Wednesday, August 30, 2006

Iron Ore Reserves To Last For Only 20 Years?

I still remember a few shots of the famous film 'MacKenna's Gold' which had Gregory Peck's refrain "There is no gold around there. The only dust I found there was prairie dust!". Does such a spectre haunt the Indian steel industry for its depleting iron ore reserves? May not be for now but after 20 years or so according to some sceptics.
The National Steel Policy aims at raising the steel production capacity to 110 million tonnes by the year 2019-20. For every tonne of steel making, 1.6 tonnes of an earthy thing - iron ore or hematite is required. India has got a deposit of 13 billion tonnes of iron ore and three states - Orissa, Jharkhand and Chattishgarh are blessed with the bulk of the deposits. So it is no wonder that investments from far and wide are converging on them. A total of 116 Memorandum of
Understandings (MOU) for installation of 146 million tonnes capacity and investment of Rs3.5 lakh crores ($70 billion) are being flaunted as a sign of appetite for steel industry in India. It includes giants like Posco of South Korea for a 12 million tonne project in Orissa and
Mittal-Arcelor for a similar capacity in either or both the states of Jharkhand and Orissa.
Alarmed at this 'Iron-Rush' which will predictably exhaust the known deposits in just 20 years or so, three apex Chambers of Commerce - Confederation of Indian Industries (CII), Assocham and FICCI together with the public sector and private sector majors like RINL, Tata Steel, Essar Steel and others have sought for a review of the Hoda panel's recommendations by the interministerial panel set up for the very purpose.The Hoda panel's recommendations have unnerved the existing steel manufacturers for its startling conclusion that iron ore scarcity is a
myth and there need not be any quantitive restriction either on export of iron ore. India's iron ore exports have been rising spectacularly from 32 million tonnes in the year 2000 to 92 million tonnes in 2005. The steel manufacturing companies, on the other hand, want the exports
to be cut down 15% every year for total phasing out by the year 2013.So the tug of war goes on between those who believe India's iron ore reserves are adequate and those who are concerned at rising exports as well as new capacities gobbling up reserves.Before it is too late, a realistic estimate of iron ore reserves and its optimum utilisation should be undertaken on a war footing. The reserves should be earmarked for the existing plants and the new projects and lastly exports if any surplus remains.
Otherwise, it would be putting the cart before the horse!

Tuesday, August 29, 2006

Light At The End Of The Tunnel

Bumpy roads, potholes resembling large moon craters, poodles right in the middle of the roads looking like mini swimming pools - these are all too familiar sights of the Indian roads crisscrossing the country linking metros, cities, towns, and villages. The harassed and tired look on the faces of the millions of Indians and foreign visitors who have to use such roads, not to speak of some of their broken necks, spondolysis, abandoned vehicles with broken axles will soon be replaced by all smiles and speedy traffic.The good news is that the government has embarked upon a massive investment in national highway development programme (NHDP). THe investment is going to be a whopping Rs22000 crores ie $50 billion for NHDP IV-VII phase covering 7616 kilometres. Speaking at a seminar organised by the Indian National Group, Union Minister of shipping, road transport and highways, TR Balu, said "Construction of tunnels, bridges and flyovers would be one of the significant features of upcoming projects." He further added "Construction of a substantial length of tunnels is required for widening roads passing through mountainous regions, especialy Jammu & Kashmir and several parts of the north eastern states. Improved technology for making tunnels has been adopted in the construction of Konkan Railways and Delhi metro. The use of tunnel boring machine can speed up tunnelling and is one of the latest technologies adopted in India."With the use of new technology the car parking problem faced in all cities can be solved by construction of underground parking space. The minister also said "There is going to be extra pressure on urban road space and this will jack up the demand for parking lots. With the existing buildups in the urban areas, underground parking lots will be a basic necessity." Such projects, though very much overdue, will reduce India's infrastructural bottlenecks and pave the way for becoming a super economic power. The good news calls for celebration and one for the road!

