History of broken promises

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Populism and profligacy are becoming a habit with finance ministers. Sutanu Guru and Atul Bharadwaj analyse how P. Chidambaram has set a really dangerous and insidious precedent for the economy.

It is February 1985 and the then Finance Minister Vishwanath Pratap Singh (arguably the worst Prime Minister that modern India had to endure) presents a Union Budget that electrifies the nation. Rajiv Gandhi is the Prime Minister and India, wounded by Indira Gandhi’s assassination, Operation Bluestar, carnage in Assam and lack of economic opportunities, is desperate for redemption. Apart from loosening the grip of the state on entrepreneurship, V.P Singh unveils a Long Term Fiscal Policy (LTFP). The LTFP is a blue print that promises that the government will refrain from reckless spending and ensure that fiscal deficits reach acceptable levels within a well defined time frame.

We doubt if Mr ‘Mandal’ remembers his LTFP speech, but the fact is that by 1990-91, the government was bankrupt and India had to pledge gold to pay for oil imports in 1991. The reason: despite tall promises, successive finance ministers had behaved like profligates playing around with tax payers’ money. In fact, N.D. Tiwari as Finance Minister presented the notorious ‘pre-election’ budget in 1988 when excise duty exemptions on ‘bindis’ were the talk of pink papers!

The current Finance Minister P. Chidambaram is luckier and India is more fortunate. Buoyant tax revenues and bulging foreign exchange reserves have given Chidambaram the playing field that V.P. Singh, and for that matter Rajiv Gandhi, never enjoyed. The pink papers and pundits are marveling at how the Harvard educated lawyer (who incidentally represented Enron in India when he was not the Finance Minister) has managed to keep the revenue and fiscal deficits quite close to targets. And what are the targets for this fiscal year?

The targets were to reduce overall fiscal deficit to 3% of GDP by 2009, and reduce revenue deficit to 1% of GDP by 2009 and zero the next year. While presenting the latest abracadabra budget, Chidambaram boasts that he is successfully meeting the targets set by the Fiscal Responsibility and Budget Management Act of 2003. Chidambaram insists that he has been fiscally prudent and that his wild grandiose allocations on social welfare schemes and loan waivers will not lead to huge deficits since tax revenues are buoyant.


But look closer at the financial jugglery that is going on and you will realise that Chidambaram is being economical with the truth, and the reality. And the precedent set by Chidambaram will in all probability mean that no Finance Minister in the future can even hope to be fiscally prudent and genuinely meet the fiscal and revenue deficit targets set by the FRBM Act. Chidambaram has cleverly unleashed a genie. But he has been too clever by half. And India will pay dearly. “I see some risk number on account of the sluggish GDP growth, the impending sixth pay commission hikes, higher interest costs on sterilisation bonds, growing interest payments on oil subsidy bonds and the continuation of various subsidies,” shares Deepak Uppal, Principal Consultant, PricewaterhouseCoopers. However, Gaurav Dua, Head Research, Sharekhan Limited feels that, “Given the fact that it is an election year, the populist budget is line with the general expectations. Despite the increased spending on rural and social sectors, the finance minister has set the fiscal deficit target at 2.5% for 2008-09. Steps are also taken to contain inflation (through excise duty cuts) and boost domestic consumption (through increasing the annual income slabs for tax rebates).”

wer in 2004 much to the surprise of most thinking Indians, Chidambaram presented his first budget where he announced that the Fiscal Responsibility and Budget Management Act (FRBM) will be a ‘mantra’ that he will follow meticulously. This coming from a man who presented a ‘Dream Budget’ in 1997 promising fiscal responsibility to have the Fifth Pay Commission hikes ravaging government finances for a few years was a tough call for hacks who were not sold on his dreams, and his smug smiles. Now he has done the trick again…

If you go by his budget speech and the papers that you have to scour through, Chidambaram has done the impossible: he has given away thousands of crores in doles, waivers and sundry welfare schemes and yet assured voters and tax payers that his government has enough revenues to ensure that the fiscal deficit will remain at 3% of GDP. What he has forgotten (perhaps deliberately) to tell-with the connivance of pink papers-is that more than Rs.1,00,000 crores will be spent by the government the coming year without any idea of where that money will come from. Countering this point Sandesh Kirkire, CEO Kotak Mahindra MF argues that “It is worth commending that while the total expenditure for the present Budget has expanded by only 5% over the previous year, yet the non-plan expenditure for FY09 is projected to expand by only 1.2% over the previous year. This indicates the increasing emphasis on planned and monitored outlay as well as constraining non-planned expenditure. The tax revenue has also been projected at a rate lower than the current year to account for the drop in excise duty rates while the non-plan expenditure growth has been kept flat for the next year. Thus, this year’s Budget proposes to achieve revenue deficit of 1% and fiscal deficit of 2.5% of GDP.”

