M-Commerce in India: Future Prospects

www.irctc.co.in – The official website of the Indian Railways Catering and Tourism Corporation has revolutionized the scope and dimension of the Indian e-commerce market which otherwise would not have taken its first baby step towards the future. 

Basking in the glory of the above enterprise from the Indian Government, few travel e-commerce companies like RedBus (www.redbus.in) for bus tickets and Makemytrip (www.makemytrip.com) for flights have tasted fair amount of success. 

However, e-commerce in India is still in a nascent stage. Conclusions from a report released by Internet and Mobile Association of India (IAMAI), suggest that the total Indian e-commerce market is around Rs 50,000 crore, of which 80 per cent or Rs 40,000 crore is captured by travel e-commerce (online train, bus and airline tickets) while retail e-com or non-travel is only 15 per cent or Rs 8,000 crore.  

With the availability of feature phones or the “smart phones,” Mobile Commerce or m-commerce is also on the rise along with e-commerce where the mobile handset is used as a means to enter into an online transaction. 

With more than 65% of people in India using feature phones, there is an untapped opportunity here too to offer services to subscribers to go beyond the ticketing purposes. 

The future of mobile commerce bears great potential. Approximately 70% of the Indian population is below the age of 40. Of this, a sizable chunk is the youth in the age group of 14-18 who are devoid of a self Bank account and are spendthrifts. M-commerce, especially in India will thrive on this naïve age group and their lifestyle. 

However, is the Indian financial eco-system and mobile infrastructure really prepared to cash-in such a boom which is being driven by high-end marketing and advertising fervor? 

As of now, the answer is NO. Achieving this requires a concerted effort from the bankers and the service providers to ensure and enrich consumer experience with security by expanding the system to accommodate more volumes to benefit all stakeholders and devise law-abiding guidelines to control flow of money and prevent fraud. 

Marginally though, with investors gaining confidence in the growth of the e-com and m-com markets and pumping funds into ventures like flipkart.com, naaptol.com and junglee.com with additional features like “Cash On Delivery,” experts hope that by the year 2025, the total e-com market will reach at least Rs 4,00,000 crore and the share of retail will be half at Rs 2,00,000 crore.  

E-commerce in India is here to stay and grow exponentially over the years

Indian Agriculture must embrace biotech crops & regulated markets

India has less than 4% of World’s arable land but it has to feed 18% of the global population. With Yields per hectare of food grains, fruits and vegetables far below global averages and 80% of landholdings being less than two acres, it is essential to find economically viable solutions to improve farmer incomes.

Agriculture has been the mainstay of the Indian economy and during these times of recession, a concerted effort for increasing agricultural productivity through technology infusion and market-led interventions is the need of the hour.

Technologies for higher production and productivity, energy saving, environment protection etc. needs to be infused into the sector.

BIOTECH CROPS

The global spread of biotech crops has been recognized as the fastest spread agricultural technology to date (A 94-fold increase in hectarage from 1.7m hectares in 1996 to 160m hectares in 2011 – 15% more than area cultivated in India). Nearly 30 countries grow genetically modified crops of soybean, cotton, maize and other crops across all continents.

So far India has benefited only from Bt. Cotton. However, development of biotech crops for a wide variety of crops is progressing all over the country in both public and private sector.

COMMODITIES MARKETS

Agri-business can transform Indian agriculture, but there are too many challenges that inhibit greater investment. The commodities market is very volatile and is often affected by weather, local and global trade policies and human conflicts.

We need to create a value chain for each agri-commodity. In the context of emerging food processing and feed industries, it is essential to consider how food and feed production can be stabilized with assured and enhanced income to farmers without too much price rise as also through employment generation. For this, biotech crops and their public acceptance holds the key.

Current estimate of benefit to India with a single biotech crop is about US$ 15bn. The need is a definite change in the mind-set and greater acceptance of technology to change the image of Indian agriculture which is often blamed for lower growth rates.

We need more efforts to build public awareness of benefits of such new biotech products through NGOs and other regulatory bodies and make the public know that the regulatory system in the country is one of the most stringent in the world and as such there is no room for undue fear.

If the policy environment is supportive, India can set an example of new bio-economy to the rest of the world, especially to the developing one.

Cautious "Cloud" critical for Indian BPO Industry

Business Processing Outsourcing (BPO) Industry in India is up against yet another challenge in 2012 – The Euro Crisis. Though challenges are not new to this industry, the current scenario assumes significance in the wake of the global economy facing the Euro crisis much before the scars of 2008 US recession faded out.

