Category Archives: Business

Private sector yet to warm up to Smart Cities

NEW DELHI: A year after the Narendra Modi government selected the first 20 cities for its Smart Cities Mission, the private sector has yet to warm up to the programme which banks on private support for big-ticket urban infrastructure projects.

Only 11 projects worth Rs 935.93 crore of the 167 projects amounting to Rs 12,000 cr under public-private partnership model have taken off so far, according to urban development ministry data.

Another 21 PPP projects worth Rs 2622.23 cr are at various stages of tendering process. Half of the projects being implemented are in BJP-ruled Gujarat – two in Ahmedabad and three in Surat. Three are in Delhi and one each in Bhubaneswar, Belagavi and Pune.

The ministry has attributed the slow progress to the overall “negative environment in which the urban local bodies are viewed”. Additional secretary Sameer Sharma, who is spearheading the mission, told ET, “We consider it good progress as PPP projects take a long time in taking off.

There is a lot of groundwork that is required in these projects before the tenders can be floated.” The mission is showing better implementation in BJP states. Of the 21projects in the pipeline, 15 are in BJP states.

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For Cash-Mukt India, a helpline at no charge

NEW DELHI: Six big-name business process outsourcing (BPO) companies, two telecom majors and one big consultancy are running a GoI helpline called Cash-Mukt Bharat Abhiyan (CMBA) — and they are not charging a paisa for it.

The helpline, running from December 15, is getting 3 lakh calls a day, and even though its aim is to help users understand digital payment systems, plenty of citizens are calling ‘14444’ for grievance redressal on specific digital payment platforms. The idea was Nasscom’s and the suggestion came from Niti Aayog.

The companies involved are Tata Consultancy Services, Tata Business Support Services, Tech Mahindra, Genpact, Intelenet Global Services and Aegis. Vodafone and Tata Teleservices are the telecom majors who are supplying phone line capacity for the helpline. Deloitte is helping manage the service. The companies will run the helpline free till March 31.

Around 130 employees from the BPOs involved are manning phones at various cities around India.

“It is a one-of-a-kind effort in which the IT industry — perhaps for the first time — has come together and provided support to the government free of charge,” said Jagdish Mitra, chief strategy officer at Tech Mahindra.

“This is a Nasscom initiative and we agreed with the sentiment of the government. So we decided to offer the services pro bono till March 31, till the time the government realises the worth of this and sets it up on a permanent basis,” said Kanwar B Singh, operations director at Intelenet Global Services.

“Fifteen employees at our Sitapura facility in Jaipur are working from 8 am to 8 pm all seven days a week to support the nation at this crucial hour. The process started on December 29 and we have been receiving an average of 600 calls a day,” said Vidya Srinivasan, senior vice-president, IT and infrastructure, Genpact.

Till date, Genpact’s employees have answered more than 5,000 calls in English and Hindi. Srinivasan added that most of the queries have been around the procedures to be followed while making online payments, followed by questions on BHIM and Paytm.

“There is a lot of education, the kind of questions are very basic. BHIM, the government’s UPI app is the subject of many queries,” said Sandeep Sen, chief executive officer, Aegis, adding that essentially the objective is to educate buyers and sellers such as small kirana stores on how to conduct digital transactions. Aegis has provided 30 employees out of its Kolkata centre.

Intelenet too is offering 30 seats from its Mohali centre for the project and expects to incur a cost of around 30 lakh for the entire exercise.

“We started it three weeks ago and plan to review it in the first week of February and come back to the government to prove there is merit in the exercise,” Singh said. He added that the call volume has been huge though the helpline was not heavily advertised.

BPOs involved in CMBA feel the service will improve over time and that given the call volumes, a commercial model can be thought of after March 31.

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Sensex builds on gains, rises 26 points on Asian cues

MUMBAI: The benchmark Sensex moved up nearly 27 points in early trade on Thursday, extending Wednesday’s gain on sustained buying by participants amid a mixed trend in other Asian markets.

