third parties. There’s another variety, which has only periodic, transient relationships – some firms allow lawyers handling a matter to decide who they will outsource it to, and fix the terms on a matter-by-matter or project-by-project basis. Finally, there are also instances when clients have altogether removed law firms from the equation and gone straight to LPOs. As far as we are concerned, none of our clients have yet raised any objection to us outsourcing legal work to LPOs. In fact, today, law firms have become much better about disclosing how they will staff cases, including the use of LPOs. Further, many of our clients are now using the services of LPOs themselves to work directly with their in- house counsels, or have entered contractual relationships with LPOs to assist the client’s outside counsel. The 2012 Global LPO Market Study reported that the total LPO market was about $1.1 billion. I also agree to the report’s finding that the industry might be growing at 30-40%. Although things seem to have cooled a bit when it comes to law firms, corporate clients continue to outsource their legal work to LPOs, what with the latter becoming more so- phisticated and the former getting more comfortable. The LPO sector is also getting a boost from the changing economic scenario and widening and deepening of international trade and investment relations. But whatever might be the reason for the growth of the industry, the fact remains that India continues to be the top destination. I continue to wonder whether shifts in the US legal market will counter some of this growth. Today, US has a large number of law school graduates who are unemployed or underemployed and might be willing to provide legal services in a ‘nearshore’ outsourcing situation at rates very similar to what offshore LPO providers charge. I believe that many offshore LPO providers are countering such trends by (a) using domestic offices to market their services; and (b) developing capabilities to service projects in-country. US regulations governing legal services have also restricted supply and raised the cost of employing qualified lawyers in recent years. Simultaneously, the cost of legal education has seriously restricted the availability of low-cost legal service providers in US. Law school graduates in US have such large student loans that it is often difficult for them to accept lower-paying legal jobs and still make ends meet. Also, bar rules – particularly those that prohibit non-lawyer ownership of law firms – have impaired the ability of the US legal service providers to take full advantage of technology. MICHAEL DOWNEY Attorney at Law, Armstrong Teasdale LLP merican law firms play a variety of roles when it comes to outsourcing – both ‘nearshore’ and ‘offshore.’ Some firms maintain their own facilities and personnel in low-cost locations, both for back office and client service activities. Others ADVANTAGE INDIA Like most other outsourcing models, LPOs too deliver projects via three Litigation support services, typically, involve collection, mining, analysis and management of relevant data that could make or break a case 46 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 47

COVER FEATURE LEGAL SERVICES One of the main question marks over the LPO industry is security of information, since a client providing them with information isn’t considered privilege communication All major LPOs – be it Integreon and Mindcrest or Pangea3 and QuisLex – have a strong presence in India. Most of them also have very well developed infrastructure to execute tasks such as data mining, contract drafting, review and management, compliance assistance, litigation support, IP and patent support, and legal publishing support, among others. Intellectual property or patent support includes patent drafting and review, IP portfolio management and docketing. As is the case with any new industry that is successful, the success of Indian LPOs has seen competition cropping up from several locations. And to ward off competition, particularly in Asia, Indi- an LPOs are increasingly offering more innovative and technology-driven services. Probably, this is the reason why despite entering the fray years ago, no other country has managed to replicate anything even remotely close to what Indian LPOs have achieved. This can be validated by the fact that some of the top LPOs of the world – Crestmedia, Quis- lex and Pangea3 – operate only or mostly out of India. SCRAMBLE FOR MORE Rising growth and profitability means that the LPO industry is currently going through a lot of consolidation, with most large LPOs constantly on the lookout to acquire the smaller ones. “The primary reason why bigger LPOs will continue to look for acquisitions is it gives them more bargaining power with the client,” says Gupta. What is also interesting is that being a business where comprehen- sive growth and revenue numbers are not available, valuations for any merger or acquisition is very subjective. Consolidation in the LPO industry started as early as 2007, when Atlan- ta-headquartered Software Paradigms International (SPI), a global IT outsourcing and BPO solution provider, acquired multiple business units of India-based COMAT Technologies. SPI, after the acquisition, announced that the talent and experience of COMAT professionals will allow it to provide deeper expertise and capability in the Medical Transcription and Legal Services space. In 2008, Inte- THE LPO SECTOR HOGGED THE LIMELIGHT IN 2010, WHEN THOMSON REUTERS ACQUIRED PANGEA3 IN MULTI-MILLION DOLLAR DEAL gal and business solutions in the fields of litigation, electronic data discovery, document review, contract review and management, intellectual property and immigration, said, “The acquisition re- inforces our commitment to efficient and advanced delivery of legal solutions and it will ensure our clients maximise operational gains from our offerings.” Founded in 2004, LawScribe was a legal services provider in eDiscovery and document review, intellectual property, corporate transactions, legal research and support, with offices in Los Angeles, New York, and Gurgaon. A week after UnitedLex’s acquisition, the industry became a talking point, when Thomson Reuters acquired Pangea3, a LPO serv- ing corporate legal departments and law firms worldwide, in a multi-million dollar deal. At the time of acquisition, Thomson Reuters announced that the move was to develop world-class information, software and workflow solutions for legal professionals around the world. Pangea3 it had acquired German patent research firm SVPG GmbH. Frankfurt-based SVPG, formerly part of Hoechst AG, had a rich history in patent research dating back to more than 20 years and specialised in pharmaceutical, chemical, life sciences, biotech, and engineering sectors. However, one of the biggest consolidations in the LPO industry happened two years later when UnitedLex acquired LawScribe, a leading LPO based in Los Angeles. Following the acquisition, UnitedLex, a LPO providing le- boasts of a clientele that include AmLaw 250 firms (America’s top 250 law firms ranked using a combination of factors) and some of the world’s largest financial services, pharmaceutical, healthcare, food and beverage, technology and consumer goods companies. In recent years, European private equity firm, Cinven (in March 2012), announced the completion of its acquisition of CPA Global, a leading global provider of intellectual property (IP) management services and software. greon acquired Datum Legal and following the acquisition, launched fixed price per document e-Discovery and acceler- ated document review solution. Integre- on also announced that the acquisition will help it build on its 2006 acquisition of Bowne & Co’s Digital Litigation Sup- port business and give it unparalleled litigation support capabilities. Similarly, in October 2008, CPA Glob- al, a top intellectual-property management specialist and a leading provider of legal support services, announced that 48 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 49

COVER FEATURE LEGAL SERVICES Most Indian LPO firms operate out of Hyderabad, Mumbai, Pune or the NCR and only have clients in US, UK and, lately, in Europe Although the LPO industry was, initially, all about saving cost and time, it is now all about the high quality of research and analysis that help an end-counsel in the court room After the acquisition, Cinven said the global patent renewal market has shown considerable growth as corporations are increasing R&D spend, with higher volumes of patent applications and demand for renewals. Similarly, in January 2014, CPA Global announced the acquisition of leading Nordic IP services provider Patrafee AB, along with related businesses and IP services products, for an undis- closed amount. outsourcing. This, since most clients that have used the services of an LPO, have realised the immense benefits that come with it. So, in the face of a persistent client who is demanding outsourcing of tasks, which is increasingly becoming the case, law firms often have little leverage. “If a law firm wants to continue working on a project and receive future projects from a client, they have no choice but to yield to the demands”, feels Michael Downey, Attorney at Armstrong Teasdale LLP. GROWING SWAY Today, law firms have become a lot better in disclosing how they will staff cases, including the use of LPOs. Moreover, many large corporations are now using LPOs themselves to work directly with their in-house counsels, or have entered contractual relationships with LPOs to assist their outside counsels. So, although, at time, there are disagreements between in-house counsels and outside counsels regarding staffing, it rarely is regarding THE THIN LINE Outsourcing of legal services pos- es several ethical challenges related to confidentiality, disclosure and billing for the outsourced work. However, all such issues around LPOs seems to have been settled over a period of time. With changing economic conditions, law firms as well as companies, seem to have fully realised that taking the help of LPOs is only logical and prudent and leads to more efficiency. However, Huzefa Tavawalla of Nishith Desai Associates has a few words of cau- tion for the LPO industry and thinks it might not be very prudent for a client to take their services. “There is something called privileged communication between a lawyer and a client. By law, the attorney is bound to keep it confidential. This is called client and attorney privilege communication. Even in case of serious issues.” However, empirical evidence continues to reflect the kind of success LPOs have achieved. “Not every law graduate becomes a successful litigation lawyer. This sector gives a chance to many law graduates to have a corporate job. India offering great cost arbitrage, a never-ending supply of people with good knowledge of English and being located in an attractive time zone, means the industry is here to stay,” adds Tavawalla. any dispute, if a court asks an attorney to reveal information shared by the client, the attorney has the right to decline the request citing that it is a client-attorney communication. But that privilege communication doesn’t apply to LPOs. So, if there is some sensitive data/information that a LPO has, and a court asks the LPO to reveal it, the LPO cannot take the advantage of privilege communication as it is not a law firm,” says Tavawalla. He also feels that “LPOs are service providers. They are not law firms or in the profession of practicing law. So, they are not bound by the Advocates Act. LPOs are like the research team of a lawyer. The moment LPOs start providing direct legal advice, there may be A representation of a litigation work flow. Image courtesy: Integreon greon’s focus on quality and continuous improvement has helped us reduce costs and improve our responsiveness to the businesses we support. More importantly, it has allowed us to restructure our in- ternal team to focus on other departmen- tal priorities and further develop their careers at Microsoft.” For those still not convinced, do some number-searching and speak to Erin Brockovich. Or better still, PG&E. gies are not just made in boardrooms but also in court rooms. And behind every appeal and every disposition, behind every adjournment and every recess, and behind every dismissal and every evidence, there is a battery of legal minds, many of them sitting in a remote location in Hyderabad, Mumbai or Noida. And if one is still doubtful about the future of LPOs, one need not look beyond what Microsoft’s Senior Attorney Lucy Bassli has to say about their association with one of the biggest LPO firms: “Inte- EVEN MNC BEHEMOTHS LIKE MICROSOFT TODAY USE THE SERVICES OF LPOs SO THAT THEY CAN FOCUS ON PRIORITY AREAS HERE TO STAY Today, LPOs are not about saving money but about getting a competitive edge and hence, they have become integral parts of law firms and corporations. In the 21st century economic order, business strate- sisir@thedollarbusiness.com 50 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 51

COVER FEATURE LEGAL SERVICES “INDIA SHOULD ENSURE WHAT HAPPENED TO THE VOICE INDUSTRY, DOESN’T HAPPEN TO LPOs” work tends to source from companies that have large litigation matters, both in case size and number of matters. We also see a fair amount of non-litigation LPO work from corporations that have a significant amount of contract matters to manage. TDB: Give us an idea about your various business models. BG: One of the most common thing that LPOs do is reviewing and analysing thousands of pages of documents related to a particular case, classifying the documents or summarising the finding(s) and then submitting to the lawyers supervising the case. These reviews are typically conducted using software that enables the work flow. Another model is Contract Man- agement, where all Non-Disclosure Agreements (NDAs) of a company, managed from one central location in US or UK, are outsourced to an offshore location in India or Philippines. In Contract Management, clients come to us before they have to sign a contract, and except for signing on the dotted line, all aspects – from ensuring that all required elements are in place to weeding out inconsistencies – are taken care of by us. In a nutshell, under Contract Management we take care of the administrative part related to the preparation of a contract and help lawyers save 30-40% of their time. TDB: How is billing done in the LPO industry? Can you also give us a sense of the size of the global LPO market? BG: Billing varies from case to case. Sometimes, we charge in terms of the number of documents we review, while many times, the billing is done in terms of the number of hours we dedicate to a particular project. As far as the size of the LPO market is concerned, it is difficult to arrive at a number since companies/firms usually don’t report how much they outsource. Moreover, “what is an LPO?” is also not strictly defined. Apart from three-four major players, including us, there are also a large number of small LPOs. So, it is very difficult to figure out the size of the market. But I am very sure that the industry is growing. Some estimates have been put up by a few, but I don’t see a whole lot of credibility behind those claims. Robert (Bob) Gogel, CEO of Integreon, one of the biggest LPO firms which also initiated consolidation in the industry, though bullish on India, feels the new government should do everything it can to ward off rising competition in the industry. In an exclusive interaction with The Dollar Business, he talks about this and more Robert (Bob) Gogel CEO, Integreon INTERVIEW BY SISIR PRADHAN TDB: Why is India the most preferred destination for legal services outsourcing? Bob Gogel (BG): The major growth drivers for the Indian LPO industry are language skills, good legal training and a very KPO friendly environment. Although new players like South Africa are also entering the fray, India remains, by far, the strongest and biggest outsourcing destination. In fact, we are facing a lot of competition in India, with new LPOs entering the market. Today, Integreon has offices in Mumbai and Noida and a staff of around 400 lawyers. TDB: What factors motivate a client to outsource legal work to companies like you? BG: Obviously, cost is an important element but not necessarily the key factor in the rise of the offshore LPO industry. LPO is a knowledge-driven industry, where one requires good understanding of legalities, as well as ability to handle work flow efficiently and effectively. I have been doing business in India for about 20 years and the major reason for our clients offshor- ing work to us is a combination of quality, process and cost, mostly in that order. TDB: Quite often, legal matters are core to a company’s existence. How then do you convince a client to outsource the handling of such important matters? BG: The outsourcing industry has matured over a period of time and today, everyone understands the offshore model, especially after the success of India’s IT and voice-outsourcing industries. If an outsourcer demonstrates process rigour and high security standards, a client can be very comfortable outsourcing. In fact, the outsourcer is often better equipped than the client itself to handle these important functions. Integreon has a unique business model in the LPO industry – we are able to offer our clients onshore, near shore and offshore delivery alternatives. In fact, some clients who may have some initial hesitancy to move wholly offshore, may start working with us through our onshore operations and then move to near shore and offshore, where there is the same delivery quality but better economics. We also see more and more clients moving directly to an offshore solution, which for us is handling work out of In- dia, Philippines or South Africa, for instance. Our experience is that roughly 75% of the legal processes that can be outsourced are handled offshore. WE ROUGHLY GET ABOUT 70% OF OUR BUSINESS FROM LAW FIRMS, WITH THE REST COMING FROM THE LEGAL DEPARTMENT OF LARGE CORPRATE TDB: What about the growth rate then? BG: The LPO sector is growing because companies are under a lot of pressure these days to control legal costs. The industry is probably growing at a rate of 10%, with India accounting for roughly 60% of the global LPO market. I would also like to add that competition is huge in the outsourcing market and India, having already lost a big chunk of its voice-outsourcing industry, should focus more to ensure the same doesn’t happen to KPOs, in general and LPOs, in particular. For the growth of the industry, the Indian government should focus on high-level of education and encourage people to expand their business in India. TDB: The outsourcing industry is extremely price-sensitive. How then have you been impacted by the volatility in the forex market? BG: Price-sensitivity has different aspects to it and is an altogether different matter. For example, despite being a more expensive market, Philippines has managed to eat into India’s voice-outsourcing industry. In the voice industry, training people to be customer-friendly and having a neutral accent requires huge investments. But having made those investments, companies have often found people leaving in six months, for slightly higher salaries. In this context, attrition levels are much lower in Philippines when we compare them with India. Prob- ably in some sense, India is a victim of its own success. TDB: What percentage of your business comes from law firms and how much directly from the legal department of corporate houses? BG: Roughly about 70% of our business comes from law firms which manage the relationship with the corporate client, while the balance of our business comes directly from the corporate legal departments and general counsel. Our end client tends to be in regulated industries like financial services and pharma/ life sciences, and we also see a number of technology clients as well. Obviously, with litigation support services like ours, the TDB: What do you think are the main challenges for the In- dian LPO industry? BG: The main challenges for us are high price of real estate, and very high attrition levels, among others. At the same time, Eastern Europe is increasingly becoming competitive from a cost and education point of view. Similarly, China is probably just 10 years away from actually taking business from India. 52 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 53

