Author: Monica Samuel

Rise of Micromax: The Stuff of Dreams

The story of Micromax Mobile is akin to the American dream. Who would have thought that the mobile manufacturing company that started small, launching budget phones for the low income market would grow into the 3rd largest mobile manufacturer in India and claim 12th rank globally? The company’s vision to address local needs, innovate under constraints, and deliver value for money has paid off by making it one of the strongest players in budget phones today, giving stiff competition to the likes of Nokia and Samsung.

After mobile handsets, Micromax has ventured into tablets, routers and LED televisions. However, mobile handsets remain the company’s primary product line. The company shipped 4 million handsets worldwide in the second quarter of 2011. It continues to sell over 1.5 million phones every month in most of the countries it operates in.

A Saga of Milestones

Though Micromax as a company came into existence in 1991, it took off at a tremendous pace only after 2008, when Rahul Sharma, co-partner in the company convinced his peers Rajesh Aggarwal, Sumeet Arora and Vikas Jain to move away from being a distributor of hardware and software solutions and jump on the mobile device bandwagon.

The company’s first product, a mobile phone called X1i was focused on addressing local needs that were not understood by larger players. In this case, the goal was to enable mobile connectivity in villages deprived of electricity to charge their handsets. The X1i had a battery backup of 1 month. The phone sold like hot cakes, helping the company capture a 0.59% market share during the first half year of its existence.

The second killer idea was handsets with two GSM SIMs that could be active simultaneously. Micromax was also the first company to launch a phone that could switch between GSM and CDMA networks automatically using gravity sensors.

Micromax’s intense coverage of rural markets helped it establish a strong distribution system that it could leverage when it forayed into the urban market. Here again, Micromax addressed specific user needs – a QWERTY phone for social media enthusiasts that enabled chat, a stylish handset for the urban woman, and so forth.

Next step? Tablets of course, in partnership with Intel. In 2012, the Gurgaon headquartered company captured 18.4% (CyberMedia’s Tablet Market Review for 2Q 2012) of the tablet market in India surpassing veteran players Samsung and Apple.

Research, Reinvent and Market

Micromax’s success can be attributed to its consistent vision and constant reinvention. The vision of the company is: one, address a need; two, aim for “affordable innovation,” and three, price products for mass consumption. The company often prices its products at almost 40% of competing devices.

Another fundamental reason behind Micromax’s success is its aggressive distribution and marketing strategy. Micromax handsets can be found with all retailers, in rural and urban locales. The company ensures shelves are always stocked. It has tie-ups with film celebrities and sponsor partnerships at key events like the IPL to spread brand awareness. Ads are positioned to match features of their low price devices with high-end brands.

Present and Future

Micromax employs over 1400 people today worldwide. It has 23 domestic offices across the country and international offices in Hong Kong, USA and Dubai. On March 31, 2013, the company logged in a record ₹3,168 crore in sales revenues for the financial year 2012-13. And it managed to kick off the fiscal year by raking in ₹50 crore plus on April 1 alone.

The company’s principal leverage in keeping prices down has been its manufacturing partnership with China and a self-owned R&D center that builds prototypes for specific consumer needs. However, with labour costs increasing by 70% from 2005 to 2010, China is becoming unviable. To counter the impact, Micromax is building manufacturing infrastructure in India.

The company has adopted a new strategy that’s working well – get some products manufactured in China and other countries, source components from abroad and manufacture some of the newer lines in India. Through all of that, Micromax continues innovating with motion-sensor phones, 3D handsets and other cutting-edge technology.

What Micromax has triggered in the mobile device market is similar to what Deccan Airlines did for the Indian airline industry. It brought coveted quality to masses at an affordable price. The success of Micromax proves that affordable pricing can become a winning strategy if it addresses an identifiable need, adapts to changing markets, and is supported by aggressive marketing and distribution channels.

 

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Price Controls: 5 spectacular failures

Every since the creation of civil society, governments have tried to influence economic and social trends by prescribing minimum or maximum price limits for commodities. And in almost every instance, price controls have done more damage than good.

Understanding price control

Price control is when governments pass a law to control the minimum or maximum cost of a product or service. Usually, it is a short-term measure that can get extended for political reasons. Price controls are meant to control inflation or offer short-term relief to citizens. These laws are usually implemented after or during emergencies such as natural disasters, wars or in situations where common people are deprived of basic amenities because of soaring costs or scarce supply. Unfortunately, price controls usually backfire, worsening the situation and crippling the economy in the long run.

How does that happen? During an emergency, essential goods become scarce because retailers, shops, and warehouses get gutted and the regular supply chain is disrupted. Since providers now need to get products from unusual channels or through extraordinary efforts, they charge more. This certainly angers people and affects them but at least the products are made available. When a price cap is imposed on the sale of products, providers are unable to sustain the supply chain and forced to close shop, creating greater shortage. Cheaper prices also attract greedy people wanting to capitalize on the opportunity to hoard.

