Volume 1 Issue 1 August 2010

Brand Rupee:
` Pride Probe
 The Editorial Contents
Strange is the quest for simplicity. One just cannot Decoding ‘DTC’
try harder to master the art of novelty. As ironic as
Ayush Gupta
might sound, in this era of ―communication‖,
somewhere, we all have stopped thinking straight.
Our thoughts, perceptions, and opinions are so Oil is Well?
intricately layered that plain objectivity evades the Abhishek Agarwal
eye. Let us all for once, shed the notion of
―complex times befit deviant, tangent
connotations‖. Let‘s think simple.
Brand Rupee: Pride Probe
Cover Story: Gourab Kundu
―Manthan‖ is an attempt by FOREword and FORE
Economy Forum, FORE School of Management, to Flying High IGI Airport
impression a lucid understanding of all that affects
Radhika Gupta
us. Economy at large or the hike in rentals of the
auto rickshaw on the street, nothing evades. This
is a small endeavour on our part to decipher the Rating the Base Rate
forces that create this startle. Concept Concision: Ankur Singla

The maiden issue of ―Manthan‖ looks at the

various reasons that led to the ―Rupee
The Vs Overweigh the Ps
Incarnation‖. It questions the reasons for a new Samarth Gulati
symbol and advocates the modalities of a brand
that has surfaced from this exercise. The Oil and The Month in Review…
petroleum sector is always notorious to give the
Cijil Diclause
Government and the general public sleepless
Dhruval Dholakia
nights. Deregulation has only catalyzed the
already volatile scenario. As I speak, the
parliament in the monsoon session is continuously
crippled by the stalemate between the
government and the opposition over price rise.

―Mathan‖ provokes the thinker in you. Think,

fef@foreian.com
question, decipher for yourself. The world would
fore-economyforum.blogspot.com
be so much simpler then.

Gourab Kundu
FORE School of Management
foreword@foreian.com
Decoding
„DTC‟
Ayush Gupta - FORE School of Management

3
Image courtesy: http://www.whiteoaksblog.com/2009/07/13/san-carlos-residents-ok-with-sales-tax-hike-really/
D
irect Tax code (DTC) has been complicated ever since its inception in 1921. With the
inception of the new direct tax code in 1961, the complications increased manifold. The
new DTC will overhaul and simplify the existing, four decade old Income Tax Act. Both the
individual taxpayers (Indian or foreigner) and corporate houses would be affected by this
change. Finance Minister Pranab Mukherjee fulfilled his promise by announcing the first draft of
direct tax code in August 2009 and opened it for discussion. After examining more than 1600
comments and feedbacks, the Manmohan Singh led UPA government finally released second
draft of DTC on June 15 2010 for approval in winter season parliament session. The second draft
addressed as many as 11 major issues put forth.

The Salient Features of DTC:

Tax Slabs: This is done to increase the tax
base rate. If implemented, 97% of the
population will come under the slab of 10%.
There has been a tremendous increase in the
tax base of the country by lowering the tax
slabs. This helps bring an increasing
proportion of the economy under the tax net.
It is made by taking care of inflation in future
so that it will not be changed for a longer
time. This will further help India to decouple
itself from the rest of the world by increasing
its own domestic consumption by the
heightened disposable income to individuals.
Proposed Tax Slabs for Personal
Income Tax
Total Income Tax Rate (%)
Up to `1,60,000* Nil
`1,60,000 - `10,00,000 10
`10,00,000 - `25,00,000 20
Above `25,00,000 30
*`1,90,000 for Women and `2,40,000 for
Senior Citizens
Capital Gains: There will be no distinction
between long term and short term capital
gain. Right now, there will be no tax on long
term capital gains (that is more than one
year). But now it will be included in the total
income, so liability from sales of capital
assets would be in line with their income
slabs.
Savings Limit: DTC on one hand proposes
to increase the tax deduction limit available
on savings from existing 1lakh to 3lakh. On
the other side, it proposes to tax the savings
that is invested in PPF, GPF, insurance etc
named as EET (exempt-exempt-tax) taxation
method in place of existing EEE (exempt-
exempt-exempt). First ‗E‘ means savings
deductible from income, Second ‗E‘ means
accumulations are exempt till remain
invested, ‗T‘ means withdrawals at any time
are subject to tax. But this will remain on
hold till social security system get in place in
India. So, EEE remain effective till the next
notification from the Ministry of Finance.
Corporate Tax: Reduction in the corporate
tax from current 33% (including surcharge)
to 25% to encourage corporate activity and
investments. This will be compensated by
withdrawing tax incentives available to
sectors such as export, infrastructure etc.
Minimum alternate Tax: .25% for banking
and 2% for others in first draft based on the
gross assets in the initial draft of DTC. But
then the issues like:
 Company who are in losses have to pay
the Tax which they are not in position to
pay
 Companies having long gestation period
can‘t afford right now to pay,
 It will be more on new business than old
business which have depreciated assets.