Backed by factors like cost advantage due to the abundant availability of skilled manpower, infrastructure and fiscal incentives offered by the State, BPO industry has had a decent run till 2008 with ‘attrition’ being the only major thorn in the flesh.

Analysts had in the past and even now advise BPOs to move to lower-cost delivery centres as a means to improve their profitability but the industry has its own concerns for the lack of ‘Quality’ workforce in Tier-II cities.

As a result, BPOs are increasingly focusing on reducing costs within the existing framework which, calls for diversity in the way the companies are looking at business.

A majority of the BPOs who till date were primarily engaged in serving multi-million dollar deals with high transactional and operational costs will now be looking at smaller and shorter contracts, profits for which, can be booked within 6-12 month period.

The above strategy of booking profits in the short-term will give the BPOs the flexibility to scale up in those parts of their business where growth is occurring and to scale back their operational count in areas where levels of business and transactions are declining.

The advent of advanced technologies like “BPaaS” (Business Processing As A Service) on “Cloud” (The practice of using a network of remote servers hosted on the Internet to store, manage, and process data, rather than a local server) also helps BPOs to serve the clients better without much investment on infrastructure.

Not only will “BPaaS” be effective in serving small time clients, it will also be helpful in enhancing the already existing core systems and processes and applying the same to those processes where there was minimal process and technology in the past.

In future, BPOs will look at BPaaS not only to service the smaller clientele as above, but also to run their social media campaigns for sales & customer service process optimization.

Be it customer engagement or finding new business, social media through multi-channel outbound notifications can proactively identify issues and resolve them. This cost effective medium will also be used by the BPOs to attract more and more customers to their list.

There is no denial of the fact that in this period of global recession customers are definitely looking for more at lower budgets. BPOs that identify problem areas of clients, provide specialized services, verticalize, optimize their infrastructure and resources through consolidation and are inclined towards new technologies like virtualization/cloud will survive the current tide.

The future belongs to those BPOs which will cautiously embed cloud sourcing into their traditional outsourcing model.

Conflicting decisions on India’s treatment of software payments

The characterization of computer software transactions has been a contentious issue with the Indian tax authority over the last several years. This Ernst & Young http://tmagportal.ey1.dedicated.nines.nl/wp-content/uploads/2010/11/2010G_CM2141_Conflicting-decisions-on-India%E2%80%99s-treatment-of-software-payments.pdf alert summarizes conflicting decisions of the Delhi Income Tax Appellate Tribunal (Delhi ITAT) in the Microsoft Corporation case and Mumbai Income Tax Appellate Tribunal (Mumbai ITAT) in the Reliance Industries Ltd case on computer software payments.

While the Delhi ITAT concluded that the payments should be treated as a royalty under Indian Tax Laws (ITL) and therefore subject to Indian withholding tax, the Mumbai Tribunal held that they were business profits, not subject to Indian withholding tax.

The alert also states "The conflicting views conveyed by the Indian tribunals on the taxability of software payments have left taxpayers confused. While most of the recent case laws have characterized the payments to be treated as business profits based on the nature and extent of rights granted, the current ruling of the Delhi ITAT deviates from the principles emerging from earlier rulings. In spite of a favorable Mumbai ITAT ruling, foreign recipients of software payments from India are likely to continue to face significant litigation."

Indian Agriculture - Of productivity & use of chemical fertilizers

Home to more than 110 bn people, if India can provide its population two square meals per day, the global hunger will go down by half. By linear method of calculation, in the year 2020, it is estimated that India’s population will be 138 billion and the food grain requirement will be 268 million MT.

Longest day length hours diversified climatic condition, diversified soil, diversified crop, highest irrigated land, ecological condition supporting all types of crop. Over the last 40 years, food production has grown multi folds thanks to increased fertilizer usage, hybrid seeds and better irrigation facilities.

The Problem: However, productivity levels for various crops still below world average. Growing population, shrinking agricultural land, limited scope for irrigation, limited growth in mechanization primarily due to fragmented land holding, low level of agriculture extension services, stagnant food production despite increase in fertilizer consumption and neglect of organic fertilizer use are affecting farmers’ profitability. Farmers want to quit agriculture if other option is available.

Fertilizer usage and productivity: With shrinking agricultural land and the limited scope for irrigation given the long gestation periods for constructing viable dams, the onus is now more on improving the “soil health” through effective use of “fertilizers” for better productivity of food grains.