Let’s start with the mother of all loan waivers. When Chidambaram was giving his speech, the waiver package was set to cost Rs.60,000 crore. Now, even Congressmen and other insiders are saying the bill could go up to Rs.100,000 crores if UPA chairperson Sonia Gandhi and her son Rahul Gandhi insist that all loans must be waived before the next General Elections. Then there is the Sixth Pay Commission that is all set to recommend massive pay hikes for government ‘servants’ who have been slaving away. B&E estimates that the exchequer will take a hit of at least Rs.30,000 crores a year only to give hikes to babus who are central government employees. The horror story will happen again when state governments implement the Sixth Pay Commission There is more. By issuing so called oil bonds, Chidambaram has pledged another Rs.90,000 crore or so as government expenditure. Please do not be surprised if the fertiliser subsidy goes beyond Rs.75,000 crores in the next fiscal year. And be prepared to see India spending billions of dollars on wheat imports.

Conservatively, this will add at least 1% to fiscal deficit. Chidambaram may or may not remain the Finance Minister. But what he has ensured with this Budget is that the future finance ministers, from any party, will have to try very hard not to become a V.P. Singh or an N.D. Tiwari. Even Chidambaram doesn’t know if Rahul Gandhi, who may most probably be the next Congress leader, will be really up there when it matters the most.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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It takes two to tango

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Having participated at both Wills and Lakme Fashion Weeks, Arshiya Fakih chooses to be with Mumbai’s LIFW

“For a country like India au courant with fashion as well as deeply involved with it, a fashion week holds a relevance of its own. It is the only way you can showcase your nation’s designers’ genius internationally. It is at such events that the whole world looks at us and therefore, it becomes even more crucial to project oneself well professionally. The Fashion Design Council of India (FDCI) has bridged the gap between government policies and fashion designers and has helped not just by organising a fashion event but by also ensuring that the fashion industry grows on the whole. Its work is quite commendable.

I have participated in both the Wills Lifestyle India Fashion Week (WLIFW) and the Lakme India Fashion Week (LIFW). I don’t prefer any one of them over the other. In fact, the two are more similar than different. Both are balanced. While the Mumbai fashion week (LIFW) is more Mumbai centric and the Delhi one (WLIFW) more Delhi centric, the participating designers are often different. If one gets to see a lot of fresh and young talent in Mumbai fashion week, the Delhi fashion week can boast of the established designers. And if, the Delhi fashion week enjoys the brand image of being the older and the experienced one, Mumbai fashion week has Lakme as its official sponsor that has been party to fashion weeks in India since the very beginning. Both enjoy great brand value and that’s why a designer’s criterion of choosing a fashion week has more to do with viability and feasibility than the promoting companies. For instance, I am based out of Mumbai and my brand is largely present over here with of course one store each in Delhi and Bangalore. My clients and even my retail customers are based in Mumbai. As a result, there is a certain level of brand image and goodwill that I enjoy in Mumbai. So, at this point of time from my business perspective, I prefer Mumbai FW over the Delhi FW. Though Delhi has a higher number of international buyers, Mumbai has plenty of local buyers to balance that.

At present, there are more designers than buyers in the market so participating in both the fashion weeks might get you that edge. If one has the infrastructure and commercial feasibility to support both, participating in both is quite viable. On a few occasions, the buyers do overlap but showcasing different collections in the events makes it viable. Normally, one doesn’t change the design aesthetics for buyers in a fashion week unless it is a specific buyer that you regularly supply to. So, it is more like deciding the aesthetics first and then finding the buyers whether in the Middle East or Europe.

While I have my plate full with almost two lines a year, there are a lot of designers who aim at films and TV. While location isn’t anymore a constraint for films, there tends to be a comparison between the fashion weeks. In that respect, LIFW and WLIFW are still at a nascent stage but are evolving. If the presence of two big fashion events causes a division between designers and buyers, it also keeps the two from becoming complacent. That means there is no short cut for experience in this journey of being the best.”

Swati Hora and Neha Sarin

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Sachmuch Kafi Bada Hai

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Big FM, backed by the ADA Group, has forced private radio channels to reach grassroots levels, say PALLAVI SRIVASTAVA & RATAN BHAGAT

‘Veni Vidi Vici.’ This is what Emperor Julius Caesar pronounced when he conquered the almighty Romans. In India, we have witnessed the rise of a new Corporate Caesar. He’s a man, who was once virtually written off as one with a playboy image and little business acumen. In less than three years, after he ventured out on his own, he forced tectonic shifts in sectors like telecom and financial services. What are not so well-known are the waves that Anil Ambani created in the least likely area, Radio.

