Destiny’s Child Turns 20
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It was India’s second tryst with destiny. July 1991. The economy is on the edge of a precipice, growing at low single-digit numbers, foreign exchange reserves are at`2,500 crore (enough to finance imports for just a fortnight) and inflation in double digits. Business Today is yet to be born.
Then, Manmohan Singh rises to present the Budget in Parliament. There is no time to lose, he says, and reads out an 18,500-word thriller in which the word reform figures just 14 times. Two decades on, India stands transformed, poised to become the world’s fastest-growing economy, with domestic demand helping it ride out the recent global shock.
Over the next 20 pages, savour the highs and the lows, the hits and the misses. We hope you enjoy it as much as the team that put it together — N. Madhavan, Rishi Joshi, T.V. Mahalingam, Anumeha Chaturvedi, Manu Kaushik and Vijaylakshmi Vardan.
Unshackling the Economy
comatose economy and a deep fiscal crisis. It was a mountain to climb for the Cambridge-educated former bureaucrat Manmohan Singh, when he rose to present India’s Budget on July 24, 1991. Consider this. India’s debt amounted to `182,000 crore and the government was paying every second rupee it earned towards interest (`27,000 crore). Inflation was in double digits and the cash crunch severe. Worse, forex reserves were barely enough for three weeks of essential imports and India appeared weeks away from defaulting on its external obligations. Internally, the licence raj and a bloated bureaucracy was stifling India’s economic growth.
Singh, though, was equal to the task. The P.V. Narasimha Rao government ended the licence raj, abolished industrial licensing in all but 18 industries and allowed companies to expand without government permission. The policies did not signal total decontrol but there was a tectonic shift from the Nehruvian policy of dependence on the public sector. Singh’s landmark Budget coupled with the 20 per cent devaluation of the rupee set the Indian economy on the path to recovery and a fast pace of growth over the next two decades.
The Chosen One
As Ratan Tata was named to step into the big shoes of his uncle J.R.D. Tata, the choice drew brickbats from within and outside Bombay House. Many said he was chosen the Tata group Chairman only because of his surname. Over time, he has made his critics eat humble pie. When he took over, the Tata group had 1.19 lakh employees and revenues of `30,920 crore. Today, as he prepares to hang up his boots, its employee base has swelled to 3.21 lakh, revenues stand at `293,562 crore and the Tata group can rightfully call itself the first Indian MNC.
QUOTE OF THE YEAR
Let the whole world hear it loud and clear. India is now wide awake. We shall prevail. We shall overcome.”
Manmohan Singh, in his Budget speech
DID YOU KNOW?
India allows 51 per cent FDI in auto manufacturing. GM, Ford and Hyundai were among the global majors which set up factories here. Today, India-made cars sell in Europe and Africa. Next stop: the United States.
Power to Them
Electricity boards, or state-run generation and distribution utilities, were broke and in no position to expand. The government allowed private players in generation sweetening the deal with an assured return. Bad decision (remember Enron?). Years later, lessons learnt, the focus shifted to distribution — helping in part raise capacity 2.5 times to 167,000 MW today, 33,183 MW of which is private-run. Still, large parts of India remain unlit prompting experiments with microgeneration networks and off-grid power.
The Securities Scam
At 37, Harshad Mehta had everything going for him. The New India Assurance employee-turned stockbroker was living in a 15,000 sq.ft. plush apartment with a swimming pool in up-market Worli. Dalal Street worshipped him as the “Big Bull”. When the securities scam of 1992 broke out, it emerged that Mehta was using bank receipts of public sector banks to buy stocks. Mehta deployed well over `1,000 crore and triggered the biggest bull run in the Indian stock market. The BSE Sensex rose from around 2,000 points in January 1992 to 4,467 points in April that year. The Sensex tanked to 2,529 points in August, wiping out over`100,000 crore in market capitalisation. The scam rocked Parliament and Mehta was jailed. A decade later, Mehta died in a hospital with 27 cases still pending against him. The SEBI Act was enacted in the aftermath, but that still did not prevent the occurrence of market manipulations like the MS Shoes scam (1994), CRB scam (1997), vanishing companies scam (1998), plantation companies scam (1999), and the Ketan Parekh scam (2001).
Enter the FIIs
Foreign institutional investors (FIIs) entered the Indian stock market in September 1992. They began cautiously. By 1993, 18 FIIs were registered with market watchdog SEBI and they had invested `2,595 crore. As they gained in confidence and began to believe in the India growth story, the trickle became a flood. As of December 7, 2010, 1,713 FIIs were registered with SEBI and their net investment in India(both equity and debt) stood at`524,370 crore.
DID YOU KNOW?
Harshad Mehta had paid an advance tax of`28 crore for the fi nancial year 1991-92. That and his extravagant lifestyle caught the taxman’s attention.
The First GDR Issue
While allowing FIIs access to the Indian securities market, the government simultaneously permitted Indian companies to raise funds from international markets. Reliance Industries was the first to take advantage of this. In what was the first ever international share offering by an Indian corporate, Reliance raised $150 million to fund its expansion plan through global depository receipts that were listed on the New York Stock Exchange.