The 30-share index rose 26.97 points, or 0.10 per cent, to 27,284.61, with sectoral indices led by oil & gas, consumer durables, capital goods, PSU and healthcare trading higher by up to 0.84 per cent.

The gauge had gained 21.98 points in the previous session.

The NSE index Nifty too edged higher by 6.15 points, or 0.07 per cent, to 8,423.15.

Brokers said besides buying by foreign and domestic institutional investors and other participants, a mixed trend in other Asian bourses, led to a better trend in the domestic market here.

Furthermore, expectations of encouraging earnings from few more blue-chip companies influenced sentiment, they added.

Among other Asian markets, Japan’s Nikkei was trading higher by 0.94 per cent, while Hong Kong’s Hang Seng shed 0.49 per cent in their early deals. The Shanghai Composite index was down by 0.06 per cent.

The US Dow Jones Industrial Average ended 0.11 per cent lower in Wednesday’s trade.

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Achhe din for jobs! FMCG companies start hiring

NEW DELHI: Achhe din is back in sight for consumer goods companies, with the industry expecting consumption to bounce back from as early as next quarter as the impact of demonetisation fades away.

The cash crunch post demonetisation did hurt them, said top industry executives. But they don’t expect it to last long or cause job losses. In fact, some of them have even started stepping up hiring in anticipation of a demand revival.

“We have seen headwinds on demand, but there is no freeze on hiring or bonuses as growth will be back in the second and third quarters (of calendar 2017), and we have to be ready for that,” said Varun Berry, managing director at biscuit maker Britannia.

PepsiCo India chairman D Shivakumar acknowledged the impact of demonetisation on the consumer goods industry. “But we are hiring in expectation of a consumption revival,” he added.

Nestle, Procter & Gamble and Dabur also made similar views. Hindustan Unilever said it is business as usual for the company.

Headhunters from Transearch, GlobalHunt and Korn Ferry said there was a slowdown in hiring at junior or middle levels in the FMCG sector after the November 8 demonetisation announcement, but that has changed now. In senior positions, there wasn’t any impact, they said.

Neighbourhood stores that transact mostly in cash were among the biggest casualties of demonetisation, even as consumers visited modern retail outlets more frequently and paid electronically, cushioning the impact for the FMCG industry, company executives said. Across channels, the hit was mostly on non-premium categories targeting consumers with least purchasing power, but the highermargin premium products remained mostly insulated from the demand slowdown.

While the situation is improving for both kirana stores and the organised ones in cities and big towns with easing money supply, rural markets remain a concern, said experts.

“There was impact on demand and it was severe across consumer staples, considering that almost 90% of the sales traditionally happen across mom-and-pop stores,” Deloitte India partner Anil Talreja said. “But a demand and consumption recovery phase is kicking in and banks are returning to a level of normalcy. However, demand recovery in rural markets will take more time as transactions have been almost entirely cash dependent.”

Rajat Wahi, partner and head (consumer markets) at KPMG, said even December was looking up in terms of demand, though the challenges on rural markets persisted.

Arecent report from market researcher Nielsen confirmed the increasing consumer preference towards modern retail. With uncertainty over the availability of cash during November-December, modern trade shoppers took the opportunity to stock up, encouraged also by promotions and discounts from retailers and FMCG companies.

In the two weeks after the currency ban, modern trade grew five times at a time when 70% neighbourhood groceries reported a fall in business, it said.

Dabur chief executive Sunil Duggal said modern trade was an outperformer during the period of cash crunch that put pressure on the consumer goods industry. “We expect revival April onwards,” he added.

According to the Nielsen report, even for grocery purchases, modern retail and online have become the channels of choice for many.

This was perceptible in categories of household items (laundry, floor cleaner and utensil cleaner), personal care products (lotions, soaps and shampoos) and daily staples (milk, curd, fruits and vegetables). In the two weeks after demonetisation, packaged grocery saw 44% growth in modern retail sales compared with a year earlier, it said.