No Legacy is so rich as
Honesty
William Shakespeare
4
 Decoding „DTC‟
Ayush Gupta
 Inclusion of capital work in progress
which is not generating any revenue will
increase the tax base of the company.
Due to these difficulties, MAT again charged
from book profit as in existing system.
Sectoral Impact
SECTORS MEASURES
Automobile  Increase in Personal income
slab
 Cut in corporate tax to 25%
 Rate of Depreciation on Plants
& Machinery cut to 15%
Banking  Cut in corporate tax to 25%
 Increase in tax saving from 1lk
to 3lks.
Oil and Gas  Moving from Profit linked tax
exemption to investment linked
tax Exemption.
 Cut in corporate tax to 25%
Pharmaceutical  Cut in corporate tax to 25%
 Export-based incentive under
Section 10 to be eliminated
Software  Tax holiday under the Software × Negative for all companies as this
Technology Parks of India
(STPI) scheme expiring in
March.
st
 SEZ units set up after 31
march 2011 will not get the tax
break.
• Cut in corporate tax to 25%
Power  Cut in corporate tax to 25%
 Reduction in depreciation of × Companies availing high rate of
Plants & Machinery
Check on FII’s Income: FII‘s income from
security transaction will be considered as
capital gain instead of business income that
will help to make simplify the taxation
system. As in existing system, FII‘s mostly
show their income as business income and
left out from paying tax.
POSITIVE/NEGATIVE
 More disposable income
 High Tax paying Companies
 Go for higher investments
 As currently they are paying 34%
 Banks having financial subsidiaries in
life insurance.
× Mainly for upstream companies like
RIL, Cairn, ONGC
 High Tax paying Companies
 Beneficial like DRL
× Negative for all pharmacy companies
scheme has allowed all profits from
exports to be exempt from tax for
the last 12 years.
× Every company thinking of starting
new SEZ to get the benefit. Export
from SEZ has shown growth of 78%
in last fiscal
 Positive for the whole sector.
 For companies not covered under
MAT
Depreciation.
No Bird Soars Too high if he
Soars with his own Wings
5
William Blake
 Decoding „DTC‟
Ayush Gupta
Tryst with IFRS
IFRS is going to be implemented from April
1, 2011, by all the nifty and sensex30
companies, and the companies having net
worth more than 1000 crore. This will not be
an easy task to implement in very first
attempt as it will shows lot of confusions and
loop holes in various legislations including
DTC. But, the most interesting fact is that
while making DTC, there are various
instances of in congruency with IFRS
(International Financial Reporting Standard)
Major debate that is going on right now is
that, is it better to convert tax regime for the
companies that will be following IFRS instead
of lakhs of companies that is still following
Indian GAAP standards.
 First and foremost thing that is missing in
DTC is the treatment of preference
shares. Preference shares are treated as
same as equity shares under current
situation, but after switched to IFRS, it is
considered as a liability in the books for
the issuing company and the dividend
Quiz 1: Connect and Decipher
1 2
There is an uncanny connection between the
two entities in each of the picture sets. Try
and decipher the relation in each of the three
3
sets.
Answers to be mailed to fef@foreian.com or
foreword@foreian.com
given by the company is considered as
interest that will be deductable from
Profit and loss account. DTC doesn‘t
clarify whether this interest will be
deductible or not.
 Another miss is, ESOPs, which under
IFRS will need to value the options and
have to charge from the profit and loss
account. While in current Indian GAAP
there is no need to do that. For example,
suppose a company having share price of
Rs 100 and give ESOPs to its employees
at Rs75 and lower their salary that will
benefit the company in terms of showing
net profit as ESOPs is not included in the
profit and loss account. DTC doesn‘t give
any clarification on that.
Mr Pranab Mukherjee said in his speech ―Tax
reform, like all reforms, is a process and not
an event‖ that will take its time to become
fully functional. But no doubt this is an
evolutionary step that will change the entire
financial landscape of India.
Business opportunities are
like buses, there's always
another one coming
6
Richard Branson
 Oil is
Well?
Abhishek Agarwal - FORE School of Management

7
 Oil is Well?
Abhishek Agarwal
T
he talk of dismantling the so called
Administered Pricing Mechanism began
in 1995 with the R group headed by
Vijay Kelkar. Four committees and 15 years
later, the government has taken over the
mantle. The R group was followed by the
Rangarajan Committee in 2005 and
Chaturvedi Committee in 2008. Finally some
of the recommendations of the Kirit Parikh
Committee was accepted and the goverment
decided to free the petrol prices.
The Empowered Group of Ministers of the
UPA Government on June 25, have approved
a hike of ` 3.5 per litre in petrol, ` 2.0 per
litre in diesel, ` 35 per cylinder for LPG and `
3.0 per litre in kerosene prices. The
government has completely deregulated the
petrol prices and increased prices of LPG and
kerosene marginally. As per media reports,
diesel price shall eventually be market driven,
whereas the government will continue to
subsidize LPG. The proposed new formula will
also contain an in-built mechanism to freeze
pump prices of petrol and diesel if global oil
prices rise beyond a certain level to protect
consumers.
The Economics
The subsidy regime of oil is not sustainable in
the long run. The subsidies provided to the
Oil Manufacturing Companies (OMCs) mean
the government has to borrow more and
which has grave inflationary repercussions.
The Finance Secretary says, ―The fiscal deficit
in the year ending March 2011 can be slashed
to 4.5 per cent.‖ Efforts to rein in the deficit
have been buoyed by better-than-expected
revenues of about $24 billion from the
auction of third generation telecom and
broadband wireless spectrums. Lower fiscal
deficit will help the industry and the country
in the long run.
Political Impact
The BJP and the left parties called a
nationwide strike on July 5 to protest the
price hike. The bandh caused a mammoth
The subsidy regime of oil is not
sustainable in the long run. The
subsidies provided to the
OMC’s means the government
had to borrow more and which
crowds out the corporate and
this turns inflationary
economic loss to the country while the
political parties were busy scoring brownie
points. The bandh is estimated to have cost
the nation close to ` 13,000 crore in terms of
GDP loss", read the FICCI official statement.
ASSOCHAM put the losses at Rs `,000 crore,
while CII pegged it at ` 3,000 crore. The
success of the bandh might give an incentive
to these parties to go for more bandhs in
future, with absolute disregard to the nation‘s
economy.
Impact on Oil industry
The OMCs will benefit but only to a limited
extent. The petrol prices are just 10% of oil
companies‘ sales. Diesel and LPG have the
major stake. However the first step has been
taken and some part of the under recoveries
of the companies will be reduced. Before the
hike, the Oil PSUs were projected to lose `
74,300 crores on selling petrol, diesel, and
domestic LPG and kerosene below cost in FY
2010-11. Credit rating agency CRISIL
estimated that the Government's move to
decontrol petrol prices and hike the rates for
cooking fuel and diesel will help Public Sector
Oil Companies reduce their gross under-
recoveries by ` 25,000 crores this fiscal.
We are currently not
planning on conquering the
world.
8
Sergey Brin (Google)
 Oil is Well?
Abhishek Agarwal

Another major change in the industry will be
the re-entry of the private players. Reliance
owns 1,420 petrol stations but operates on
lesser than half, as it is difficult to compete
with subsidized state operators. Freeing up
the petrol prices will boost profits and
strengthen the retail presence of Reliance
and Essar, which had almost 15 per cent of
the retail fuel market share five years ago,
before subsidized state firms nearly squeezed
them out.
Impact on Inflation
The Finance Ministry's Chief Economic
Adviser, Kaushik Basu said that the price rise
Direct Impact of Price Hike on Inflation CARE Research
Unit Old Price Increase Growth (%)
Petrol `/ltr 47.9
Diesel `/ltr 38.1
LPG `/cylinder 310.0
Kerosene `/ltr 9.0
Total Direct Impact (%)
Impact on Consumers
The price increase will pinch the poor in the
short term, though the impact will be
minimal. Diesel has a direct impact on the
poor as it is the major transportation fuel.
The end users of Petrol are mostly well-off
people who can certainly afford the price rise.
Also the skyrocketing prices will make us
explore alternative sources. They will offer an
incentive to automobile manufacturers to
develop fuel-efficient vehicles as customers
would gladly trade luxury for efficiency. Also,
people will opt for public transport and car
would impact headline inflation by 0.9
percentage points. CARE research has given a
figure of 0.63%. The forecasts from the
Indian Meteorological Department suggest
that monsoons this year are expected to be
normal, which should bring down both food
and headline inflation. In the short term the
Government‘s unexpectedly bold move to
introduce market prices of fuels will
exacerbate headline inflation that topped 10
per cent in May, but in long term moving
towards market pricing will ease a subsidy
burden as India. Helping it to cut the deficit
that is set to hit 5.5 per cent of GDP this
year.
Weight (%) Impact on
Inflation
3.0 6.3 0.89 0.06
2.5 6.6 2.02 0.13
35.0 11.3 1.84 0.21
3.0 33.3 0.69 0.23
0.63
pooling. It is time bicycles were used more
than they are now. But these are long-term
prospects.
This process preludes the government
embargo on regulation of prices. A balanced
step has been taken to enter into the path of
freeing of prices, at the same time maintain
that the inflationary pressure impact will be
minimal to the poor. The biggest beneficiaries
will be the OMC‘s as well as the private
players. The things to watch out for are the
details of the mechanisms which will be fixed
by the government of India.