An IPO That Flew; and How
Infosys Technologies, today the bellwether IT stock in India, was far from a favoured pick 18 years ago. When it tested the waters with a share offering in February 1993, N.R. Narayana Murthy and his team got a cold response from Dalal Street denizens. The `95 per share issue (`10 plus a premium of `85) almost bombed. Investors clearly perceived the premium too high for an obscure company. Desperate calls went to people such as V.G. Siddhartha, today Chairman of Amalgamated Bean Coffee Trading Co., better known for the Café Coffee Day chain he runs.
The IPO scraped through after investment banker Morgan Stanley picked up 13 per cent of the company’s equity, and what a cracker the listing turned out to be. If you had bought 100 shares in the IPO by shelling out`9,500, it would be valued at a little over `4 crore today. Siddhartha’s investment alone would have been worth some `2,000 crore if he had held on to his Infosys shares, he toldBT earlier this year. A strong dividend record, an even better bonus history, supernormal corporate governance standards and the company’s robust revenue and profit growth have brought it where it is.
Nod to Private MFs
Winds of change swept through the Indian mutual fund industry in 1993. The government allowed the private sector into an industry that was until then controlled by the Unit Trust of India. Kothari Pioneer Mutual Fund was the first off the block in July 1993. Private sector mutual funds, with their innovative schemes, improved customer service, and better marketing and distribution networks reached out to investors, who responded enthusiastically. In 1993, the total assets under management by mutual funds were `47,000 crore. Today, it stands at`665,282 crore and there are at least 39 private sector funds servicing the investors.
Crackdown on Badla
Badla, the indigenous carry-forward system invented at the Bombay Stock Exchange to overcome liquidity constraints in the secondary market, was banned to rein in speculation and make the markets more transparent. Stiff opposition from the broking community forced the market regulator SEBI to reintroduce it in 1996. It was finally consigned to history in 2001 with the introduction of rolling settlement along with futures and options contracts.
QUOTE OF THE YEAR
The genie is out of the bottle. The reforms have a momentum of their own.”
Jagdish Bhagwati, Economic Policy Advisor to the Director General of GATT
Market Makeover
It was a gigantic leap forward for the Indian equity markets. The National Stock Exchange (NSE) launched its operations which went on to change the face of the markets by ushering in technology-based trading. Its fully-automated screen-based stock trading, linked across the country through a VSAT network, allowed brokers to buy and sell shares from the comfort of their offices.
It was the death knell for the Bombay Stock Exchange or BSE’s traditional outcry system, which had become opaque, time-consuming, inefficient and imposed limits on trading in the absence of any technology interface whatsoever. The BSE was forced to follow suit and adopt electronic trading in 1995.
Online trading offered transparent transactions and immediate matching of trades, and went a long way in making the markets more investor-friendly. It also paved the way for further market reforms such as the introduction of derivatives trading in 2000 by both the bourses.
Today, the NSE has 2,799 VSAT-enabled terminals across 1,500 cities and towns and is the largest stock exchange in India in terms of daily turnover and number of trades.
Tech Banking
The Industrial Credit and Investment Corporation of India (ICICI), then a development finance institution, saw an opportunity when the government threw open banking to the private sector. There were many public sector banks with a large branch network but with little automation and poor customer service.
ICICI established a separate banking subsidiary, later renamed as ICICI Bank. The intention was to leverage technology to offer better services at a low cost. Its success forced almost all other banks to embrace technology and streamline operations. Today, after its reverse merger with its parent in 2001, ICICI Bank is India’s second-largest bank.
New Telecom Policy
The government unveiled its new telecom policy. The country’s teledensity then was an abysmal 0.8 per 100 people as against the world average of 10. The policy aimed at making telephones available on demand by 2007. Licences were awarded to telecom operators for starting cellular services in the metros. The policy laid the foundation for India’s emergence as the world’s fastestgrowing telecom market with 723 million telephone lines (land plus cellular) and a teledensity of over 60 per cent.
DID YOU KNOW?
The government announced a new drug policy that scrapped industrial licensing and reduced the number of drugs under price control to help India emerge as a self-reliant, low-cost producer of drugs.
QUOTE OF THE YEAR
Companies will have to stick to their core businesses and become big players in that area so that they can fight the multinationals.” R.C. Bhargava, Managing Director, Maruti Udyog
Mobile Services Come Calling
Two politicians — West Bengal Chief Minister Jyoti Basu and Union Communications Minister Sukh Ram — were the first official users of cellphones in India. Basu called up Ram on July 31, 1995, to inaugurate India’s first cellular service (Modi Telstra, in Calcutta). But neither the politicians nor the industry foresaw the telecommunication revolution in the coming years.
Mobile telephony took time to spread in India because of high tariffs (`16 a minute, with even incoming calls being charged), and it took five years for the mobile subscriber base to reach five million. Intense competition among mobile operators gradually drove down rates which led to the boom. In the next 10 years, the mobile subscriber base shot up to 687.71 million.
Today, on an average, 17 million cellular connections are being added every month and over 200 million every year. The cellular subscriber base is projected to touch 1.159 billion in 2013 and by then some expect India to overtake China and become the world’s largest provider of wireless connections. Voice continues to dominate revenues, although text messages, Internet access, e-mail services, and access to social networking sites such as Facebook have also become popular. This trend is only set to accelerate with the rollout of 3G services.
