Thursday, 27 September 2018

ADB trims Asia’s growth forecast, retains India’s at 7.6% for 2019

Indian economy continues on a robust growth path as it recovers from temporary shocks resulting from the demonetization of large bank notes and the introduction of a national Goods and Services Tax in 2017. Improved domestic demand, steady revival in industrial growth and reduced drag from net exports are expected to help Indian economy maintain its growth numbers.

According to an update of flagship annual economic publication by the Asian Development Outlook (ADO), India is expected to grow at a healthy 7.3 per cent in the current fiscal and 7.6 per cent in FY 2019.

ADB expects growth to maintain its strength and pick up next year as the economy continues to adjust to the reforms and investor sentiment improves. India's economy grew by a strong 8.2 per cent in the first quarter of FY 2018.

Further, in its Asian Development Outlook report, the ADB maintained developing Asia's growth forecast at 6 per cent this year, but trimmed the projection for 2019 to 5.8 per cent from 5.9 per cent in July amid the growing trade dispute between the world's two largest economies and tighter global liquidity.

The United States and China has imposed fresh tariffs on each other's goods as the world's biggest economies showed no signs of backing down from an increasingly bitter trade dispute that is expected to hit global economic growth.
Meanwhile, China's growth projection for this year has been kept at 6.6 per cent, but next year's outlook has been slashed by 0.1 percentage point to 6.3 per cent amid sluggish demand growth and the grumpy relationship with the U.S. Beijing has set a growth target of around 6.5 per cent this year, the same as last year, which it handily beat with an expansion of 6.9 per cent.
South Asia is poised to remain as the fastest growing in the region as the ADB maintained its growth estimates of 7 per cent for this year and 7.2 per cent for next year.

However, moderating export growth, hastening inflation, net capital outflows and a deterioration balance of payments clouded the growth outlook for Southeast Asia, with growth this year projected to slow to 5.1 per cent from the July forecast of 5.2 per cent.

In addition to the trade war, signs of the U.S. economy overheating could prompt the Federal Reserve to raise interest rates at a faster-than-expected pace, which would pose a risk for countries in the region already contending with currency weakness and the threat of capital flight. Countries with elevated private debt like Malaysia, China, South Korea and Thailand could experience destabilizing effects on their financial sectors.

Latin Manharlal Group

Wednesday, 5 September 2018

India’s economic growth quickens to 8.2% in April-June

Despite the falling rupee and the growing concerns around a possible global trade war, India’s economic growth shows signs of a sustainable, V-shaped recovery, spurred by an upswing in manufacturing activity and recovery of private investment, buoyed by strong consumer demand.

According to the Central Statistics Office (CSO), India’s Gross domestic product (GDP) growth rose to a nine-quarter high of 8.2 per cent in the first quarter of 2018-19, compared with 5.6 per cent in the same quarter last year. In the fourth quarter of 2017-18, GDP growth was at 7.7 per cent.

This surge in economic growth ahead of national elections in 2019 would help augment the government amid a debate over its economic record versus that of its predecessor following the release of back-series data recently. The robust surge in GDP data will also be factored in by the Reserve Bank of India’s monetary policy committee at its next review scheduled for October 3-5. 

Further, India continues to remain the fastest-growing large economy in the world, with China's growth coming down to 6.7 per cent in April-June 2018 from 6.8 per cent in January-March of the year.

According to the government data released, manufacturing grew at a nine-quarter high of 13.5 per cent largely owing to a low base effect, while the services sector expanded at a slower pace. The services sector grew at a pace of 7.3 per cent in Q1FY19, down from 7.7 per cent in Q4FY18.
However, economists remained sceptical of sustaining the growth momentum in the coming quarters. There are some risks for the economy looming, which includes higher oil prices, tightening global financial conditions and a shortfall in taxes that could put budget targets out of reach. Further, the rupee’s slump to a record below 71 per dollar could deter foreign investors, fan imported inflation and prompt intervention from the central bank, all of which carry implications for growth.

However, the government expects that even its projections of up to 7.5 per cent of GDP growth in FY19 may be crossed. Reforms and fiscal prudence are serving the economy well and this growth in an environment of global turmoil represents the potential of New India.