Quiz 2: Answer at Will

1. YEN ON SCISSOR Unscramble the above for a mobile brand. (Two words)
2. 'The Best or Nothing' has been launched as the new slogan of which auto brand recently?
3. Sports footwear maker Reebok is a subsidiary of which company?
4. Facebook has announced the shutting down of something it started in September 2009.
What is it?
5. About 70 per cent of IKEA's annual marketing budget is said to be spent on what?

A man should never neglect

his family for business
Walt Disney
9
 Brand Rupee
Pride Probe
Gourab Kundu - FORE School of Management
Cover Story

10
P
erplexed with the recent turn of events,
I sought to decipher the reasons behind
India‘s need to get a new symbol for its
currency. Any student who has fiddled with
some sort of accountancy would vouch for
the comfort that he/she has while using
―Rs.‖. It is something that has been ingrained
in our system, become generic to any
monetary calculations that we make. So why
change it? Is Rs. not a good enough
symboling any more or there is more to it
than what meets the eye? The answer is not
tough, just rhetorical! Every Indian would
acknowledge that a certain sense of pride has
set in with this newly assigned identity to
his/her currency. Now, I can proudly say that
my country belongs to the esteemed league
of nations (all of 5) who have a distinct
symbol for their currencies.
I guess it was high time that the Indian
Rupee got its due recognition. Even the Big
B, Mr. Amitabh Bachchan could not resist
expressing his happiness about the ―Rupee
incarnation‖. He writes in his twitter account,
―New logo for KBC! Note the Rupee symbol
incorporated in the design. My suggestion!
Feeling good!‖ It is pride, the pride of being a
euphoric Indian that makes the feeling of
having a currency symbol that much more
special.
The New Kaun Banega Crorepati Logo (note the `) picture
courtesy: http://twitpic.com/293peo
The hype seems to have reached
magnanimous proportions; Mangalore-based
Foradian Technologies Pvt Ltd has created a
font called Rupee Foradian.
The Indian rupee’s unique
symbol is a blend of the
Devanagri 'Ra' and Roman 'R'
without the stem coupled with
two parallel lines – in line with
Finance Minister Pranab
Mukherjee’s vision for a symbol
which reflects and captures
Indian ethos and culture.
It can be downloaded from the firm‘s blogsite
— http://blog.foradian.com — and used for
free. The firm's CEO Unni Koroth was quoted
in the newspapers saying that it was
"something of an amusement to us in this era
of technological advancement" that the
Government of India said it would take more
than a year for the symbol to become
commercially available. "We thought of doing
something about it," he said. The firm
created a vector image of the new rupee sign
and mapped the 'grave accent' symbol — the
key just above the tab button on the
keyboard — with it. This keystroke was
chosen because most users and programmers
don't use it.
The Indian rupee‘s unique symbol is a blend
of the Devanagri 'Ra' and Roman 'R' without
the stem coupled with two parallel lines – in
line with Finance Minister Pranab Mukherjee‘s
vision for a symbol which reflects and
captures Indian ethos and culture. This has
catapulted India into a league of elite
currencies like the US dollar, euro, British
pound and Japanese yen in having a distinct
identity.
I like thinking big. If you're
going to be thinking anything,
you might as well think big
11
Donald Trump
 Brand Rupee: Pride Probe
Gourab Kundu
The above symbol is one of the 5 symbols
short listed from the design competition
organized by the government with the prize
money of Rs. 2.5 lakhs. It is designed by
Bombay IIT Post-graduate D Udaya Kumar,
was approved by the union cabinet, reflecting
that the Indian currency, backed by an over-
trillion dollar economy, was finally making its
presence felt on the international scene.
Kumar was quoted in one of the leading news
portals saying: "My design is based on the
Tricolour, with two lines at the top and white
space in between. I wanted the symbol for
the Rupee to represent the Indian flag. It is a
perfect blend of Indian and Roman letters: a
capital 'R', and Devanagari 'ra', which
represent rupiya, to appeal to international
and Indian audiences."
Though the symbol will not be printed or
embossed on currency notes or coins, it
would be included in the 'Unicode Standard'
and major scripts of the world to ensure that
it is easily displayed and printed in the
electronic and print media. Unicode is an
international standard that allows text data to
be interchanged globally without conflict.
After incorporation in the global and Indian
codes, the symbol would be used by all
individuals and entities within and outs
The pride is inherent in the responses from
the treasury benches of the Lok Sabha. To
quote Information and Broadcasting Minister
Ambika Soni, "It's a big statement on the
Indian currency. The symbol would lend a
distinctive character and identity to the
currency and further highlight the strength
and global face of the Indian economy". The
government knows it has catapulted a
metamorphosis that would only fulcrum
India‘s position in the world as an economic
superpower. ―The symbol will be adopted in a
span of six months in the country, and within
18 to 24 months globally‖, the minister said,
adding that it would help distinguish the
Indian currency from the rupee or rupiah of
other countries like Pakistan, Nepal, Sri Lanka
and Indonesia. It was also decided at the
Cabinet meeting on the 15th of July that the
state governments would be asked to
proactively promote the use of the new
symbol, Soni said while speaking to an
entourage of media later that night.
D Udaya Kumar, whose design has been selected
for the Rupee symbol. Picture courtesy: rediff.com
Tangentially, with amplification to the
national pride, the status of the country is
also accentuated by the ―Rupee Incarnation‖.
The currency of any country is also the
measure of its well being among the other
countries. Its value and its exchange rate are
symbols of its strength and stability as a
nation, both political and economic. Hence,
the symbol for the rupee is a huge stepping
stone for the progress of India into the
league of great nations.
Success is often achieved by
those who don't know that
failure is inevitable
12
“Coco” Chanel
 Brand Rupee: Pride Probe
Gourab Kundu