QUOTE OF THE YEAR
China is so far ahead of India. There is no comparison. We have wasted 15 to 20 years talking about socialism, while China has gone ahead and developed its economy.”
Meghnad Desai, Professor, LSE
Birla Succession
Barely 28 years old, Kumar Mangalam Birla found himself at the helm of the`7,000-crore Aditya Birla Group after the demise of his father. The Birla scion had his task cut out. He had to manage the group’s restructuring programme and also sustain its pace of growth. Today, the group is estimated to be well over `1.30 lakh crore with operations in over 27 countries. And he is just 43 years old.
Internet in India
Videsh Sanchar Nigam Ltd had an Independence Day gift for the Indian public in 1995: Internet connectivity. The company, which handled India’s overseas communications, announced the launch of the Gateway Internet Access Service. The service was initially made available in the four metros. People could access the Internet through the Department of Telecommunications’ I-NET via leased lines or dial-up facilities. The pricing for individuals was `5,000 for 250 hours, while for corporates it was `15,000.
The World’s Back Office
ack in 1994, when Gurgaon was just a sleepy hamlet in Haryana, American Express set up a processing centre in India to service its Asia-Pacific centres. Around the same time, behemoth General Electric (GE) was looking at offshoring backoffice work to India. In 1996, Anderson Consulting, which had been mandated to explore the market for third-party vendors, recommended that GE go captive instead. GE Capital International Services (GECIS) formally started its operations in Gurgaon in 1997. British Airways also set up World Network Services to handle back end jobs like data entry in June 1996.
These were the baby steps of the BPO industry. Today, GECIS has been rechristened Genpact, employs over 42,500 people and has revenues in excess of a billion dollars. Raman Roy, a former American Express and GECIS veteran, went on to found Spectramind, which was acquired by Wipro in 2002. In 2009, the BPO industry clocked revenues of $14.7 billion and employed close to a million people.
Ports Opened Up
Indian ports were a mess. Average ship turnaround time across ports was as high as 8.1 days in 1990-91, which worsened to 8.5 days in 1995-96. In 1996, against an installed capacity of 177 million tonnes, Indian ports handled 215.3 million tonnes. Then the government opened up the sector in 1996. The first major investment came from P&O Australia, which invested $250 million to set up two container berths at JNPT in Mumbai. By 2007-08, Indian ports were handling 723 million tonnes. The turnaround time of major Indian ports improved to 3.87 days in 2008-09, even though it is still well below Hong Kong’s 10 hours.
DID YOU KNOW?
P. Chidambaram’s 1996-97 Budget introduced Minimum Alternate Tax in India.
Tendulkar’s Million-dollar Baby
Kapil’s Devils won the World Cup in 1983 and the team got ￡20,000 as prize money. Thirteen years later, Sachin Tendulkar raised the bar for cricket remuneration in India when he signed a marketing deal with WorldTel for$7.5 million for a five-year period. It was Indian cricket’s first million-dollar deal. Five years later, Tendulkar signed on the dotted line again with WorldTel, this time for about $17 million.
QUOTE OF THE YEAR
“You’ve got to create heroes and you’ve got to pay them.” Mark Mascarenhas, President, WorldTel, on the multimillion deal with Sachin Tendulkar
Dream Budget
A weak United Front government was not expected to bite the bullet and push through bold policy reforms. But P. Chidambaram unleashed high octane tax reforms in his “dream” Budget for the year 1997-98. Chidambaram was a votary of the Laffer curve principle — lower tax rates would boost compliance, thus ensuring higher tax collections. He slashed maximum marginal income tax rate for individuals from 40 per cent to 30 per cent, and cut the income tax rate for domestic companies to 35 per cent from the earlier 40 per cent. Peak customs duty was reduced from 50 per cent to 40 per cent, and the excise duty structure was simplified. Individual investors were no longer required to pay dividend tax. Chidambaram also announced a Voluntary Disclosure of Income Scheme to recover black money and introduced a new criterion to widen the tax net. If an individual satisfied any two of the following four criteria — ownership of a fourwheeler, occupation of an immovable property, ownership of a telephone, or foreign travel in the previous year —he/she had to voluntarily file a tax return. With falling tax rates, collections as a proportion of GDP have gone up from a low level of 8.2 per cent in 1998-99 to over 10 per cent now.
Coal Reforms
After a lot of dithering, the government finally opened up the country’s coal sector. The government feared that demand would soon outstrip supply if the sector was not opened up. It allowed the private sector into coal mining —but only for captive use. It promised to allow the private sector into commercial mining as well but never implemented it. It is estimated that by 2011-12 the demand for coal will be 730 million tonnes and domestic production will be 520 million tonnes, which will leave a shortfall of 210 million tonnes.
QUOTE OF THE YEAR
Not every generation — or its members — of a business family can become top-notch businessmen.”
Lalit Mohan Thapar, Chairman, L M Thapar Group
Level Playing Field
Liberalisation of the Indian economy enabled corporates to grow rapidly through mergers and acquisitions(M&A). Market regulator SEBI soon unveiled a Takeover Code setting the basic rules for M&As in the country. It stipulated that any company acquiring more than 15 per cent of the voting rights of another company should acquire at least 20 per cent of shares from other shareholders through an open offer. It also laid down the ground rules for proper disclosures to investors.