Like his late father, Dhirubhai, and estranged brother Mukesh, Anil thought Big for his Big 92.7 FM channel. Instantly, he created a buzz with a high-profile advertising and promotion strategy that included a brand ambassador like Abhishek Bachchan. Agrees Amit Kumar, Media Analyst, Kotak Securities, “Big 92.7 FM made a big-bang entry in radio; it launched aggressive campaigns, won maximum licenses, invested huge amounts and shook the existing players in the industry.”

B&E presents the Sun Tzu behind Big FM’s tactical warfare. Tactic No 1: Throw Big Bucks

Anil decided to invest Rs.4 billion in the venture to buy transmission equipment, set up infrastructure, and grab licenses in dozens of Indian cities. At the time of its entry, it had won 45 licenses. In comparison, Radio City won 16 licenses during the same phase of bidding. “Since we were clear that our target audience was SEC AB cities, we tactically opted for select markets, which account for 80% of the mass premium audience,” explains Ashit Kukian, Executive VP and National Head (Sales), Radio City.

However, Big FM plans to reach 200 million listeners across 45 cities, 1,000 towns and 50,000 villages.

Within a year, it has launched 40 stations, which makes it the biggest private FM network. “In smaller cities, we have created a ‘Radio Wave’. There are several cities, which had never experienced radio as an entertainment medium and welcomed it with open ears,” says Praveen Malhotra, VP (Sales), Big 92.7 FM. It has had several cities tuned in.

“The growth in radio has been at the bottom of the pyramid. It is our endeavor to attract local audiences and build a brand that connects with, and at, the grassroots,” explains Malhotra. With Big FM’s penetration, there’s suddenly a lot of excitement in virgin markets. For example, Big FM is the first private FM channel to reach cities like Jammu, Srinagar & Guwahati.

Tactic No 2: Create hype

To enter a market already entrenched with strong players, it was imperative for Big FM to make a loud noise, and scream about its product. Logically, it launched an aggressive promotional campaign. Agrees Abneesh Roy, Media Research Analyst, Religare Securities, “With Big FM’s entry, overall marketing spends of the industry have shot up.” Such all-round investments have added to the credibility of the radio sector. “Anil Ambani’s investment strategy alone has given visibility and credibility to the sector. People think that the business is promising,” points out Irfan Ahmed, Manager (Investment Research), EvalueServe. And when such a large business house enters a low-profile mass communications medium, it boosts the confidence of the potential advertisers too. Adds Nikhil Vora, Media Analyst, SSKI India Research, “After Big FM’s entry, the advertising share of the industry has surely gone up.”

Tactic No 3: Think local

Big FM turned out to be the first station in Bangalore to dish out content in the local language. Says Tarun Katial, COO, Big 92.7 FM, “The radio stations are working well in small towns. We have, in fact, revolutionised media and media consumption habits in Tier II and III towns and cities.” It has understood that radio is a local medium and needs to have both localised content and marketing to make it successful. Fortunately for the company, these tactics have made it more attractive to the advertisers. Its pan-India presence makes it a favourable medium to woo potential customers. As Gaurav Dixit, a media planner in a leading media-buying agency, explains, “Since Big FM is present across India, I get more effective advertising rates for my clients than any other radio station.”

Also, regional advertisers choose it due to strong content and wide reach. Revenues in smaller towns come from retailers and local advertisers, who feel that Big FM offers an economical and penetrating medium to grow their brands. At present, 30-40% of the channel’s revenues come from local players. Big FM is perhaps the only private FM network that provides an effective platform for both local advertisers & brands that need a national platform. Adds Dixit, “Clients who want to reach regional population often prefer Big FM; most of the time they state their preference too. Also, the Ambani factor boosts their confidence.”

Tactic No 4: Tie up the back-end

As Anil moves ahead with his grand convergence plans, as he strives to offer all form of content (including gaming, shopping and financial services) on the mobile platform (he owns Reliance Communications), Big FM serves to become a small, but critical, cog, in the giant strategic wheel. Consider the example of how Anil’s acquisition of Adlabs, a movie production and distribution firm, helps the radio network. “Adlabs churns out around 25 movies a year and has the music rights of these movies. Therefore, the cost of content to be provided on the radio channels, essentially music, comes down,” says Kotak Securities’ Kumar. This gives Big 92.7 FM a huge advantage in an industry, which is largely content-driven and where content comprises a major proportion of the overall annual expenditure. Obviously, access to cheap content increases its profitability quotient, as well as adds to the programming quotient.

Clearly, Anil Ambani’s initiatives have made competitors shake with repeated seismic shocks. Big FM is ready for the inevitable earthquake that will change the way the radio industry is managed. It will establish a new blueprint for success that’s likely to be replicated by both existing players & newcomers. After AIR, which ruled the roost for years, Big FM will create a new entertainment mass medium that’s owned, operated & managed by a private player. What’s happened in TV will be repeated in radio. Then, rural and urban India will become One or, rather, 92.7.

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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