India Has Big Manufacturing Plans. How Prepared Is Our Infrastructure?
India's manufacturing ambitions demand better logistics and infrastructure for the movement of cargo in and out of the country
On today's episode, financial journalist Govindraj Ethiraj talks to Vinayak Chatterjee, co-founder of Feedback Infra, a leading authority on infrastructure issues and challenges in India.
- <00:55> Indian markets hit new all-time highs, valuation concerns surface
- <03:15> A Tale Of Two Boards, corporate governance stories.
- <08:39> India has major manufacturing plans. How prepared is our infrastructure? with Vinayak Chatterjee
- <16:05> Hmm..TCS was supposed start on July 1, predictably, banks are not ready
TRANSCRIPT
NOTE: This transcript contains only the host's monologue and does not include any interviews or discussions that might be within the podcast. Please refer to the episode audio if you wish to quote the people interviewed. Email [email protected] for any queries.
Good morning, it's Thursday, the 29th of June and I'm Govindraj Ethiraj in transit and missing the rains and chaos of Mumbai, India's financial capital.
Our top reports today
-Indian markets hit new all-time highs, valuation concerns surface
-A Tale Of Two Boards, corporate governance stories.
-India has major manufacturing plans. How prepared is our infrastructure?
-Hmm... TCS was supposed to start on July 1, predictably, banks are not ready
Stock Markets Hit All-Time, Again
Obviously, every upward move however small or big is an all-time high. This time it's on the higher side.
The Sensex went past the 64,000 mark to hit a new all-time high at 64,050, eventually ending with a gain of 499 points at 63,915.
The NSE Nifty 50 topped the 19,000 mark for the first time ever and registered its new peak at 19,011 The Nifty finally ended at 18,972, up 155 points.
The reasons are several including strong global markets, notably Wall Street, along with strong foreign institutional investor buying.
US data including for orders for manufactured goods are suggesting a resilient US economy and a survey of consumer confidence hit a 17-month high.
Back home, Apprehensions over the impact of delayed monsoons may have helped too.
I have always felt, without any data to prove it, that the monsoon is treated as arrived and doing fine by stock market players if it pours in Mumbai. And that of course is happening right now.
Back in the markets, Reliance Industries, HDFC Bank and Infosys were among the big gainers.
Meanwhile, while we have been seeing a spate of bullish reports using both past data like Goldman Sachs and future optimism like Morgan Stanley, others are being careful.
Stock Brokerage CLSA, earlier known as Credit Lyonnais Securities Asia has said it remains cautious on India for now because of exceedingly rich valuations and margin erosion depleting India's relative profitability.
It also says, according to website Bq Prime the other reasons are consensus earnings-per-share growth expectations remaining too optimistic versus the delivered track record and the RBI likely lagging emerging markets central banks in the timing and scale of policy-easing. "Our econometric model signalling the market is 14% overbought," it said.
In general, many bullish brokerages have been predicting a strong market basis with high profit margins even though overall economic growth may be moderate. This has been partly driven by falling raw material prices though in several cases.
A Tale Of Two Boards
Some of you may have followed this report that software major TCS was alerted about senior executives breaching a code of conduct to provide preferential treatment to some recruiters in the company's resource management group or hiring division.
This was apparently triggered by a whistleblower complaint towards the end of April or May.
By the way, TCS is India's largest private employer and employs 614,000 people or 0.6 million people across 150 nationalities.
The Economic Times has now reported that TCS has written to its board of directors to say that and I quote "while the investigation is still ongoing and the final report is still awaited", the initial reading suggests that subcontractors are a very small percentage of the overall workforce of TCS and the claims are "ridiculously exaggerated".
TCS had earlier said: "On receipt of the complaint, the company launched a review to examine the allegations in the complaint." Based on the review, TCS found that "this does not involve any fraud by or against the company and (has) no financial impact". It also said no key managerial person of the company has been found to be involved.
"The issue relates to breach of the company's code of conduct by certain employees and vendors providing contractors," it said.
Now TCS' board of directors, apart from those either within the company or the Tata Group include Dr Pradeep Kumar Khosla, the Chancellor of the University of California, San Diego, and a distinguished professor in the Department of Electrical and Computer Engineering, Hanne Birgitte Sorensen who held several leadership positions in shipping and logistics giant Maersk and Don Callahan, formerly Head of Operations at Citigroup.
The other directors who are familiar names here are Keki Mistry, CEO of HDFC which will be HDFC Bank in a few days and OP Bhatt, formerly State Bank of India chairman.
Looking around the board and at the names I am familiar with and assuming the part of the letter is accurate I can pretty much predict who exactly would have seen the first news report that appeared on this HR mess and resultant scandal and telephoned the TCS CEO or someone appropriately senior to provide an explanation in writing and on record to the board.