Here are a few examples of how price control laws end up hurting the very people they intend to help. It’s the same story all over the world.

India drug price controls, 1995

India has a long history of drug price controls that go back to 1955. As per the provision of Drugs (Prices Control) Order, 1995, drug manufacturers had to abide with ceiling prices fixed by National Pharmaceutical Pricing Authority (NPPA) for scheduled category of drugs.

NPPA studies show that the law restricted many manufacturers from producing all the essential bulk drugs. In fact, only 47 of the 74 notified bulk drugs in the First Schedule of the DPCO, 1995 were produced. Furthermore, price control led to production loss and competition in the Indian ingredients supply which hurt the clinical trial sector.

Price controls intended to cub malpractice by pharmaceutical companies created imbalances between medicine affordability and availability and the growth of the industry. The price control law for drugs is still a point of debate and has undergone multiple revisions since.

US wage controls, 1971

In 1971, President Nixon implemented wage price controls to mollify the public in view of the 1972 elections, decrease unemployment and contain inflation. After a 90 day trial period during which the controls seemed to be working though unemployment did not reduce, inflation picked up again as the dollar weakened with increasing price of imported goods and other global factors. Under political pressure, Nixon reinforced wage controls but to no good – ranchers stopped selling cattle, farmers drowned their chickens, and supermarket shelves emptied. The system was finally abolished in April 1974, 17 months after Nixon’s triumphant reelection victory.

US gas and oil controls, 1970s

President Nixon sanctioned oil and gas price control during his term. These were continued by other presidents till 1981 when President Reagan entered office and immediately abolished what remained of oil and gas price controls.

In the previous decade, the oil price control system created several tiers of oil prices. With a clamp on prices for domestic production, producers were forced to subsidize imported oil and provide additional incentives to import oil into the United States. An elaborate and confusing system of price controls, entitlements, and allocations led to long angry lines at the pump. By the time the Iranian oil crisis hit in 1979, President Carter had waived most of the controls on oil and gas prices to make more fuel available.

The resulting price hike created new problems: double digit inflation that put the Federal Reserve in crisis mode, forcing it to make its largest ever increase in interest rates in October 1979, plunging the economy into a deep recession.

Pennsylvania commodity control, 1770s

Post war, Pennsylvania imposed price controls on “those commodities needed for use by the army” to support George Washington’s revolutionary army. This created severe shortages of just about everything needed by the army, almost starving them to death in the field.

The Continental Congress thankfully passed a anti-price control resolution on June 4, 1778 that read: “Whereas it hath been found by experience that limitations upon the prices of commodities are not only ineffectual for the purpose proposed, but likewise productive of very evil consequences—resolved, that it be recommended to the several states to repeal or suspend all laws limiting, regulating or restraining the Price of any Article.”

By the fall of 1778 the army was fairly well provided for as a direct result of this change in policy.

French Revolution, 1793

During the French Revolution (1789-1799), politicians put into place the “Law of the Maximum” that imposed price controls on grain and later, on other items. The resulting situation is described as “in some [French] towns, the people were so badly fed that they were collapsing in the streets from lack of nourishment.” A delegation from various provinces appealed to the government in Paris stating that markets were supplied before the new price control law. As soon as the price of wheat and rye was fixed, those grains became scarce. Other grains not subject to the maximum law were the only ones brought in.

The French government finally repealed the price control law after the death of thousands.

Price controls are like short-term palliatives that do nothing to fix the root cause of problems. Yet, governments continue to implement price control laws to appease the public and attract vote banks. While the greater good of a nation is sacrificed at the altar of political agendas, the core issues for which price controls are implemented only grow worse, building up to almost irrecoverable situations. Instead of price controls laws, we need a law to ban price control.

 

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UID: Another Scam in the Making

Corruption is something we encounter almost every day. We even abet it on for the sake of convenience. Perhaps corruption has become part of our DNA without our knowing it. Could that be why every private, public or government mass project in India becomes a victim of mismanagement, lag, inaccuracies and corrupt practices? Like the UID project … waiting in queue to join the regular Indian diet of scams.

UID – From whence it comes

UID, Unique Identification or Aadhaar Card as it is more commonly known is vigorously supported by the Congress government. Aadhaar registrations kicked off in September 2010 without “proper debate” in parliament. In fact, the proposed bill was firmly rejected by the parliamentary standing committee on finance chaired by Yashwant Sinha in December 2011. Home minister P. Chidambaram has also expressed his reservations of the project that has no cabinet clearance, making it open to question at any time.