COVER FEATURE LEGAL SERVICES “OUR ANALYTICS HELP LAWYERS DO A BETTER JOB” system based on the British legal system. US, Canada and even Australia have similar systems. Moreover, in India, the most common medium of education is English. Because of these uniformities, and with some training and guidance, Indian lawyers have been able to add a lot of value to the legal services sector and have, for years now, demonstrated work product quality that is as good as anything, anywhere in the world. TDB: How did QuisLex came into being and how were the initial days? RV: After having done my LLB in India, MBA from Cornell and LLM from Columbia University, I spent about eight years working at some of the best corporations and law firms in US. I was with Skadden Arps (one of the largest law firms in the world) when I realised that with the right kind of training, good lawyers in India should be able to assist the top US law firms and corporations, which were always stretched for resources. And so, QuisLex was born on April Fools’ Day in 2004! We started with three people. Understandably, initially it was difficult to convince clients, as well as for employees to join us. But, gradually clients gained confidence in our quality and strong process controls. In short order, our clients became the biggest drivers of our business. THE MORE ONE RISES UP THE VALUE CHAIN OF LEGAL SERVICES, THE COST DIFFERENCES KEEP NARROWING ago and today our employee strength is little over 900 full-time professionals. That should give a decent picture of our growth trajectory. At the same time, growth, in terms of the type and complexity of the work that we handle and the types of analysis that we do, has been at a much higher rate. What we are deliv- ering has grown not only in terms of volume, but also in terms of complexity. TDB: What is the cost arbitrage for your clients? RV: The more one rises up the value chain of legal services, the cost differences keep narrowing. Today, clients using our services can expect savings of anywhere between 30-50%. Howev- er, this is only comparing like service to like service. The actual cost differential and cost avoidance values can be much higher as our relationship with the client matures. One of the pioneers of India’s LPO industry, QuisLex Inc. has come a long way to become a leading legal support services provider globally. Today, it boasts of dozens of Fortune 500 companies as clients. The Dollar Business caught up with its Founder & CEO Ram Vasudevan to know what it takes to be a leader INTERVIEW BY SISIR PRADHAN TDB: Give us a brief idea of how LPO firms work. Ram Vasudevan (RV): We basically work in two ways: In the first model, we are engaged directly by large corporate to assist them with corporate matters (M&A due diligence, contracts management etc.) and on litigation matters (investigations and compliance related matters for example). In the second model, we are engaged usually by a large law firm that utilises our services to better assist their clients. TDB: Can you give us a sense of Team QuisLex? RV: We have a team of more than 900 people, spread across Chicago, New York and Hyderabad. Most of our employees are from law background, but we also have Six Sigma Master Black Belt holders, Six Sigma analysts, statisticians, and business experts, who support our core delivery groups and supplement their legal expertise with process expertise (Lean Six Sigma). The combination of quality, efficiency, and legal acumen is the cornerstone of our model. Our business model is not based only on cost arbitrage; rather it is premised on the ability to improve services while making them more cost effective. This has been the reason for our success in the past and we will continue to excel in the future because we add value to the services we provide and continually innovate. TDB: Do Indian multinationals fighting a legal battle in United States seek your help too? RV: Today, most of our clients are from Europe and North America. In fact, we have typically not pursued clients in India. But since more and more Indian companies are going global, it is only logical for Indian companies to use our services. There are aspects in legal services where Indian law firms can help companies in matters like overseas acquisitions. But there are other support services such as e-Discovery, etc., that are highly specialised and where specialised companies like us can add great value. Moreover, since we already have an established team in India, it should be an added advantage. While it may be counterintuitive to some, the value we bring is far more than simple wage arbitrage and we are competitively positioned to help firms anywhere in the world. TDB: Tell us a little bit more about the various offerings of QuisLex Inc. RV: Our services can be broadly divided into three groups – Litigation related services, Contract Management, and Compli- ance. In litigations, we assist clients from early case assessments and relevancy analysis all the way through to performing complex analytics, deposition assistance and trial preparation services. Our litigation matters are usually complex and require the involvement of all three parties, i.e., the end client, the law firm and QuisLex. Our responsibility is to provide superior support to the law firm to allow them to present the client’s case better. Under contract management, we provide end-to-end support to our clients in drafting contracts, negotiating contracts, preparing templates and contracts clause playbooks and in ensuring that all commercial transactions (whether procurement or revenue focussed) are adequately documented. Under compliance, our engagement is almost directly with a company’s legal department to ensure compliance with global regulations. We have helped several multinational organisations design and implement global compliance programmes. TDB: When you visit law schools to hire, are students appre- hensive about joining the legal outsourcing industry? RV: Yes, in the beginning, there was some apprehension. When I visited various law colleges and universities and made presen- tations, students were sceptical of what was a new and relatively unknown industry. And, you would expect a healthy level of scepticism from lawyers! It has now become, as you know, not only an accepted career path, but one that has come to be highly regarded. Also, as the industry itself has matured over the last 10 years, the recruitment process has become more streamlined with graduates seeking us out making it easier for us to identify and hire talented law graduates. TDB: In that case, would you consider full-fledged law firms in US as your real competitors? RV: Not really. I wouldn’t call them competition because their focus is on something different. Their job is to manage things at the front-end, while our focus is on the back-end. The analytics we provide helps them to do better in what they are doing. The information we provide as a function of our work, helps legal counsel to better represent their clients. By way of metaphor, would we think of the diagnostician in a medical lab analysing a sample or reading a CAT Scan in competition with the physician needing the information to properly guide his or her patient? No, of course not! Similarly, we are in a sub-specialised field in the practice of law. Lawyers who know how to use our services tend to do very well because they, and their clients, benefit from what we do. Ram Vasudevan CEO, QuisLex Inc. recognised leaders in their segment. Both the corporate and the law firms understand the value of these services and the experience and expertise we bring. So, when a law firm wants to hire us, the company usually does not oppose the decision. TDB: Is India having a similar legal system to that of United States and United Kingdom a reason why the LPO industry is flourishing in India? RV: I would say it is a key enabler. India has a common law TDB: Has there ever been an instance when a law firm wants to take your services but the end client is against it? RV: I don’t think we have ever faced such a situation. The service we provide is at the top of the legal services vertical. We work with several of the top law firms in UK, US and Europe, which in turn are dealing with companies that are often the TDB: Can you give us an idea about your revenue and growth in recent years? RV: We don’t share revenue figures but as far as the company’s growth is concerned, we started with three people 10 years 54 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 55

COVER FEATURE LEGAL SERVICES “MANY INDIAN LAW FIRMS, WHICH HAD ENTERED THE LPO INDUSTRY, HAVE GONE AWAY” ing legal research. However, we quickly expanded our service offerings to include other services I mentioned earlier. Over the years, we have expanded services under each of our four offerings and have built expertise in specific areas. TDB: How critical is the role of law firms in legal process outsourcing? GN: Law firms are a critical component of what we do, both in terms of being our direct clients and also who we work with on various client projects. We work under the guidance of law firms in litigation matters. We also collaborate with law firms in developing new products and services and taking it to the market, wherein the law firm provides certain kinds of expertise and we provide complementary services. INDIA IS STILL THE MOST PREFERRED OFFSHORE DESTINATION BECAUSE OF THE LARGE NUMBER OF ATTORNEY RESOURCES THAT ARE THERE meetings and a pilot phase) that we could do the work out of India. This was a big win for our industry as a whole as it was the biggest case done out of India until then. It was also a major case that everyone was aware of. TDB: You have witnessed the evolution of the LPO industry since the beginning. What have been the most striking changes over the years? GN: The most striking changes are actually two: one, there were many people who got into the LPO industry who are not there anymore. This has made our industry more robust and mature. The second change is that clients have accepted the model and are entering into long-term contracts. TDB: Why is India still the most preferred LPO destination despite competition from several quarters? GN: India is still the most preferred offshore destination because of the large number of attorney resources that are available. Although most of the work that requires a high level of expertise will remain in US, we are today able to provide very high quality work from India. Our approach is a Best-Shore approach, where we send work to respective geographies based on client requirements, expertise, foreign language capability etc. In fact, most of our clients are very bullish on India. The CEO of Mindcrest Ganesh Natarajan strongly believes that LPO is a very specialised field and is not everyone’s cup of tea. In an exclusive interaction with The Dollar Business, he talks about the initial days of the industry, Mindcrest’s forte, and reasons why there won’t be a rise in competition in the near future TDB: What are the major challenges before the LPO sector as a whole and for Mindcrest, in particular? What do you think should be done to tackle them? GN: Law is a vast professional area and we need to be nimble and innovative in coming up with creative solutions for business problems that are driven by legal issues. This also requires that we constantly build domain knowledge at all levels in the organisation and couple that knowledge with practical solutions for our clients. INTERVIEW BY SISIR PRADHAN TDB: Please help us understand Mindcrest’s LPO service offerings, particularly legal publishing services. Ganesh Natarajan (GN): Right from the beginning, Mind- crest has been offering four services: litigation support, corporate services, compliance services and legal content and publishing. We have done legal publishing work for the past 10+ years. This is relatively complex work as it requires a very good understanding of the US legal system and US laws. We provide this work out of our India and US delivery centres. This is an area where Mindcrest has established a very good reputation and has developed very good experience. The LPO sector has grown because of all of the reasons mentioned above and also because the legal sector, at large, is relatively recently recognising the benefits of outsourcing, whether onshore or offshore. Frankly, I feel LPO firms have barely touched upon 10% of the available work that can be outsourced in the legal sector. There is a tremendous potential for growth. TDB: Outsourcing of legal services pose several ethical challenges, related to confidentiality, disclosure and billing. Has Mindcrest faced such challenges? GN: Most of the challenges that you are talking about were much greater in the early days of Mindcrest. Today, we have various systems, processes, methods and training in place. So, they don’t really pose significant hurdles anymore. We have the standards in place and strict adherence to these standards that make it easier today. TDB: Philippines has come up as an attractive (cost effective) destination for the LPO industry but you have no operations there. Is there any specific strategy behind this? GN: Philippines is not a major factor when we acquire clients. We continue to prefer India as we have demonstrated the efficacy of doing work out of India and have been doing so successfully for the past 13 years. TDB: In recent years, many full-fledged law firms are entering the outsourcing sector. Many LPOs are also going for mergers and acquisitions. What do you expect the trend to be in the near future? GN: I do not see many more law firms coming into the LPO sector. In India, many law firms that entered the sphere, have gone away. In US, only a very small minority of law firms are in the LPO business. Consolidations and acquisitions will continue to happen as is the case with any business. The smart plays will center around the acquisition of clients and specific domain knowledge that can be parlayed in conjunction with existing services to get a multiplier effect. TDB: Tell us something about your future endeavours. Which new verticals/services are you looking to add to your portfolio in the near future? GN: We are adding several specific verticals and expertise to our portfolio of offerings but I would not like to disclose it at this point in time. TDB: Wage inflation has become a major issue for several industries in India. Is that and other issues like high attrition rates a challenge for you? GN: Inflation and attrition have never been an issue for Mind- crest at all. We spend a lot of time and effort in people management, learning and development and talent management as we believe that they are the key to be successful in a knowledge based business like ours. TDB: Can you give us a basic picture of how Mindcrest came into being, the founding members, initial funding and the initial days? GN: Mindcrest is a pioneer in legal support services founded by four people – me, George Hefferan, Rohan Dalal and Teju Deshpande – and was the first such firm to open its doors in 2001. We bootstrapped the company using our own funds until we were able to offload a minority stake in 2007 to an outside investor. The impetus to start Mindcrest came from the outsourcing of other services to India and the thought as to why can’t it be done in the legal sector as well. Our initial clients were both corporations and law firms and the focus was on do- TDB: Can you recall a situation where the corporation or the law firm that had outsourced work to you had a view but you convinced them to change that view, which was ultimately beneficial for the client? GN: I remember the first big litigation case we did for a major global corporation. Their law firm had never done outsourcing work and it took some effort to convince them (multiple Ganesh Natarajan CEO, Mindcrest India 56 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 57

BESTSELLER GYM EQUIPMENT BESTSELLER GYM EQUIPMENT However, with fitness experts focusing on weight training and the importance of building muscle to increase metab- olism and lose weight more efficiently, strength training has also become extremely popular. People have realised that strength training is as important, if not more, as cardio,” Srilekha Reddy, Marketing Director of Snap Fitness, tells The Dollar Business. However, despite growing demand, there are hardly any recognised fitness equipment manufacturers in India. This has resulted in increased need for imports from countries like USA, Taiwan and, of course, China. “We prefer imported equipment because we believe their quality is superior. We would rather go with branded names that are tried and tested than experiment with new players,” adds Srilekha. Source of Indian gym equipment imports Dominated by China, Taiwan and USA 2% 5% 6% 16% 53% 18% China USA Taiwan Italy UK Other Source: Ministry of Commerce, GoI; Breakup for FY2014 FITNESS INDUSTRY IS GROWING AT AN ANNUAL RATE OF ABOUT 25% AND IS SPLIT IN THE RATIO OF 7:3 BETWEEN INSTITUTIONAL AND HOME DEMAND THE REASON IS YOU The FY2013 Annual Report of Tal- walkars Better Value Fitness Ltd. – India’s most well-known fitness chain – has a very interesting first couple of pages. The first page of the report reads: “The Bad News – There is a possibility that 98% of those reading this cannot touch their feet when standing, cannot get beyond five when doing push-ups and cannot run three storeys without panting for five minutes thereafter.” But then the following page reads: “The Good News – Talwalkars has built an entire business to reverse this grim reality.” While one is not sure from where the company get the figure of 98% from, it indeed manages to make a point. The point that while until the 1990s a gym was frequented only by professional sportsmen, people in the show business and occasionally a common man, the scenario has now turned on its head. A mixture of unhealthy lifestyles, growing health consciousness, and the need to ‘look good,’ together with more money in the wallet, has ensured that those catering to these needs, like Talwalkars, are laughing their way to the bank. According to those in the business, the fitness industry is growing at an annual rate of about 25% and is split in the ratio of 7:3 between institutional and home demand. While in the home Despite the emergence of a few large players like Talwalkars, India’s fitness sector is still very unorganised segment, demand is mostly for cardio equipment, institutional demand is almost split down the middle, with a slight tilt towards strength equipment. FAR AND WIDE The market for gym and fitness equipment is not just growing in metros as one would expect, but also in non-metros. In fact, industry insiders feel the real growth in coming years will come from smaller towns. “Till five years back, we used to set up 5-6 gyms in a year especially in tier I cities. But today, we get 12-15 orders a year – a majority of them from tier II and III towns in western and southern parts of the country,” says Kevadia. Srilekha of Snap Fitness is also of the opinion that favourable demo- graphics will ensure secular growth in the sector over the next 3-5 years. “These factors, coupled with a paradigm shift towards preventive wellness, will be the key drivers and tier II and III towns will lead this wave,” she added. Construction boom – virtually every housing society today has a gym – and urbanisation will also result in more BY SACHIN MANAWARIA BY SACHIN MANAWARIA THE MONEY-MAKING ‘EXERCISE’ the market for imported gym and fitness equipment growing by leaps and bounds over the last decade.” RUNNING TO NOWHERE Because of their user-friendliness, treadmills continue to be the most popular in the entire range of fitness equipment. They are followed by stationary bikes because of their suitability for every age group. Elliptical cross trainers too are slowly catching up with stationary bikes, especially among the youth. These com- prise the three broad categories of equipment more conspicuous in the home segment, while cardio vascular equipment are more preferred by corporations, health clubs and full-fledged gyms. “Cardio has always been a favourite with traditional gym goers, with treadmills being a compulsory fixture in any gym. L corporations have incorporated fitness routines to ensure that employees stay healthy and invigorated. Explaining this trend, Deepak Kevadia, owner of Saiworks, a Mumbai-based gym equipment dealer says, “Many companies have started setting up gyms in their premises. This is one of the main reasons for Man first made a machine to make his task easy. And then some more. But gradually his tasks became so easy that he had to make a machine to make him tough! Perhaps, this is too simplistic a way to explain how gym equipment came into being. But the fact remains that with virtually everything getting done using machines, the modern man needs gym equipment to stay fit. And this bizarre need of the modern man has created a very profitable business opportunity. Are you game? ack of time to go to a gym is prompting a large number of fitness conscious people to buy treadmills and stationary bike at home. Similarly, large number of big 58 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 59