In the interim, the International Monetary Fund pegs that Asia’s third-biggest economy will grow 7.3 per cent in the fiscal year through March 2019 and 7.5 per cent in the next. The Reserve Bank of India, which has increased interest rates twice since June to curb inflation, expects the economy to expand 7.4 per cent in fiscal 2019.

Latin Manharlal Group

Tuesday, 28 August 2018

India sees 23% surge in FDI Inflows

India is attracting record level of foreign investments supported by the market size, investment reforms, and economic growth rates. The Indian economy stands as the right mix of openness and opportunity for the foreign investors.

According to India’s Department of Industrial Policy and Promotion releases, India witnessed a 23 per cent growth in foreign direct investment (FDI) at $12.75 billion during the April-June quarter of 2018-19. The foreign fund inflows in April-June 2017-18 stood at $10.4 billion.

FDI in India is expected to grow notably following the implementation of initiatives, such as Goods and Services Tax (GST) related reforms, enactment and implementation of the Insolvency and Bankruptcy Code (IBC), demonetisation, and other ease of doing business reforms rolled out recently by the central government. These reforms have boosted India’s image as a preferred destination for foreign investment, with many sectors being fully available to foreign investors for making investments without any restrictions.

The sectors which witnessed the maximum inflow of FDI included services, trading, telecommunications, computer software and hardware and power, that comprise around 33 per cent of all inflows.

Among the countries, Singapore emerged as the largest source of foreign investment during April-June 2018-19 with $6.52 billion. Mauritius, Japan, the Netherlands, United Kingdom and United States made up the other sources of investment.

A growth in FDI inflows augurs well for the Indian economy especially in light of the widening Current Account Deficit (CAD) caused due to a surge in crude oil prices. According to a report by SBI Research, the CAD could touch 2.8 per cent of the Gross Domestic Product (GDP) for the fiscal year 2018-19.

An uptick in FDI inflows helps the country bridge the growing CAD deficit and the growth seen in the last quarter is especially heartening considering the 3 per cent growth in inflows witnessed last fiscal year. A decreased inflow of foreign investment has negative implications for Balance of Payments (BOP) and the value of rupee, therefore, the figures for the last quarter should bring cheer to the economic policymakers.

Latin Manharlal Group

Tuesday, 14 August 2018

On India’s 71st Independence Day, Let Us Salute the Real Heroes of India


Needar Jawan, Surakshit Bharat
Saksham Kisan, Samriddh Bharat 

§  Agriculture plays a vital role in India’s economy.

§  54.6% of the population is engaged in agriculture and allied activities (census 2011) and it contributes 17.4% to the country’s Gross Value Added for the year 2016-17 (at current prices).

§  Steps have been taken to improve soil fertility on a sustainable basis through the soil health card scheme, to provide improved access to irrigation and enhanced water efficiency through Pradhan Mantri Krishi Sinchai Yojana (PMKSY), to support organic farming through Paramparagat Krishi Vikas Yojana (PKVY) and to support for creation of a unified national agriculture market to boost the income of farmers.

Milestones in Indian Agriculture

§  Green Revolution (1968)
A large increase in crop production in developing countries achieved by the use of artificial fertilizers, pesticides, and high-yield crop varieties.

§  Ever- Green Revolution (1996)
Swaminathan is an advocate of moving India to sustainable development, especially using environmentally sustainable agriculture, sustainable food security and the preservation of biodiversity, which he calls an "evergreen revolution."

§  Blue Revolution (Water, Fish)
Blue Revolution, the Neel Kranti Mission has the vision to achieve economic prosperity of the country and the fishers and fish farmers as well as contribute towards food and nutritional security through full potential utilization of water resources for fisheries development in a sustainable manner, keeping in view the bio-security and environmental concerns.

§   White Revolution (Milk)
White Revolution was one of the biggest dairy development movements, by the Indian Government, in India in 1970. It was a step taken by the Indian Government to develop and help the dairy industry sustain itself economically by developing a co-operative, while providing employment to the poor farmers.

§  Yellow Revolution (Flower, Edible)
Yellow revolution defines increase in the oil production. The growth, development and adoption of new varieties of oilseeds and complementary technologies nearly doubled oilseeds production from 12.6 mt in 1987-88 to 24.4 mt in 1996-97, catalyzed by the Technology Mission on Oilseeds, brought about the Yellow Revolution

§  Bio Technology Revolution
Biotechnology is the application of scientific and engineering principles to the processing of materials by biological agents to provide goods and services. From its inception, biotechnology has maintained a close relationship with society.