Sunday, August 27, 2006

'Pepsi, Coke Or Me'

In America, your hostess may soon ask you the question 'Pepsi, Coke or water?' - the way health-conscious population is getting averse to the colas. Because of wide prevalence of obesity, people are preferring plain water - fully sterilized and of course free from pesticides.A joke prevalent in the corporate world is about the naughty question a secretary asks her boss after a hectic day - 'Tea , Coffe or me?'. The question is more appropriate in Europe, China and India where tea-drinking is so common that it is an integral part of many social functions. In USA the cola-guzzling being high, the question could have been altered to 'Pepsi, Coke or me?' with no pun intended.
There has been, however, a coup of sorts. Quitely, bottled water sales have been shooting through the roof while the sales of colas have lost their steam.As per estimate of US-based Earth Policy Institute, global consumption of bottled water rose by 57% between 1999 and 2004 to 154 billion litres. The share of USA is 26 billion litres and of India is 5.1 billion litres. In UK it is estimated by a research agency that the business of bottled water will rise to 2 billion pounds with a volume of 3 billion litres.
Reading the writing on the wall, Tata Tea has acquired 30% shares at $677 million of Glaceau - the brand owners of Fruitwater, Smartwater and Vitaminwater in USA. These are bottled waters enriched with electrolytes and other nutrients. The bottled water market is growing @10% in USA whereas the colas have reported a meagre .2% growth. Tata Tea knows where the Sun is rising and where it is setting.You can bet your bottom dollar - Tata Tea is going to hit the jackpot!

Friday, August 25, 2006

Are Acquisitions And Mergers Good For Steel Industry?

Ever since the world's second largest steel company Arcelor was taken over by Mittal Steel - already holding the first position, an uneasy calm has descended on the steel industry all over the world. The new production capacity of Mittal Steel-Arcelor will go up to 110 million tonnes – a whopping 10% of the world production.Mr L.N.Mittal has been hogging headlines for not only achieving what was considered almost impossible till recently but also for setting world records in corporate acquisitions. During the last 35 years or so, he has built up a gigantic steel empire starting virtually from scratch. His modus operandi has been to take over sick units at hard-bargained prices and then turn them around. In the process he has turned out to be the world's largest steel manufacturer as well as its third and India's richest person. An exuberant Mittal had only these few words for those following his success story - "Work hard and you will succeed".
Such global acquisitions and mergers have already put several well-established companies on alert. Alarm bells are ringing lest this "L.N.Mittal" phenomenon devours them. The China Iron and Steel Association has urged that smaller companies should make bolder moves to consolidate into larger groups. They are also opposed to any foreigner to own the steel industry - the most basic among all industries.
In India, even when Mittal Steel has no foothold so far, it has already set a cat among pigeons by announcing ambivalently that it would be setting a 12-million tonnes plant in one of the two neighbouring states of Jharkhand or Orissa. Tatas - the most revered corporate house in India and the first to set up the first steel plant about a century ago, had to raise their private ownership as a step to foil such acquisition attempts.
Such acquisitions, however, cause more harm than good. One conclusion emerges inescapably that Mittals will be the ones to call the shots – be it for raw materials sourcing and pricing of finished steel products with 10% of world steel production under their thumb. Monopoly will revisit the steel industry – thanks to globalization, mergers and acquisitions!Besides, each company has got its own culture, nationalism and sense of social responsibility whereas the driving force behind such take-overs are merely profits for the owners and the share holders. Consumers rarely get the best deal in monopolistic markets. If such acquisitions go unchecked, all the stake holders - owners, employees, customers and vendors will ultimately develop cold feet towards relationship as well as a sense of belonging which takes years to build up. But what is globalization minus acquisitions and mergers? You can't have the cake and eat it too!

Thursday, August 24, 2006

Is The Small Car Project A Big Dream?

For several reasons, all eyes are now set on the small car project of Tatas coming up at Singur, West Bengal. Firstly, the project envisages production of small cars to be priced below Rupees one lakh ($2200 approximately!). Secondly, Tatas who already enjoy brand images for cars and trucks being manufactured in Jamshedpur and Pune have ventured to establish manufacturing facilities for the small car in the state of West Bengal. Because of labour unrest and lack of infrastructural facilities, the state in 1980s and 1990s had lost its top rank among the industrialized states of India. But there has been a resurrection of Bengal as claimed by the Marxist-led government. Nevertheless some investors are still shying away from the state.
The project may appear to be a pigmy by American standards but it is dear to Tatas, the people of West Bengal and whole of India. The car manufacturing capacity in numbers, its unbelievable price and the car size – all are really small. Only 200,000 cars will be made from the year 2008 onwards and may reach 500,000 by the year 2012. As of now the car price has been pegged at ‘below Rupees one lakh’. One has to understand the psychology of middle class customers in India to appreciate the compulsion to keep the price below the one lakh barrier. Today every Indian first dreams to become a ‘lakhpati’ (one who is worth more than one lakh) and then a ‘crorepati’ (one who is worth more than ten million rupees or $220000). This is not the first time that such a catchy price tag has been fixed for small cars. As a matter of fact, Sanjay Gandhi – the younger son of late Indira Gandhi was mad about his small car project for which work was started at Gurgaon. Before the project completion, he died and the public sector company Maruti Udyog in collaboration with Japanese Suzuki carried on from where he had left. To begin with, the car price was kept far below one lakh. Maruti cars soon became synonym for cheap, efficient small cars in India. Later other international car manufacturers from USA, Europe and Japan joined the bandwagon to set up joint ventures.
The small car project has made tardy progress so far. The farmers whose land will be acquired are putting stiff resistance. But this is a prestigious project for both West Bengal government as well as Tatas. There is one bigger challenge for Tatas to keep the price tag unchanged. All the input costs are rising particularly of steel and non-ferrous metals. At the same time, Tatas would not like to backtrack as they are trusted for their commitments.
Meanwhile Tatas have announced that they have plans to accommodate about 100 ‘tier-I’ category vendors at the vendor park to be set up on a 300 acre plot at Singur. Sceptics may still doubt about the viability of the project. But going by their track records, Tatas will leave no stone unturned before throwing in the towel so early. Is it not?

