Government of India yesterday released the amount of Foreign Direct Investment received by India in Financial Year 2011-12. In last 2 years, FDI had show significant drop as compared to 200-09 when flow of foreign money in India was at its peak.

In FY 2011-12, FDI increased by 46.4 percent to USD 28.4 billion as compared to 19.4 Billion in previous Year.

S. No. Financial Year (April-March) Amount of FDI equity inflows   In Rs. Crores                    In US$ million Investment by FII’s Foreign institutional investors Fund (net) (in terms of US $ million) 1. 2008-09 142829 31396 (-) 15017 2. 2009-10 123120 25834      29048 3. 2010-11 88520 19427      29422 4. 2011-12 (April-February 2012) 133181 28403      17365 TOTAL 487650 105060      60818

Although, some of the policies like GAAR have not been exactly investor friendly, Indian Government has been coming up with policies to make India investor friendly. Initiatives like implementation of the eBiz Project, a Mission Mode Project under the National e-Governance Project, to provide an online single window  to investors & businesses for registrations, filing, approvals, clearances etc will increase FDI coming into India.

These Initiatives are expected to create a business and investor friendly ecosystem in India by making all business and investment related regulatory services across Central, State and Local governments available on a single portal, obviating the need for the investor or the business to visit multiple officers or a plethora of websites.

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4. India 3rd amongst Emerging countries considered for real estate acquisitions

I am extremely happy to hear this – Linkedin has acquired Slideshare for a cool USD 119 million ( Roughly 630 crore at today’s rate). By any means this is one of the biggest startup success stories. Hearty congratulations to Rashmi Sinha, Amit Ranjan & entire team of Slideshare.

The blog post published by Linkedin does not offer much detail, however Rashmi’s post clearly mentions the strategic fit between Linkedin & Slideshare. Also, Slideshare may not be completely merged with Linkedin from Branding perspective. Here is what Rashmi says in her blog post:

So, what does this news mean for you – our dear users? I want to address the question that often comes up with acquisitions. People often worry whether the service they use is going to go away. If not today, then tomorrow. I want to assure you, that will not happen here. The SlideShare you have come to know and love will remain a place where you can continue to upload, share, and find presentations that help you grow professionally.

What does this mean for SlideShare the company? I will continue to run SlideShare and our team will continue to do what we’ve been doing, which is to develop new features and make the site even better. Over time you will see some integrations that take advantage of the great fit between SlideShare and LinkedIn.

You could ask why did we agree to sell? For one, I firmly believe that SlideShare will grow faster with LinkedIn. Second, I have watched as LinkedIn has grown from being a place to share your resume to a much richer site, where you go to keep up with what your professional network is doing and sharing. We like the path they are on, and are excited to join them on this journey.

This acquisition is probably one of the biggest successes in Indian startup Industry – I am sure this will provide a great fillip to entire Indian Startup Ecosystem.

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Thomas Cook India has been a household Indian name since 1881 for forex and other travel services such as corporate travel, international and domestic holiday packages, Passport / visa services etc. Currently, this travel giant operates in 78 Indian cities at 209 locations. Thomas cook currently employs over 2,700 people across its Indian offices and also runs offices in Mauritius and Sri Lanka. A subsidiary of Thomas Cook Group plc UK (TCG), Thomas Cook India has won a host of awards for excellence in travel services, the most recent being the ‘Most Trusted Tour Operator’ at the Times Travel Honours Event in 2011. The company was also accredited with the P1 rating. This is the highest financial rating given by Crisil, according to the official Thomas Cook India website.

Thomas Cook Plc (UK) announced in February 2012 that they were receiving a lot of interest by third parties to buy stakes in the Indian unit. This initiated a formal sales and bidding process in India. TCG holds a 77.1% stake in the Indian unit and has decided to sell the same to reduce their debt. In India, controversy and speculation amongst the bidders included names of Bain Capital Advisors (India) Pvt. Ltd, Kohlberg Kravis Roberts (KKR) India Advisors Pvt. Ltd, Actis Advisors Pvt. Ltd, Travelex, Carlyle Group, Chinese firm HNA, Cox and Kings India Ltd, Hong Kong’s Bravia Capital, TA Associates, Everstone Capital and Kuoni Travel (India) Pvt. Ltd.