But the route question still remains
unanswered. Is it just pride that ushered
in such a change or there is more at the
behest? For instance, is it the common
though that a new rupee symbol will gain
currency for India? In this era of
globalization, a developing economy like
India, must at all times look to stamp its
position among the other nations. The
currency symbol would give an added
impetus of recognition to the Indian
Rupee. India is among the top economies
in the world in terms of purchasing power
parity and is possibly the second-fastest
growing economy. Hence, as a mode to
establish itself, the ―incarnated rupee‖
would be an able booster.
The Rupee Symbol Search Engine
The search for a new symbol for the rupee had
started in February 2009, when the Union Ministry of
Finance kicked off a competition for the design of the
symbol -- although not without controversy. Non-
resident Indians protested because they were not
allowed to participate. Others grumbled at the US$10
entry fee. Some objected to the identifying photograph
that had to accompany all entries because it intruded
on participants' privacy. And there were complaints
when the five winning entries were shortlisted by a
panel of experts. The government remained silent on
these matters. There is still uncertainty about the
number of entries received, with estimates ranging
from 3,500 to 25,000. There is reason for this opacity:
At the top end of the estimate spectrum, the panel
would have had just a few seconds to judge each entry.

But is all this hoopla worth it? India still has a lot of tough questions to answer. Even today, a third
of the world‘s poor stay in India. According to a 2005 World Bank estimate, 42% of India falls
below the international poverty line of $1.25 a day (PPP, in nominal terms Rs. 21.6 a day in urban
areas and Rs 14.3 in rural areas).
Choosing the Top 5 According to the criterion used by
The panel, headed by Reserve Bank of India (RBI) the Planning Commission of India 27.5%
of the population was living below
deputy governor Usha Thorat, shortlisted five
the poverty line in 2004–2005, down
contestants, who won US$500 each. The final winner
from 51.3% in 1977–1978. Still the
will get US$5,000. The contenders are Jitiesh figures are grave. Yes, the new symbol
Padmashali (an advertising professional), Shahrukh J. represents vibrancy, growth and a
Irani (a designer), D. Udaya Kumar (a student from the positive outlook. But mere branding the
Indian Institute of Technology), Nondita Correa- rupee will not serve the major purpose
Mehrotra (a lecturer in architectural design at MIT and of this UPA government which came to
daughter of well-known architect Charles Correa), and power with a mandate for inclusive
Shibin K.K. (a teacher in Kerala). "I think our rupee growth. Disparities between the rich and
suffers from not having an identifiable symbol," Correa- the poor loom large. Will the rupee
Mehrotra told web portal Rediff.com shortly after being become stronger if it has a symbol of its
own? Opinion is divided. Says Sundar G.
named a finalist. "With a symbol we would be poised to
Bharadwaj, visiting Wharton professor of
represent our economic liberalization as ... the Indian
marketing and professor of marketing at
currency will be traded globally." Emory University: "I am not a currency
expert but I can clearly see that the perceived strength of the brand will go up." Adds
Bandyopadhyay of Convexity: "The symbol for the rupee may not make a difference to its strength,
but it will definitely enhance the image."

I feel that luck is preparation

meeting opportunity
Oprah Winfrey
13
 Brand Rupee: Pride Probe
Gourab Kundu
Capital Account convertibility
This new symbol is also considered as a step
towards internationalisation of Indian rupee.
However with a new symbol, the issue of full
This rebranding exercise must
mirror product that it is
entailing: the Indian Economy.
capital account convertibility will be revived
again. While the U.S. dollar, the British
pound, the euro and the Japanese yen are
widely traded currencies, Indian rupee is only
partially convertible.
Further, majority of world's currencies are
also floating. Convertible currencies are
defined as currencies that are readily bought,
sold and converted without the permission
from a central bank or government entity.
The Indian rupee is only partially convertible
as the central bank controls the international
investments flowing in and out of the
country. With a new symbol, the issue of full
capital account convertibility would be revived
again. However, the recent global financial
crisis reiterated that India would not be able
to take such risks. But this does surface as a
major weakness for the Indian currency in
the global arena.
Is branding enough?
We cannot afford to stop just with the
branding of rupee, but need to stabilize our
currency. There are significant systemic
issues that need to be addressed. Our
currency is still highly FII-driven rather than
FDI driven (like China). Our government
finances must be controlled through fiscal
responsibility. A liquid domestic debt market
needs to be set up at the earliest. These
would lead to genuine exchange flows and
pricing of exchange rates on long term
interest rate differentials (enabling a strong
forwards currency market) rather than short
term flows. We saw how our currency fared
during the 2007 financial crises, where India
was impacted mainly by reduced FII flows
which in turn impacted our currency, stock
markets and hence constrained us of capital
(our biggest source of fund raising is capital
markets in the absence of a corporate debt
market). Whilst the timing of branding can
only do us good, developing an eco system to
enable a stable currency should also be
looked at very aggressively.
The rupee incarnation is a rebranding
exercise, speaking from a marketing
perspective. This rebranding exercise must
mirror product that it is entailing: the Indian
Economy. Brands help in gaining a share of
mind of the customers. They are a promise of
superior performance or excellence that the
customer associates with. Better the brand,
higher its value in his/her mind. But
rebranding must be in line with the features
that the product (in this case the Indian
economy) offers. India, even today is a
growing economy. It can be a confident one
at that; ably supported by the large young
population, but in no ways can it project itself
as a developed economy. The country has to
be clear about what the underlying brand
promise is. It is important that India
understands what it wants to convey through
this change and there must be some
underlying basis behind it. India cannot claim
to be a First World nation when abject
poverty, galloping prices, (the annual food
inflation as on July 22 stands at 12.47%), are
issues among many others that are crippling
the economy. There are issues that need to
be looking into fast. With the shrunken
boundaries of the world, a country can ill
afford to claim something and fail to deliver.
This move might just backfire. A measured
approach is the need of the hour.
If there is such a thing as
good leadership, it is to give
a good example
14
Ingvar Kamprad (Ikea)
Flying Colours
IGI Airport
Radhika Gupta - FORE School of Management