Tuesday, August 22, 2006

'Pepsi Is Safer Than Sea Water'

Perhaps, it is. But the provocation for making this statement made by a cynic overheard in a crowded bus was provided by the following news report. It said that at least 50,000 people thronged on 19th August, 2006 to the sea near Mahim Creek in Mumbai - the financial capital of India. They drank the sea water which they found had turned 'miraculously' sweet and collected as many bottles as they could. The report also contained the chart of contamination level of potable water as per World Health Organization (WHO) and of sea water on that fateful day.
Potable water
solids chlorides
WHO norm 0-500 0-250
Tap water 0-40 0-12
Sea water at Mahim
880-1650 600-1360
All figures are in parts per million (ppm).
Despite warning given by doctors and government officials, people drank the 'miracle water' and appear to have escaped serious ailments like gastro-enteritis miraculously. Here is a case of blind faith driving thousands into hysteria.
Pepsi sales promotion ads endorsed by celebrities like Shah Rukh Khan aim exactly to whip up such a frenzy by brainwashing the public. The brand ambassador has blurted out defending Pepsi that even human mother's milk contains pesticides. He fails to note that the comparison is not very apt. A baby has no option but to depend upon mother's milk. In India, water, vegetables and fruits contain dangerous levels of pesticides. Nevertheless, how can one do without these things?
The shocking findings of a study at the Columbia University Centre for Children’s Environmental Health, New York concluded – ‘Babies’ DNA can be damaged even before they are born if their mothers breathe polluted air’. The study results will surely be even more alarming for populations in other industrial and urban areas where pollutants are very high compared to Manhattan – a relatively cleaner area. The Hobson's choice is to wage a war against pollution and contamination relentlessly.
Pepsi is a world famous cola company. Whether it is by negligence or laxity of standards, the pesticide level in its colas in India is reportedly much higher than the permissible limit. So, what should one do? Drink Pepsi just as one consumes the other contaminated products or say a flat big 'NO'? You decide.

Monday, August 21, 2006

The Lesser Of Two Evils - Pepsi or Tea?

In love and war everything is fair; at least Pepsi thinks that way. Driven to the wall with a ban on it slammed in several states of India, Pepsi has fired recently two shots in air for self-defense. The first one was an advertisement claiming that the tea Indians drink has 14.2 ppm residue of pesticide which is 28000 times higher than such residue in Pepsi. The Tea Board of India has described the claim as "totally false". It is a classic case of the pot calling the kettle black. Tea is as old as Indian civilization and is the most favourite drink among Indians. It is processed plant leaf unlike Pepsi whose ingredients are so zealously guarded secret that the formula has been
stored in some unknown vault. Assuming that tea contains dangerous levels of pesticide, it does not absolve Pepsi of the charges already made against it. Moreover, tea is boiled before use whereas colas are taken directly thus reducing the harmful effects.
The second shot has been fired as a signal for ceasefire. Pepsi has announced that it would discourage primary schools from consuming "fun drinks". It is amusing to read what Pepsi Co Chairman Rajeev Bakshi said - "Soft drinks should not be consumed at that age. If schools ban
them, we will not contest them". Good sense has dawned upon Pepsi rather belatedly. What 'fun' they were having in promoting their sales for kids all these years? Alarmed by the obesity and health hazards of school children by their excessive consumption of colas, America has already initiated action 'to pull out these soft drinks from schools'. Please read the comment of Heather on my previous post 'Ban on Pepsi & Coke May Clog FDI?'. So the aversion for colas is spreading fast and they are heading for tougher days to come. Ms Indra Nooyi - an Indian has been made the CEO of Pepsi's global organisation and it has made every Indian proud. However, the rising anti-Pepsi wave is going to be a thorn in her flesh. Is it not?