Food grain consumption crosses 250 million MT in 2010 and the challenge is to produce more from the shrinking arable land. Increased demand of food grains will drive nutrient consumption from 25 million MT to 29 million MT. In this scenario, increasing yield will be the key for future sustenance. For the last 10 yrs, Crop yield growth rate has been only 1.20% where as Nutrient consumption has grown by 3.6%. Fertilizer use efficiency is the major concern in the Indian Agriculture.

Indian Chemical Fertilizer Industry is the largest in the world and ranks second both in production and consumption. The industry produces over 50m MT of fertilizers from 28 operational urea plants, 12 DAP plants, 19 complex fertilizer plants and about 80 single Super Phosphate plants.

However, bulk availability of nutrient fertilisers is concentrated in certain regions. ‘N’ (Nitrogen) nutrient in Middle East, USA & FSU; ‘P’ (Phosphorous) nutrient in North/West Africa, USA & Jordan; ‘K’ (Potassium) nutrient in Canada, FSU & Middle East.

India contributes 16% of the Global consumption and imports of fertilizers for 2009-10 pegged at 18 MMTs. For the last 10 yrs, Fertilizer Subsidy Bill’s growth rate is 21.53%. Though Fertilizer Subsidy Bill has gone up, efficient usage of Fertilizer remains a major area of concern.

The Solution: While a right nutrient balance for optimum farm productivity and usage of other micro nutrients like Boron (B), Zinc (Zn), Iron (Fe), Manganese (Mn), Molybdenum (Mo), Nickel (Ni), Chloride (Cl) and Copper (Cu) can help the Indian farmer to improve productivity, the new Nutrient Based Subsidy (NBS) Scheme where the market price of the fertilizers will be determined based on demand supply balance will help the government to contain Fertilizer Subsidy Bill.

Thus, adoption of an appropriate pricing policy for ensuring balance use of fertilizers, a pricing policy to encourage use of all plant nutrients in balanced manner followed by subsidies for Research & Development in the Soil and Technology related matters are pre-requisites for ensuring continued health and growth of the fertilizer industry in India, ensuring high level of self sufficiency in food production and at the same time sustainable development of Indian agriculture. 

Why India could withstand global recession?

This article is a synopsis of a recent lecture delivered by the former RBI Governor, Mr. Y V Reddy at the Administrative College of India, Hyderabad. The lecture was comprehensive and elaborate and as a former Economics student I will try and present the key points to the best of my ability.

To understand why the Indian economy was not severely affected by the global recession, one must understand the macro-framework in India within which the financial sector operates. In recent years, there has been a conscious effort to avoid serious macro-economic imbalances such as between savings and investments; domestic and foreign demand; consumption and investment demand and role of State vis-à-vis market.

Second, the economy is vulnerable to four important sources of shocks. These are on account of (a) dependence on imported energy and oil (b) volatility in gap between supply and demand for food grains which can impact prices domestically and sometimes globally (c) fiscal problem with one of the largest public debt to Gross Domestic Product (GDP) ratios with limited headroom for public policy in the event of shocks and (d) quality of capital inflows, mainly on account of dominance of volatile portfolio flows.

Despite the potential of these shocks, political stability adds to the comfort in macro-management, but due to the geo-political reasons, the global economic architecture does not give policy comfort to India for meeting unanticipated shocks.

In a nut-shell, the macro-economic framework based on constant re-balancing is serving the country well, and has not contributed to the macro economic imbalances that might have triggered the serious consequences. India is thus a contributor to global economic stability and growth in output while successfully preserving with national interests with historically high growth and low inflation in recent years. India therefore has greater legitimacy in contributing to the resolution of ongoing debates on reforms in the context of global financial crisis.

Monetary Policy & RBI’s Changing Role: There is a general agreement that monetary policies in some countries did facilitate, if not caused, the global crisis. The redefining of the objectives of monetary policy, to include financial stability is on the global agenda of reform, while there is discomfort on excessive reliance on price-stability.

In India, the mandate for the RBI is very broad. It was interpreted to mean dual objectives of growth and price stability, the relative emphasis depending on the context. The RBI reinterpreted this a few years ago, by adding financial stability to the objectives and by ensuring of inflation of not more than 5% and 3% over the medium term per annum so as to be consistent with global trends.

More explicitly, since 2004, price and financial stability were given greater weight because the poor are impacted severely and instantly by instability while reform induced benefits of growth percolate to them with a time lag.

The importance of sustainable current account deficit in macro-management and an appropriate exchange rate have come to the fore in the recent debate on the causes of global crisis in addition to the role of capital controls. The issue of capital account management is on the agenda of the reform in view of the observed contagion during crisis, to the developing countries which are described as innocent victims.