15
T
he much awaited Terminal 3 (T3) at IGI
airport in New Delhi was inaugurated by
Prime Minister Manmohan Singh on July
3, 2010. Terminal 3 was built in a record time
of 37 months, as a part of the modernization
and restructuring of Indira Gandhi
International Airport. This project is
developed under a Public Private Partnership
model by Delhi International Airport Ltd
(DIAL), a consortium led by India‘s GMR
group (50.1%), state-owned Airports
Authority of India (26%), Germany‘s Fraport
AG (10%), Eraman Malaysian Airport
Holdings (10%) and Indian Development
Fund (3.9%).
Delhi Chief Minister Sheila Dixit at the
inauguration of terminal 3, IGI Airport Picture
Courtesy: constructionweekonline.in
The impressive new structure is made of 80%
glass, will be the sixth largest terminal in the
world after Dubai, Beijing, Singapore,
Bangkok and Mexico City. The 5.4 million sq
ft terminal is illuminated using the ―North
Light‖ concept which maximizes natural
lighting during the day time without much
heat gain. The terminal will be used for both
domestic and international air traffic
excluding low cost domestic carriers such as
SpiceJet, IndiGo and GoAir, which will be
using the Terminal 1D. The new Terminal 3
packs up some powerful statistics in its fold.
It will be equipped with 78 aerobridges, 6 of
which will be A380 compatible. Moreover,
there will be 168 check-in counters and 92
travelators to make it easier for travellers
with baggage to traverse the 1.2 km long
terminal. One of the travellator‘s is 118
meters, the longest in Asia. With the state of
the art technology, Terminal 3 alone is
expected to handle 34 million passengers
annually. Currently, Terminal 2 along with the
two domestic terminals together handle 27
million passengers annually.
For the comfort and entertainment of the
passengers there is a 2 lakh sq feet large
retail space offering duty free shopping, cafes
and restaurants. For sports lovers travelling
overseas; the Delhi Daredevils management
is setting up a sports bar, where enthusiasts
can sip their cocktails while watching their
favourite sports. In addition, the transit as
well as stranded passengers can utilise the
100 room transit hotel within the terminal
building. To secure such a large complex
there will be 3000 cameras at every nook and
corner. The five level fool-proof baggage
screening system, employing 7 km of
conveyor belt and 41 X-ray machines will
ensure flights against any suspicious objects.
In order to improve the accessibility to the
new terminal, there is going to be a high
speed metro rail link connecting the airport to
the heart of the city. The Airport Express line
will be a 24.2 km long joining Connaught
Place to the IGI Terminal 3 in the distance in
mere 20 minutes. It is modelled on the
London‘s Heathrow Express and Hong Kong‘s
Airport Metro link. On this line there will be
only 6 stops, out of which 3 stations (New
Delhi Station, Dhaula Kuan, Shivaji Stadium)
will doubly act as mini extensions to the
Terminal 3, also known as Capital to City
Airport Terminals (CATs), offering facilities
such as baggage check-in, issuance of
boarding pass and duty free shopping.
For passengers driving up to the Terminal 3 it
will take some time before they can have any
respite from the demonic Delhi traffic as the
new approach road from the Dwarka
roundabout will be only be completed by
The purpose of business is to
create and keep a customer
Peter F. Drucker
16
 Flying Colours: IGI Airport
Radhika Gupta
September 2010, in time for the
Commonwealth Games.
If you thought that Terminal 3 is magnificent,
there will be more surprises in the future. By
2016, a new terminal (T4), identical to
There has been a quantum
jump in the ranking of the IGI
airport. In 2007, the airport
was ranked at 101 by the
Airport Service Quality Rating.
Within a short span of 3 years
the ranking has leapfrogged to
21st position and post the
commissioning of Terminal 3,
IGI airport aims to be in the
top 10 list.
Terminal 3, is expected to come up at the site
of existing Terminal 2. Moreover, Terminal 5
will come by 2021 at which stage Terminal 3
will be utilised solely for domestic passengers
and Terminal 4 and 5 will handle the
international air traffic. Another terminal for
low cost airlines, Terminal 6, is planned for
completion by 2026. By this time the total
capacity of the IGI airport will reach 100
million passengers annually. As the airport
complex grows the DIAL proposes to build an
'Aircity' around the airport with shops, hotels,
convention centres and recreational facilities
for travellers. There has been a quantum
jump in the ranking of the IGI airport. In
2007, the airport was ranked at 101 by the
Airport Service Quality Rating, which rates all
international airports across the globe. Within
a short span of 3 years the ranking has
leapfrogged to 21st position and post the
commissioning of Terminal 3, IGI airport aims
to be in the top 10 list.
To make Terminal 3 commercially viable, it is
essential to increase the air traffic routed via
Delhi. The higher air traffic will generate
higher revenues for DIAL due to increased
passenger tax collection, higher rentals from
commercial outlets and airport usage fee by
airlines.
Once the Terminal 3 becomes a success, it
will accelerate the pace of future
development of the aviation sector in India. If
the IGI airport becomes the hub for
international operations of Indian owned
airlines such as Air India, Kingfisher, Jet
Airways more flights will be routed through
Delhi, which will enable DIAL to recoup its
investment of Rs 9000 crore in to new
terminal. Once, 5 years of domestic
operations of GoAir and IndiGo are
completed, they will become eligible to
commence international operations thereby
further increasing the demand for hubs in
India. This will boost the requirement of other
international class airports in India, thereby
giving a fillip to the aviation industry.
Terminal 3, IGI Airport Portrayal, Picture Courtesy:
dipty.com
Airlines will have better choices in terms of
setting routes for flying to destinations in
Europe, North America as well as Far East.
When more passengers choose to travel with
India as transit point, the occupancy of
Indian owned airlines is bound to increase
thereby increasing the profitability not only
for the airlines but also for the airport
authority. To sum up, as India capitalizes on
its strategic geographical location for the flow
of global air traffic there will be overall gain
for the various stakeholders of aviation, as
well as travel and tourism.
What helps people helps
business.
Leo Burnett
17
 Rating the
Base Rate
Concept Concision
Ankur Singla - FORE School of Management