Buddha Smiles Again
At 3.45 p.m. on May 11, 1998, India stunned the world by testing three nuclear devices at Pokhran in Rajasthan. A few hours later, Prime Minister Atal Bihari Vajpayee announced the tests to the world, declaring India to be a nuclear weapon state. On May 13, two more tests followed. The international community reacted strongly. A deeply-disappointed US President Bill Clinton called the tests“unjustified” and slapped economic sanctions on India. The sanctions ended all US assistance to India, barred export of defence equipment and technology, ended all US credit and credit guarantees to India and also required the US to oppose lending by international financial institutions to India.The wheel came full circle, though, when Clinton’s successor, George W. Bush, not only waived the sanctions in 2001 but also went on to negotiate and sign a US-India Civil Nuclear Co-operation agreement in 2005 with Prime Minister Manmohan Singh. The deal promises full civil nuclear co-operation with India.
More Power Reforms
Power reforms continued with the government announcing the setting up of the Central Electricity Regulatory Commission (CERC). The commission’s responsibility included regulating tariffs of Central government-owned power stations, and inter-state transmission of electricity besides rationalisation of electricity tariffs. The government also modified its 1995 mega power policy in a bid to give it more teeth and add 15,000 to 20,000 MW of capacity.
India Inc’s Quality Rush
Sundaram Clayton, a TVS Group company, became the first Indian company to win the Deming Prize for total quality management. It was only the fourth non-Japanese company and the second Asian company outside Japan to bag this award, considered the equivalent of the Nobel prize for quality. It was contagious. Soon, many Indian companies began to set high quality standards. Today, around 15 Indian companies have won the Deming Prize highlighting India Inc’s move up the quality chain.
DID YOU KNOW?
Tata Engineering and Locomotive Company, or Telco (now Tata Motors), launched the Tata Indica, India’s fi rst fullyindigenous passenger car in 1998.
India Inc on Wall Street
Back in 1999, Infosys Technologies had revenues of just$100 million and employed about 3,700 people. In March that year, it became the first Indian company to be listed on an American stock exchange when it debuted on the Nasdaq, under the symbol INFY. Infosys raised $70.38 million through the sale of 2.07 million American Depository Shares (ADS). This set the pace for listings by other Indian companies on American exchanges.
followed INFY on the Nasdaq. Over the next two years, more than half a dozen Indian companies such as Silverline Technologies, ICICI Bank, VSNL, Wipro, Dr. Reddy’s, Satyam and HDFC listed on the New York Stock Exchange(NYSE). The Indian honeymoon with Wall Street had just begun. In 2006, Infosys became the first company to figure in the Nasdaq-100 Index, where it sits alongside the likes of Dell, Microsoft, and Intel. There have been setbacks, though. After the Satyam scandal, Satyam’s new management delisted the company from the NYSE.
The Telecom Map
The New Telecom Policy 1999 laid out a clear road map, opening up national long distance and international long distance telephony to the private sector. It also corporatised the Department of Telecommunications(DoT), among other things. It allowed the existing players to shift from a fixed fee regime to one of revenue sharing. The policy also set a very modest target of achieving a teledensity of 15 per cent by 2010. India’s teledensity as of September 2010 was 61 per cent.
Insurance Opened Up
In 1994, a committee headed by R.N. Malhotra, former Governor of Reserve Bank of India, had recommended that the insurance sector be opened up for private players and foreign players with some restrictions. The report gathered dust for five years till the government moved in to set up the Insurance Regulatory and Development Authority (IRDA) in 1999. In 2000, IRDA opened up the sector. Foreign companies were allowed, too, but with a 26 per cent stake cap. Today, there are 23 insurers in the life insurance segment and 24 in the general insurance segment.
QUOTE OF THE YEAR
Our decline was because the customer changed, the world changed — and we did not realise this. By the time we did, in 1995, it was too late.”Rajiv Bajaj, on Bajaj Auto’s struggle in the face of increasing competition
Dot Gone
Register a domain name, create content, advertise heavily and get traffic to the portals going. Don’t worry about the revenue models or even losses. That was the thinking of most dotcom promoters back in 2000. Take Home Trade, for example. The company signed on Hrithik Roshan, Shah Rukh Khan and Sachin Tendulkar as brand ambassadors and launched with a `65-crore ad blitzkrieg. Or , which took out a fullpage advertisement on the front page of a leading newspaper for an astronomical sum.
Domain name registration became a big business as dotcoms of all hues mushroomed. By March 2000, thanks in part to six consecutive rate hikes by the US Federal Reserve since 1999, the dotcom bubble burst in the US. A few months later, the mayhem began in India. Dotcoms like , ideasnyou. com, , , , , and went belly up. Companies laid off workers in droves. The promoters of sold their stake to Rupert Murdoch for over $50 million in mid-2001.
The Y2K Bug Fix
It was a bomb that never went off. Mainframes would shut down and your personal computer would conk out at the crack of dawn on January 1, 2000, because of the Y2K or millennium bug. So went the scare. In the early days of the computer, programmers had coded years using just the last two digits to save space, and bits of these codes had passed into later programming. So, the argument went, when computer clocks entered the year 2000, the machines would read it as 00 and even interpret it as 1900. Thousands of Indian programmers went abroad to fix the bug. On Y2K-day, nothing happened and some called it the “hoax of the century”.