Credit Suisse, Thomas Cook’s advisory on the auctioning process, shortlisted five contenders out of the above list for the bidding process, namely Kohlberg Kravis Roberts (KKR) India Advisors Pvt. Ltd, Travelex, Carlyle Group, Fairbridge Capital and a Japanese travel agency, TOI reported.

The breaking news on this bid is that Tata Capital, the financial services division of the Tata Group has also emerged as a contender to buy Thomas Cook’s Indian unit. ET is estimating that since Tata Capital has been showing interest in expanding its forex and travel cards business since a while, it is likely to scale out its operations through acquisition of the forex business of Thomas Cook India. The forex section of Thomas Cook India contributes to 65% of the company’s revenues.

What’s in for the successful bidder?

ET reported that the all the shortlisted bidders must give their offers by the second week of April 2012. The highest bidder emerging out of the lot will be granted exclusivity for 4 to 6 weeks so that they can carry out due diligence and formalities for the sale. The deal will be finalized at a discount to the market price and the successful bidder will be allowed to use the Thomas Cook’s existing brand name for a minimum of 7 years. Bids have ended up coming in the range of Rs 50-60 a share according to various media reports.

Here’s a quick timeline of Thomas Cook India major operations.

• 2000 - Travelex bought Thomas Cook’s worldwide forex business and has been showing interest in acquiring the India unit since then.
• 2006 - Thomas Cook India purchased LKP Forex to scale the forex business.
• 2006 – Thomas Cook India was sold to Dubai Financial for 70 million dollars after two of its main stakeholders Lufthansa and Karstadt pulled out.
• 2008 – The Indian unit was bought back for 300 million dollars.
• 2012 – Thomas Cook India is up on sale again.

What’s enticing all these players to set shop in the dynamic Indian marketplace? Obviously, the growing tourism industry in India and the increasing upper middle class with disposable income who can afford these travel services. End of April-May 2012 will tell us who Thomas Cook India went to.

Do you want to take a guess, who will that be?

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Gujarat attracted maximum investment proposals compared to any of the 20 industrial states in India. According to the recent study undertaken by ASSOCHAM, Gujarat attracted investment proposals of Rs 16.28 lakh crore in year 2011.

After Gujarat, Maharashtra was the most preferred destination followed by Andhra Pradesh, Odisha and Karnataka.

Most Preferred Investment Destination states in India

Investments by Sectors (Percentage)

Key Highlights of Investments in India

- The Top 5 states of Gujarat, Maharashtra, Andhra Pradesh, Odisha and Karnataka cornered close to 54% of total live investments worth Rs 120.34 lakh crore.

- Maharashtra, Tamil Nadu, Gujarat, Karnataka and Andhra Pradesh received highest share in live investments in Services Sector

- Haryana was a major destination the real estate sector as it attracted 49.7% of all investment proposals.

- Odisha, Andhra Pradesh, Jharkhand, Chhattisgarh and Madhya Pradesh received highest share in live investments in Mining Sector

- Odisha, Jharkhand, Gujarat, Karnataka, and West Bengal received highest share in live investments in manufacturing Sector

- Gujarat, Odisha, Maharashtra, Andhra Pradesh and Tamil Nadu received highest share in live investments in Electricity Sector.

- Gujarat, of the total proposals worth Rs 16.28 lakh crore, attracted 39.2% electricity, 24.2% in manufacturing, 16.2% in services, 14.3% in real estate, 5.2% in irrigation and 0.9% in mining.