BESTSELLER GYM EQUIPMENT “Indian gym market is still in its infancy and will take at least five years to evolve” Sampat Rai, Director, Fitness World, gives The Dollar Business an insider’s view of India’s fragmented gym equipment business Fall in the value of the rupee and an overall economic slowdown have slowed down imports in the last two years Profit estimate for treadmill imports Effective duty of 28.852% is starting to hurt Indian gym equipment importers Cost of Treadmill (USD/Unit) * Freight & Insurance (USD/Unit) ** 13.7 CIF (including LC) Import Duty ID (10%) CIF + ID CVD (12%) CVD + ID Cess (0.7%) CIF + ID + CVD + Cess ACD (4%) Final Cost Final Cost (INR) *** Selling Price in India # Profit Profit Margin (%) 320.0 337.0 33.7 370.7 44.5 78.2 0.5 415.8 16.6 432.4 TDB: Give us an idea of Indian gym equipment manufacturers. Why can’t they compete with Chinese manufacturers? Sampat Rai (SR): Indian gym equipment manufacturing is miniscule. There are no popular domestic brands except for one or two. Some small time manufacturers are trying their hand at low quality equipment. The primary reason being that fitness equipment is not just metal and plastic. It has to be highly ac- curate in bio-mechanics. Otherwise the users would badly injure themselves. These injuries may sometimes cause damaged muscles which could last a lifetime. India cannot compete with China at this juncture as it and Taiwan manufacture very large quantities. They also have a very significant international presence. High volumes help these countries manufacture at a much lower cost. and fitness equipment going forward? SR: To set up a gym, both cardio and strength equipment are required. The demand for these equipment are growing at a fast pace. Today, tier II cities are also coming up with gyms in large numbers. The key drivers are the fact that people have become extremely health conscious. Bollywood, with all its mus- cular stars, is also motivating the young generation. 25,943.9 29,000.0 3,056.1 Sampat Rai Director, Fitness World 11.8 * Standard Chinese 3 HP DC motor with 130 kg user weight ** Freight and insurance cost from Shanghai to Chennai *** Assuming USDINR at 60 # TDB Intelligence Unit TDB: What is the gym penetration level in India? And how do you see it five years down the line? SR: The Indian gym market is still in its infancy. Therefore, gym penetration levels are not uniform. I think it will take about five years for the market to evolve and become more organised, with the population having access to gyms in an equitable manner. THE FITNESS EQUIPMENT BUSINESS SHOULD BE SEEN JUST LIKE ANY OTHER CONSUMER DURABLE BUSINESS demand for gym equipment, feel those in the know. Moreover, the Indian fitness industry is highly under penetrated as compared to that in the developed world and this can only lead to more demand as we start playing catchup. According to a PwC-FICCI study, less than 5% of India’s urban population goes to a gym or has equipment at home. This also indicates that there’s massive scope for growth in this segment. TOO HEAVY TO SAIL On the flip side, issues that hinder the growth of the sector are two pronged: lack of skilled manpower and extremely high rentals, especially in the metros. According to industry experts, rentals alone account for about 50-60% of the total revenue of a gym. This is one of the primary reasons for several fitness chains shifting focus to non-metros in order to remain healthy - profitably. NUMBER GAME Import of gym and fitness equipment had grown at a scorching CAGR of 26.15% between FY2004 and FY2012, but has now taken a bit of a breather. The main reason for this small fall in imports in the last two financial years can probably be attributed to a very weak rupee and an overall slowdown in the economy. In fact, when one looks at the countries from which India imports gym equipment, there are no real surprises. Accounting for 53% of India’s imports in FY2014, China continues to be the dominant player even in this category, followed by United States, Taiwan, Italy and United Kingdom. TDB: Where is the key demand coming from for your industry – the home segment or the corporate segment? SR: The home segment is growing at almost 20% per annum since people in cities are finding it difficult to walk or run on city roads. Today, there are fewer parks and the pollution takes a toll on the health. Therefore, people are increasingly opting for home equipment. The corporate segment comprises of large gym chains, large companies, hotels, colleges etc. The government is also emerging as a major buyer as it is setting up gyms across the country to motivate people to adapt a healthy lifestyle, and also with the objective of producing more world class athletes who have to be trained on excellent equipment. TDB: How has been your growth in the last few years? SR: Despite the economic slowdown, our company has been able to retain its growth during the last three years. And now, there’s some excitement in the air. With people getting more confident about the economy, sales of fitness equipment is bound to grow much faster than the previous years. Fitness World has a strong presence in the home segment and we represent top international brands like NAUTILUS, WaterRower, Body-Solid and Steelflex. Our greatest advantage is that we are one of the most professional and well-structured companies in India, dealing with branded gym and fitness equipment. ments you will focus on going forward? SR: In India, the commercial segment is picking up speed. Therefore, our major thrust is on this segment – be it private or government. On the other hand, our national presence automatically gives us the advantage of increased sales in the home segment. NOT THE FINAL STRETCH There’s no doubt that science and technology is making our lives easier by the day. Virtually everything that we need today is just a phone call or a click away. And as society moves from that with needs to one with wants, people will have and will spend more time on grooming themselves. And herein lies an opportunity to rake in the moolah! We know you would not like to miss the bus. Would you? India’s gym equipment imports Imports of fitness equipment has grown at a CAGR of 25% in the last 10 years TDB: How has the industry dynamics changed in recent times? SR: The fitness market has the same basic fundamentals as any other consumer durable. More features, higher reliability and introduction of new products are strengthening this fast changing market. Technology is also playing the part of being a game changer. Broadband connec- tivity is enabling machines to store data for individuals, which can be accessed from anywhere. 70 60 50 40 30 20 10 TDB: What are your expansion plans in the near future? Which are the seg- 0 TDB: How do you see demand for gym FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 sachin@thedollarbusiness.com Source: Ministry of Commerce, GoI; figures in $ million 60 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 61

IMPORT’ONOMICS OLIVE OIL IMPORT’ONOMICS OLIVE OIL able and is a highly aspirational product for the health conscious consumer.” For importers of olive oil, this means a big and profitable opportunity. Speaking to The Dollar Business, Deepak Asrani, MD, Sri Roda Foods said, “We import very high quality olive oil during the harvest season. Margins for importers like us usually range around 12% to 20%.” Some of the more popular imported brands of olive oil in India include names such as Figaro, Borges, Leonardo and Del Monte – these four brands together constitute a bulk of the olive oil offerings in modern retail chains. Dolly Kumar, Director of GAIA, which has several variants of olive oil in its portfolio, says that olive oil is rich in mono saturated fat which helps reduce the level of bad cholesterol and increase the amount of good cholesterol. “Good cholesterol protects the heart and reduces the risk of cardio vascular diseases. Moreover, it is a great option for weight watchers as it offers higher satiety, thus making one feel full for longer periods,” she told The Dollar Business. Olive oil also helps regulate blood pressure, which is a growing concern among Indians, with a WHO report stating that almost 14% of the Indian population affected by high blood pressure related issues. Source of Indian olive oil imports Spain leads the way, followed by Italy 1% 1% 1% 3% 32% 62% Spain Italy Greece Turkey Portugal Other Profit estimate for olive oil imports Basic duty being cut from 45% to 2.5% makes imports even more profitable Source: Ministry of Commerce, GoI; Breakup for FY2014 year saw the first dip in Indian olive imports (in volume terms) in over a decade. VARIOUS VARIANTS Olive oil can be classified under various categories such as extra virgin olive oil, which is of higher quality, superior taste, has a bit of fruitiness and contains no more than 0.8% free acidity; virgin olive oil, which is of slightly lower quality and has a free acidity component of 1.5%; refined olive oil, which essentially means that the oil has been chemically treated to neutralise the strong taste and acid content; and olive pomace oil, which is the variety that India largely imports. The reason why this variety has got more acceptance in India is the fact that other than being light on the pocket, it has a more neutral flavour and goes well with Indian taste buds. Interestingly, it is also known to have a high smoke point, thus being a popular choice for restaurants and home cooking. Cost of olive oil (USD/MT) * Freight & Insurance (USD/MT) ** CIF (including LC) Import Duty ID (2.5%) CIF + ID Cess (0.08%) Final Cost Final Cost (INR) *** Selling Price in India # Profit Profit Margin (%) 3,180.0 290.0 3,504.7 87.6 3,592.3 IT’S NOT CALLED LIQUID GOLD FOR NOTHING 0.7 3,593.0 215,581.3 250,000.0 34,418.9 16.0 * MFAO virgin olive oil futures for September delivery ** Freight and insurance cost from Madrid to Mumbai *** Assuming USD/INR at 60 # TDB Intelligence Unit ALMOST A DUOPOLY Although olive oil is consumed all over the world, Mediterranean countries are, by far, the biggest producers and consumers of it. In fact, despite accounting for over 20% of global olive oil production, which put it in the second place just behind Spain, Italy was the top importer of olive oil in CY2013. Similarly, when it comes to exports, while Spain leads the way, Italy comes in at second place, with Greece being a very distant third. It’s estimated that Spain – the world’s top olive oil producer – has over six million acres under olive cultivation and produces over 1,000 million liters of olive oil every year. Even when it comes to Indian imports, the picture is the same. Ministry of Commerce data reveals that in FY2014, over 62% of Indian olive oil imports were from Spain, with Italy accounting for about 32%. However, rising prices and an extremely weak rupee meant that last homemaker, couldn’t agree more. She took to olive oil for cooking food after health issues started showing up in her family. “It is far more expensive than other edible oils and does strain our month- ly grocery budget. But my son’s alarming obesity levels forced us to switch to a healthier alternative, irrespective of the high costs,” she told The Dollar Business. This trend and olive oil’s aspirational values have ensured that India’s olive oil imports have grown at an astounding CAGR of 25.25% over the last 10 years. And those in the business of importing it, expect this trend to get even stronger. Rajneesh Bhasin, Managing Director, Borges India Pvt. Ltd., a 100% subsidiary of the Spanish olive oil major Borges, tells The Dollar Business, “Olive Oil is one of the healthiest cooking mediums avail- From being an integral part of Greek mythology to being included in UNESCO’s list of Intangible Cultural Heritage, from being the secret behind Julia Robert’s soft hands to being Vito Corleone’s front business, olive oil always was, is, and always shall be the choice of the who’s who. And if these reasons are not strong enough to lure one towards it, its health benefits surely are. And as is expected from something of such high profile, importing it is a stunningly profitable business as well Q oil from Europe! And this is not something from the grapevine of the trading community. It’s something confirmed by Member of Eu- by 2015, with almost 10% of the coun- THE HOME EXPERIMENT Almost all the olive oil that is consumed in India, is imported. But with the Ra- jasthan government encouraging local farmers to take up olive farming and other states like Punjab, Haryana and Odisha also making some noise about producing olive and extracting oil out of them, are Indian importers apprehen- sive? Asrani of Sri Roda Foods doesn’t think so. “This will not impact our profitability, as it all depends on the volume. Current level of production in Rajasthan is just too small. Moreover, the quality and essence of olive oil products sourced BY NEHA DEWAN uestion: How do you think India covertly retaliated to the European Union’s ban on Alphonso mango exports? Answer: By blocking the import of olive ropean Parliament Maria Bizzotto. Now that we have fully established just how important an item olive oil is, let’s talk a bit about the main reasons behind this importance – health factors – particularly, in the context of India. The WHO, in a recent report, forecasts heart diseases to become the single biggest killer in India try’s population suffering from some sort of heart ailment. While this presents a rather dismal state-of-affairs, it also reflects the reason for the growing interest in healthy lifestyle choices among Indian families – a primary one being olive oil. HEALTH IS WEALTH Pooja Tankha, a 31-year-old Delhi-based 62 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 63

IMPORT’ONOMICS OLIVE OIL “There is no chance of olive oil imports falling MOST NEW IMPORTERS IN INDIA ARE UNDER THE WRONG IMPRESSION THAT THEY CAN MAKE QUICK BUCKS BY IMPORTING SOME OLIVE OIL Freight being loaded into an aircraft using via a loading platform or new sources emerging” Olive oil production and exports is dominated by Mediterranean countries, though there are efforts to grow olive in bulk in California fusing the customer. Today, every retail shelf has a number of brands, some known and many unknown. This is because traders and importers are being misled by the high growth rate of the In- dian market. Most new importers in In- dia are under the wrong impression that they can make quick bucks by importing some olive oil. I will say that as a business, olive oil is as profitable as any other FMCG business. Even though it is an edible oil, it is not a commodity business. The problem is that modern day traders are greedy. So, their expectation of profit margin increases every year. They don’t realise that they are killing the golden goose. V. N. Dalmia, President, In- dian Olive Association, is the man to go to if one wants to understand the olive oil market. In an exclusive interaction with The Dollar Business, Dal- mia talks about India’s olive oil imports, domestic production efforts and more importantly, why importing olive oil is not a get-rich-quick business TDB: Olive oil is still considered a rich man’s oil in India. Do you think it will manage to enter the kitchens of India’s middle class in the near future? V. N. Dalmia (VND): Growth of olive oil consumption in India is being driven by health factors. India ranks as World No.1 in cardiac patients, with almost 10% of our population affected by heart diseases. The US and Europe rank second with about 7% of their population affected by heart ailments. The WHO expects heart diseases to be the single greatest killer in India by 2015. The highest prevalence of heart diseases in India is among young corporate executives. Additionally, 31% of urban Indians are either overweight or obese. 140 million people in India have high blood pressure. Over 40% of urban Indians have high lipid levels. India is the No.2 diabetic capital of the world, with an estimated 61 million people affected by it. The situation is already a national emergen- cy. We need a healthy oil. Olive oil is becoming popular be- from Spain will always occupy a niche slot in the consumer’s mind,” he said. And going by the amount of imported olive oil cans/bottles stocked and flying off the shelves of retail stores and depart- mental chains, one would find it hard to disagree with Asrani. But if you thought importing olive oil is money for old rope, here’s a twist. Lately, what is acting as a serious deterrent for importers of various foreign food items, including olive oil, is the enforcement of stricter labelling rules by the FSSAI, which is starting to keep a very close eye on imports. The norms, which started getting enforced late last year, basically want that manufacturers of pre-packaged food items should specifically and clearly outline the content, mention the ingredients and also the nutritional values. This has led to bulk consignments of various imported products being held up at ports and airports since the older labels do not comply with the new labelling standards. According to an olive oil importer, who did not wish to be named, “The new stringent labelling norms have been tough on the industry and ultimately, this will have to be passed on to the consumer. In fact, many international brands have already started shying away from the Indian market due to the new changes in place. We are hopeful that FS- SAI will understand our concerns.” V. N. Dalmia, President, Indian Olive Association cause, with rising purchasing power, education and world travel, Indians are becoming increasingly exposed to new concepts in health and cooking. The West switched to olive oil in the 90s. So, it was just a matter of time before we became aware of its benefits. homes too. But there’s no need to waste your expensive Extra Virgin for these tasks. Just grab a bottle of inexpensive Olive Pomace Oil for around-the-house uses. Olive oil is a safe and natural lubri- cant for a close shave; it can be used for a good wooden furniture polish; for a good manicure; as a good lip moisturiser; for lubricating the throat and muscles to avoid snoring; as a skin softener; as a hair tonic and of course as a makeup remover. TOO SMALL TO DERAIL The minor hiccup regarding labelling norms notwithstanding, there’s no reason to not believe that last year’s minor drop in imports was just an aberration. As is the case with most aspirational products – from luxury cars to platinum jewellery – as India grows and integrates more with the rest of the world, consumption of olive oil is bound to keep rising. And negligible domestic production, at least over the foreseeable future, means this demand can only be met by imports. Importing it won’t make you a Vito Corleone, would it? TDB: In volume terms, olive oil imports declined by close to 12% last year. Was it just a function of a weak rupee or there was something more systemic? VND: Growth of olive oil imports to In- dia slowed down last year as compared to the blistering rate of FY2013, primarily because of a rise in international olive oil prices by up to 40%. The price increases were a function of a severe crop short- fall in Spain in 2012-13, coupled with the steep depreciation of the rupee. An economic slowdown in India completed the trio of factors that saw a decrease in the rate at which consumers were switching to olive oil from other seed oils. This year’s crop is normal and producer prices in Spain and Italy have shown a down- ward trend. This has translated to declin- ing retail prices in India. TDB: There have been reports of farmers in Rajasthan switching to olive cultivation. Is there a realistic chance of India’s dependence on imports reducing in the years to come? VND: The Rajasthan government offers a subsidy of 75% towards the cost of each sapling of olive. The subsidised cost works out to Rs.28.75 against an actual cost of Rs.115. Besides, farmers are offered free consultancy services and 90% subsidy on the required drip irrigation equipment. According to Rajasthan Ol- ive Cultivation Limited (ROCL), farmers cultivating olive can expect an income of Rs.3-3.5 lakh per hectare. But there is no chance of dependence on imports reducing because the production is just too small. Although it’s difficult to fore- cast Indian olive oil production, even in a best case scenario, it might be about 2,000-3,000 tonne, and in a worst case scenario just a few hundred tonnes. TDB: Spain continues to be the major supplier of olive oil to India, followed by Italy. Going forward, are there chances of other sources coming up? VND: No, because India consumes mainly Olive Pomace Oil. And the only other country that produces it in any significant quantity is Turkey. But Turkish prices are higher than those in Spain and Italy. All other countries produce mainly Extra Virgin Olive Oil. So, there is no chance of any other sources emerging, not at least in the near future. neha@thedollarbusiness.com India’s olive oil imports Rising global prices saw Indian imports fall in FY2014 for the first time in a decade 40 1,200 35 1,000 30 800 TDB: How profitable is the business of olive oil imports in a market which is still evolving? What kind of pricing power do the major brands have over the unbranded varieties? VND: Currently, there is a proliferation of products in the market, which is con- 25 20 600 15 400 TDB: Besides being used as a cooking oil and for baby products, what are the other unconventional uses of olive oil? VND: Olive oil has plenty of uses in our 10 200 5 0 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 Source: Ministry of Commerce, GoI; Vaue in $ million; Quantity in metric tonne Import Quantity (R-axis) Import Value (L-axis) 64 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 65