Tata’s Tetley Buyout
It was India’s first leveraged buyout. Tetley, the British company that had invented the tea bag, was twice as big as Tata Tea. But that did not stop Tata Tea from making what was then the largest cross-border acquisition by an Indian company in February 2000. The cost:￡271 million ($431 million).
QUOTE OF THE YEAR
It is a bold move and I hope that other Indian corporates will follow.”Ratan Tata, on the leveraged buyout of Tetley by Tata Tea
Ketan Parekh was the Pied Piper of Dalal Street. The man with the Midas touch, revered by brokers and investors alike. At the height of the stock market bull run, Parekh’s net worth was estimated to be anything between `3,000 crore and `7,000 crore. But the market meltdown in 2001, triggered by the savage global bear hammering of ICE (infotech, communications and entertainment) stocks, took the wind out of his sails. With his favourite K-10 stocks taking a pounding, Parekh was trapped, triggering off a payment crisis on the bourses. Parekh also defaulted on his payment obligations to banks and was subsequently arrested.
A probe by market regulator SEBI exposed Parekh’s underhand dealings with promoters and banks. Parekh borrowed from various companies and banks — who allowed him to borrow funds without proper collateral and security — to drive up stock prices. In a throwback to the Harshad Mehta scam, the broker-banker-promoter nexus was once again the main reason for the upheaval in the Indian stock markets.
SEBI cracked down despite stiff opposition from the broker community. It banned the carry-forward system, badla, introduced rolling settlement in the cash market and a separate derivatives market. The reforms have, undoubtedly, made the markets less opaque and safer for retail investors.
Fast-tracking Disinvestment
It was the first sale of a controlling government stake in a big-ticket public sector undertaking. When Atal Bihari Vajpayee’s government sold a 51 per cent stake in Bharat Aluminium Co Ltd to Sterlite Industries for `551.5 crore in February, the Opposition accused the Bharatiya Janata Party of selling out to private interests, and worker unions protested. But the government stood its ground.
The government raised another`207 crore by selling a controlling stake in two other PSUs, CMC Ltd, and Hindustan Teleprinters. It also decided to sell a few other large PSUs such as IBP, VSNL, and IPCL. The pace of disinvestment, though, has slowed in recent years.
UTI Facelift
India’s largest mutual fund, the Unit Trust of India, got a facelift in 2001 after a crisis in its flagship scheme — the US-64 —which forced it to stop repurchase and sale of units. An expert committee later disclosed that its portfolio contained a lot of lemons. UTI subsequently agreed that US-64 will fully comply with SEBI regulations by December 31, 2002. It also agreed to set up an asset management company and revamped the UTI board to induct more professionals. All guaranteed return schemes were gradually phased out.
Dhirubhai’s Legacy
It was a rags-to-riches story that captivated India. From a small trader of polyester yarn in the 1960s, who started the business with just `15,000, to creating a petrochemicals giant, it was a meteoric rise. Indeed, the passing away of the doyen of the `75,000-crore Reliance Group, who also pioneered India’s equity cult in 2002, marked the end of an era. Dhirubhai, though, courted controversy during his lifetime for his alleged ability to manage the political environment.
There seemed to be a smooth transition at the top in the group with the baton being passed on to the Ambani offsprings, Mukesh and Anil, and the group continued to power ahead. Reliance Industries Ltd (RIL) became the first Indian private sector company to record a net profit of over `1,000 crore in a single quarter with the merger of Reliance Petroleum with RIL — a step designed to take advantage of the expected deregulation in the oil sector. The merger created India’s first Fortune 500 private company, with businesses spanning oil exploration, refining, petrochemicals and textiles. RIL also acquired the government’s 26 per cent in Indian Petrochemicals Corporation Ltd that year.
Nobody at this stage could have predicted the bitter falling out between the Ambani brothers in 2004.
MNCs delist
With the equity markets languishing in 2002, the mid- and small-sized multinational companies or MNCs flooded the market with exit offers through buybacks and open offers to cash in on the relative cheap valuations. Philips, AstraZeneca and Carrier Aircon, among others, moved closer to delisting. The fund-raising plans of India Inc., though, were hit. The year was marked by only six initial public offerings or IPOs and the fund mobilisation was a meagre `1,981 crore.
QUOTE OF THE YEAR
Commercial organisations are economic organs of the society. You have to subordinate shareholder value to societal values.”
Y.C. Deveshwar, Chairman, ITC
The BPO Rush
Indian software services giants scaled up their business process outsourcing (BPO) operations aggressively to capture a bigger share of the global BPO market. Wipro acquired Spectramind in an all-cash,`407 crore deal, while Infosys Technologies launched its BPO arm Progeon (now Infosys BPO) as a 74:26 joint venture with Citibank Investments(Infosys bought out the Citibank stake in 2006). HCL Tech BPO acquired the Belfast-based Apollo Contact Centre for $11.5 million.