Saturday, August 19, 2006

FDI Dynamics Favour India

India is already in the international limelight for having achieved the highest economic growth among the free democratic economies. No wonder, the world is keeping a close watch on it as foreign direct investment (FDI) inflow to India is gaining momentum. It has already reached $1.74 billion in the period of April-June of the current year compared to $1.18 billion in the same period last year. This amounts to a 47% growth of FDI. No one knows better than India's Commerce and Industry Minister, Kamal Nath who reeled out the impressive statistics. His ministry had aired optimism earlier that FDI inflow may touch the elusive double digit figure of $10 billions during the year 2006-07 in May 2006 and the government had provisionally estimated that India received over $8 billion of FDI inflows in 2005-06 which was over 60 per cent higher than the figures of 2004-05.
Coming as it did just when the thick fog over the ban on Pepsi and Coca-Cola has not cleared yet, it shows that no one is too deeply worried about FDI drying up from USA as a fallout of the controversy. Why should it affect India so seriously? The following details will remove such doubts from the mind.
1. Top 10 countries investing in India:(i) Mauritius (ii) USA (iii) Japan (iv) Netherlands (v) UK (vi) Germany (vii) Singapore (viii) France (ix) South Korea (x) Switzerland
2. Other countries joining the big league:(i) West Indies (ii) South Africa (iii) Nevis (iv) Iceland
3. Favourite sectors of investors:(i) Electronic equipment (ii) telecom (iii) Transport (iv) Fuel (v) Food Processing (vi) Drugs and Pharmaceutical (vii) Metallurgy
4. MNCs waiting in the wings for investing:(i) Nissan (ii) Suzuki (iii) General Motors (iv) Honda (v) Mitsubishi (vi) Citi Consumers (viii) Flextronics (ix) Global Communication Service Holding. While the first four are for automobile projects, the rest is for petrochemicals, real estate etc.
In such a scenario, things are really looking bright for India and for now, all roads lead to Rome! Pepsi and Coca-Cola may not be able to turn the tide. What do you say?

Thursday, August 17, 2006

Ban On Pepsi & Coke May Clog FDI?

The battle of nerves between the cola companies Pepsi & Coco-Cola and the Indian government arising out of the ban already imposed on them in six states is threatening to blow into a full political war. With hardening of stands from both the fighting sides, the situation is about to go out of hand. While six states have already banned sale of colas in schools, colleges and hospitals following publication of a report of their containing pesticides beyond permissible limits, the state of Kerala went one step further to ban their production as well as sales. The cola companies, in the mean time, are on the offensive claiming through advertisement blitz that their qualities are as good as their European products.
At stake is the FDI inflow to India. The imbroglio could not have been more ill-timed. A US trade commission led by Mr Franklin L. Levin is scheduled to visit India during November, 2006. The delegation is going to be the biggest US bilateral trade mission ever sent to any country. The team will participate in the Mumbai Summit on November 29-30. Thereafter, the team has the option to branch off to Bangalore, Kolkata, Chennai, Hyderabad, Mumbai and Delhi for business match-making.
However a statement given by Mr Levin that the ban by state governments on the cola companies could affect investment is likely to pour cold water on the trade Mission’s visit and add fuel to the fire of raging controversy. Just as US should not browbeat India to ignore the seriousness of the complaint of pesticide contamination in colas, the states cannot carry on summary trials without proper investigation. Only recently Ford Motors had to order recall 6.5 million cars after persistent customers’ complaints backed by federal investigation established a serious fire risk in the cars. Similarly a thorough investigation by independent and impartial experts should establish the genuineness or otherwise of the complaints against the cola companies.
The Kerala government’s jumping into the fray and banning production as well as sales without any proper investigation is just like severing the head for curing headache. The announcement through ads by Pepsi’s brand ambassador – a popular film star that he would go to USA to drink Pepsi if it is banned in India is equally preposterous. Even the news report in Washington Post that Americans drink over 100 times more colas than Indians is not going to help matters. That Indians are not very much dependent on the colas has been proved by the most unexpected gain made by tea after the ban was imposed.
If current controversy is going to affect FDI as a small section of analysts and observers believe, the trade mission may fizzle out to the detriment of interests of both India and USA. India needs infusion of foreign investments for massive infrastructural development and other key industrial growths. USA needs India to be its economic partner in global strategic planning as the 21st century unfolds and power equations shift to Asia.
For the mission to succeed both USA and India must work together closely. The serious complaints against the cola companies should be thoroughly investigated. Clean chit should be given to the companies if complaints are found to be baseless. Otherwise stringent action should be taken against them for their laxity. Just because Pepsi and Coca-Cola are two giants in USA and have lot of clout with the government, their lapses cannot be condoned lest it might affect FDI flow. Two great democratic nations, after all, have to respect the public opinions of their own countrymen. Is it not?