DOCKYARD ICD TUGHLAKABAD DOCKYARD ICD TUGHLAKABAD IT’S FLOWING TRAFFIC AT THIS DRY PORT BY PURBA DAS When my editor asked me to travel to and cover a dry port, I felt all excited. I could almost see the blue waters and feel the breeze. Oh wait, did he say a ‘dry port’? How can a port be dry? Isn’t that a bit of an oxymoron? Only after a bit of reading up, did I realise that a dry port is essentially a hub in a land-locked country or far-away- from-the-coast part of a country, built to act as proxy to a real port and ease the movement of containers to the nearest sea port. This got me excited again, although the blue waters were now out of the picture. And the excitement reached a crescendo when I realised that India’s largest dry port – the technical name being Inland Container Depot – was located at Tughlakabad, just a few kilometers away from our office in New Delhi. And it was worth the visit A gantry crane operating at night at Inland Container Depot, Tughlakabad (ICD TKD). Many a times, ICD TKD operates even on Saturdays and at night to clear cargo backlog 66 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 67

DOCKYARD ICD TUGHLAKABAD T by heaps of garbage and long queues of waiting-to-be-cleared container carriers, the view is not exactly pleasing to the eye. Being the flagship Inland Container Depot (ICD) of Container Corporation of India (CONCOR) – Government of India’s Navaratna logistics service provider with 63 container terminals, out of which 13 are entirely dedicated to Exim trade – one expected hustle and bustle outside. Not a serpentine queue of commercial vehicles that extended as far as the eye could reach! “The hordes of trucks you see today is because of the extended Independence Day weekend,” said Atul Dikshit, Com- missioner of Customs at ICD TKD. The fact that he was almost a bit embarrassed while saying this, is probably a statement on the pride he takes in his job. He added that the long queue was a function of Delhi’s state borders having been sealed because of Independence Day celebra- tions. “Post the 15th of August, the borders will open up and it will be business as usual,” he assured (not that I needed an assurance). Having read a lot of reports and heard a lot of praises about its way of functioning (from the people who actually matter; exporters and importers), I never had doubts that the long queue was an aberration. And when Dikshit added the following lines, “We also work A rubber-tyred gantry crane in he road to Inland Container Depot Tughlakabad, fondly called ICD TKD by all stakeholders, narrows down as one gets closer to the facility. Surrounded on several Saturdays to clear congestion” – I almost felt a little awkward for having asked him the reason for the queue in the first place. operation at ICD TKD. The depot has six rubber-tyred gantry cranes to help in loading/unloading NORTHERN ARTERY Spread across 55 acres of land in Tugh- lakabad and commissioned in 1993, ICD TKD is the largest dry port in Asia and serves as a focal point for most traders in North India. On an average, it handles nearly 2,000 containers a day. Ac- cording to a report by the Indian Rail- ways, ICD TKD handles approximately 60-70% more traffic than its capacity of about 2,50,000 TEUs/year (TEUs means ‘Twenty-foot equivalent units’ which is a standard container size). “On an average, about 8,000-10,000 TEUs of containers (both LCL and FCL) on the export front, and about 10,000 TEUs of import containers are cleared every month,” said Nitin Gupta, Director, Oak Shipping Pri- vate Limited, a freight forwarding firm. The depot has a three-storied administrative building that houses several offices, including that of Custom Department officials, administrative staff of Contain- er Corporation of India (CONCOR), a CONCOR RUNS 11 DAILY TRAINS THAT LINK ICD TKD WITH JNPT, PIPAVAV AND MUNDRA PORTS Traffic handled by top regional CONCOR ICDs ICD TKD handles almost twice the traffic of what the 2nd biggest – Dadri – handles 4,50,000 Nagpur (Central) Majerhat (East) Dadri (North Central) Ankleshwar (North West) Tughlakabad (North) Vishakhapatnam (SC) ICD Whitefield (South) Dronagiri Node (West) 4,00,000 3,50,000 3,00,000 2,50,000 2,00,000 1,50,000 1,00,000 50,000 0 Source: Container Corporation of India; figures for FY2013 (in TEUs) 68 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 69

DOCKYARD ICD TUGHLAKABAD “The USP of ICD TKD is that it lies in the heart of sis immediately after I took charge. We had an accident in the premises in which a worker came under a cargo handling equipment in the custom bonded area. While we had to rush him to the hospi- tal and take care of other necessities, all the unions came together and started protesting. They pelted stones and damaged the depot’s property, which brought operations to a halt for almost a week. I had to intervene and pacify the agitating unions as agitators refused to talk to the custodian (CONCOR). After this incident, we took measures with the help of custodian to prevent such accidents and also stationed an ambulance permanently. Also, since work had suffered, we had to take several measures to quickly clear the backlog by working over time and on closed holidays and also by judiciously relaxing the stringent guidelines for ex- amination of goods among others. So, we have to act as per the situation, which is extremely challenging. The DMS was implemented on April 1, 2014. Along with the DMS, we have also launched a mobile application. The application allows an examining officer to take pictures and give feedback on the cargo being examined and also upload the same and save it with the scanned documents pertaining to that particular cargo. So, this application enables us to keep all the details about a particular cargo even when it has gone. It is a unique measure and has not been implemented at any other ICD in India. WE ARE THE ONLY ICD TO USE A MOBILE APP THAT ALLOWS US TO SAVE ALL THE DETAILS ABOUT A PARTICULAR CARGO EVEN WHEN IT IS GONE Freight being loaded into an aircraft using via a loading platform Delhi” One of the main objectives for setting up an ICD is to provide almost doorstep service of customs clearance and to reduce congestion at gateway ports. So, the Customs Com- missioner of ICD Tuglakabad has the unique responsibility of not only being in charge of Customs related work, but also liason with about 16 kinds of stakeholders thus, literally managing this dry port. During our visit to ICD TKD, we caught up with its Customs Commissioner Atul Dikshit, who told us what it takes to manage India’s largest inland container depot. Excerpts: sponsibility of the custodian. But I do admit that there have been some instances of cargo pilferage. Say for instance, if we handle 1,50,000 TEUs/annum, there might be some pilferage in about 50 cases, which is a minuscule percentage. But the custodian has taken some steps such as installing cameras, 24/7 CISF pa- trolling and safe storage of the cargo. Be- sides, we interact with the custodian on a regular basis to ensure minimum pilferage, because if goods are stolen then I don’t get my duty. TDB: ICD Tughlakabad is the oldest and largest ICD in the country. What is the USP of this dry port? AD: I believe the USP of ICD TKD, which has allowed it to survive all odds, is that it lies in the heart of the city. If we see the trade in North India, we realise that it is gravitating towards Del- hi only. The network of roads are good here and since it is the oldest dry port in India, the working flow here is already established. This makes it a lot easier for the stakeholders to work with us than with any other ICD. Moreover, other ICDs do not have a skilled workforce like us. An automatic rubber-tyred gantry crane loading containers on to a train. Four rail lines are available in the Customs area that bring the containers by train from various ports 10,000 square meters. There is also an open space to stack over 12,000 loaded, as well as 2,000 empty containers. It also has a separate parking area for stacking of over 10,000 empty TEUs. There is a reserved space of about 1,500 square meters for Less-than Container Load (LCL) consolidation, as well as six hectares of parking area to keep 400 trailers. Besides these facilities, ICD TKD also offers fully computerised import and export documentation. Close to the customs area are four railway lines on which CONCOR runs its daily train services – nearly 11 – from ICD TKD to three primary ports, JNPT in Mum- bai and Mundra Port and Pipavav Port in Gujarat. The depot also has an ambulance permanently stationed inside, in case of emergencies. It primarily handles commodities such as chemicals, lifestyle goods, wood & wooden material, plastic, copper rods & wires and aluminum foils on the import side, while export goods include leather & readymade garments, machinery and agricultural products. BUCKLING UNDER PRESSURE But if I thought that it’s all rosy with ICD TKD, I was in for a surprise. India’s largest ICD is clogged at all times. This leads to delays and thus, adversely impacts the PRIVATE ICDs LIKE ACTL AND ALP HAVE STARTED GIVING COMPETITION TO ICD TUGHLAKABAD TDB: What initiatives have the ICD taken to deal with traffic at the port? AD: There is a symbiotic relationship between the custodian and the Customsas well as all the other 16 stakeholders. Cus- toms however takes a lead position in the entire process of customs clearance. Unless the Custom Department gives a clearance to the cargo, it cannot be moved by the custodian. So, to make the custom procedures faster, we have introduced a new initiative called Document Management System (DMS). We have to understand that not all documents are filed electronically. The documents that are submitted manually, are required by the customs officials for post clearance audits. However, due to the volume of cargo handled by ICD Tughlakabad, most of the time, these documents would reach the concerned custom official late. This would further delay the audit processes at IICD Tughlakabad. So, for speedy processes, today once the cargo is cleared, all documents are scanned and saved as a file on our system. Hence, a scanned copy is readily available either for post clearance audits or court related purposes, as the case might be. TDB: A decade ago, some unexploded bombs were seized from ICD Tugh- lakabad. What steps have you taken to prevent such incidences in the future? AD: At the time of the incident in 2004, I was here as an Additional Commis- sioner and it was me who detected the unexploded bomb after the infamous blast at Bhushan Steel’s factory in Gha- ziabad. We had seized over 31 metric tonne of unexploded bombs from the cargoes. This happened because earlier, ICD Tughlakabad handled metal scraps too, which were imported from Iraq or Iran. But now, these metal scraps are not brought to ICD Tughlakabad anymore. TDB: From our interactions with exporters and other stakeholders at ICD Tughlakabad, we found some sort of a transporters’ monopoly here. What do you have to say about this? AD: Well, there is no monopoly as such. We have to understand that containers do not move on ordinary truck. They require long trailers. The truckers who are operating in this area, get the business because they have established themselves, are equipped to handle these kind of cargo and more importantly, don’t do any other business. Besides, I believe an ordinary truck when it lands up here, finds itself totally lost. But I would not agree that anyone has a monopoly here. Punjab National Bank branch, as well as offices of a few shipping liners and Cus- tom House Agents (CHAs). Apart from the administrative building, the depot has what is known as the custom bonded area, where all core operations of the dry port takes place. It is heavily manned by CISF personnel and requires prior permission from the administrative office of CONCOR stationed there. Luckily, I got a permission in the first attempt – probably yet another example of ICD TKD’s professionalism. Inside the premises of the custom bonded area the depot, at any given point in time, has nearly 10,000 employees working. There are separate gates for entry and exit of container carriers. The facility has a customs area, which has two separate sheds for imports and exports. The infrastructure also includes a warehouse of 6,000 square meters for import cargo. The export warehouse has been allocated a larger space of nearly TDB: You took over as the customs commissioner at Inland Container Depot Tughlakabad (ICD TKD) last year. What challenges have you faced during this stint? Atul Dikshit (AD): I took charge of customs at ICD Tughlakabad last July. My previous stint was in the Directorate of Systems, where I was in charge of ICEGATE project and thus responsible for e-commerce and messaging with all stakeholders for 122 customs locations covering the entire country. I would say that my job at ICD Tughlakabad has been a challenge of different kind, in terms of the volume of cargo this port handles about 4.5 lakh containers per annum, as also and the kind of public interactions that are necessary. Depending on the situation, we act. For instance, last September, we faced a major cri- TDB: A lot of private players are now setting up ICDs. How do you think will ICD Tughlakabad be affected by increased competition? AD: Personally, I believe competition will only be good for ICD Tughlaka- bad. It is always clogged and operates well above peak capacity. So, it would be better if some traffic is diverted to other ICDs around the city. TDB: There have been instances of cargo pilferage despite the CISF manning the area. What measures have been taken to address this issue? AD: Physical security of cargo is the re- 70 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 71