The Budget Airline Boom
India’s first low-cost airline’s first flight started with a bang, quite literally. Air Deccan’s scheduled flight, from Hyderabad to Vijaywada, was grounded after an engine fire. Despite the setback and some lingering concerns about the safety procedures on its aircraft, Captain G.R. Gopinath’s Air Deccan went ahead with its expansion plans and introduced flights on several routes. The Indian middleclass nodded in approval as the airline’s fares were half of what was being charged by the leading full service airlines. Air Deccan’s success saw other low-cost airlines such as IndiGo and GoAir entering the fray over the next few years. Air Deccan was the first airline to move to tier 2 and tier 3 cities such as Madurai, Nashik, Belgaum, Gwalior and Vishakhapatnam. But Gopinath’s dream ran out of cash within five years. The airline of the masses was aquired and merged with Kingfisher Airlines.
India Inc’s Global Footprint
It was the year when corporate India began looking beyond the country’s shores. State-owned ONGC had showed the way the previous year by making India’s then largest overseas acquisition when it bought a 25 per cent stake in the Sakhalin oil and gas field in Russia for $1.7 billion. Ranbaxy acquired RPG (Aventis) for $70 million, while Reliance made its first international acquisition, Flag Telecom, for$207 million.
Bulls Return
After staying in the trenches following the Ketan Parekh scam, the bulls staged a comeback in 2003. The Indian growth story saw FIIs pumping in $7.43 billion. Indeed, 2003 marked the beginning of the biggest bull rally in the history of India, which peaked in January 2008, with the Sensex rising seven-fold, from about 3,000 in 2003 to its then lifetime high of 21,206.77 points in January 2008. The Sensex surged over 70 per cent in 2003 alone.
Brothers Up in Arms
Dalal Street had been abuzz with rumours of a rift between the Ambani brothers after their father’s death in 2002. But the differences were out in the open when Mukesh made a public statement about “ownership issues” in the Reliance Group. This triggered off a bitter battle, fought in full media glare, between the siblings for control of the family businesses.
Their mother Kokilaben was finally forced to intervene and play the peacemaker. This culminated in the split of the Reliance empire in 2005. Flagship Reliance Industries Ltd (RIL) went to Mukesh, while the younger Anil got Reliance Energy, a power generation and distribution company, Reliance Infocomm (now Reliance Communications) and Reliance Capital, a non-banking finance company.
The brothers, though, were at loggerheads again in 2009. This time over the price of the natural gas which RIL had agreed to supply to Reliance Power’s Dadri plant. After a pitched legal battle, the Supreme Court ruled in what was broadly interpreted as a victory for Mukesh and made it clear that RIL does not have to supply gas at a previously agreed price to Anil’s companies.
QUOTE OF THE YEAR
There are issues, which are ownership issues. These are in the private domain.”
Mukesh Ambani
Broadband Policy Unveiled
An ambitious broadband policy was rolled out in 2004 by the Department of Telecom to deepen the then negligible broadband penetration in the country. The policy de-licensed the 2.40-2.48 GHz frequency band for broadband services and also allowed direct-to-home, or DTH, television operators to give one way Internet connections. But the policy failed to deliver. Against the target of 20 million broadband subscribers by 2010, India today has just nine million connections.
IPO Debuts
It was one of the most-awaited IPOs. Biotechnology was emerging as a fastgrowing business and the IPO by the Kiran Mazumdar-Shaw promoted Biocon was the first by a company in the sector. While the company raised over `300 crore, the issue was oversubscribed 33 times. Because of the long gestation of products in its business, Biocon’s stock has not had a spectacular run on the bourses. But biotechnology has emerged as a focus area for the bluechip pharmaceutical companies.
Offshoring Goes Mainstream
The world got Bangalored in 2005. By 2004, there were three Indian IT services companies with billion-dollar revenues — TCS, Infosys and Wipro. Despite that, the trio was still not in the same league as IBM and Accenture. Indian IT companies had to be content with the occasional $100 million deal, while their multinational counterparts were getting the large outsourcing contracts ($500 million-$1 billion). That changed in September 2005, when TCS, Infosys and Patni were picked among the five vendors for a $2.2 billion mega contract by Dutch financial powerhouse ABN AMRO. Even though IBM cornered the bulk of the work, it was the first time that Indian vendors were part of an outsourcing mega deal. There was no looking back.
Indian companies began to grow rapidly in size as they cornered a larger portion of the IT contracts signed in the 1990s as they came up for renewal. Infosys, for example, more than doubled its headcount to one lakh employees between December 2005 and October 2008. Moreover, the deals kept becoming bigger. TCS signed a$1.2-billion deal with Nielsen in October 2007 — the largest deal ever for Indian IT.
QUOTE OF THE YEAR
The question is: who will trade with me? Ketan Parekh and Harshad Mehta are names that are globally associated with scams.”
Ketan Parekh to BT, denying allegations that he was active in the stock markets despite a SEBI ban.
DID YOU KNOW?
In 2005, Indian airlines booked aircraft worth$12 billion at the Paris Air Show, led by IndiGo which placed a $6-billion order for 100 A320s.
Promoters Cash Out
They had built their businesses from scratch and now that valuations were soaring, they sold out and cashed in. Hemendra Kothari sold a 47 per cent stake in DSP Merrill Lynch, a joint venture with his baby DSP, to Merrill Lynch for $500 million in December 2005. He sold his remaining 10 per cent stake in 2009 for about `500 crore. Also, in July 2005, Rajeev Chandrasekhar sold his stake in BPL Mobile for over `1,000 crore in an all-cash deal worth over $1 billion.
