Recent Happenings in India
posted by Deepak Lalwani on August 2, 2017 - 10:33am
About ten days ago Reliance Jio announced selling its new low-cost 4G enabled Jio Phone at “effectively zero cost”. Buyers will be able to get the handsets, which shall be available from 15 August, for a one-time refundable security deposit of Rs.1500 ($23.37, £17.81, Euro 19.92) after 3 years. The Rs.1500 would be refundable in full in three years. Voice calling will be free for life on the Jio Phone, while unlimited data packs will cost Rs. 153 per month. According to Ambani, Jio, with 125 million users is already the world’s fastest growing tech/telecoms firm and has added customers quicker than other free services providers like Facebook and WhatsApp. It has propelled India to become the number 1 data consumer worldwide, surpassing both the U.S. and China, he said. Earlier this year, India’s Central Bank said the telecoms sector’s earnings had weakened to the point that it was untenable for telecoms players to even cover the interest costs on borrowings. Mukesh Ambani who made his fortune in Reliance Industries from oil refineries is now taking another massive bet in the already crowded telecoms sector. He is betting that data will be the next oil for him.
The Jio Phone is being positioned as a crossover feature phone – not fully a smartphone and not quite a basic handset with no internet. Importantly, the low cost 4G enabled Jio Phone creates a new phone segment. This is aimed at making accessible to lower income Indians, phones that provide internet services to do online purchasing, make digital payments and much more than existing “calls & texts” phones provide. It accelerates India’s journey in the digital world.
Currently about 90% of Indian households have a mobile phone, but only about 10% have smartphones which provide access to the internet. Smartphone remain popular in Indian cities, but the Jio Phone will allow Reliance Jio as a telecoms company to connect millions of new subscribers in smaller towns and rural areas who prefer a simpler user interface, local language scripts and very low and affordable costs. The Jio Phone will give them their first experience of high-speed browsing at affordable costs and is likely to spur e-commerce by boosting online shopping in the world’s fastest-growing internet services market. Reliance Jio plans to introduce NFC (near field communication) – a wireless technology that allows two devices to connect. This move will hopefully accelerate the use of digital payments. All the assembly of Jio Phones is to be done in India by the year-end. Mukesh Ambani is effectively giving a boost to two of PM Modi’s key campaigns: “Digital India” which aims to boost the numbers of Indians going online, and “Make in India”, to boost local manufacturing.
The new Insolvency and Bankruptcy Code rules, together with new powers for the RBI, aim to tackle India’s $150 billion debt mountain. The non-performing loans with banks are hindering their capacity to lend, and in turn for the economy to grow. The new code aims to move cases of company loan defaults into a single entity and overcome the previous archaic system of overlapping regulations under which company promoters, banks and other creditors could all initiate competing proceedings in different courts, tribunals and jurisdictions. And in the process creditors could be played off against one another by manipulative defaulters who knew how to “play the system”.
The old system left India’s Debt Recovery Tribunals overwhelmed by cases that remained unresolved and kept dragging on. Numbers of cases in the meantime kept rising, causing the tribunals to choke even further. The World Bank estimated that in India it took 4¼ years on average to resolve insolvency under the old laws. This is twice as long as it takes in China. And the average recovery in India is about 25 cents in the dollar, one of the lowest among the country’s peers. The new law mandates a 180-day deadline to resolve cases. This firm deadline will hopefully help clean up bank balance sheets although some defaulters are already trying to circumvent the new rules. It will probably take two to three years to bring down the debt mountain to a reasonable level. This may seem a long time, but at long last the process has started.
India, a signatory to the Paris climate accord, has an ambitious plan to raise renewable energy capacity to 175 Gigawatts (GW) by 2022 from a current capacity of 57 GW. Investments of about $150 billion would be required to meet the 2022 energy ambitions. Because of about a $150 billion mountain of bad debts facing domestic banks much of the financing will have to come from abroad. Four Indian renewable power producers are planning to raise up to $2.5 billion through dollar bonds offshore because of financing constraints facing Indian banks. State banks have existing bad loans to the private sector, while private Indian banks are worried about falling tariffs for solar power.
Solar tariffs tumbled to a new low in May when SBK Cleantech bid Rs. 2.4 per unit for building a solar park in Rajasthan. Solar power companies bid for the right to build projects on a land set aside by the government for solar projects. The companies awarded the projects are leased land at a nominal price – in return for the company selling power at the lowest price per kilowatt hour. Despite tariffs going lower overseas investors searching for higher yields are keen on such dollar bond issues. PM Modi’s commitment to dramatically raise renewable energy output gives important comfort to investors.
Cheaper smartphones, increasing internet penetration and deep discounts have triggered a boost in domestic online shopping in India - from food and clothes to household items and electrical goods. But online shopping is still nascent in India, compared to many western Countries. “Mom & Pop” stores (the unorganised retail sector) still account for the biggest share of grocery sales. This creates great growth potential for the organised sector as they increase their market share, especially through technology.
Amazon confirmed winning government approval in India to sell food products. This would expand its business in the country. Amazon last month announced plans to buy upscale US grocer Wholefoods Market Inc for $13.7 billion. Amazon now wants to invest $500 million into its Indian operations for the food segment. This is over and above the $5 billion it has already committed to investing in India.