- Maharashtra, of the total proposals worth Rs 14.14 lakh crore, attracted 37.1% in services, 31.7% in electricity, 18.7% in real estate, 11% in manufacturing, 1.1% in irrigation and 0.5% in mining.

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3. Vibrant Gujarat – Surpassing all Expectations!
4. 3G auction update: Pan-India Bids reach 113.27 billion rupees

Let me ask you three questions.

• Question 1: Do you have high savings?
• Question 2: Do you save at the expense of putting off critical purchases?
• Question 3: Do you think that is good for the economy?

Well if the answer to the questions is yes, yes and yes, then you might find this piece very interesting.

In the 1940’s John Maynard Keynes pulled the world attention to a theory that had been around since biblical times. The theory states that

“The paradox is, narrowly speaking, that total savings may fall even when individual savings attempt to rise, and, broadly speaking, that increase in savings may be harmful to an economy.”

The first reference to this theory came from the The Fable of the Bees: or, Private Vices, Publick Benefits (1714) by Bernard Mandeville, the title itself hinting at the paradox, and Keynes citing the passage:

As this prudent economy, which some people call Saving, is in private families the most certain method to increase an estate, so some imagine that, whether a country be barren or fruitful, the same method if generally pursued (which they think practicable) will have the same effect upon a whole nation, and that, for example, the English might be much richer than they are, if they would be as frugal as some of their neighbors. This, I think, is an error. (Source: Wikipedia)

Now how is that possible one might wonder? But to Keynesian economists the answer is very simple. In an ideal scenario total income would be equal to total expenses and the savings would match the investments. So in other words total savings would equal investments.

This equation holds everything in balance with all other factors being normal.

Total Income: Total expenses = Total Investments: Total Savings

In other words If the savings is increased then the equilibrium shifts against investments at a lower value, which finally affects the total income leading to a weakening of the economy.

So that is the theoretical logic, let me try to explain with an example.

In the 70’s and 80’s, Japan was at the forefront of world economy winning the war. From electronics to Automobiles the Japanese brands could do no wrong. Soon Japanese brands like Toyota and Sony were household names across the world. Japanese management practices were being copied and there were many best sellers on the rise of Japan. Hollywood also made some very funny anti-Japanese movies.

But then in 1990’s the Japanese juggernaut stalled. Sales and exports declined and Japanese economy went into recession, a recession that lasted almost a decade. The reason for the recession was that Japanese being very cautious on the economy curtailed spending. As the exports were falling, the Japanese consumers increased the saving rate, to brace themselves for the tight days ahead. This led to lesser spending in the local economy and further loss of business for the local Japanese establishments. So now not only the exporters were facing loss of sales but also the local businesses were losing business. This led to further recession something that lasted for more than a decade.

India faced a similar challenge during the peak of the 2008 recession. Luckily for us domestic demand picked up at the right time and bailed India out of the jaws of the recession.

Are savings good? The answer is yes, but as excess of anything is bad, the same holds true for savings.

It is best to view expenditure as investments and invest in local businesses as that would drive the economy and help sustain growth.

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4. The Indian Economy: Can the growth be derailed ?

While doing business in India may not be the easiest (this doesn’t in anyway mean that India cannot improve its business friendly policies and initiatives), but it definitely is a place to be in for the future. And as business is a game of return on investment, India over the long term offers unique advantages, which cannot be overlooked for a long period of time. Despite its share of woes, those businesses that walk in and stay enjoy healthy returns over a period of time.

What India has to offer?

The Economy of India is currently ninth largest in the world by nominal GDP and the third largest by purchasing power parity (PPP). According to some reports, the most significant increases in share of world GDP at MERs (Market Exchange rates) are projected to be achieved by India. In 2009, India’s share of world GDP at MERs was just 2%. By 2050, this share could grow to around 13% according to these analysis.