The UID project, guidelines and related technology are coordinated by the Unique Identity Development Authority of India, UI DAI at the center. Implementation at field level is the responsibility of respective state governments. They in turn work with authorized registrars who need UIDs for their own operations. And at the ground there are private or publicly owned agents or NGOs that serve as empanelled enrollment centers. The NPR is an important partner registrar in the enrollment process.

The UID project is headed by Nandan Nilekani, former CEO of Infosys. He was called in for the task by PM, Dr. Manmohan Singh. His team includes enterprisers from private and government circles. Some volunteered for free, some were invited to join. The mammoth project will certainly be a once in a lifetime experience for the UIDAI team but will it have an enduring impact on the lives of the average Indian too?

The UID scheme is expected to cost the country a whopping ₹150,000 crore though some estimate it as higher. At least ₹598 crore rupees have been funneled into services outsourced to partners like MindTree and Accenture among others. While the amount is shocking, what’s worse is the inept execution of the project at ground level.

Misguided, mishandled and misused

Projected as a pro-poor people’s initiative, UID is expected to streamline the delivery of food, water, homes, jobs, security, fuel, and the like to India’s poor as sanctioned under various national schemes. Because analysis tells us that the reason NREGA and other “feed the poor” schemes are falling on their face is because poor people can’t be identified correctly? You’ve got to be kidding. How will fingerprinting and iris scans stop unscrupulous agents from exploiting the poor?

Reports of UID’s shoddy implementation continue to pour in. Almost 30,000 bogus registrations were submitted by an “ex-employee” at a Hyderabad enrollment center. Turns out his credentials were used by other agents across 20 centers. This … when the fingerprint scan of the agent is part of the authentication process. Clearly, the involvement of a technocrat like Nandan Nilekani in the UID project has not prevented technological loopholes from entering the system, allowing miscreants to take advantage.

In other places, free Aadhaar forms are being sold to people standing in queues at MLA’s houses; like black tickets for a show but without the promise of entertainment. Delhi’s MPs and MLAs are blindly handing out necessary documents for UID to woo voters. Diligent people who registered in 2011 are still waiting.

UID – It begs the question WHY?

Inept execution aside, why do we need UID anyway? As an aid for the poor, its usability is suspect. With the way Aadhaar registrations are being manipulated and mishandled, building a clean, accurate and verified UID database of Indian citizens is out of the picture.

From a legal standpoint, the Aadhaar project can be challenged as it hasn’t received parliamentary approval. It allows non-citizens to avail the same benefits as citizens in violation of the Citizenship Act, 1955. And collecting biometric data is an invasion of individuals’ privacy rights in a free country.

Strangely and worryingly, UID is not mandatory. Nilekani says UID is voluntary but service providers might make it mandatory. In the long run I wouldn’t call it compulsory. I’d rather say it will become ubiquitous. This play of words means this: Common people will register on Aadhaar because they naturally want access to subsidies. The uncommon man with plenty to hide can conveniently opt out as he certainly doesn’t need subsidies nor wants his biometrics and private information on record. Bottom line? The UID scheme changes nothing except adding to the taxpayer’s burden.

 

 

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Banks: Where do we go from here?

India, the third largest economy in Asia, saw its lowest growth rate in a decade for the fiscal year ending March 2013. The yearly average of 5% was only a tad higher than the last quarter growth rate of 4.8%. Slow economic growth has also affected banks, drastically so for state-run sectors. Loan defaults are piling up as companies go bankrupt. And the companies that can pay via their loaded promoters are trying to wheedle out through corporate data restructuring (CDR).

Private or public, the graph slopes down

Banks saw a 51% hike in non-performing assets (NPA) in 2012-13, with the scale tipping towards public sector banks (PSB) that lend funds out of noblesse oblige. Since the government holds a majority stake in PSBs, the banks have to finance groups and projects that may not be commercially viable but need to be supported for “social good” or “nation building.” The fact that these government initiatives are eventually funded by the taxpayer makes no difference.

Furthermore, state-run banks have a different investment agenda from private players that’s often triggered by a “me too” mindset. It’s common for PSBs to pool funds into industries backed by the government or supported by other state-run banks. Risk assessment checks are inadequate even though public sector banks typically involve more documentation and longer approval cycles, at least for the common man.

The net profit of 38 listed banks in the private and public domain showed a mild rise of 3.63% in the March quarter with private banks outpacing their public counterparts. The net profit of PSBs actually fell by 6.64% while that of private banks rose by 24.63%. The growth rate for the fiscal year amounts to -2.63% and +28% for respective sectors.