Gung-ho on India
The first week of December 2005 saw two high profile visits, followed by billiondollar investments. Microsoft’s Bill Gates, in his fourth visit to India, announced that Microsoft would invest $1.7 billion in its India Development Center and hire 3,000 employees in India. A couple of days later, Intel Chairman Craig Barrett declared$1 billion worth of investments in India, including a $250-million venture capital fund. Earlier, in October 2005, Cisco disclosed plans to invest $1.1 billion in India.
The Battle for Singur
Singur was a nondescript town in West Bengal till Tata Motors chose it as the manufacturing location for its small car, the Nano, in May 2006. As the state government started acquiring land for the project, the feisty Trinamool Congress chief Mamata Banerjee launched protests. Her objection was that fertile agricultural land was being handed over to Tata Motors. The Communist government, which was keen to prove the state’s “industry friendliness”, refused to budge. As a result, the next 30 months saw Singur turn into a battleground. Finally, in October 2008, Tata Motors pulled out of Singur and moved the Nano factory to Sanand in Gujarat. Ironically, even as the first Nano rolled out of the Sanand factory in June 2010, Banerjee’s party crushed the Communists in the West Bengal civic polls. The Singur troubles rippled across other parts of the country with farmers and activists protesting and questioning landfor-industry deals with inadequate compensation and rehabilitation.
India Inc Goes Shopping
It was a year of mega mergers and acquisitions for India: 1,164 deals, valued at $35.6 billion, were sealed. The big news was Tata Steel’s bid for Corus in October 2006 (which was eventually sealed for $12 billion in January 2007). But deals happened across sectors. Dr Reddy’s gobbled up Germany’s betapharm, Holcim bought into Ambuja Cements, Oracle acquired a majority stake in i-flex Solutions. The next year was even bigger with $32.76 billion worth of outbound deals, including the $6-billion buyout of Novelis by Hindalco.
FDI Allowed in Single-brand Retail
The government decided to partially open the retail sector by allowing 51 per cent FDI in single-brand retailing. The move enabled the likes of Reebok, Nike, Benetton to set up their outlets in India directly instead of operating through franchisees or wholesale trading models. According to KPMG, under the category of single brand retailing, the industry has received an FDI inflow of some `900 crore between April 2006 and March 2010.
QUOTE OF THE YEAR
India, Indian institutions and Indians can have a shot at the world today. These chances don’t come often... this is India’s second tryst with destiny.”
Uday Kotak, Vice Chairman and MD, Kotak Mahindra Bank
BSE Sensex Crosses 20,000
The second half of 2007 was a euphoric time for India. The Indian cricket team had lifted the T20 World Cup. And the Bombay Stock Exchange’s 30-share Sensitive Index, or Sensex, which had taken a little over two decades to cross 10,000 in February 2006, doubled in just 20 months. As foreign institutional investors or FIIs bought $17 billion worth of equities in the first nine months of 2007, the Sensex crossed 20,000. The market continued to rally until the end of the calendar year as traders, institutional and retail investors ignored the warning signs: a rise in crude oil prices and the US subprime crisis. Overall, in 2007, the market capitalisation of the BSE 500 jumped to `65 lakh crore from`33 lakh crore the previous year. The bull rally continued till early 2008 when the Sensex crossed 21,000. It was a steady fall from there until the markets started recovering again in May 2009.
The Rupee on Steroids
The deluge of capital inflows saw the rupee hardening against the dollar, hurting exporters. The rupee rose to 39.27 on October 11, 2007 —the highest since February 26, 1998. That shaved off the profits of most export-dependent industries. Even as IT companies registered lower profitability, the Indian textile industry struggled to compete with other low-cost producers such as Taiwan, China and Bangladesh. The textile industry is estimated to have lost some 600,000 direct and indirect jobs in 2007-08.
DLF’s Towering IPO
With property prices on fire and a booming economy, real estate major DLF mopped up close to `9,200 crore in the biggest IPO until then in India. More than half a dozen real estate companies, including the likes of Housing Development and Infrastructure, IVR Prime, Omaxe, and Puravankara Projects, followed DLF and collectively raised over `4,800 crore. All these stocks are currently trading below their IPO prices.
QUOTE OF THE YEAR
“Let’s be honest. These two (Air Sahara and Air Deccan) were charging unrealistic fares, and the removal of these fares from the market will be good for the entire industry.” Siddhanta Sharma, Chairman, SpiceJet
26/11
Mumbai had seen bloodshed in the past. The serial blasts of 1993 and the train blasts of 2006 claimed hundreds of lives. But the urgency of commerce and the work ethos of Mumbai ensured that the maximum city never paused for more than a day. On November 26, 2008, 10 terrorists changed all that as they opened fire and set off bombs at public places and the docks. After the attacks at the Chhatrapati Shivaji Terminus (CST), the Taj Mahal Palace and Tower, the Oberoi Trident and CaféLeopold, the terrorists took people hostage. This time, the city stopped for almost four days, although train services were resumed within six hours of the attacks on CST. By the time commandos ended the siege on November 29, the death toll was 190 with over 300 people injured. Café Leopold reopened five days later. The Taj and the Oberoi were back in business a month later. But the attacks took their toll on the economy, which was already down because of the recession. According to one estimate, the city lost `4,000 crore in revenues as shops and other establishments downed shutters. Businesses in aviation, insurance, tourism and hospitality were hit and shed jobs.