Even for 2011-12, when global recession is still playing havoc, Indian growth story continued (@7% GDP growth estimates) as the second best after China among the major economies. India’s growth trend is expected to overtake China’s trend growth at some point during the coming decade due to India’s significantly younger and faster growing working age population than China and it is also having more potential for growth as it is starting from a lower level of economic development than China. The working age population in India will grow through 2030 to have the highest % of working age population (of total population) amongst major economies, giving it a significant productivity advantage.

According to some estimates, particular priorities for India will be maintaining a prudent fiscal policy stance by further extending its openness to foreign trade and investment, significantly increasing the investment in transport and energy infrastructure and improving educational standards particularly for women and those living in rural areas. In the course of this process, the drivers of growth are likely to change. India is likely to become less dependent on outsourcing and more on manufacturing exports by building on its strong engineering skills and rising levels of education in the general population over the next decade.

Consumer markets in major Indian cities will also become increasingly attractive to international companies as the size of the Indian middle class is growing rapidly over the last few years.

According to another report, India’s investment in infrastructure during 2007-12 is expected to be around $500 billion as the expected level of infrastructure investment predicted in the 11^th five year plan is 2.36 times that of the 10th plan. Furthermore, this is expected to almost double for the 12th five year plan (2012-17).

• The report, also pointed out that about 97 million jobs are likely to be created over the next 10 years across different sectors in the country.
• Due to this huge increase in jobs, India may need to potentially build an average of 8.7 billion sq ft of real estate space every year, adding up to a whopping 95 billion sq ft between 2010 and 2020, RICS said.
• In 2020, the workforce participation rate will increase to 42% with 585 million working population, implying net increase of 97 million people.
• The study, however, said there is a huge shortfall of skilled manpower (Training & Development Opportunities) in the infrastructure sector that needs to be addressed with urgency.
• As per estimates, only 27,000 civil engineers are added every year against an annual demand of 4.27 million for the next decade. India’s current total strength of civil engineers is about 5,33,000. A sustained period of shortfall in annual supply coupled with an increasing year-on-year demand could result in a cumulative demand of nearly 40.2 million civil engineers over 2010-20, with a shortfall of 39.4 million civil engineers over the same period, the report highlighted.
• Similarly, the country is likely to witness a total shortfall of 3.64 million architects and 1.1 million planners during 2010-20 period.

Infrastructure is just one of the aspects of the Indian growth story but there are many opportunities to mention such as education, infrastructure (Airports, Seaports, Railways, Power), healthcare, tourism & travel and oil & gas. So, not many economies can foresee such opportunities going forward.

Are foreign companies investing in India?

An annual FDI inflow indicates that FDI went up from around negligible amounts in 1991-92 to around US$9 billion in 2006-07. It then hiked to around US$22 billion in 2007-08, rising to around US$37 billion by 2009-10. In other words, the stock of FDI has jumped by almost US$100 billion since 2006-07.

For 2011 calendar year, the FDI is expected to be more than 30 billion US Dollars (a continuous rise) confirming the interest and promise India holds and delivers. While these numbers may be small in absolute sense compared to some other economies, the trends indicate a strong positive bias.

According to the World Investment Report 2009, issued by the UNCTAD (United Nations Conference on Trade and Development), there is a total of 3,057 multinational companies (MNCs) in India. From 2004 to 2009, the number of Indian-based MNCs decreased nearly 50%, while the number of foreign affiliates increased 90%.

The expansion plans of some of the global companies indicate their confidence in future based on their past success in India. It also indicates that they have adjusted to the business environment and operations in India very fairly & easily and are gaming to play this at a larger scale. They have progressed on the learning curve quite rapidly and feel well entrenched to capitalize on the strong base they have built up. Almost all the major companies like Coca-Cola, Pepsico, Nestle, Siemens, ABB, GM, Honda, Toyota, Samsung, Vodafone, Intel, AMD and many more have recently expanded or are planning to expand their operations in India.

These MNCs are helping diffuse technology and innovation in key sectors such as Pharma, solar energy, agriculture, biotech, nuclear and defense. The MNCs and the Indian industry are gaining a lot from each other. The MNCs are bringing in and adapting global best practices to help solve local problems and help India get linked in a better way with the global economy.