§  ICT Revolution
ICT is short for information and communications technology. It refers to a broad field encompassing computers, communications equipment and the services associated with them. It includes the telephone, cellular networks, satellite communication, broadcasting media and other forms of communication.

§ Indian Army
India has the second largest army in the world with about 1.2 million soldiers. It has the complete spectrum of weaponry required to fight any type of war from nuclear to low intensity/sub-conventional. For reasons that will be discussed later (when India’s military industrial complex is examined), most of the equipment, especially combat equipment, is imported and is largely of Soviet origin due to historic political conditions. Only in the last decade or so has the Indian Army diversified its import sourcing. 

Latin Manharlal Group

Sunday, 12 August 2018

IMF Projects India’s GDP to post Robust Growth in FY20

India is on the path to hold its position as one of the world’s fastest-growing economies as reforms start to bear fruit. India’s economy is constantly gaining momentum as the growth reached the fastest pace, in seven quarters, in January through March.
According to International Monetary Fund (IMF) report, India’s GDP is poised to grow by 7.3 per cent in the 2018-19 fiscal and 7.5 per cent in 2019-2020 on strengthening of investment and robust private consumption.
The report stated that the near-term macroeconomic outlook for India is broadly favourable. The Indian economy has made a robust recovery from the two shocks that started from late 2016 which were demonetisation and implementation issues related to the GST. The November 2016 currency exchange plan and the July 2017 Goods and Services Tax (GST) rollout, resulted in sluggish growth to 6.7 per cent in fiscal year 2017-18, but a recovery is underway supported by an investment pickup. Generally, India is getting assistance from good macroeconomic policies, stability-oriented policies as well as some vital reforms that have been introduced in recent years.
On the other hand, the report flagged some risks including higher oil prices, tightening global financial conditions and tax revenue shortfalls. Headline inflation is pegged to grow at 5.2 per cent in fiscal year 2018-19, as demand conditions tighten, along with the recent depreciation of the rupee and higher oil prices, agricultural minimum support prices and housing rent allowances. The report projects current account deficit to amplify further to 2.6 per cent of the GDP on soaring oil prices and strong demand for imports, offset by a slight increase in remittances.
As per the IMF report, financial sector reforms have been undertaken to address the twin balance sheet problems, as well as to revive bank credit and enhance the efficiency of credit provision by speeding up the cleanup of bank and corporate balance sheets. Stability-oriented macro-economic policies and progress on structural reforms continue to bear fruit in the country, the report said.
The government is due to release gross domestic product data on August 31, 2018 for the three months ended June. A robust growth rate may not necessarily reverberate with voters in elections next year as they continue to face issues such as unemployment and farm distress.
There are other risks too. The rupee has slipped 7 per cent against the dollar this year, the worst performer among major Asian currencies, threatening the inflation outlook. The Reserve Bank of India delivered its second straight interest rate hike last week as policy makers seek to maintain economic stability against a global backdrop of trade tensions and high oil prices.

Latin Manharlal Group

Sunday, 10 June 2018

RBI Tightens its Monetary Policy; More in Offing

Effecting the first hike since the NDA government came to power at the Centre, the Reserve Bank of India (RBI) has raised its key policy rate, signalling the Monetary Policy Committee’s concern about inflation risks, mostly on account of higher input cost pressures.

The six-member Monetary Policy Committee (MPC) of the RBI in its first three-day bi-monthly policy meeting In June raised the key repo rate by 25 basis points (bps) for the first time since January 2014, in about four-and-a-half-years, to 6.25 per cent.

The last rate hike happened on January 28, 2014, when the repo rate was increased to 8 per cent. The last policy action was in August 2017, when the central bank had lowered the repo rate by 25 basis points.

Given underlying trends in inflation and financial markets, an interest rate increase this year was very much expected. RBI’s task is only going to get tougher in the months ahead. This is primarily on account of the need to support prospects for economic growth.

Further, the RBI once again has changed its inflation forecast, from 4.7-5.1 per cent for the first half and 4.4 per cent in the second half, to 4.8-4.9 per cent and 4.7 per cent, respectively. With MSP increases still not factored in, the acceleration of inflation in the second half can be more. According to the macro economic data, retail inflation rose sharply to 4.6 per cent in April from 4.3 per cent in March. Core inflation, which includes food and fuel, remained consistently high at 5.8 per cent in April, up from 5.23 per cent in March.