DOCKYARD ICD TUGHLAKABAD A reach stacker in operation at ICD TKD. The depot has 21 such stackers, which ensure efficient utilisation of space businesses of those who use it. “There is a lot of traffic at this ICD. Vehicles hardly move and it takes nearly three days to load/unload containers. This delay ham- pers our business. For instance, we had recently imported a consignment from overseas. The consignment reached Pi- pavav Port on the July 18 and it was booked in an ICD TKD-bound train on July 22. However, it reached ICD TKD only on August 13 – nearly 20 days later! It took another couple of days for the goods to be loaded into trucks and finally reach our warehouse,” Yogesh Gujral, Import Manager with a high-end lifestyle retail chain, told The Dollar Business. Sharing a similar sentiment, Ajay Sa- hai, President of Federation of Indian Export Organisations (FIEO), said that the association holds a meeting with exporters every month, wherein this issue of delays is almost every time raised. “We have received several complaints regarding delays by customs authorities. I believe ever since commercial activities increased around Tughlakabad, movement of containers has become a challenge. I think sooner or later this issue needs to be addressed,” Sahai added. Dikshit, on the other hand, thinks the delays are a function of Delhi’s infrastructural shortcomings. “In Delhi, there is a huge ICD to cater to the needs of traders, but there is no separate corridor for the movement of vehicles to and from the depot. Trucks aren’t allowed to leave the premises during the day in order to avoid disruption to city traffic. This is one of the primary reasons for delays,” he added. Another challenge that traders have been facing is pilferage of goods. Gupta of Oak Shipping says that his company has been receiving several complaints of pilferage. “My clients keep complaining about parts of consignments being stolen,” he said and added that, “I believe this is done by the ground workers involved in container handling.” Susant Das, an importer of tableware products from Bangladesh, recalls a similar experience. “Last year during Diwali, which is peak time for lifestyle players, my company had imported a large consignment from Dhaka. After receiving the goods, we realised that some top-end products were missing. Filing a complaint would have further worsened the situation as our goods would not have been released until after the investigation was over, thereby further hampering our business,” he told The Dollar Business. Dikshit too admits to pilferage but quickly adds that this problem is not rampant. “Cases of pilferage are negligible at ICD TKD,” he said, sounding a bit defensive. MORE IN THE FRAY While ICD TKD enjoyed the first mover’s advantage and ruled the roost for over two decades, new players are emerging in the vicinity and are threatening to steal its thunder. Consider this: ICD Dadri, CONCOR’s second largest ICD and a decade younger to ICD TKD, caters to both EXIM and domestic trade in the MAIN BENEFITS OF AN ICD CONCENTRATION POINT FOR LONG DISTANCE CARGOES AND THEIR UNITISATION SERVICE AS A TRANSIT FACILITY CUSTOMS CLEARANCE FACILITY AVAILABLE NEAR THE CENTRES OF PRODUCTION AND CONSUMPTION REDUCED LEVEL OF DEMURRAGE AND PILFERAGE THE ROAD AHEAD Interestingly, while some industry players continue to complain about ICD TKD’s services, pilferage and delays, no one is ready to write it off yet. “It is the oldest, largest dry port in India with established operations. Competition will only improve the quality of its services and I do not see it losing business in the near future,” said Raj Kaushal, Director of Shreeji Shipping India. That the serpentine queue, which I had seen while going to ICD TKD, had added a few more lengths to it by the time I returned, confirmed this and cleared up all doubts that had cropped up in my mind. northern region of the country and has been designed to handle 5,00,000 TEUs per annum. Being a relatively new ICD, it also has four railway lines for easy transportation of goods from and to the ports. It is connected with all the three ports that ICD TKD currently caters to. “A few of my clients in Delhi-NCR, who are all exporters, have shifted to ICD Dadri because of its smoother operations, which saves a lot of time. Since the ICD is relatively new, it has lesser traffic, which makes it easier for my clients to transport goods through it,” Mohinder Singh Malik of American Express Ship- ping Line told The Dollar Business. Apart from ICD Dadri, Associated Container Terminal Limited (ICTL) in Faridabad, a private ICD operated by the R. R. Joshi Group has also emerged as a strong player in the area. Commis- sioned in 1997 it now also offers logistics support services such as freight forwarding, container repairing and in-house workshops. In fact, in September 2008, ACTL launched dedicated rail sidings and became the first private ICD to have rail lines. It, too, caters to JNPT, Mundra Port and Pipavav Port. Similarly, Adani Group’s ICD in Gur- gaon is also among the preferred ICDs in North India. The Adani Logistics Park (ALP) at Patli (Gurgaon) is spread over 73 acres of land and is technologically much more advanced as compared to all the other ICDs in the North. It has two railway sidings, with one engine escape line. It has a capacity to handle 2,00,000 TEUs annually and has been witnessing substantial growth in traffic in recent years. Commenting on this trend, Sahai of FIEO said the rise of private players in the ICD sector is great news for the exporting community. “We personally feel competition in the market is good and will ultimately, benefit exporters,” he added. He also said that increased competition has led to very competitive tariffs. “If a private player is coming up with an ICD and is investing on its infrastructure, then it will ensure competitive tariffs so that business does not go to other dry ports,” he added. NO CUSTOMS CLEARANCE REQUIRED AT GATEWAY PORTS ISSUANCE OF THROUGH BILLS OF LADING BY SHIPPING LINES REDUCED LEVELS OF EMPTY CONTAINER MOVEMENT COMPETITIVE TRANSPORTATION COST REDUCED INVENTORY COST purba@thedollarbusiness.com 72 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 73

DOCKYARD ANIL K. GUPTA, CHAIRMAN & MANAGING DIRECTOR, CONCOR “PRIVATE OPERATORS CANNOT OFFER 11 DAILY TRAINS FROM ICD TKD LIKE US” OUR MARKET SHARE HAD GONE DOWN TO 72% FROM 78% IN THE RECENT PAST BUT WE ARE NOW BACK TO 77% AND ARE READY FOR COMPETITION see this difference. In terms of price incentives, we have volume discount schemes, which work well with our users. This makes us the first choice of customers. TDB: You say you run 11 trains a day. But MANSA feels it is not sufficient and have requested you to deploy more trains on the route. What’s your take on this? AKG: We have to understand that one cannot expect us to stop our services to all other ports and divert all our trains to Nha- va Sheva. I do understand that Nhava Sheva handles 10,000 TEUs daily but so does Mundra Port, which handles over 6,000 TEUs. We have to look after every port we cater to and then do our calculations as to how many trains should be deployed on which route. The market leader in India’s inland freight transportation, Container Corporation of India (CONCOR) will complete 25 years of operations this November. Ahead of that, in an exclusive interview to The Dollar Business, its Chairman and Managing Director Anil K. Gupta talks about CONCOR’s evolution, upcoming projects and what’s happening at its flagship dry port, ICD Tughlakabad BY PURBA DAS TDB: How has Container Corporation of India (CONCOR) evolved over the years? Anil K. Gupta (AKG): Container Corporation of India Ltd. (CONCOR) is a 25-year old organisation. It started functioning in 1989 and has developed a network of 63 terminals spread across the country. It is a now a Navaratna company of Government of India and is a pioneer and leader in the field of multimodal logistics in our country. TDB: ICD TKD is choc-o-block with traffic all the time. What measures are you taking to deal with this? AKG: ICD TKD is our flagship ICD and, like any other depot, has a design capacity. I agree that ICD TKD is clogged at all times. So, we are actually trying to restrict traffic there for the last seven years. ICD TKD is actually handling nearly 4,50,000 TEUs annually. We tell our customers to book at ICD Dadri instead of ICD TKD if they don’t have a factory in Delhi. And just to handle the rising traffic, we have opened dry ports in almost every possible place. according to you are the factors behind the rise in volumes? AKG: India’s exports have been rising in the last two quarters. Earlier, there was an imbalance between imports and exports. But with our exporters finding strong overseas demand, exports have risen considerably, which has led to the increase in the volume of cargo handled by CONCOR in the last quarter. Our export tariff is, in fact, lower as compared to our import tariff. This is to encourage exports as currently there is a heavy imbalance in favour of imports. in Uttarakhand. The work there is almost over and we are hoping to start operations in February next year. Then, we have purchased land near Baroda in Gujarat. In fact, work there has already started. We are also developing facilities in Swaroop- ganj in Rajasthan and Vallarpadam in Kerala. At Vallarpadam, a hub port has been made by the government and DP World together. We are a joint venture partner in that too. There are other locations as well. TDB: How does an ICD facilitate EXIM trade? What are the tariff advantages for exporters and importers who use an ICD as compared to directly using a seaport? AKG: An ICD brings all the activities that are performed at the port right to the doorstep of customers. These include stuffing and de-stuffing of cargo, custom clearances of cargo and other related activities. All customers – both importers and exporters – derive a lot of benefits by using an ICD as all the activities are performed near their premises, which greatly helps them in the follow up procedures. TDB: Recently, Mumbai and Nhava Sheva Ship Agents As- sociation (MANSA) sent a letter to CONCOR complaining about the import backlog at JNPT. Can you give us the reasons behind this backlog? AKG: The reason for the backlog is a very heavy inflow of imports in the last 30 days. However, the issue was not only for CONCOR but for everyone who is in the business. It is being cleared and we are making arrangements to ease the situation. TDB: Talking about growing EXIM trade, the WTO expects India’s trade to rise substantially in the current fiscal year. How does CONCOR plan to capitalise on this? AKG: We are already expanding capacities. During the 12th Five Year Plan, we plan to invest almost Rs.6,000 crore on facilities, wagons and other support services. This is a lot more than Rs.1,700 crore that we invested during the 11th Five Year Plan. So, you see it is a quantum jump for us and most of it is to increase capacity. For, if we want to grow at about 13% CAGR in the next five years, we will require more capacity. We have already planned and identified 15 new terminals that will be developed as multimodal logistic parks. Five of these will be on the Western Dedicated Freight Corridor (DFC). All these should be finalised during the 12th Five Year Plan period. TDB: A lot of importers and exporters have complaints regarding the train schedule. They say that they are not made aware of advance schedules of trains. What do you have to say about this? AKG: All our information is available online and we have a SMS facility for our customers too. Besides, customers can go online and just feed in their tracking number to know where exactly their consignment is at that moment. We have a trans- parent system and shipping lines have access to our terminals. TDB: With private players now entering the segment, how prepared are you to offset competition? AKG: Our market share had gone down from 78% to 72% some time back. But we are back to 77% now. We are already fighting competition. CONCOR has primarily three roles – we are carriers, terminal operators and warehouse operators. The company has a network of 63 terminals spread across the length and breadth of the country, a strong fleet of over 240 high speed rakes, state-of-the-art handling equipment, robust IT network and highly skilled manpower. We run 11 trains from ICD TKD on a daily basis, so an importer or exporter knows that his goods will reach the desired destination within that day itself. While, on the other hand, a private operator will not be in a position to offer more than two trains a week. Customers can TDB: What about your multimodal logistic parks business. What are its key offerings? AKG: Multimodal logistic parks consist of bonded area, domestic container handling area and facility for handling break- bulk cargo in Indian Railway wagons. There will also be ware- houses and associated facilities for value addition of cargo. Exporters and importers shall be provided one-stop solution for all their logistic requirements at one place. TDB: A lot of the users have also complained about cargo loss and pilferage. What measures have CONCOR taken to address this issue? AKG: There was an unfortunate accident at ICD TKD when a fire broke at the facility, damaging a lot of properties. But measures have already been taken and we hope that such accidents will be prevented. As far as pilferage is concerned, we have CISF personnel deployed in the custom bonded area so I believe cases of cargo loss is also history. TDB: Can you tell us about these locations? AKG: Currently, we are building a facility in Khatiwas, near Rewari, which is exactly on the border between Haryana and Rajasthan. This is a location on DFC and is extremely important for us. We have not only commenced work on it, but have also started operations simultaneously. It will be declared an ICD in another five months. We are also working on Pantnagar TDB: CONCOR has witnessed a substantial increase in volumes last quarter. There was a growth of 15% in EXIM trade while volumes also grew by 18% on the domestic front. What purba@thedollarbusiness.com 74 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 75

POLICY FOCUS EPCG LOGIC DOESN’T HAVE BUYERS, NOT ALWAYS Since the day the Ministry of Commerce floated the post-export variant of the immensely popular, yet extremely complicated, Export Promotion Capital Goods (EPCG) scheme in 2012, a debate has been on among stakeholders regarding the motivation(s) behind floating it. While the majority has downrightly rejected it and claimed that it will never find takers, a few have tried to justify it with all kinds of explanations and arguments. Although the jury is still out, an impartial and objective analysis reveals that it probably is not as illogical as was initially perceived to be BY SHAKTI SHANKAR PATRA B moting exports. That the government is ready to wave off duties when a manufacturer imports Capital Goods, as is the case with the pre-export variant, is only because it wants the manufacturer to export more. The motivation behind the scheme is not to give cheaper access to superior technology, though that might be a by-product. For, the scheme is not available to a manufacturer, who is selling only in the domestic market, no matter how much the domestic economy is benefitting from its products. As the name suggests, EPCG is just about export promotion. Period. efore one starts criticising or praising the post-export EPCG scheme, one needs to first understand the main motivation behind the pre-export variant – pro- Ever since the EPCG Scheme was launched in the early 90s to promote the exports of Captial Goods from the country, it has seen several rounds of tinkering A FREE RIDE As per the scheme, for every rupee saved in terms of import duty, the manufacturer has to export Rs.6 worth of goods/ products over the following six years – technically called Export Obligation 76 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 77

POLICY FOCUS EPCG the basis of bike exports. It can’t meet the EO by exporting more three-wheelers if the export of bikes fall! According to Ka- mal Jain, Director, Cargomen Logistics, “The practice of not considering alternate products while figuring out if the EO has been met or not, defies logic. As long as a company is meeting its EO and ensuring the inflow of foreign exchange, we shouldn’t really care if it’s happening because of a specific product or a slight variant of it.” Not considering exports of a group company is also a practice that irks Jain. “Let’s say a company that has an EPCG licence is going through a bad patch. Should it really matter to the government if it meets its EO via a subsidiary? It’s about time the government addressed these issues,” he adds. SHOULD IT REALLY MATTER TO THE GOVERNMENT IF A COMPANY MEETS ITS EXPORT OBLIGATION VIA A SUBSIDIARY? (EO). And in the event it fails to honour the EO, it has to pay the money saved by not paying the duty and an 18% per annum interest and penalty (on a case to case basis). But there are several catches. The government has been very lenient when it comes to the EO. Not only has it reduced the EO on several occasions for reasons like a slowdown in demand for a specific product or difficulty in procur- ing raw materials or on the basis of the geographical base of the manufacturer, but also offered an amnesty scheme to escape the EO. Speaking to The Dollar Business, Sandeep Chilana, Principal Associate, Amarchand & Mangaldas and Suresh A. Shroff & Co., says, “Last year, the government offered an amnesty scheme for all those who have not met or are not in a position to meet the EO. The scheme was very successful, with several EPCG licence holders using it to get rid of the EO burden.” But despite several instances of such leniency, the pre-export EPCG scheme has several issues. Firstly, exports are not just a function of one’s competency, but also overseas demand. What would an EPCG licence holder do if, for some reason, demand for what he/she produces collapses in the international market? Not only he/she has to convince the government to bring down the EO, but in the situation of the government not re- lenting, he/she has to a pay a hefty penalty in terms of interest. Secondly, under the pre-export EPCG scheme, the government, no longer, ac- cepts the practice of the EO being met with an alternate product. For example, if a two-wheeler manufacturing company, which also manufactures three-wheeler, has opted for the EPCG scheme to import a machinery to manufacture bike handles, it has to meet the EO solely on THE NEW KID As discussed earlier, the only reason the government is willing to waive off duties while importing Capital Goods under the pre-export EPCG scheme is because it wants to promote exports. But then, shouldn’t a manufacturer who doesn’t want to burden itself with a pre-defined EO but actually ends up exporting as much, if not more, as compared to its EPCG licence-holding peers, be incen- tivised to a similar extent? Let’s take a hypothetical example of two car manufacturers and assume both of them import a certain Capital Good at the same time. Let’s also assume that Company A opts for a (pre-export) EPCG licence and saves Rs.100 crore on import duties, while Company B pays the due import duty of Rs.100 crore. Now, because company A has opted for an EPCG licence, it has an EO to export Rs.600 crore worth of cars in the next six years, while company B doesn’t have any such obligation. Let’s also assume that both companies A and B export exactly Rs.600 crore worth of cars in the next years. This means that company A, having honoured its EO, ends up saving Rs.100 crore but company B, despite having exported cars worth the same value, doesn’t get anything! This, despite having had a cash outflow of Rs.100 crore at the time of importing the Capital Good. Isn’t this injus- tice? Shouldn’t company B feel cheated? It is this anomaly that the new Royalty payments received in freely convertible currency and foreign exchange received for R&D services are also counted for discharge under EPCG the time value of money (TVM), which basically means that a rupee today is more valuable than a rupee tomorrow. And having established the fact that the post-export EPCG scheme is actually more logical than its older pre-export variant, if not for an exporter but for the economy, the really question is whether the post-export variant will find enough takers. For, the obvious question is why would an exporter part with money in the present and get it back later in terms of scrip(s), if it has the luxury of not parting with it at all? “When a client seeks our advice on whether to go for the pre-export or the post-export EPCG scheme, our suggestion always is to opt for the former if one is confident about being able to meet the EO. There’s no point in parting with cash and getting it back later, if one can avoid it altogether,” Chilana tells The Dollar Business. But then what is more important for a manufacturer – avoiding cash outflow or flexibility? The answer to this difficult question is actually very simple. The post-export EPCG scheme gives a manufacturer the luxury to pick and choose its market. Let’s say due to some reason, the pricing power of a manufacturer falls in the international market but the demand for its products surge in the domestic market. Doesn’t not having the albatross of an EO around its neck a great freedom? Of course it is, at least for those manufacturers that are not facing a cash crunch. post-exports EPCG scheme addresses. Under the scheme, a manufacturer that exports goods worth 85% of the amount that it would have taken up as EO, had it opted for an EPCG licence, is paid back the amount it had paid for import duties via duty credit scrip(s). This is why, in the strictest sense, the post-export EPCG scheme is actually called the ‘Post Export EPCG Duty Credit Scrip(s)’ scheme. And as per the scheme, one need not fully wait till one exports 85% of the EO to reap the benefits in terms of duty credit scrip(s). One keeps getting paid in terms of scrip(s) throughout the six years as the 85% of the EO is calculated on a pro rata basis. For example, if one meets half of 85% of the EO in the first three years, one is paid scrip(s) worth half the import duty that had been paid. THE GOVERNMENT CAN POPULARISE THE POST-EXPORT EPCG SCHEME BY ADDING INTEREST TO THE VALUE OF THE SCRIP(S) the post-export EPCG scheme by adding interest to the value of the scrip(s). If not at a rate at which a pre-export licence holder pays penalty in the event of not meeting the EO, but a rate close to that. This should make it fair for all,” says Chi- lana. Going by the logic that post-export schemes do have significant appeal, one cannot agree more. CHANGE WE SHOULD The only reason for the post-export EPCG scheme not finding many takers despite being around for more than two years is, probably, the fact that the duty credit scrip(s) don’t entirely compensate for the duty paid at the time of importing – in terms of interest on the cash outflow. “The government can popularise NO ALBATROSS One of the basic concepts of finance is shakti@thedollarbusiness.com 78 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 79