Base rate is the rate below which

banks will not lend you money. In
other words instead of depending on
the Benchmark Prime Lending Rate
(BPLR) to decide the rate at which
banks would lend, you will now have
a more rational reference point to
decide the rate.
18
Image courtesy: http://www.argentifa.co.uk
T
he Reserve Bank of India issued its first Sub Prime Lending Rate Lending as a
guidelines regarding the percentage of Total Lending Rate
implementation of Base rate system this Bank Type 2005 2006 2007 2008 2009
year on April 9, 2010.These guidelines came
into practice on July 1, 2010. Previously Public
banks used BPLR (Benchmark Prime Lending Sector 51 64 73 71 64
Rate) to calculate the interest on the loan. Banks
Each bank had its own methodology which Private
made it difficult for the borrower to compare Sector 78 85 91 89 83
rate of interest of one bank with other. The Banks
Base rate will include four components to Foreign
calculate the rate: 89 85 71 78 68
Banks
 Cost of Deposits
Overall 59 69 77 76 67
 Adjustment for the negative carry with
respect to the Cash Reserve Ratio (CRR) Source: RBI
and Statutory Liquidity Ratio (SLR) The Impact of Base Rate on You
 Administration expenses, depreciation, IT
spending and costs incurred related to Unlike the popular sentiment resonated by
deposit insurance top caps of the banks, the base rate will work
 Profit margin more as a reference rate. The biggest
misconception in the mind of customers is
But there are some exceptions where loans that the loan rate will go down as the base
will be priced without referring to base rate, rate is lesser than the prime lending rate.
such as:
 Direct Rendering Infrastructure (DRI) Previously the floating rate was computed by
advances subtracting certain percentage points from
 Loans to banks‘ own employees the Prime Lending Rate. Like, Floating rate=
 Loans to banks‘ depositors against (PLR – 2) percentage points. While with the
their own deposits. Base rate system, the loan rate will be
 Export Credit calculated by adding 2 basis points to the
base rate. (Loan Rate = Base rate + 2)
Reasons for Introducing the Base Rate percentage points. Any change in Base Rate
The introduction of the Base Rate is will impact the floating rate of interest of
expected to make pricing more transparent, loans that are referenced to the Base Rate.
as banks are required to review the base
rate quarterly, they are not permitted to lend Floating Rate Calculation with the Base Rate
below the base rate, and they have to System
If the floating rate of interest of a loan is 9%
disclose the Base Rate publicly.
(Base Rate =7% + margin = 2%)
The concept of BPLR was introduced by the Now, the Base Rate rises to 7.5%, the floating rate of
RBI in November 2003 for pricing of loans by interest of the loan will increase to 9.5%
commercial banks with the objective of (Base Rate = 7.5% + margin = 2%)
enhancing transparency in the pricing of their
loan products. However, overtime the Similarly, a downward movement in the Base Rate will
system of BPLR has lost its relevance. The lead to a corresponding decline in the floating rate of
bulk of loans were advanced below BPLR. interest of the loan. i.e. if the Base Rate falls to 6.5%,
the floating rate of interest of the loan will decrease to
This not only made the loan pricing system
8.5% (Base Rate = 6.5% + margin = 2%)
non-transparent but also impeded the
smooth transmission of monetary signals.

If you don‟t have a

competitive advantage,
don‟t compete
19
Jack Welch
 Rating the Base Rate
Ankur Singla
Banks Base Rate (PA) Understanding Average and Marginal
State Bank of India 7.50% Cost of Funds
Punjab National Bank 8.00%
Bank of Baroda 8.00% Assume a bank currently has funds of ` 100
Union Bank 8.00% crore at an average cost of 10%
Central Bank of India 8.00%
Bank of Rajasthan 8.00% Cost of funds annually is,
Indian Bank 8.00% 100 Cr x 0.10 = ` 10 cr
Uco Bank 8.00% or ` 2.50 crore per quarter.
IDBI Bank 8.00%
Indian Bank 8.00% Now, suppose the cost of funds in the market
Dhanlaxmi Bank 7.00% goes up by 1% per annum.
Federal Bank 7.75%
State Bank ofMysore 7.75% The bank‘s cost of funds should go up by ` 1
Corporation Bank 7.75%
cr, or ` 25 lakh per quarter.
Karur Vysya Bank 8.50%
Canara Bank 8.00%
However, since a lot of the bank‘s funds are
Indian Overseas Bank 8.25%
in time deposits, or fixed deposits, the bank‘s
State Bank Of Bikaner and 7.75%
Jaipur immediate cost may go up by only say, `
South Indian Bank 8.10% 12.50 lakh for this quarter or only 0.50% pa.
Karnataka Bank 8.75%
J&K Bank 8.25% Of course, over a period of time, the cost of
DBS Bank 7.00% funds will go up to ` 11 cr. per annum, but
HDFC Bank 7.25% not immediately.
Kotak Mahindra Bank 7.25%
ICICI Bank 7.50% Thus, the average cost at 10% will increase
Deutsche Bank 6.75% to 10.50% or by 0.50% only in the short
term.
The effective functioning of the base rate The marginal cost will increase by 1% (11%).
regime will significantly change the retail
lending industry. As changes in the effective What should borrowers do?
interest rate for the customer will depend on Borrowers must keep in mind that there is no
the ―average‖ cost of funds than the automatic shift to the new regime. You will
―marginal‖ cost of funds (explained later), have to ask your bank to shift you to the new
any increase in market rates will take time base rate system. The bank is not supposed
before the repercussions are felt by the to charge you any fees for the switch. If you
borrowers. While this is beneficial when are on a fixed rate loan (or in the teaser
interest rates increase, it is not detrimental period of a fixed-cum-floating rate loan)
when the interest rates decrease, because where the rate is lower than the current
then the consumer is likely to get some floating rate of 8.50-9%, then wait till you are
decrease immediately compared to none or on a floating rate before shifting to the new
very little that he gets now. regime. If you are paying interest rate in
double digits, then shift to the new regime
The Reserve Bank of India has asked banks immediately. If your existing lender is not
not to charge any fee for shifting from prime giving you good terms for the shift or is not
lending rate to base rate. acting fast enough to shift you to the new
regime, then you should seriously consider
shifting to another lender altogether.

Anyone who has never

made a mistake, has never
tried something new
20
Albert Einstein
The 3Vs
overweigh the4Ps
Samarth Gulati - FORE School of Management