It’s a win-win; these MNCs have become growth partners and have a major role to play in India’s development. MNCs are investing with long term horizon to help India realize its potential in new areas and in the process to scale up their operations and business results as well.

While there is scope for improvement in policy and environment around business setups and operations, the situation on the ground does offer lot of hope.

How do existing foreign firms performing in India?

Most of the global companies in India have a market leadership position based on their product/ service portfolio strengths. Whether it chemicals, power, infrastructure, industrial, consumers, health, entertainment or telecom, these companies have a strong brand acceptance and market share. They give a run for the money to the local counterparts and have a history of strong growth in the country. This clearly signifies: India is a market for equal opportunities and doesn’t differentiate by where are you from. In fact, in certain areas, it is a big advantage to be non – Indian.

Conclusion

World is becoming a challenging place for business with the uncertain times ahead. For global firms, the familiar markets may be getting mature and the challenge would be for growth in these markets. The emerging markets may be lucrative but unknown and possibly accompanied with an uncertain climate, the challenge could be around entry barriers or business policies.

So, to a business, both markets offer challenges of a different kind. Some companies may want to wait for the business environment to improve significantly before moving in while others will move in and learn as they grow (contribute in the improvement process in their own ways) and leap ahead.

As far as India is concerned, second course of action might be more desirable and the experience of so many existing global companies doing so well in India underlines this fact. So, hop in and enjoy the ride into the exciting future with all its twists and turns and look forward to reaching to the next level.

[This post have been written Rohit Chaturvedi, Founder & Managing Director at Expand in India, having close to 20 years experience in business consultancy, industrial management, strategic planning, marketing, operations, team building, leadership and six sigma process orientation. You can join his LinkedIn Group or follow his blog. ]

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NTT Communications Corp. Japan has acquired 75% equity in Netmagic Solutions, a leading Indian managed IT hosting services company operating seven datacenters in India. This acquisition is subject to approval from various relevant Indian authorities.

The investment amount has not been disclosed in the press release sent to us. This looks like a  strategic investment, where Netmagic will not only get much needed funds infusion but will also be able to leverage NTT Com’s global network and datacenter footprint for customers. 

Sharad Sanghi, who will remain the CEO of Netmagic Solutions said,

This alliance will help Netmagic to leverage NTT Com’s global network and datacenter footprint for customers. The partnership will also help us strengthen our growth plans in the Indian sub-continent and globally, while NTT Com’s global customers in India can benefit from Netmagic’s expertise and leadership position in the managed IT hosting and cloud services market

Netmagic Solutions has a roaster of over 1000 customer across the globe and has been the leading provider to global enterprises from multiple locations and has been awarded the ’Datacenter Service Provider of the Year 2011’ by Frost & Sullivan.

From NTT Communication’s perspective, this acquisition will further their status as a Global provider of ICT services to Enterprises worldwide. This acquisition is in line with their vision of providing one-stop ICT services, including the managed operation and maintenance of networks, datacenters, servers and applications.

Nexus Venture Partner exits from Netmagic

Nexus Venture Partners had invested in Netmagic 4 1/2 years back and with the NTT acquisition, they have completely exited from Netmagic. Sharad Sanghi has sold only a minor stake and will be fully involved in the growth of company henceforth. All other investors have exited from Netmagic.

Nexus has had a good run over last couple of years with this exit being their 5th exit in 18 months. Nexus’ other exits were in OLX, which was acquired by Naspers, Dimdim by Salesforce, Cloud by Citrix and most recently Gluster by Red Hat.

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You might have a great investment strategy of dividing your risks and increasing returns between mutual funds, recurring deposits, shares and debentures, gold and silver and much more, but have you considered Insurance? We’re not talking about the host of insurance policies available out there on travel, automobiles and home, we’re talking about the all essential life insurance.