POLICY MONITOR “WE NEED TO INCREASE EXPORTS TO NORTH AMERICA AND EUROPE RATHER THAN DIVERSIFY” POLICY MONITOR D. K. NAIR, SECRETARY GENERAL, CONFEDERATION OF INDIAN TEXTILE INDUSTRY D. K. NAIR, SECRETARY GENERAL, CONFEDERATION OF INDIAN TEXTILE INDUSTRY OUR OBJECTIVE SHOULD BE TO GROW ON THE BASIS OF OUR STRENGTH, NOT ON THE BASIS OF BANGLADESH’S WEAKNESS think is the reason for this? DKN: Shifting of fabrics production to decentralised sectors has weakened the whole textile value chain in the country, despite the fact that they would have increased employment opportunities. The focus of the government has to be to increase ‘productive employment’ rather than ‘any employment.’ A proper vision that takes into account development of the whole textile value chain can lead to more productive employment. The move from potential to performance is not always easy. And a glaring example of this is India’s textile sector. In a freewheeling interaction with The Dollar Business, Secretary General of the Confederation of Indian Textile Industry (CITI), D. K. Nair explains what the roadblocks are before India’s textile industry and all that needs to be done to help it achieve its full potential INTERVIEW BY JAYASHANKAR MENON TDB: Nearly 30% of our cotton and over 25% of our cotton yarn is currently being exported. Can you tell us the reason for this? DKN: This is happening because we are not been able to convert all our cotton to cotton yarn and cotton yarn to fabrics. Once these structural imbalances are corrected, our garments and home textiles will become competitive in international markets and exports will diversify into mass production items – an area where we have very little presence today. TDB: Which segments within textiles have the most scope for improvement? DKN: There is a lot of potential for further growth, both in domestic sales and exports. There has to be a collective effort on the part of both the industry and the government to convert this potential into performance. With the new government focussing on improving competitiveness of industries by providing better infrastructure facilities and a workable labour law regime, there are reasons to feel optimistic about our textile and clothing industry taking off in the coming years. TDB: India has surpassed Italy and Germany to become the second largest exporter of textile products in the world. What is your view on this achievement? D. K. Nair (DKN): It is nice to see that India has become the second largest exporter of textile products in the world. However, unlike most other textile exporting countries, our exports are less in apparel products and more in non-apparel textiles. While we have a 30% market share in world trade in cotton yarns, we barely account for 4% when it comes to garments. So, it is very important for us to improve our finished products exports, which will not only improve employment generation but also foreign exchange realisation. TDB: What kind of initiatives is CITI taking to make this happen and bring us on par with China? DKN: There is a lot of potential for increasing exports of textiles and clothing from India. However, comparing India with China would be unfair. While the latter accounts for around 36% of world ders from Bangladesh to India because of compliance issues over there. This is a trend that has been continuing ever since the accidents in Bangladeshi factories came to limelight. India has a substantially better image on the compliance front. However, our objective should be to grow on the basis of our strength rather than weaknesses of others. trade in textile products, we don’t even account for 5%. In India, manufacturing industries have a lot of problems, be it infrastructure, transaction costs or labour laws. These are the factors that have restricted our growth in exports of textile products, while China started capturing the global market starting the 1980s. There are indications that the new government is focusing on the important areas of infrastructure and labour laws. This would be extremely helpful to our manufacturing industries, as a whole and the textiles industry, in particular. into products made out of man-made fibres and blends. Over 65% of global demand for garments is of man-made fibre based products, whereas around 80% of our garment exports are of cotton based products. This miss-match has to be fixed. TDB: The present situation is that despite being the biggest supplier of cotton yarn, our share in garment exports is pretty low. Why this paradox? DKN: Ideally, we should be able to grab a majority share in the global garment and home textile markets. If this hap- pens, our industry will be able to con- sume most of our raw materials and intermediate products and also generate substantially larger industrial production, employment and earn more foreign exchange from exports. However, this is not something that any industry can achieve overnight. cent years but is substantially dependent on supply of yarn and fabrics from In- dia. Similarly, Vietnam and Cambodia import raw materials for garments mostly from China. Sri Lanka imports from both China and India. India has the second largest integrated textiles industry in the world and is also strong in all raw materials. More than 90% of our garment exports are from domestic fabrics. Thus, the overall scenario in the textile industry is substantially better in India than in Bangladesh, Viet- nam etc. Our real competition, therefore, is with China. However, there is no deny- ing that we need to substantially improve our production and exports of garments. Scaling up production facilities is a basic requirement for this and workable labour laws are essential requirements for achieving scales in factories. TDB: There were expectations that accident in factories in Bangladesh would lead to some business shifting from there to India. Have you seen any such shift? DKN: There has been some shift of or- TDB: Have Indian garment exporters tried to diversify to newer terrains? DKN: Efforts of our garment exporters to diversify into new markets have helped. However, over 60% of the consumption of textile products in the world happen in North America and Western Europe. Therefore, efforts to diversify the product mix for supplying to these markets will be substantially more beneficial than efforts to diversify into new markets, where both demand and price realisation are low. TDB: Other than China, Italy and Ger- many, even smaller countries like Ban- gladesh and Vietnam have also over- taken India in textile exports. What is your take on this? DKN: Bangladesh, Vietnam, Sri Lanka and Cambodia are among the countries which have been increasing exports substantially in recent years in the garment sector. However, all these countries are substantially dependent on imports of raw materials. Bangladesh has achieved major growth in garments exports in re- TDB: What do you think should be the focus of Indian garment exporters? DKN: One of the major focuses of our garment exports should be to diversify TDB: More than 70% of India’s fabric production was in the organised sector in the early 1950s, but now it has been reduced to less than 5%. What do you jay@thedollarbusiness.com 80 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 81

Sector-wise AD initiations It’s all about metals and chemicals 22% 28% 8% 9% 20% 13% Base Metals Chemicals and Chemical Products Resin, Plastic and Rubber Articles Machinery and Electrical Equipment Textiles Other Source: WTO; All initiations between 1995 and 2013 Exporting country-wise anti-dumping initiations As expected, it’s all ‘because of China’ 22% 40% 7% 6% 3% 1% 3% 4% 6% 4% 4% Being the world’s biggest exporter has its own issues. Chinese dominance of global manufacturing is today believed to be the main reason for Sinophobia China South Korea Chinese Taipei USA Thailand India Indonesia Brazil Japan Russia Other Source: WTO; All initiations between 1995 and 2013 BY SATYAPAL MENON ed in Article VI of The General Agree- ment on Tariffs and Trade (GATT). The GATT was a multilateral agreement reg- ulating international trade. According to the GATT preamble, its purpose was “substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutual- ly advantageous basis.” It was signed in 1947, took effect in 1948, and lasted until 1994. It was then replaced by the World Trade Organisation in 1995. The first real initiative to standardise rules and regulations in Article VI were made during the Kennedy round of trade negotiations. This was followed by a series of trade rounds culminating in the Uruguay round spanning eight years, i.e., from 1986 to 1994, and saw the formu- lation of yardsticks and benchmarks for imposing anti-dumping duties. The provisions contained in Article VI facilitates importing countries to initiate ‘dumping’ investigations to probe complaints made by the domestic industry that the goods imported were causing material or mon- etary injury to their businesses. It also allows the country to impose anti-dumping duties if the claims of the domestic industry are proved to be genuine and valid. Article VI also has provisions for dispute settlement through third party interventions at the WTO level. DUMP AND PUMP According to the World Trade Organ- isation (WTO), dumping, in general, is a situation of international price dis- crimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the exporting country. SEPTEMBER 2014 II THE DOLLAR BUSINESS 83

PRIME FOCUS ANTI DUMPING India’s anti-dumping charges against China Dumping charges surged against China during the GFC Country-wise anti-dumping charges by India ‘China’s the bad guy and it’s all its fault’ sentiment at work Thus, in the simplest of cases, dumping can be identified by simply comparing the prices of a product in two different markets. However, the situation is rarely, if ever, that simple. In fact, in most cases, it is necessary to undertake a series of complex analytical steps in order to determine the appropriate price in the market of the exporting country – something known as the ‘normal value’ – and the appropriate price in the market of the importing country – something known as the ‘export price’ – so as to be able to undertake an appropriate comparison. But if one thought the plethora of provisions, rules, regulations and duties had created a sense of euphoria, then it is a misconception. In what can be viewed as a paradox, anti-dumping measures, very often, defeat the basic objective of opening up global markets. If the intent of the anti-dumping measures are to prevent importers from poaching the domestic market share and resort to ambush marketing strategies through predatory pricing and ‘dumping,’ then the existing consequences indicate that it was more oriented towards protectionism, than ushering in an open door policy. 16 25 14 20 12 15 10 Cases might/are under investigation 10 8 6 5 4 0 China USA South Korea EU Chinese Taipei Thailand Japan Singapore Malaysia Russia Other 2 0 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14* No. of initiations Duty imposed Fresh cases under investigation Review cases under investigation * Till June 2014; Source: Ministry of Commerce, GoI *As of June 30, 2014; Source: Ministry of Commerce, GoI Industry reaction to this rather has- tened measure, as expected, was equal- ly fast and furious. “The domestic user industries are struggling to survive due to the wide gap between the demand and supply of PTA. Domestic producers are engaging in ‘profit booking’ by producing naphtha and paraxylene (PX) in one plant, and then selling PX at arti- ficially high rates to the other plant for manufacturing PTA. The anti-dumping investigation is also aimed at supple- menting this practice by the imposition of anti-dumping duty and achieving double profit booking,’’ ASSOCHAM stated in a memorandum submitted to the government. According to ASSOCHAM, currently PTA is being imported from China, the European Union, South Korea and Thai- land. During FY2013, while the total domestic production was 34,76,144 metric tonne (MT), imports were 6,4,959 MT, against a total demand of 41,24,103 MT, excluding captive consumption by PTA producers. Pointing out the repercus- sions of such a measure, D. S. Rawat, Secretary General, ASSOCHAM, stated, “Anti-dumping duty will make imports extremely expensive and the user industry in India will become uncompetitive.” PTA is a crucial component in the production of polyester filament yarn, polyester staple fibre and synthetic textiles. The imposition of anti-dumping duty on PTA has acted to the detriment of exporters of these products across the textile spectrum. The big question making the rounds is, “How the DGAD had even accommodated the petition and imposed anti-dumping duty on PTA, despite being aware about its significance in textile exports from India? Would not such measures lead to a decline in exports?” B. Vijayaragavan, Managing Director of a leading manufacturer of garments B. S. Apparel, says, “Here, in India, polyester price is higher than the international price. Even if we have to import polyester from the international market, there is a catch. Government of India has imposed an anti-dumping duty on polyester imports. This means, we either procure domestically at a higher price or purchase it from the international markets by paying anti-dumping duties. Most garment manufacturers are subjected to these problems, resulting in high cost of production.” OFTEN, DUMPING IS USED AS A TOOL BY A DOMINANT DOMESTIC PLAYER TO SAFEGUARD ITS INTERESTS AND DOMINANCE China has been the biggest target of Indian anti-dumping investigations collectively. Anti-dumping duties can be imposed if the goods or products are exported from the country of origin at a price ‘which is below the normal price’ prevailing in its own domestic market. The export price fixed by the importing country takes into account customs duties, shipping costs etc. If the product cost is lower than that prevailing in the domestic market of the exporting country, the differential is imposed as anti-dumping duty. If it’s higher, it does not come under the category of dumping. Are there any remedies to such instances like burdening them with additional duties? FEEDING THE WELL FED An analysis of numbers put out by the Ministry of Commerce indicate that a majority of the complaints related to material and predatory pricing received by the DGAD (Directorate General of An- ti-dumping & Allied Duties), are from single entities, i.e., one company. Out of a total of 82 complaints received from domestic players in the chemicals and petrochemicals segment, 58 were single company representations. Somewhat similar is the case with pharmaceutical and textile industries. The gamut of restraints and regulations around anti-dumping investigations indicate just one agenda: shield- ing monopolies/dominant players from competition. Isn’t considering a single company’s application/complaint as that representing all manufacturers of ‘like products’ just simply wrong, even if the complainant accounts for over 25% of market/production share? Such an irrational parameter for taking up investigations against ‘material injury’ have already triggered widespread resentment among both importers and exporters because it has only facilitated dominant players in the industry controlling and monopolising production, pricing and the supply chain. In fact, anti-dumping measures have, many a times, severely impacted the domestic industry, particularly those that have to import raw materials or procure them domestically to manufacture finished products. So, while the dominant domestic forces have the market in their stranglehold, imports end up becoming costlier due to the imposition of anti-dumping duties. Apart from those catering to domestic markets, exporting units that depend on raw material for manufacturing finished products have also become victims of the ‘irrational laws’ meant to benefit a select few. US AND THEM Legal and industry experts on foreign trade have been persistently picking on flaws and loopholes contained in anti-dumping laws and poking holes. They point out that it was not a solution to a problem. On the contrary, the solution itself has proved to be a problem. And, India stands out as a classic case to sub- stantiate these views. India has used the anti-dumping arse- nal to the hilt. In the past two decades, it has initiated and investigated 506 anti-dumping proceedings against other countries – the highest in the world. China, with 166 cases against it, occupies the top position in the hit list. According to anti-dumping regulations, investigations can be initiated on complaints filed by an aggrieved domestic industry that is manufacturing a product that has the same uses and applications, exactly ‘like’ the one being imported. Apart from this, the complainant should account for at least 25% of the production in the ‘aggrieved’ country, if not individually, then THE DRAGON A majority of the anti-dumping cases initiated and investigated by India are against China, EU, Korea, Chinese Tai- pei, Thailand, US, Japan, Singapore and Malaysia. According to the Ministry of Commerce (GoI), out of the 506 complaints received against exporters in various countries, anti-dumping duties have been imposed in 402 cases. China, with 134 out of 166 cases, again leads the list of countries against whom India has imposed anti-dumping duties. Quite interestingly, a significant number of anti-dumping duties against Chi- na were imposed with it not showing any inclination to participate in the queries related to pricing in their domestic markets, proceedings, or play the part of the respondent. Does it mean China was prepared to continue ‘dumping’ products into India, despite the additional duties? MORE TO COME The Government of India, or the DGAD to be precise, is all poised to stage another farce with plans to impose anti-dumping duties on imports of solar cells. The GLARING EXAMPLE A few months back, the DGAD, acting on a complaint submitted by Reliance Industries Ltd. (RIL) and Mitsubishi’s MCC PTA India Corp. (MCPL), imposed anti-dumping duty on imports of Purified Terephthalic Acid (PTA) – a raw material used in producing polyester filament yarn. In FY2013 RIL alone accounted for 60% of domestic PTA production, while MCPL accounted for about 24% and the rest was produced by a company like Indian Oil Corp (IOC). AD charges have shaken up the Indian textile industry 84 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 85