21
Image courtesy: http://www.endlessplain.com/tag/victory-brewing-company/
 S
ometime back SKF India, the market
leader in ball bearing industry ushered
in huge changes in its pricing strategy.
Instead of negotiating on the price of its ball
bearings, it offered clients complete ball-
bearing solutions. This, the firm said, would
improve the longevity of ball bearings and
result in an overall cost saving of about
10%.
In India the TATA group was the first one to
follow this kind of policy. For instance, Tata
Steel supplied steel tubes to a manufacturer
of different types of tubes located all across
the country. Earlier, the tubes, post
manufacturing, were specially oiled to avoid
rusting on route to the customer‘s plant. The
customer would first clean the oiled surfaces
and then treat them for non-corrosion.
Eliminating the oiling process at Tata Steel
and the subsequent cleaning process at the
customer‘s end was a win-win solution for
both firms. This has resulted in `1500-`2000
of savings per metric tonne for the customer
while lowering Tata‘s costs by eliminating the
oiling step in its process.
What is common in the above
two B2B companies and many
others? Well is an evolved form
of marketing. Both have
embraced the culture of 3Vs
namely, Valued customer,
Value Proposition and Value
Network.
What is common in the above two B2B
companies and many others? Well is an
evolved form of marketing. Both have
embraced the culture of 3Vs namely, Valued
customer, Value Proposition and Value
Network, proposed by renowned marketing
Professor Nirmalya Kumar, Director for Centre
of Marketing and Co-Director for Aditya Birla
India Centre at the London Business School.
The 3 Vs approach to marketing:
1. Define the value segment or
customers
The first step in every marketing strategy is
to segment the customer. This means that
we have to define the segment of the
customer which has maximum value for the
firm. We know that 20 percent of our
customers provide us with 80 percent of
business (Pareto‘s Principle) so we have to be
very specific in the way we choose the
segment.
2. Define the value proposition
A value proposition is an analysis and
quantified review of the benefits, costs and
value that an organization can deliver to
customers and other constituent groups
within and outside of the organization. It is
also a positioning of value, where,
Value = Benefits – Costs (cost includes risk).
So we are looking for this unique value
proposition which will define the maximum
benefit for the firm
3. Define the value network that will
deliver the promised service
The value network is paramount to deliver
the decided value proposition. A unique
selling proposition must be ably supported by
established value network. Some define it as
a service delivery mechanism that would
harness value for the customers.
Another way of viewing the 3V’s
approach
1. Value defining process – A firm needs
to identify the processes that will provide
the maximum value to its consumers.
Market research and self-analysing
mechanisms like SWOT and PEST aid the
firm in doing so. It also needs to identify
Men who do things without
being told draw the most
wages
22
Edwin H. Stuart
The 3Vs overweigh the 4Ps
Samarth Gulati

the constraints that may stop the firm Value Creation

from delivering this maximum benefit to
the consumer.
2. Value developing process – Through
new product development, sourcing
strategy, and vendor selection the firm
will define its value developing process.
3. Value delivering processes –
Advertising and managing the distribution
mechanisms, helps the firm deliver value
to its customers.
The Holistic Marketing Framework is
designed to address three key marketing
questions:
To exploit a value opportunity the firm needs
value creation skills. The marketers of the
firm need to:
 Identify new customer benefits from the
customers view
 Utilize core competencies from its
business domain
 Select and manage business partners
from its collaborative networks
Value
Exploration

 Value Exploration: How can a firm find

out new opportunities which have a value
Holistic
for the consumer as well as for the firm? Marketing
 Value Creation: How can a firm create the
value that has been already explored for Value Value
the target consumer? Creation Delivery
 Value Delivery: How can a firm used its
capabilities and infrastructure to deliver
the new value offerings more efficiently?
To craft new customer benefits marketers
Value Exploration must understand:
Developing a strategy requires understanding  What the customer thinks about
of the relationships among three spaces.  What the customer wants
 What the customer does
 The customer's cognitive space  What the customer worries about
It reflects existing and latent needs of the  Who and what the customers admire
customers and includes dimensions such  Who and what the customers interact
as the need for stability, freedom, the with
relationship with the society, and the  Who and what influences the customers
ability to change with the time.
Business realignment may be necessary to
 The firm's competency space
maximize core competencies. It involves
The substitutes and competing products
three steps:
of the value offerings of a firm form its
 Defining/redefining the business concept
competency space.
 Shaping/reshaping the business scope
 The collaborators resource space  Positioning/positioning the firm's brand
Involves horizontal partnerships, where identity
companies choose partners based on their
ability to exploit related market
Value Delivery
opportunities, and vertical partnerships.
The firm must become proficient at:

Winning is a habit.
Unfortunately so is losing
Vincent Lombardi
23
 The 3Vs overweigh the 4Ps
Samarth Gulati
 Customer relationship management
Through CRM the firm discovers the
actual behaviour of its consumers better.
 Internal resource management The
integration of major business processes
for effective responses to the consumers.
 Business partnership management It
allows the firm to handle complex
relationships with its trading partners
source, process, and deliver products.
The only way a firm can command a premium
in the B2B market is by proving to the
clientele that its offering is of a higher value
than the next best alternative. Value here is
cumulative and seeks to provide the best
possible solution customized to the
requirements of the client. The value includes
technical, economical, service and social
benefits for the customer but excludes gains
from direct price cuts.
Some may have imagined the
need, but few would have
thought out the process of
need manifestation. Apple,
Starbucks and Amazon.com did
it, and today they have scaled
new heights.
Customer Value Management works very well
in the commoditized B2B market that is bereft
of any drastic changes in the buying habits in
terms of the change in the product portfolio.
(More about buying age-old products like
Quiz 3: Link the Following Images
paints, aluminium and steel) In most business
markets today, unless you are into customer
value management, you are left panting,
fighting on just price. The problem with the
4Ps of Marketing is that they more tactical
than practical. The 3Vs are more strategic.
They would aid the marketers engage the
CEO at a strategic level. A word of caution:
the 3Vs are not a replacement but an
addition to the 4Ps that on any day are a part
of the value network. Rather than telling
every product benefit to its client, marketers
in the B2B area would be better off
presenting the virtues of one or two values
that are unique or create additional value for
the clients.
For the B2C counterparts, it makes more
business sense in turning to market-driving
rather than market-driven strategies.
Marketers are always cued to what customers
say would be helpful for incremental
innovation. However, when it comes to
radical innovation, customers are unable to
give potent feedback about the viability of an
innovation. This calls for a need to become a
market-driving force. Firms should teach
customers rather than learn from them. Apple
iPod, Starbucks and Amazon.com are
examples of radical innovations. Nobody
asked for these products. Their business
models are unique and no customer could
have imagined the need for them. Some may
have imagined the need, but few would have
thought out the process of need
manifestation. Apple, Starbucks and
Amazon.com did it, and today they have
scaled new heights.
Winning is a habit.
(2)
Unfortunately so is losing
Vincent Lombardi
24
.

The Month
in review…
Flying Colours for Delhi Airp

Cijil Diclause, Dhruval Dholakia

FORE School of Management

25
 The Month in Review
Cijil Diclause - Dhruval Dholakia

Takeover of Spice-Jet a RBI firms up on CDD

game changer in the India The Reserve Bank of India (RBI) has firmed
aviation sector its stand on monitoring of accounts and
customer background check to avoid banks
from being used for money laundering &
financing terrorism. The central bank has
asked all commercial banks to ensure that
they obtain approval from senior
management to continue providing banking
services or having business relationship with
an existing customer who has subsequently
become a politically exposed person (PEP)
and asked banks to conduct customer due
diligence (CDD) on them.