Thursday, August 10, 2006

No Pepsi, No Coke – It’s No Joke!

Instead of the question ‘What is wrong with Pepsi and Coke’, one could as well ask ‘What is right with Pepsi and Coke’. Going by the public ire which is spreading like wild fire against the two giant cola companies symbolizing America, such questions have become very important and relevant.The latest trouble for the cola companies was triggered by a report by Centre for Science and Environment made public revealing that their soft drinks contained pesticides more than the permissible limits. Reacting sharply, several state governments have imposed ban on the sales in schools, colleges and hospitals. The Kerala government, however, has stolen the thunder by packing the American companies lock, stock and barrel; their production and distribution licenses have been revoked.
This is not the first time that Pepsi and Coca Cola are in the soup. Way back in the year 1977, George Fernandes had raised a battle cry against them and at that point of time America-bashing became fashionable as the nationalistic sentiment appealed to most. Three years back, a full Joint Parliamentary Committee backed by experts had found merit in the complaint made against the same two giants for having pesticide residues. No lesson seems to have been learnt by the law enforcement agencies, the cola companies and the public at large.
Why the anti-cola stir has spread so quickly through the length and breadth of the country can be appreciated if one delves into Indian psyche. After two centuries of foreign rule, nationalism is still pervasive though it has got subdued in the circumstances of liberalization turning nations to a global village. No other thing has made the masses more conscious of this radical change in India as Pepsi and Coke have done. In many villages, drinking water is still the scarcest thing and villagers have to trudge miles to get it. But one can get colas there for the asking.
Indians are now waking up to the fact that Eastern habits and practices as followed by their ancestors holds the secrets to good health and instant junk-foods as well as colas are harmful for the bodies. Swami Ramdeoji, who has been advocating openly and loudly to ban aerated drinks even before the present battle-lines were drawn, has become a household name for millions of his followers. So CSE got a pick-a-pack from the renowned guru and the nationalism fervor has caught the imagination of the masses.
Already full page advertisements have been put by the cola companies to tell the public that there is nothing wrong with the quality of their products. The film star Sharukh Khan who endorses Pepsi in their ads has threatened to go to USA to drink Pepsi if it is banned in India. What is disgusting is his counterclaim in asking ‘Does not water or mother’s milk also contain such harmful chemicals’. That does not answer why one should buy this costly foreign poison in the first place!
Some have taken refuge behind the argument that this cola-bashing may affect FDI inflows. Then should we allow the cola companies to play havoc with the health of masses just because investors may shy away from India? We do not have to appease USA on this score.

Saturday, August 05, 2006

Never Look A Gift Horse In The Mouth

Gifts carry unspoken words of love, affection and admiration for the recipients and serve as their best depository. Whether the occasion is a birthday, wedding ceremony or success in examination, it gets accentuated when accompanied with gifts. Over the years and in keeping with the changing materialistic world, gifts are increasingly becoming objects of ego, ostentation and quid-pro-quos. Gone are the days when gifts used to serve as means for emotional exchanges. Alas! parents these days have to get birthday presents for their children as costly and trendy as their friends receive on similar occasions . Wives do not get satisfied anymore by bouquets of flowers on their wedding anniversaries and would howl down such custom now as outdated.
It has dawned on people that gift packaging has become more important than the contents within. If it is a wedding ceremony or a birthday or felicitation party, the presents just pile up in public gaze without giving any chance to recipients to find out what lies within. So, more attractive the packaging, the more impressive becomes the present! Some take this approach to the extreme. Giant-size gifts do get noticed easily, but recipients are cramped by space. Just as one should not look at gift horse in the mouth, a thoughtless gift can cause avoidable rifts. Therefore, a little bit of planning and thought for the appropriate gift can save a lot of embarrassment and make the occasion pleasant and memorable.