According to economists, the RBI might also have taken into account the fact that many other central banks in emerging markets too have raised rates in the face of rising inflation and weakening of their currencies with rising interest rates in the US and elsewhere, a strong US dollar and outflows.
The immediate fallout of RBI’s rate hike would be that interest rates might begin to firm up. Banks have already been hiking lending as well as deposit rates over the past few months. Some banks have already raised MCLR (marginal cost of funds-based lending rate). The cost of borrowing will go up. But banks will also hike deposit rates and it will be good for savers.

However, the RBI has exercised caution and has kept the stance neutral lest it signals a sharp interest rate increase that could run a risk of throttling the growing recovery process. The neutral stance also allows RBI to remain extremely data-driven and thus fine-tune its rate decisions given a large number of uncertainties – both domestic and global. Given the uncertainties, it becomes difficult to gauge the RBI’s next move.

Economists expect RBI to increase at least one more time in 2018, and a maximum of two times. In the event of oil and the rupee remaining more or less at the current levels and with monsoons not playing truant, the RBI would be willing to skip any rate decision in August and shift any further tightening to October.

Latin Manharlal Group

Monday, 4 June 2018

Changing Trends in Indian FMCG Industry

FMCG sector shifts focus to direct supply, aims to operate with zero-day inventory
FMCG companies plans to operate with a ‘zero-day inventory’ by ‘reducing distance between its distribution centres and retail stores that the company reaches directly.

The role of dealers and distributors is changing first. FMCG companies need them for local knowledge, logistics and credit collection. Plus, they would take the products to geographies where companies can’t reach direct in a commercially viable manner. This would further expand reach for FMCG sector.

The FMCG sector is adapting the “leanest possible” distribution model to directly “tailor-serve retail outlets” across the country in less than a day as part of the sector’s plan to multiply sales and expand retail reach. Currently, the process takes between one and three weeks.

At present, Britannia Industries directly reaches to 1.7 million retails stores of the 4.8 million outlets where Britannia products are sold. There are about 11 million retail outlets in India, of which around 8 million sell biscuits. In the new direct distribution model, the entire supply chain is controlled by Britannia. Every day, around 20,000 people who are on Britannia’s direct payroll, visit retail stores, analyse local demands, suggest required tweaks in product placements based on the company’s in-house analytics and take orders on their mobile phones through an app. The orders are then delivered directly by Britannia from the nearest distribution centre within a day.

Traditionally, Britannia stocks products at its distribution centres. Products first go to its exclusive wholesale dealers, then distributors and direct retailers. The entire process takes anything from one week to three weeks, depending on the distance between the retail outlet and the factory. Britannia wants to reduce this to less than a day. The new system is mapped real-time. It also reduces operational cost for dealers and distributors as they would not need to stock products.

According to a McKinsey and Co. report on the future of retail supply chains, companies can reduce costs by about 20% at the distribution centre level, while optimal deployment of inventory can reduce working capital by about 10%.

ITC has one of the most extensive distribution networks in India. Its products are available at 4.3 million of the estimated eight million retail stores in India. Of this, about 2 million are under ITC’s direct distribution network. ITC will replicate the new factory-to-retail point distribution in phases, and eventually bring all the 2 million retail points under the new structure.

Traditionally, ITC, like all packaged goods companies in India, stocks products at its distribution centres. Products first go to its exclusive wholesale dealers, then distributors and direct retailers. In some areas, mostly in rural India, the big retailers supply products to smaller retail outlets. The entire process takes anything from one week to three weeks, depending on the distance between the retail outlet and the factory.ITC wants to reduce that to a day.

ITC is also in the process of automating all its 62  warehouses and its 1,550 wholesale dealers.  The distribution network includes over 1,550  wholesale dealers and a force of 25,000-plus  sales people who are IT-enabled and  empowered with hand-held devices, which  ensure that every member of the sales team  has access to real-time actionable information  on business imperatives and performance. The  supply chain mechanism is determined by  analytics based on real-time feeds and insights  for over 1,000 stock keeping units (SKUs). This  enables informed decision-making and helps determine inputs, while ensuring an efficient distribution based on store-level demand.