RBI has also

requested the banks
Media Baron and promoter of Sun Network to monitor the
Mr Kalindhi Maran through his aviation firm accounts of close
KAL airways, will initially acquire 37.73% relatives of
stake in Delhi based Spice-Jet Airlines for politically exposed
around Rs.740 cr. from Royal Holdings persons, and apply
Services Ltd and WL Ross. The transaction enhanced CDD on them,
would be completed in a phased manner to especially of accounts of which PEP is the
ensure no breach of the regulations. ultimate beneficial owner. After the
acquisition of Mr. Madhu Koda Former CM of
Mr. Maran also plans an open offer for an
Jharkhand in a money laundering scam RBI
additional stake of 20% in the firm to gain
has been strict with PEPs for quite some time
management and operational control over
now, earlier banks were asked to follow risk
Spice-Jet. The Airline has completed 5 years
management procedures on continuous basis
of operations and has crossed the 20 aircraft
for PEP accounts.RBI defines PEPs as people
fleet requirement making it eligible to
who are entrusted with prominent public
commence international operations.
functions in a foreign country such as heads
The deal would consolidate the ownership of states or of governments, senior
and help in easy and quick day to day politicians, senior government or judicial or
decision making. The deep pockets of the military officers,.
business magnate would provide the funds
RBI has asked banks to keep a close watch
needed to add more aircraft and an impetus
on their customers and report any
to quick growth.
discrepancies found in the account of these
PEPs. This would help in monitoring the
illegal transferring of funds and would be able
to expose scams in time.

Formal education will make

you a living; self education
will make you a fortune
26
Jim Rohn
 The Month in Review
Cijil Diclause - Dhruval Dholakia

Reliance Infratel to merge keeping off roads. The truckers association

supported the bandh and approximately 67
with GTL lakh trucks were off road. The estimated loss
to business in India as per FICCI was
Reliance Communications and GTL recorded at Rs.13000cr.
Infrastructure
have agreed
upon Rs
50,000 cr.
Deal to create the world‘s largest
independent telecom infrastructure firm,
which would not be controlled by any telecom
operator.
The telecom towers of Reliance Infratel would
be merged with GTL
Infrastructure and The
largest optical fibre
network of over Political parties in order to gain political
200,000 kms and mileage did not consider the business
related assets owned implication and the reach of this Bandh may
by Reliance Infratel lead more such events in future.
will remain under
Reliance Communication‘s ownership, as per Facebook at its fastest pace
the agreement, in which Reliance
Communications holds a 95 per cent stake. round the world
The deal, however, is likely to close within six Facebook, a social networking site, which was
months. The combined entity would have started around 6 years back in February
80,000 towers and over 1.25 lakh tenancies. 2004, is currently growing at a dizzying rate
Two million shareholders of Reliance having 500 million users. It had around 200
communications would receive shares of GTL million users 15 months ago. Its not only that
Infra. The agreement would help bring in facebook is increasing its user base, it is also
major cash into Reliance Communications and pulling users from orkut in countries like India
that would help it lessen the firm‘s debt and Brazil. In India the users of orkut were
burden. double the users of facebook a year ago.

Last year in
National Bandh: A day of Brazil
Loss facebook
has grown
The countrywide opposition shutdown called eight fold to
by the Left parties and the NDA, against the 8 million
fuel price hike by the Government had caused users. Not
a major distress in the country. The dawn-to- only in
dusk all India shutdown, following the India and
opposition call for a nationwide stir on Brazil,
Monday July 5 with private and public facebook is
transport services including auto rickshaws, cementing
taxis, private buses and state-run buses its spot as market leader in many countries

Men who do things without

being told draw the most
wages
27
Edwin H. Stuart
 The Month in Review
Cijil Diclause - Dhruval Dholakia
surpassing other social networking sites
already prevailing in them such as MySpace
in United States, Bebo in Britain, and StudiVZ
in Germany. The firm seeing facebook as a
gigantic threat on many fronts due to its
sudden vertical movement is Google. First is
that much of the activities of facebook are
invisible to Google‘s search engine which over
a period of time can make Google a less
useful search engine. Second is, due to
billions of links posted on facebook, users use
it as an important resource of web content
like google. There are rumours about google
launching the competitor to facebook very
soon. We have to just wait and watch how
successfully google is ablt to do that in
future...
R Power and RNRL Merger
The boards of the two companies on 4th July,
Sunday in the meeting approved the merger
of them in a swap ration of 4:1. The merger
will take the market capitalization of the firm
to little over 52000 crore. R Power will retain
the assets and employees of RNRL and
continue doing the business in those areas in
which it was doing before. One of the reason
for the merger was the gas utilization policy
of government. There was a Gas Supply
Agreement between RNRL and RIL in 2005.
But current government policy states that the
gas can be allocated to only end users (in this
case R Power) and not a trading firm (RNRL).
So here RNRL would not be allocated gas at
lower price than what was fixed by the
government. So the merger was needed to
get the benefit of Gas supply from RIL‘s KG
Basin. This would definitely accelerate R
Power‘s plans of making a gas based power
generation plants. The deal was not sweet for
RNRL share holders as the share price on
Monday fell by 27 % to 46.3 Rs. But RNRL‘s
share holders will be benefited as they would
have opportunity for growth, which they
didn‘t have from RNRL‘s current operations,
due to R Power‘s proposed 37000 MW Power
generation portfolios. The management also
thinks of the synergy benefits of the logistics
business of RNRL which supplies coal to
Reliance Infra‘s power plant and R Power. But
the merger seems to be more as a defensive
move than a value creating move.
RBI raises key policy rates
to tame inflation
On 2nd July, RBI raised its key policy rates to
fight the rising inflation in the world‘s second
fastest growing economy. The rapo and
reverse rapo rates are now 5.5 % and 4 %
respectively. This is the third time hike this
year and experts even bet further rise in the
rates at the RBI Review on 27th July. HSBC
sees a further 125 bps rate hike in next one
year including possible 25 bps hike at RBI
Review. If we consider CRR, RBI has not
hiked that which is a good move as this time
there is not enough money in the system.
Even RBI has taken steps to infuse some
liquidity in the market in past one month. The
hike in policy rates was expected as the
wholesale price inflation went over 10 % and
even is expected to rise further because of
the government decision to deregulate petrol
prices. It is also noteworthy that two third of
the wholesale inflation in May was
contributed by non food items which clearly
signals demand side pressures.
Everything comes to him
who hustles while he waits
Thomas A. Edison
28
 Quiz 1, 2 and 3:
Answers to be mailed to fef@foreian.com
or foreword@foreian.com
Correct answers to be announced in the
next edition of Manthan.
Lucky winners would be awarded.

foreword@foreian.com
fef@foreian.com
fore-economyforum.blogspot.com

FORE SCHOOL OF MANAGEMENT

B-18, Qutab Institutional Area, New Delhi
Phone: 011 - 41242412, 26523778
Website: www.fsm.ac.in

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