Cover Story

IT Industry: Towards Commoditization 

--  Debasis Mallik, Team Analyst

Price considerations have played a major role in eroding product differentiation in the IT industry. In the West, it is quality and the features of the product that drive the purchasing decision. However, in the case of developing countries like India, price considerations have always played a crucial role in influencing consumers' decisions, ceteris paribus. With new entrants in the marketplace, bringing in products with similar features yet with limited price differences, competition has intensified. With increased price wars and continuous technological progress, the industry is moving towards commoditization. Commoditization, today is akin to a strong tidal wave sweeping all the segments of the IT sector. Some sectors like hardware, which were relatively weak, were washed off earlier. And other foundations like the software sector are witnessing the blow now.

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Spotlight

Socially Responsible Investing : A conscience call 

--  CSV Ratna, Team Analyst

Most investors have a concern for social and environmental causes; few of them try to work towards them. Socially responsible investors are those few who invest for a cause and try to make the corporate world more responsible to the society at large. And the good news is that their numbers are growing.

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By Invitation

Corporate Governance in Banks : Setting new standards 

--  Y Chandra Sekhar, Team Ananlyst

Governance is in fact a reform package to strengthen the banks and corporates with the objective of making them more accountable, open, transparent, democratic and participatory. Good governance is equitable and effective governance that promotes the rule of law, says Sardar NS Gujral, Chairman and Managing Director, Punjab & Sind Bank.

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Indian Railways : Reality strikes

Indian Railways is in a watershed period in its history today and therefore drastic action needs to be taken in a number of areas to make this august organization the country's pride once again, says KK Nohria, President, The Associated Chambers of Commerce and Industry of India.

Indian Railways over the past decade has fallen into a vicious cycle of under investment, misallocation of scarce resources, increasing indebtedness, poor customer service and rapidly deteriorating economics. The overwhelming sentiment of The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is that time has run out. Action is overdue. The imperative is to get started fast on a program of restructuring and reform.

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Business Environment

Low Inflation : No loss, no gain 

--  Shashidhar Mishra, Team Analyst

The low inflation scenario in India has neither created enthusiasm in the corporate sector nor has it increased the consumption propensity in the household sector. Is low inflation leading India to a deflationary situation?

An ardent follower of the economic data published by the Central Government will be glad to note that the inflation levels are hovering around one to two percent. Since the last couple of years the inflation rates are significantly low and since January 2002, they have slipped below the two percent level. What does this mean to India Inc.? Are these rates reflecting a true picture of the state of the economy? What about the issue of high real interest rates when compared to other countries? Is this an indication of the economy moving into a disinflationary mode?

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US Interest Rates : Reflecting the economic pulse? 

--  DG Prasuna and Debasis Mallik, Team Analysts

The Federal Reserve has left interest rates unchanged. The Fed's subtle hints are that economic recovery is already underway and a cut in interest rates is not necessary while a raise will have to wait.

Central Banks, world over, have always considered the manipulation of interest rates as an imperative tool for regulating economic activity. For an economy expanding at an unprecedented pace, increasing the rates dampens economic activity. Similarly, for a sagging economy lowering the rates works as an expansionary tool for revival. This judicious mix of monetary policies enables the Central Bank to maintain economic stability. The Fed, and its celebrated helmsman, Alan Greenspan have always acted in the same spirit whenever the US economy showed signs of significant deviation from stability. The effort intensified when the country's finances was in the grip of an economic recession.

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APM : Caught on oily grounds? 

--  Aparna Mehta, Team Analyst

The Administered Price Mechanism (APM) dismantling was expected to usher in an era of a brave new world of competitive prices, better margins and better returns. But as the Government keeps its hold on the sector, the fortunes of oil companies as well as the consumers take a hit.

News about oil embargoes sends shivers down the spines of people who are well versed with history of oil prices. The expected spurt in oil prices as Iraq announced a month long suspension of oil exports as a protest against Israel's invasion of Palestinian areas on West Bank, has made the economic forecasters grip their calculators in frenzy and work out the damage that more expensive oil might cause to a recovering economy. 