To be fair, it is equally possible that TCS did the same thing proactively, anticipating precisely this call or worse, a formal letter from a board member asking for an explanation.
Either way, information has been exchanged on what could be a not-so-serious matter but with definitely serious implications at least from a perception point of view.
I could contrast this with many things but the example of edtech company Byju's obviously comes to mind, being fresh and all of that.
Byju's as a company is presently afloat with only the family effectively left on its board. Three independent directors and investors who have likely invested over $5 billion between them or on behalf of others have abandoned the company by resigning, a most unusual move considering most investors with much, much smaller investments would have asked the founders to leave instead, if matters had reached such a head.
Then of course the auditor Deloitte has also resigned. There is a new auditor going by reports but this is not a simple assignment.
In general, directors only resign if there is the threat or likelihood of some kind of action by some law enforcement agency triggered in turn by some actions or missteps that were possibly preventable or should not have been done at all.
They would also resign if they would feel that in addition to being dragged into some investigation or the other, they have no hope of taking control or it is just not worth the time and effort and.. prudence dictates that writing off the investment is better than..well, to put it somewhat dramatically, jail time.
TCS enjoys what is known as a governance premium in the stock markets, as do most Tata companies, as do many other companies, including in IT and among MNC stocks.
It is likely that such queries come in from active board members on various developments, good and bad in a year to many if not most companies. Or companies proactively keep their directors informed if they encounter some such material development. All that is part of good governance.
A bad development would usually lead to directors wanting to re-assess the company they are keeping and whose board they are sitting on and not get embroiled in something unfortunate. This is for both perception and legal reasons as being on the board of a company involved in some malfeasance can get you into trouble even if you had no clue what was going on.
Things of course do go wrong and companies will try to bury something that should have been either revealed or shared.
It was possible that the TCS HR issue could have been bigger and more damaging.
Maybe it is, maybe not. But good governance would demand that it get to the bottom of it quickly and keep everyone informed, including shareholders and other stakeholders.
Does India Have Enough Infrastructure For Its Ambitions?
There is much discussion on semiconductor plants as well as other new manufacturing projects on the anvil, some thanks to India's productivity linked incentive schemes and some otherwise. Most industrial groups in India, like the Tatas, have announced major capital expenditures in the next year or so.
The broader and perhaps general question I posed is that with increased manufacturing activity, among other things, how is India's infrastructure set to cope with increased demand for better and smoother logistics for raw materials coming in and goods going out, within India and outside?
I spoke with Vinayak Chatterjee, co-founder of The Infravision Foundation and a leading authority on infrastructure issues and challenges in India as well.
I began by asking him how he was seeing our current position, particularly on the major infrastructure points like roads and ports.
Read the interview here.
20% Tax On International Spends Looms
The government's presumptive tax on overseas credit spending could get delayed.
The new 20% tax credit at source which you would pay when you travel overseas and your spending exceeds Rs 7 lakh in a year may get delayed beyond July 1 or may be applied partially.
India is likely the only country in the world that will tax its citizens and that too steeply for the privilege of using their credit cards overseas, apart from the other expenditure they could incur.
Multiple news reports are quoting banks saying they are not ready with the reporting systems for the 20% TCS. The challenge seems to be, among other things, the multiple TCS rates and the Rs 7 lakh exemption, which by the way was a result of the pushback from angry citizens and international travellers.
In any case, the government has not budged on mostly everything, as all outward remittances, including bank account transfers, foreign exchange, and loading forex cards except for medical and educational purposes made via the Liberalised Remittance Scheme will attract a TCS of 20%.
So just to refresh our memories, you will pay 20% in addition to or over everything you spend of your income that you have presumably already paid tax for to the Government who will allow you to net it off when you file your tax returns at the end of the year.
It has already been pointed out, including on the Core Report, that many people, for example, blue-collar workers who buy one-time foreign exchange before leaving the country for long work stays overseas are most unlikely to return to claim a refund. And are more than likely to forfeit it, given the runaround it will involve.
It would also appear that not much or limited consultation has happened between the Government and the banks on the technical feasibility of the first proposal or the challenges thrown up by the second one, before the hastily announced exemptions.
It also appears that the Government may not have consulted anyone at all on this move, because economists and finance watchers on both sides of the aisle have attacked it soundly, for among other things, bringing back the 70s feeling of controls.
Of course, eventually, banks have no choice but to fix it and am quite sure they can but it is quite clear that there was an inexplicable rush behind the move. To what end and why July 1 is not clear to me either.
That's it from me for today, have a great day ahead and see you tomorrow!