Marico had an enterprise resource planning (ERP) system from SAP AG, which it upgraded to SAP HANA to consolidate data, partly on the cloud. But the company also had to deal with unstructured data. Hence, the data from portable document formats (PDFs) and raw tables were copied from the existing system’s database into SAP HANA. Now it is possible to pull all that data and store it on the cloud, resulting in lower storage costs.
Marico also uses Tableau, a product from business analytics firm Tableau Software, which helps it analyse a large amount of data on retail behaviour, sales and marketing, inventory movement and procurement of key inputs, and get detailed insights into the company’s performance in a visual format. The company also uses sharepoint-based collaboration portals, ETL (extract-transform-load) tools, and R software.
Business analytics, digital and automation is helping to transform the core operations, improve the consumer insights and innovation processes as well as help in taking better decisions. All  data, including the outlet format and pin code, is fed into the software. The model then runs an algorithm and presents a hypothesis that needs to be tested on the ground. One such test would be to match the sales forecast against actual sales.
Marico is also going beyond traditional trend series analysis of data by taking into account “all your sales marketing spends, maybe other events which are being held like promotions or maybe some other activities like certain specific festivals, or even certain price increases”. “All these can be inputted to get an output and a forecasting accuracy that will result in better service and faster movement of goods.
Automated Machines at Distributors
Technology is a large part of Asian Paints' distribution success. According to a distribution strategy case study of Asian Paints, the company provided automated machines that mixed paint colors at the distributors to allow customers and consumers more range in color and more options. These machines use technology to produce colors that otherwise are unavailable, resulting in a wider range of selection.

Re-tooling FMCG sales and distribution for viable coverage
Driving retail universe coverage remains a priority for FMCG firms. Several firms are driving aggressive outlet addition agendas across regions. Even firms considered the gold standard in direct distribution (Hindustan Unilever: 3.2 million, ITC: 2 million, Colgate: 1.5 million, Marico: 0.9 million) are driving coverage initiatives in their distribution system. Reaching outlets directly and reducing wholesale dependence has three critical benefits:

·         Improving outlet sell-in
·         Increasing outlet throughput by range expansion
·         Building a platform for growth – ability to succeed in new product/category entries

This becomes critical for firms with a modest direct distribution. Tata Strategic’s research shows that cost-to-serve viability is one of the biggest challenges faced by firms in driving retail expansion. The outlets added by any coverage expansion drive typically have throughputs much lower than existing outlets. Hiring additional salesmen to service these new outlets increases the distributor’s cost-to-serve. This will negatively impact their return on investment (RoI) leading to escalating pressure from distributors to provide subsidies.
Sales leadership of most FMCG firms interviewed during a recent Tata Strategic study said their salesmen cover an average of 40 outlets a day on a weekly coverage frequency, around 240 outlets a month. Over several decades, this coverage norm of 40 calls per day for a distributor-salesman has remained unchanged despite changes in the outlet density, information technology and means of transportation.
Decreasing the non-productive calls of a salesman: The average productive calls of an FMCG salesman are 55-60%. Not all outlets place an order every week. Analysing this order behaviour can be used to intelligently re-structure the outlet visit frequency without affecting sales. The ordering pattern of outlets across the four weeks in a month varies significantly depending on outlet type. For instance, at an outlet placing 3-4 orders in a month, these orders are not evenly distributed across weeks and a few orders are just top-up orders to replenish sold-off inventory from the outlet. An alternative order-taking mechanism can be deployed for such orders at select set of outlets. The bandwidth thus released can be used to cover up to 50% more outlets per salesman.
Using both these levers, firms can achieve a coverage increase of up to 120% without hiring additional salesmen. Since the new outlets added are likely to have throughputs lower than existing outlets, the retail sales upside would be up to 70%.
Thus, by re-structuring their current sales process, firms can break the pattern and utilise the same salesman to cover additional outlets. Reducing the non-productive activities of a salesman will enable him to cover up to 70% more outlets per day. Simultaneously, analysing outlets’ order pattern to change visit frequency to fortnightly for a select set of outlets will enable the salesman to cover up to 50% more outlets in the month. Tata Strategic’s research shows that firms can thus achieve up to 2.2 times of existing coverage without additional salesmen thus driving a retail sales upside of up to 70% viably.
Latin Manharlal Group