Think of the person after you

If you are the sole earning member of your family, then this is an important reason you should buy life insurance. Have you calculated how much money would your family lose as a source of continuous income if you died? Even if you are single, you must plan for your dependent beneficiaries who may bear the brunt of pending expenses you leave behind for them.

Your life insurance policy will make sure that the Sum Assured given to your family replaces the stream of monthly income so that they can live a comfortable life. The Sum Assured will obviously depend on the life insurance scheme you choose and the levels of premium you pay.

Tax benefits

Youngsters who are skeptical about buying life insurance can rejoice at the fact that there are many life insurance schemes in India which offer tax deductions on premium payments under Section 80C of the Income Tax Act, tax rebates and tax benefits in cases of claims made and maturity amounts received under 10(10)(d) of the Income Tax Act. Amongst the many instruments of investment that you may have divided your portfolio in, why not choose life insurance to kill two birds with one stone – gain tax benefits and avail financial security?

Cover the expenses that you may leave behind

Have you been a co-signer on a loan, home mortgage or a personal debt? Have you considered your funeral costs? Are you a part of a family business or a sole proprietorship with unlimited liability? Then that’s a good enough reason for you to opt for life insurance. Life insurance is also critical if you have just started your life as a married couple. Have you thought about how your partner alone will pay your child’s college fees?

Hereditary diseases

Why take a chance if you know in advance that a hereditary disease runs in your family? The younger and healthier you are when you buy life insurance, the lesser premium you will have to pay. Whether you have dependents or not, taking life insurance before your hereditary ailment gets diagnosed will save you lot of money. Did you know that many times, life insurance policies are denied to people with hereditary diseases even if they are ready to pay high levels or premium?

Financial security

Many people also use life insurance to fulfill two purposes. Firstly, to gain the traditional benefits of taking care of financial needs of the family after they are gone. Secondly, to use life insurance as an instrument for making investments. Depending on the scheme of life insurance you select, you can opt to invest a part of your funds from insurance in a variety of funds. In some cases, loans can also be drawn loans against your life insurance. Specific term assurance schemes can also be taken to pay fixed amounts of premiums through a certain period.

Many youngsters today see life insurance as very long term investment instruments. But as they say, it’s an amount you must keep aside to reap benefits later. Treat is as a gift you will give you your family after you are no more, not as an obligation.

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In 2008, Government introduced Limited Liability Partnership firms to be formed in India. Globally, LLPs are one of the most popular way to form a company, however, in India it is not taken off as was expected.

In short, LLP is a sort of firm that combines the benefits of a Private Limited Company and a partnership firm. Unlike regular partnerships, an LLP partner is not responsible or liable for another partner’s negligence.

According to ET news, RBI has now agreed to notify FDI rules in limited liability partnership firms. Last year, Govt. had allowed allowed foreign investors to pick up stakes in LLPs through the 100% automatic FDI approval route but the proposal did not come into effect as the RBI did not notify the rules under the Foreign Exchange Management Act.

Here is the PDF of directive released by Government last year for Approval for FDI in Limited Liability Partnership firms. Following are the high level guidelines that Govt. had set for the same.

The FDI in LLPs will be implemented in a calibrated manner, beginning with the ‘open’ sectors where monitoring is not required, subject to the following conditions:

1. LLPs with FDI will be allowed, through  the Government approval route, in those sectors / activities where 100% FDI is allowed, through the automatic route and there are
   no FDI-linked performance related conditions.
2. LLPs with FDI will not be allowed to operate in agricultural / plantation activity, print
   media or real estate business. 
3. LLPs with FDI will not be eligible to make any downstream investments.

According to me, this should help lot of start-ups in India, who want to start a company with a foreign partner. Also, given that 100% FDI is allowed, foreign investors can now easily put in money in LLP startups.

I am not really an expert in this field – so cannot comment much. Would love to hear readers comment on this who have more knowledge about it

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