PRIME FOCUS ANTI DUMPING DGAD has stated in its findings that solar cells, modules or panels have been exported to India from China, Chinese Tai- pei, Malaysia and US below the normal value. The proposed measures reflect a total lack of foresight or vision, since there are major projects in the pipeline to energise India through solar power which is considered as the most feasible and viable model. Narendra Surana, Managing Direc- tor of Hyderabad-based Surana Ven- tures Limited, a major player in the solar modules segment points out, “In India, all project developers and most solar module manufacturers are against anti-dumping duty, since cell manufacturers have formed a cartel and have increased prices by over 40%. This will make all solar power projects unviable. If anti-dumping duty is imposed, 1 GW of projects may never see the light of the day as the project cost would go up by 50-60%. In fact, since the cost of production has come down, Indian solar power generation companies should actually take maximum advantage of the prevalent prices and help generate solar power at every village and town to reduce the shortage of power in India.” with the consumers and end users left in the lurch, with little choice in terms of price and quality. The convoluted jargon emerging from the minds of the wise men of the world which went into the conception of anti-dumping laws contained in Article VI of General Agreement on Tariffs and Trade and our own Indian version of the same cannot camouflage the obvious. The outcome of these multiple rounds of brainstorm- ing at GATT and WTO has only come full circle – invigorating the vicious cycle of protectionism, rather than the intended goal to create a level playing field for international trade and competition. vent imports from other countries when anti-dumping investigations are on against a subject country. Secondly, pricing patterns and structures at the domestic and international level are a function of several factors like cost of production, market forces, etc., and should not be considered as a basis for fixing and imposing anti-dumping duties. It is irrational to surmise that additional duties over the export price at landed cost – if it is less than that prevailing in the exporting country – would protect the domestic industry as whole. It would only lead to the closure of smaller players and consolidation of monopolies. Moreover, anti-dumping measures have proved to be an antithesis to a competitive open market environment, DUMP ANTI-DUMPING The entire process for imposing anti-dumping duties lacks scientific basis and rational legal framework. The norms for investigations – predatory pricing and material injury is too perfunctory and superfluous. Firstly, it does not pre- satyapal@thedollarbusiness.com An analysis of anti-dumping investigations suggest it’s ultimately the consumer who suffers “The Anti-dumping Agreement defines the solution, but not the problem it supposedly solves” decision, or even an administrative decision which has civil consequences, must be in accordance with the principles of law of natural justice. changed from being law makers to law takers. Earlier, we used to make laws according to our socio-economic requirements. Today, we are depending on laws framed by the WTO or other international bodies, which may or may not be compatible to the country where they are being implemented. Even when it comes to international trade laws, we do not have experts. The situation is such that the Indian representatives who negotiate at the international level are not well versed in international laws. Cases are being dealt by bureaucrats who are not properly equipped with legal aspects related to international trade. Anyway, we cannot expect them to have a grasp of all laws related to specific areas, since they are shifted from one department to another quite frequently. INDIAN REPRESENTATIVES WHO NEGOTIATE AT THE GLOBAL LEVEL ARE NOT WELL VERSED IN GLOBAL LAWS TDB: India leads the list of countries which have imposed anti-dumping measures against importers. To what do you attribute this tendency? VBR: Over the past decade, India has become the world’s leading user of anti-dumping measures. India has filed roughly 20% of all global anti-dumping cases, quite disproportionate to its share of global imports of just 2%. It is obvious that focusing only on tariff reductions overstates the extent of liberalisation of the economy, given the relatively easy access domestic interests seem to have to anti-dumping and safeguard duties. D ects and assignments, which include the WTO and India: Issues and Challeng- es, ‘Sensitisation Programme on WTO/ GATS and Globalisation of Legal Pro- fession. In an exclusive interaction with The Dollar Business Dr. Reddy speaks his mind on the conflicting views about ant-dumping laws. Excerpts: r. V. Balakista Reddy is Pro- fessor of International Law at Hyderabad based NALSAR University of Law. Presently, he is engaged in various prestigious proj- ment, in other words, defines the solution but not the problem that it supposedly solves. TDB: Is the order of determination of anti-dumping duty appealable? If so, which is the Appellate Authority? VBR: The law provides that an order of determination of existence degree and effect of dumping is appealable before the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT). However, as per the judicial view, only the final findings/order of the Designated Au- thority (DA)/Ministry of Finance can be appealed against before the CEGAT. No appeal against the preliminary findings of the DA and the provisional duty imposed on the basis thereof are accepted. then raising the price to the monopoly level. In modern times, with so many potential sources of supply around the world, the probability that a small number of firms can establish the monopoly price is extremely low, if not zero. AD measures only help in protecting the existence of domestic industry in an unstable market situation. They are a means of market regulation and a secondary tool for competition through which market capture can be avoided. Speaking from a completely consumer perspective the end users of a product or the final consumers are often deprived of rational pricing in the cases of dumping. Dumping reduces the prices of the product which is one of the main parameters on the basis of which the consumer’s choices are based. But then to check irrational pricing leading to an uncompetitive environment, we have laws on anti-dumping and competition. The main task is to strike a correct balance between the two laws. Dr. V. Balakista Reddy Professor of International Law, Nalsar University be. There have been cases where the interested parties have also gone to High Courts by invoking writ jurisdiction. TDB: There is also criticism from among economists, importers, exporters and the consumers that some Anti-dumping initiatives are being taken to protect monopolies in India – like in the case of PTA? Do you think the concerns are genuine? VBR: Trade economists regard An- ti-dumping to be the most pernicious in- strument of protection. Its use is econom- ically justified only if dumping is predatory meaning that the offending firms sell the product below cost with the objective of driving other firms out of the market and TDB: From your point of view, how efficacious are anti-dumping laws in promoting free trade and preventing material injury to domestic industries? V. Balakista Reddy (VBR): What are the basic concepts, principles, and objectives of the WTO’s Anti-dumping Agreement? The agreement itself is silent on those matters. It establishes standards for how anti-dumping investigations are to be conducted and remedies imposed, but it says nothing about why dumping is a problem in the first place. The agree- TDB: There is criticism that provisions related to material injury and pricing are irrational? Do you think there needs to be a more logical remedy to these con- tentious issues? VBR: Anti-dumping duties and various aspects related to pricing and material injury are based on several scientific, legal and technical components. It requires expertise to understand the implied laws and implications or benefits of these regulations to ensure justice to all stakeholders. But unfortunately, the role of the State has TDB: Can you give an example? VBR: In Reliance Industries Ltd. vs. Des- ignated Authority and Others, the SC observed that the purpose of Section 9 is to maintain a level-playing field and prevent dumping, while allowing for healthy competition. The purpose is to prevent unfair trade practices. It opined in the same case that the nature of the proceedings before the DA are quasi-judicial, and it is well-settled that a quasi-judicial TDB: Can the affected parties seek legal recourse through the judiciary? VBR: If the DA or the interested parties are not satisfied with the order of the CEGAT, the same can be appealed in the Supreme Court either by the DA or any of the affected parties, as the case may 86 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 87

NEW-GEN NEWSMAKER “SALT EXPORT IS MORE ABOUT LOGISTICS AND LESS ABOUT SALT” AVISHEK MODI, MANAGING DIRECTOR, SUVINO EXPORTS World’s top salt exporters India is the 5th largest salt exporter 10% 9% 6% 6% 5% 5% 4% 4% 43% 4% 4% Netherlands Germany Canada Mexico India Chile China Ukraine France USA Other Workers collecting salt at Sambhar Salt Lake. The lake is India’s largest inland salt lake and is located 96 km south west of the city of Jaipur in Rajasthan Source: International Trade Centre; Breakup for CY2013 Top overseas destinations for ‘Made in India’ salt China is the top buyer ways. Generally, one seller sells to only one buyer and then the buyer does the retailing in its own country. We have also developed our own channels in several countries to which we export. General- ly, in each country, channel partners are limited to just one or two. China, however, is the only country where we have multiple channel partners who procure from us for multiple regions. Our channel partners also provide us with feedback on pricing and the demand-supply situation in their respective regions. Fur- ther, salt is a low-value commodity and efficient use of logistics is the key to success in this business. This makes the situation very difficult for a new entrant. In fact, salt exports is more about logistics and less about salt! Logistics makes up for almost 50% of my FOB cost. So, if I can’t manage logistics properly, I will kill my business. It has taken a lot of time for us to master the tricks of the trade and hence I believe it will be really difficult for a newcomer to enter the business. TDB: Where do you see demand coming from going forward? AM: Currently, China is where the maximum demand is. About 37-38% of In- dia’s total salt exports are to China and about 12% to Japan. Japan has several direct production tie-ups with Indian companies, which makes it very difficult for us to export there. China is also a massive market for industrial salt and we are a well-established player in this category. We have several channel partners in multiple regions of China and orders flow in very smoothly. It is also rapidly expanding chloro-alkali manufacturing, DROP IN SALT PRODUCTION IN SOUTH EAST ASIA DUE TO EL NINO WAS OUR WINDOW OF OPPORTUNITY Despite being a commodity that is consumed by every single human being, every single day, salt is not a very fancy product. But making a mark in its exports of it is Suvino Exports. In an exclusive interaction with The Dollar Business, Avishek Modi, Managing Director of Suvino Exports, gives an insight into this ‘salty’ business. Excerpts: 27% 38% 5% 6% 11% 13% way. We began by advertising in several foreign journals, and slowly but steadily our efforts started yielding results. We got a few small orders from countries like Malaysia, Indonesia and Vietnam. But by the end of 1999, we were shipping large consignments to several South East Asian countries and became the largest exporter of sea salt from India in the year 2000. In the second half of 2001, effects of El Niño began to fade, which forced us to explore other markets like the Mid- dle East. In fact, ours was amongst the first vessels of salt shipped to UAE in the year 2003 and to China in the year 2004. China Japan South Korea Qatar Bangladesh Other INTERVIEW BY SACHIN MANAWARIA Source: Ministry of Commerce, GoI; Breakup for CY2014 TDB: Suvino Exports was formed originally with the intention of manufacturing and exporting synthetic yarn. How did you get into the exports of products and commodities like salt? Avishek Modi (AM): Suvino Exports was incorporated in the year 1987 by my father Vinod Modi. He wanted to set up a textile manufacturing unit. However, the plan never worked out and was dormant for several years. Only in 1996, did we start in right earnest, exporting textile machinery and spare parts. TDB: You started exporting sea salt in 1999. How did you get your first lead? AM: In 1999, due to the effects of El Niño, salt production in most South East Asian countries had dropped dra- matically, forcing them to depend on imports. One day, my father was going through a newsletter published by one of the export promotion councils and saw an advertisement by a prospective buyer in Philippines. This led to regular com- which should keep the demand for the raw material – salt – high. So, in the near future China will continue to be the biggest market for us. munication with that buyer and helped build confidence. Initially, we tried to act as the middleman between him and salt sellers in India, but since it didn’t work out we decided to take the plunge and export on our own. In fact, the buyer in Philippines convinced banks in India to extend credit to us. Since then, there’s been no looking back. Currently, we export to nine countries. TDB: Where do you see yourself five years down the line? AM: The nature of the salt business is such that despite being one of the biggest exporters in India, we are still just a small enterprise. So, five years down the line, I want to ensure our position as one of the top salt exporters in India and maintain market share. But since I don’t see the nature of the market change drastically – which is bound to keep a lid on demand – we are making constant efforts to diversify into new products. Five years hence, I want the company to be a leading exporter of at least two additional products besides salt. For now, we are exploring opportunities in the agro-processing sector. TDB: Give us a sense of the competition in the sea salt business. AM: Although our main competition is Australia, importing from there is often a very expensive affair because of its location. On the contrary, we have the flexibility of supplying in smaller quantities and have the advantage in terms of logistics cost. For several countries, importing from Australia is much more costly than importing from India. So, in some ways, we have very little competition. Mexico and Chile are also present but they cater to different geographies. The salt business is also unique in several TDB: How difficult was it initially for Suvino Exports to consistently get orders from abroad? AM: After bagging our first order from Philippines we took the salt exports business very seriously since there were only a handful of players in India who were exporting sea salt. Luckily, during that time, there was very erratic rainfall in several South East Asian countries, which negatively impacted salt production in those countries, increasing the need for imports. We thought of ven- turing into these markets in a calibrated sachin@thedollarbusiness.com 88 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 89

EAST AFRIPACK 2014 September 9-12 Nairobi, Kenya www.eastafripack.com The exhibition is dedicated to processing, packaging and converting industry in the East Africa Region. The fair provides opportunity to get in touch with local companies seeking technological up-gra- dation in the processing and packaging sector. A special exhibition area will be reserved for Fruitech Innovation, which is dedicated to fruit and vegetable technology manufacturers from post-harvest to consumers’ tables. be brought together in order to ensure that the entire value chain is enriched. This includes the industry, associa- tions, academia and enabling agencies that strive to make positive impact both through action and works. hundreds of new audio, video, control, networking, and lighting products and meet with manufacturers. The fair provides networking with electronic product manufacturers, home technology professionals, industry partners, and more. The event programme includes three full days of networking, brand exposure, and product launches. [Global] ALL CHINA LEATHER EXHIBITION September 3-5 Shanghai, China www.aclechina.com All China Leather Exhibition (ACLE) was started in 1998 and last year it was joined by two other events, China International Footwear Fair and Moda Shanghai. In 2013, the fair hosted more than 1,400 exhibitors from over 40 countries, while attracting more than 24,000 buyers. The exhibition provides an opportunity for international companies seeking opportunities in China. The exhibition provides large variety of leather, components and accessories, machinery and technology and business services. CHINA IMPORT AND EXPORT FAIR October 15-Novmber 04 Guangzhou, China http://www.chinaexhibition.com The China Import and Export Fair, which is also called Canton Fair, was first held in 1957 and since then it is been held in Guangzhou twice a year. The Fair this year will be held in three phases – the first is from Oct 15 to 19, the second phase is from Oct 23 to 27 and the third from Oct 31 to Nov 4. During its 50 year history, the fair has become a compre- hensive international trade fair with the longest history, most prestigious reputation, variety in commodities range, most participants, and best deals in China. The fair last year comprises 48 trade del- egations, including thousands of MNCs, manufacturers, research institutions, and private enterprises, most of them with strong reputations and market strength. RENEWABLE ENERGY WORLD ASIA 2014 September 10-12 KaulaLampur www.renewableenergyworld-asia. com The 22-year old event provides platform for the energy sector to meet and share information with 7,500 industry professionals and discuss the challenges for the advancing Asia’s energy future. The fair programme includes technical tours, around 50 conferences, exhibitions apart from networking with key industry buyers and influencers. SAUDI AGROFOOD 2014 September 7-10 Riyadh, Saudi Arabia www.saudi-agrofood.com The 2013 edition witnessed participation of 8,000 professional visitors and 173 exhibitors from 24 countries. People associated with food trade and agriculture can be benefitted from exclusive business opportunities in a custom-made setting for showcasing up-to-date technologies, products, services and solutions covering all stages of food processing and packaging along with various types of popular and new food products. RTEX-ROBOT TECHNOLO- GY EXHIBITION 2014 September 28-30 Dubai www.rt-exhibition.com The show provides a platform for exhibitors to display the latest innovations and communicate with their target au- dience, while allowing visitors to experience Robotics and Automation at first hand and expand their knowledge of this technology. Visitors include local and regional government department officials, companies from related industries, professionals from the areas of software, information processing, venture capital- ists and agencies and business development consultancies, among others. GLASSTEC October 21-24 Dusseldorf, Germany http://www.glasstec-online.com Glasstec is the world‘s largest trade fair for the glass industry and its suppliers. For over 30 years, Glasstec has served as a forum for collaboration between manufacturers, architects, designers, and end users. Over 1,200 exhibitors from throughout the world will present their innovations at the Glasstec in fields ranging from glass machinery and equipment construction to the glazier trade. Among them will be more than 50 Amer- ican companies. The show attracts more than 45,000 trade visitors, with 57% coming from 52 countries abroad. IMTS 2014 September 8-13 Chicago, USA www.imts.com The International Manufacturing Tech- nology Show (IMTS) registered participation of 1,900 exhibitors and 100,000 visitors in 2012. The fair provides platform to showcase products to more than 100,000 industrial decision makers who are expected to visit the six-day fair. The event is held every two years. INTERMOT October 01-05 Cologne, Germany http://www.intermot-cologne.com The expo provides a chance to explore Log on to www.thedollarbusiness.com for more events and details. SEPTEMBER 2014 II THE DOLLAR BUSINESS 91