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Case Study

Indian Stock Market Indices : To float or not to float? 

--  D Satish, Team Analyst

The Indian bourses are debating whether to shift the index calculation methodology from market capitalization to the internationally popular free-float method.

With the visit of FTSE Chief Executive Mike Makepeace to Mumbai to attend the round table conference on free-float, the debate on whether the Bombay Stock Exchange (BSE) should adopt this methodology of index construction is gaining momentum.

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Corporate Strategy

Management Consultancy : Time for few new ideas 

--  Amit Singh Sisodiya, Team Analyst

The history of consultancy business is replete with examples of failures outscoring winners. AT&T's continuing troubles and more recently the disgraceful collapse of Enron, all tell a sorry tale about the profession. Will the idea machines generate a few fresh, and winning ideas?

"A consultant is a person who takes your money and annoys your employees while tirelessly searching for the best ways to extend the consulting contract."

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Big Businesses : Survival conundrum 

--  Amit Singh Sisodiya, Team Analyst

While experts are still grappling with reasons for Enron's collapse, the premature deaths of several so-called giant-sized organizations like Global Crossing in the US, Kirch Media in Germany, NTT in Japan, and those of UTI, IDBI, and IFCI in our own backyard, raise serious concerns about size.

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Industry

Global Steel Industry : Looming trade war 

--  N Janardhan Rao, Team Analyst

With more than 30 steel companies in US having filed for federal bankruptcy protection since 1998, the country's steel industry is in deep trouble with prices at their lowest in 20 years. The Bush administration has resorted to protectionist tactics, but this could lead the President to fight another battle, unfortunately with his own trading partners.

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Indian Railways : Restructuring is the key 

--  Y Chandra Sekhar, Team Analyst

Indian Railways occupies a special position in the socio-economic life of Indians. It is now facing acute problems in its financials and implementing rigorous reforms has become imperative to revive it.

Indian Railways one of the biggest rail networks in the world with more than 1,07,360 track kilometers, is at a crucial juncture today. Through its vast transportation network it has integrated markets and people across the length and breadth of the country. Particularly in times of war and calamities, it has risen to the occasion and become one of the foremost institutions in India. Despite all these vital contributions over decades, it is high time that the concerned authorities decide on the future survival strategies of the Railways.

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Internet Telephony : Net talk 

--  CSV Ratna, Team Analyst

Internet telephony which has existed for some time in India, has been legalized only now. Judging from its low cost benefits, it is party time for consumers and hard work for operators who have to clear the quality glitches.

April 1, 2002 marks the legal entry of Internet telephony into India and also the end of state monopoly on international long distance telephony. For the cost conscious consumers, it is a cheaper option for making long distance calls though the clarity may not be as good as basic telephony.

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Perspective

Tangible Assets : Inherent virtues

--AV Vedpuriswar, Dean, IKC, Hyderabad

The burst of the dotcom bubble has proved that the essence of intangible assets lies in the strength of the real sector.

The growth of the Internet and the hype about the new economy has prompted many management gurus to lay a strong emphasis on building strong intangible assets. The essence of their argument is that companies should build competencies in areas such as design, supply chain management and brand building and leave the `dirty' job of constructing and running factories to contractors. Indeed, the stellar performance of companies like Cisco and Enron in the 1990s, provided strong support for this argument. With the fall of Enron, which burnt its fingers while attempting to convert itself from a brick and mortar to a new economy outfit, this argument looks very weak. On the other hand, the good old `smoke stack' companies, with their physical assets, look safer to investors, even if they do not offer superlative returns.

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POTO : TADA's prototype 

--  Dr. Ajit Kumar, Faculty, IU

The new law against terrorism, POTO, has evoked consternation among India's intellectual elite. There is a fear that like TADA, it will also victimize innocent people.

Enacting laws cannot solve problems, nor can problems be solved by providing for a different and more drastic procedure for prosecution of certain crimes. Terrorist groups are using modern technology with ruthlessness in eliminating their adversaries. The agencies fighting them need strong laws and proper equipment to deal with them. Terrorists have rendered over five lakh persons homeless in our country and 54,000 lives have been lost in the last 15 years.

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