The management of external sector, in India is characterized by (a) a sustainable current account deficit over the medium term (b) an exchange rate that is not excessively volatile (c) management of capital account that eschews short term debt unrelated to trade (d) a gradual process of liberalization of capital account and (e) extensive recourse to prudential measures over financial intermediaries which have the effect of active management of capital account.

In 2004, RBI devised an innovative mechanism, namely market stabilization bonds. This gave the government a significant role in the total amount of sterilization and thus indirectly on intervention in forex markets, by government agreeing to bear the costs of such sterilization bonds. This instrument, along with active capital account management and other multiple instruments in regard to liquidity in money and forex markets helped the RBI in managing excess sudden capital inflows during boom as well as outflows on capital account when the crisis broke out.

RBI was instrumental in delivering on several complex aspects of Indian economy, namely, maintaining stability, ensuring output close to potential output, enabling structural transformation to enhance potential output, align the growth and complexity of financial sector with reforms in related sectors both real and fiscal; and seeking gains from gradual integration with global economy while minimizing risks.

Thus, RBI tried to exercise autonomy in operations, harmony with other macro-policies in policy-issues and close coordination with government for structural changes needed for development. The development and regulation of financial sector was considered to be one part of the broader policy-mix and not something with narrow objective confined to financial sector and well defined limited set of instruments for public policy.

Financial sector reform has taken a new meaning all over the world. Until the crisis, reform of financial sector meant deregulation. That was yesterday’s reality, but today’s truth is that reform of financial sector globally means re-regulation and improving quality as well as effectiveness of regulation.

Way forward, India may feel relieved that it avoided the worst affects of the crisis in financial sector. In moving forward with appropriate reforms in financial sector, India must be aware that (a) a financial sector and its reform is not an end in itself (b) the risks are amplified if the reforms in fiscal and real sectors are not in consonance with the pace of the reform in financial sector regulation and (c) highest priority should be accorded to efficient intermediation of domestic savings and domestic investment with a wide participation of the people of India.

‘NANO’ and ‘IPL’ present a ‘New India’ to the world.

Results of the General Elections to the largest democracy (INDIA) in the world might have been the most talked about developments in recent times. 

More so, in the context of Mr. Manmohan Singh propelling the United Progressive Alliance to power for its second term making him the first Indian Prime Minister since Jawaharlal Nehru to return to power after completing a full five-year term. The buoyancy in the stock markets is a testimony to the support that this government is likely to give to the continuation of the economic reforms since it has more or less the required majority in the Parliament.

However, a new breed of visionary people who see greater possibility for their companies within “Bharat and Beyond” are creating a “New India” – almost another country that resides in the modernizing cities of Bangalore, Hyderabad, Ahmedabad, Mumbai and New Delhi and not on the plains on either side of the river Ganges, where majority of the Indian Prime Ministers had their roots.

Among them is Ratan Tata, chairman of the Rs 80,000 crore Tata Group considered as the doyen of the new era of business enterprises in the Indian mainland. Not only has his conglomerate launched the “NANO”, the world’s cheapest car, heralding a revolution by making it possible for the world’s poor to purchase their first car, but also has set out on the most ambitious foreign expansion of an Indian company, snapping up big foreign companies, including car companies Land Rover and Jaguar and the Anglo-Dutch steel maker Corus. The move was watched with envy and admiration everywhere.

Mr Tata’s modernising vision is shared by the likes of Nandan Nilekani and Narayana Murthy, pioneers of the information technology outsourcing industry and co-founders of Infosys. Their experience of the call-centre revolution and the US market has inspired them to believe India capable of more widespread societal transformation. Much of that hope is based on a young population – more than 70 per cent of the country is below 35 years old – working in India’s favour.

The Indian Premier League cricket championship (IPL) best echoes the sentiments of the new age India where capitalism and bollywood have come together to promote carnivalism. IPL Teams are owned by business leaders including Mukesh Ambani of Reliance Industries and Vijay Mallya, chairman of the UB group, and Bollywood stars, such as Shah Rukh Khan, Priety Zinta and Shilpa Shetty. The result is a six-week television spectacle of sporting prowess, consumerism and world-beating ambition.

And this time, the Carnival was successfully hosted in South Africa reiterating once again that a “New India” has formally arrived on the global scene.

Picture 1: Ratan Tata, Chairman of the Tata Group with Nano Car.
Picture 2: Lalit Modi, Chairman of IPL.