RENDEZVOUS “THE NEW FOREIGN TRADE POLICY MAY NOT PLEASE EVERYONE” RAJEEV KHER, COMMERCE SECRETARY, MINISTRY OF COMMERCE, GoI INDIA HAS EVERYTHING IT TAKES TO CLIMB UP THE VALUE CHAIN AND BECOME A MAJOR EXPORTER OF MANUFACTURED GOODS The policy that will determine the fortunes of lakhs of Indian exporters and importers will be revealed soon. In a timely (this interview was conducted in mid- August), candid conversation with The Dollar Business, Rajeev Kher, Commerce Secretary, Ministry of Commerce & Industry, Government of India, discusses the state of India’s foreign trade, issues that it is faced with, steps being taken by the Centre to improve export volume and value, and most critically, what the nation can expect from the yet-to-be-revealed Foreign Trade Policy 2014-19. Excerpts: INTERVIEW BY STEVEN PHILIP WARNER AND NEHA DEWAN TDB: You have an impeccably solid background – from an LLB to a double post-graduation; from having served in several departments in the state of Uttar Pradesh during the 1980s, to having worked in the Ministry of Commerce since the 1990s. In all these decades, how have you seen India progress on the foreign trade front? Rajeev Kher (RK): The canvas of international trade in India has changed phenomenally, particularly in the last 10 years. In 1991, international trade was an extremely restrained and restricted activity, a task that was not of much importance to policymakers. In fact, we didn’t even have a Director Gener- al of Foreign Trade, but a controller of imports and exports. Both the focus and the approach were different. But once we opened up our economy in 1991, things started looking up. However, the real growth only began in early 2000s, when the global economy started gaining momentum. I think the period between 2000 and 2008, before the GFC struck, was the golden period for international trade. While in FY2004 our exports stood at $63.8 billion, in FY2014 they have crossed the $300-billion mark. That’s an increase of about five times in just 10 years. The same is the case with imports, which have risen by six times during the same period – from $78.1 billion in FY2004 to $450 billion in FY2014. Interestingly, in the mid-90s exports were considered to be a function of surplus. It was hard to believe that a company or an entrepreneur will set up a business to just export. He/ she was supposed to cater to the domestic market only. It was only after meeting the domestic demand, he/she was allowed to cater to external markets. Today, the scenario is totally different. People set up businesses just to export. It’s a paradigm shift. The energy levels too have changed phenomenally. For a long time, international trade was often taken as an activity for two kinds of entities: one would be the large companies for whom exporting was an inherent part of their business, and the other would be an individual who wants to get rich quickly. So, very often fly-by- night kind of operators used to make big money by exporting or importing a consignment or two and then relax until the next opportunity. However, today export-import is a business activity which is not just respected, but also requires a tremendous amount of complex planning, strategising, execution and negotiation capacity, apart from a thorough understanding of very complex international laws. Photography by Varun Choudhary IF WE WANT TO BE A BIG EXPORTING NATION WE CERTAINLY NEED TO TAKE CARE OF THE BACK-END, WHICH IS MANUFACTURING TDB: Has this changed India’s position in the global arena? RK: Absolutely. Although we have a long way to go in merchandise trade, we were the 19th largest exporter in the world in FY2014. Similarly, in services, we were the 6th largest exporter in the world. Of course, we are one of the biggest importers 92 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 93

RENDEZVOUS RAJEEV KHER, COMMERCE SECRETARY, MINISTRY OF COMMERCE, GoI doing is that we are now making all States prepare their exports strategies and plans. We are giving them whatever assistance that they might need by way of capacities. When they do that, they will not just be looking at exports, but will also look at how their domestic policies relating to taxation etc. are adversely affecting exports. A case in point is the APMC Act. We know that the APMC Act doesn’t allow a farmer to sell to anyone outside the mandi (local market place). This affects the availability of a particular product in the market and consequently, affects prices. If we carry out the much-needed APMC reforms, the farmer will be free to find a buyer. And if that buyer is an exporter, you are connecting that farmer with exports. while pushing our exports. In fact, it should be a priority for any government. Number two should be, in my opinion, the high-technology content. Because when you talk of high technology exports, you talk about technology transfer, you talk about technology fusion, you talk about better quality of manufacturing and you talk about higher value addition, a higher value realisation. If I manufacture one unit of a product of a very routine kind and if there is one unit of high-tech product, then I will get much more out of the second kind. So keeping this in mind, we have to look at the sectors. And I don’t want to call one sector a favourite over the other. But still, I would like to say that textile and apparel, automobiles and auto components, chemicals, pharmaceuticals and high-end engineering will continue to be some important sectors. WE HAVE STRONGLY PITCHED FOR THE WITHDRAWAL OF MAT. IF SEZs HAVE TO BE REVIVED, THEN DTT AND MAT HAVE TO NECESSARILY GO of both services and merchandise, as well. But what I want to convey is that India is significantly positioned in the hierarchy of exporting and importing countries. In fact, when it comes to exports, we have everything it takes to rise up the value chain. What is missing currently is the energy. And that energy will come from our manufacturing competitiveness. TDB: Expectations are high that the new FTP will help boost India’s share in world merchandise and commercial services exports. What can exporters expect from the policy? RK: The manner in which we made have the FTPs so far, it was an agglomeration of instruments and rewards. It was essentially some kind of congregation of several instruments. But in what context are these instruments being used has never been identified. Similarly, people and stakeholders are within their rights to know what is India’s approach to FTAs, how we are going to support branding, what is the role of packaging, how will we support packaging, what is the role of Services and why are they important, etc. So, our effort will be to capture this in Part A in the upcoming FTP. Part B will be what you and I have been calling policy till now. This is the reason it has taken some time. We will also be selective. We will not be in a position to give incentives to all sectors because there are some sectors that have more potential than others. Our kitty is very small and there is no point in spending money on sectors, which we feel don’t have much prospects. I cannot rule out disappointments. TDB: Unlike most other exporting nations, India is becoming increasingly dependent on Africa as an exports destination. Is that good news? RK: Today about 10% of our total exports are directed to Afri- ca and there has been a very significant growth in this over the last 10 years. We are present in almost every African country. Our exports to Africa may be pushed by two factors: (a) economic growth in Africa, which will lead to a natural flow and (b) since Africa is still evolving, it still doesn’t have technical frameworks in place. My advice to all my industry friends, who see it as a price sensitive destination, is that this can only be for a short time because ultimately all of us graduate to higher levels of technical standards. TDB: How do you see India growing as both a manufacturing hub and an exporting nation in the years to come? RK: Coming back to the same figures, in FY2012 we exported $306 billion worth of goods. While in FY2013 we exported goods worth $300 billion, in FY2014 our merchandise exports stood at $312 billion. You can clearly see that in the last 3 years we have been more or less consistent, though it is a flat growth. Now why is it? One reason, of course, is that global demand has gone down. But this is a universal phenomenon and not just true for us. The real big thing, however, is that the manufacturing competitiveness that we had has been affected because of supply side constraints and relatively slow decision-making on the policy front in the last few years. Secondly, there are huge infrastructural bottlenecks. So, if we want to be a big exporting nation, we certainly need to take care of the back-end, which is manufacturing. Until we become a reliable supplier of manufactured products, we cannot make it to the big league. countries, you have a multi-disciplinary practice of lawyers. This means a law firm will have an X number of lawyers, there will also be economists, CAs, and professionals from other disciplines. The reason is simple. Today there is nothing like pure law, there is no problem which is a pure legal problem. Prob- lems are economic, legal, social, etc. in nature. So, you need to have multiple disciplines. In India, you can’t do that. A law firm cannot employ an economist in India. Similarly, a char- tered accountancy firm cannot hire an economist. This is just one example to give you an idea of the kind of reforms that are required. Further, in India, if you have to practice medicine, you need to be a person of Indian origin. No foreign citizen can practice medicine in India. If a foreign citizen cannot practice in India, why would someone allow Indian citizens to practice outside India? It’s the concept of reciprocity. So, if I want my nurses or doctors to practice abroad, I should allow others to do so in India. In fact, there are a whole lot of reforms that are required and this is the time to do them. We have a very ambitious programme for Services reforms. TDB: In its present form, duty credit scrips under Served From India Scheme (SFIS) are not transferable. Do you think this is an issue that should be looked into? RK: We have reviewed SFIS. It requires some modifications and we will appropriately modify it. We have consulted the industry and other stakeholders. We have received their advice and we will keep it in mind when we come up with the FTP. TDB: India has drawn a lot of flak for introducing MAT in SEZs. Is the Commerce Ministry pushing for it? RK: We have strongly pitched for the withdrawal of MAT and have got positive reactions from the Ministry of Finance. They fully understand our point of view and I think at some point in time they will take a call on it. We know that if SEZs have to be revived, then DTT and MAT have to go. TDB: There are often delays when it comes to the release of duty drawbacks. Shouldn’t there be a change in policy to ensure it is done in a timely manner? RK: Well, in a generic sense, I would agree that we need to have a more predictable environment for policy execution. It could be nuanced by timelines, by commitments, by various instruments for offering that kind of benefit. Very often, you would see that at the end of a financial year, duty drawbacks are not paid by the revenue department. The reason is that there is a constraint on the treasury and therefore the government pre- fers to keep it tight. But as the situation improves, it is carried forward. I think the more important point is that an exporter will feel much more comfortable if he/she has a predictable regime and if he/she has a certainty about the course in which his/her issues will be addressed. TDB: Is the exclusion of Services exports in the FMS scheme not a very discouraging sign for a nation that thrives on Services exports? RK: I think this question will be answered when we have a new FTP. So, let’s wait and see. TDB: Now that driving India’s exports forward has been placed on your strong shoulders, what is the feeling like? RK: You have to be prepared for both criticism and praise. We try to balance both and say ‘pathar na mare, phool pheken’ (please don’t throw stones at us, throw flowers)! But then you cannot rule out the possibility. It’s a highly challenging job. Ev- ery day, I feel I have not achieved even 5% of what I want to do and that’s what keeps me going. I feel there is a lot to do, particularly since so much hope is around. When I start the day, I start like a philosopher because I have so many things in my mind. But when I end the day, I feel a little disappointed that I could not complete what I had intended to. And that’s what keeps my spirits up! TDB: Don’t you feel there is a step motherly treatment towards Services exports, in general? RK: You will be surprised to know that until about six years back, people in the government didn’t understand the concept of Services exports. I remember sitting in a meeting where a representative of a department couldn’t explain how one can export a service! Information technology (IT) is one area where we have really catapulted, reached really high but other areas require major domestic reforms. For example, we have some of the best CAs, lawyers and economists, but do you know we don’t have a system of multi-disciplinary practice under the Indian law? All over the world, at least in the developed and some developing TDB: There is a feeling that individual states in India are neither being made accountable for nor being encouraged to contribute to exports growth. Does the Centre have any plan in mind to solve this issue? Or should States be left alone? RK: It’s a very important area. We call this mainstreaming the States in international trade. There is a strong need for us to make the States understand this concept as ultimately everything is happening in the States. Government of India is just at the top. We need to make the States understand that in imports and exports, they have an important role to play. What we are TDB: Which products and services would the government like to encourage as far as exports are concerned? RK: Any policy on this should consider one of our biggest realities. The reality is that we have 1.3 billion people in this country. Further, a large workforce is added every year to this population. So, employment creation is the major parameter editorial@thedollarbusiness.com 94 THE DOLLAR BUSINESS II SEPTEMBER 2014 SEPTEMBER 2014 II THE DOLLAR BUSINESS 95

BORDERLINE EDITOR’S COLUMN SOMETIMES YOU NEED TO WALK THE PATH ALONE M to them would have added about $1 trillion to the world GDP apart from creating over 20 million jobs. So, does that mean In- dia’s tough stand on the food security issue was totally unethical? And by doing so has India jeopardised a trade deal that is supposed to streamline logistics and customs procedures and boast global trade? Mostly true, but then what about the other side of the coin? The 100-day-old Modi government blocked the deal citing inadequate progress on proposals for exempting support for subsistence farmers from subsidy limits. Was its ask too much to entertain? I don’t really understand why India is at fault if it wants WTO to amend the norms for calculating agri-subsidies. Is it irrational to procure foodgrains from farmers at minimum support price and sell that to the poor at cheaper rates in a country of 1.2 billion whose 25% population lives below the poverty line and over 70% (nearly 850 million) of its inhabitants still rely on a subsidised food distribution programme (the world’s largest) for feeding themselves? In fact, it’s not just about India. The 160-nation bloc consists of many countries which are poorer than India. What about countries like Sierra Leone, Chad and Benin? Still today more than 1.3 billion people across the globe live in extreme poverty. Doesn’t that make India’s concern on Food security a global concern? So why such a ruckus if India is asking WTO to re- vise the subsidy cap and change the base year, which is more than two decades old. Subsidies can’t be based on prices that prevailed two decades back i.e. 1986-88, as proposed by WTO. They certainly need to take in account a more current base year and incorporate various other factors such as inflation and currency move- Manish K. Pandey Editor, The Dollar Business any critics, both in India and abroad, have lambasted, and literally ripped apart the In- dian government since the country refused to ratify the Trade Facilitation Agreement at the General Council Meeting of World Trade Organisation (WTO) held at Geneva in July this year. Most of them had expected the pact to formalise, and which according Subsidies can’t be based on prices that prevailed two decades back i.e. 1986-88, as proposed by WTO. They certainly need to take in account a more current base year and incorporate factors such as inflation and currency movements ments, factors that are still missing from the current draft. This certainly makes a case for change in 10% subsidy ceiling (of the total value of foodgrain production) which is based on a price which is irrelevant in today’s world. If the current norms prevail, developed countries like US and UK would enjoy bigger subsidies than underdeveloped or developing countries like Sierra Leone and India respectively, countries which actually need them more. So, my question for the critics is: does it really make sense to create jobs for some other country, while your citizens continue to die of hunger? In fact, I totally agree with Kanayo Nwanze, President of In- ternational Fund for Agriculture Development (IFAD), a UN body for development of agriculture. “Creating jobs for some other country, while people are still hungry, doesn’t make sense... If I was in the position of feeding my own family or creating jobs for someone else, what would I do? What would you do?” he has been quoted in news sources. Talks are due to resume in Geneva next month. But the Modi government remains firm on the issue. It has made clear that India will endorse the deal only if WTO agrees to its demand for concessions on food subsidies. And that’s the right thing to do, even if it’s the only country to question the logic. Well, sometimes you need to walk the path alone as they rightly say: “No one saves us but ourselves. No one can and no one may. We ourselves must walk the path.”! www.thedollarbusiness/blogs/manish @MK_Pandey SMS your views to +91-888-633-1947 96 THE DOLLAR BUSINESS II SEPTEMBER 2014

TDB September 2014 Magazine Issue

TDB September 2014 Magazine Issue

Presentation Transcript

Eyes In Magazine Issue 31

TDB

Issue 1: September 8, 2014 pg. 1

E- Magazine August Issue 2016

Pratiyogita Darpan Extra Issue Magazine

Heartfulness Magazine - September 2018(Volume 3, Issue 9)

Ayurveda Magazine: Diabetes Issue

Mentors Magazine: Issue 2

Mocomi TimePassThe Magazine - Issue 44