Tata Snaps Up Jag
This was the last big-ticket acquisition before the recession hit Indian shores. Tata Motors forked out $2.3 billion to acquire the marquee brands of Jaguar and Land Rover (JLR) from Ford in March. By mid-2009, that move looked like a colossal blunder as Tata Motors posted a net annual loss of `2,500 crore— its first loss in seven years — with sales of JLR luxury cars plummeting. As the economic sentiment improved and buyers in new markets, like China, went on a binge, JLR sales picked up and now account for more than half of business at Tata Motors.
Recession Hits India
The US’s nasty cold had India sneezing. As US financial giant Lehman Brothers went belly up and others courted bankruptcy, a full-blown recession in India seemed all too real. By Diwali eve, the Sensex was down to 8,701 points from an all-time high of 21,000 in January 2008. Banks refused to lend, which led to a liquidity crunch. India’s economic growth slowed down to 5.3 per cent in the third quarter to December, from 8.9 per cent a year ago. Over five lakh jobs were lost between October and December 2008, the government estimated.
QUOTE OF THE YEAR
Even if there is money available, nobody wants to take the risk of buying or investing.” Sumant Sinha, COO, Suzlon, on the liquidity crunch
Satyam Scandal
At nearly `8,000 crore, the Satyam scam was among the biggest in corporate India and tarred the image of the snow white IT industry. The perpetrator: the soft-spoken founder and Chairman of Satyam Computer Services, B. Ramalinga Raju. In January 2009, when Raju confessed to cooking the books of then India’s fourth-largest software services company, investors in Satyam shares lost a whopping`13,600 crore within a month and the company faced an avalanche of lawsuits. Clients dropped off and many in the Raju clan were arrested, and the external auditors came under fire. However, with parliamentary elections a few months away, the Union government intervened, dismissing the company’s board and appointing a new one in its place. In the bidding process for the company, the Mahindra group beat Larsen & Toubro to acquire it, less than four months later in April 2009. The scandal raised questions about the state of corporate governance and the role of independent directors in India. Since then, Raju has been in and out of custody, even as he continues to fight a protracted legal battle. Satyam has been rebranded as Mahindra Satyam and is attempting to regain its past glory.
QUOTE OF THE YEAR
It was like riding a tiger, not knowing how to get off without being eaten.”
Ramalinga Raju, in his confession letter dated January 7, on why he continued to cook the books for years
Tata Nano Launch
More than a year after unveiling the car at the Auto Expo in Delhi, Tata Motors rolled out the first Nano in July 2009. The “standard model” cost`1 lakh without taxes, which made it the world’s cheapest car. The Nano’s ride, since then, has not been smooth. Some cars have caught fire, forcing the company to make safety fixes. In November 2010, Nano’s sales plunged to an alltime low of 509 units from a peak of 9,000 units in July this year.
Unravelling of the Retail Sector
After almost a decade of heady growth, the modern retail sector began to fall apart. Subhiksha Trading, started by R. Subramanian in 1997, was the first one to collapse under the weight of spiralling costs, rising debt and lack of fresh funding. The following year, Delhi-based Vishal Retail was sold off to private equity firm TPG Capital and Chennai-based Shriram Group. Other retailers such as Reliance Retail, Aditya Birla Retail’s More, and the Essar Group’s The Mobile Store, either scaled back their expansion plans or shut down stores. Some like Koutons are still struggling with debt.
Scams, Scandals and Shame
If there were two words to describe 2010, they would be graft and grime. Accused of graft, Indian Premier League (IPL) boss Lalit Modi was sacked by Indian cricket’s governing body. Among other things, Modi was accused of pinching designer watches. IPLgate also put the brakes on the career of diplomat-turned-politician Shashi Tharoor as his role as “mentor” of the Kochi team came to light. Tharoor’s case was not helped by revelations that his then girlfriend (and now wife) Sunanda Pushkar was awarded a small stake (worth `70 crore) in the team as sweat equity. The BJP-led Karnataka government was accused of land scams, mining scams and by and large running a corrupt government.
The Commonwealth Games got a wealth of bad international press as a footbridge collapsed and the shoddy states of event venues came to light just before the start. Corruption charges against government officials and the organising committee members continue to be investigated. And then, there was the `1.76-lakh crore 2G scam. As taped conversations of lobbyist Niira Radia with corporate bigwigs, politicians and journalists were leaked, honesty in public life in India seemed like a distant dream.
An ID for All Indians
In the works since 2006, the unique identification “Aadhaar” scheme took off in September 2010, when the Prime Minister handed out the first set of 12-digit numbers at Tembhli village in Maharashtra’s Nandurbar district. Led by former Infosys chief Nandan Nilekani, the Unique Identification Authority of India is planning to issue 600 million UIDs over the next five years.
QUOTE OF THE YEAR
“The Indian consumer is very demanding, which is a good thing. They want a significant amount of quality, but they also want the lowest price possible.” Andreas Gellner, Managing Director, Adidas India