 

Net profit drop in United Bank
Net profit drop in United Bank

 

State Bank of India, Punjab National Bank, Bank of Baroda, Bank of India and Canara Bank – all showed loss in the March quarter though SBI’s net profit rose 20.5% over the year. Private sector banks such as ICICI Bank Ltd, HDFC Bank Ltd, Axis Bank Ltd, Kotak Mahindra Bank Ltd, Yes Bank Ltd and IndusInd Bank Ltd saw quarter and year net profit rate hikes ranging from 21% to 47%.

Next up, operating profits across banks rose by 6.78% through the March quarter, with private banks experiencing close to 25.41% growth and PNBs only 0.52%. The underlying difference seems to be better control of bad loans by private banks. Public sector banks have had to set aside hefty amounts to cover bad debt, impacting their net profit substantially.

CDR misuse

Indian banks have recast over ₹2 trillion under the CDR mechanism that gives companies under stress some relaxation through lower lending rate and extension of repayment periods. While the objective of CDR is to give debt-laden companies a second chance, it is being grossly misused by companies with affluent promoters well able to infuse funds into the dying business. Kingfisher Airlines is one such case.

In a bid to control CDR misuse and reduce bad debt, Finance Minister P Chidambaram has come down hard on loan defaulters, recommending strict steps for banks to recover funds without hurting the industry. The RBI too is working on the final guidelines to increase the promoter’s contribution in restructuring to a minimum of 15% of the diminution or 2% of the restructured debt, whichever is higher. Banks can demand more from promoters depending on the risk of the project and the promoter’s financial ability to commit.

As a result, banks are showing some clout to recover debts – UCO Bank issued a public notice against Nitin Kasliwal, chairman and MD of S Kumars Nationwide Ltd, guarantor of a ₹110.07 crore loan taken by Reid & Taylor. The ad carries Kasliwal’s picture as well in a bid to “name and shame.” Kingfisher Airlines is not having it easy either.

The banking slowdown hasn’t bottomed out yet as the chances of accelerated economic growth is dim for another few quarters. Regulatory tightening and control of willful loan defaulters will help banks to a degree but no respite is expected from the RBI this time in view of inflation and high current account deficit. Banks will just need to cut their loss and swim with the tide for now.

 

 

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Prasar Bharati – An Expensive White Dinosaur

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Freedom of the press is one of the biggest tenets of democracy. Media may go overboard at times but no one can deny that it is playing a crucial role in exposing the darker underbelly of Indian bureaucratism and politics today. But not Prasar Bharati, the national public broadcaster of India behind Doordarshan (DD) and All India Radio (AIR) and government stooge.

Even as the public broadcaster faces ridicule for its incompetence, outdated journalism and bureaucratic red tape, the government plans to pump in funds amounting to ₹21.80 billion to turnaround the sharp decline of the “autonomous” body. It’s just another sinkhole for taxpayer’s money, if you ask me.

Like various other government projects, Prasar Bharati is suffering from the consequences of bureaucratic mismanagement, lack of leadership, and political intervention. Prasar Bharati’s Board chairperson Mrinal Pande was openly vocal about it  at the inaugural meet of the Sam Pitroda expert committee set up to revive Prasar Bharati. He slammed the Ministry of Information & Broadcasting (I&B), blaming “intricate circles of bureaucratic power” for the broadcaster’s current state.

Français : de la rubalise.

Didn’t Ajay Shukla, hired from a private TV channel to head DD’s primetime program News Night quit the very day after he subjected BJP’s Tarun Vijay to some hard questions? Is this the “autonomy” the government wants to protect? If so, isn’t this corruption of media?

Minister Manish Tewari admitted that two thirds of the I&B ministry’s budget (almost ₹18.85 billion out of ₹28 billion) goes to Prasar Bharati. The Ministry is the recruiting, disciplinary, and sanctioning authority of the broadcaster and the government is the largest advertizer on DD and AIR. Obviously, the broadcaster cannot bite the very hand that feeds it.

Minister Tewari made no attempt to disguise the government’s intention to leverage Prasar Bharati heavily to generate wide-spread awareness of government schemes for the welfare of people. Nothing wrong with that but will Prasar Bharati have a free hand in picking and choosing subjects? It’s doubtful.

As it is, Prasar Bharati is losing audiences in rural and urban areas where alternative media channels are available, thanks to DTH. That’s not to say that other media channels are top quality but at least they’re on the ball.

Pitroda’s expert committee may make umpteen plans to leverage social media, recruit new talent, and leverage a new business model for Prasar Bharati to become profitable but that’s not going to happen. With the government calling the shots, what are the chances that Prasar Bharati’s prospects will improve? Not unless TRAI’s recommendation is implemented – bar Union and State governments and their owned companies from the business of broadcasting and distributing television channels.

People are not fools. DD and AIR are not losing out because of outdated content alone. They are simply not trusted as reliable sources. Unless Prasar Bharati manages to break out of the government’s stronghold, no amount of funds is going to change its story.

 

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