Meanwhile, hirings at consumer goods companies are back to normal or picking up after a slowdown, executive search firms said, suggesting it as an indicator of improving demand situation in the industry.

Hiring was slightly impacted till last month but that it is “back on track”, said Global-Hunt MD Sunil Goel.

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Note ban: Deposits of Rs 10 lakh or more under I-T lens

MUMBAI: Over the next fortnight, the tax office will ask everyone who deposited more than Rs 10 lakh in their bank accounts after November 8 to spell out the source of money. There are about 1.5 lakh bank accounts in which Rs 10 lakh or above has come in since announcement of demonetisation, according to information compiled by the department.

A new e-platform put in place by the Central Board of Direct Taxes, the apex tax authority, will be used to reach out to these account holders who will have to file their response online. “If the assessing officer requires more information, the assesse would be asked to submit them. The additional information will also be uploaded online. This is with the objective to bring about transparency,” said a city-based tax officer.

In the course of a video-conference on Wednesday, CBDT members briefed senior officers of the I-T department about suspicious cash deposits, mobilisation target from the new declaration scheme, and the way to go about in taxing undeclared income that have found its way into banks.

The 1,100 cases of search and seizure carried out by the tax department in the past two months have yielded around Rs 600 crore – of which Rs 150 crore is in new notes. About 1.5 lakh accountholders have deposited more than Rs 10 lakh each and there have been suspicious cash deposits in one crore accounts, belonging to 75 lakh people. Tax authorities believe that around Rs 1 lakh crore may be disclosed under the new income declaration scheme, which would result in tax collection of Rs 50,000 crore.

“To begin with, the department will focus on the 1.5 lakh accounts with more than Rs 10 lakh deposits. This is the immediate priority and work will begin in the next few days,” said the official.

The tax department of various circles – particularly Maharashtra, Gujarat, Tamil Nadu, and Karnataka – will also have to look into the huge cash deposits in some of the cooperative banks.

“As expected, the tax department is increasing its reliance on technology to mine the huge amount of data in its possession, post demonetisation. This move will enable the department to channelise its energy into high-risk cases and nab the tax evaders more efficiently. As the tax department joins the dots by deployment of big data analytics, we expect substantial increase in enquiries/searches and assessments by the tax office,” said Amit Maheshwari, Partner Ashok Maheshwary & Associates LLP.

Industry trackers say that in some cases, inquiries may have already begun. Since end-December, tax officials have been questioning instances of large cash deposits.

“Income-tax department has already started raising queries where the money deposited is more than Rs 10 lakh as well as looking into large purchases made in old currency. Further, banks are required to furnish information to tax authorities in respect of cash deposit by end-January. Hence, many who deposited unusually large amounts of cash may receive tax notices as early as mid-February,” said Paras Savla, partner, KPB & Associates, a tax consultancy.

The income-tax department is reportedly using data analytical tools to scan personal bank deposits to segregate black money holders from genuine taxpayers. The department had roped in consultants like Deloitte and EY for the analytics work. “These tools basically compares the bank-deposit data with the past income tax returns data and raises red flags wherever there are discrepancies,” said a person familiar with the exercise.

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Note ban: Home-buyers are waiting for rate cuts

In October 2016, a Mumbai builder who runs a business worth roughly Rs 500 crore was compelled to sell 1 lakh square feet of an upcoming residential project in the western suburb of Kandivali at Rs 6,500 per sq ft when the going rate was around double that. To add to his woes, the broker in the middle charged a hefty 7% commission, or Rs 5 crore, for arranging the Rs 65 crore deal.

“The builder’s profit was even lower than the brokerage he paid,” recounts another developer, a friend of the ‘shortchanged’ builder. “It’s better to be a broker than a small developer,” he adds as an afterthought. Broking firms, and not developers, grease the squeaking wheels of the construction business in Indian metros. In a market in which buyers are scarce and supply of underconstruction spaces is abundant, middlemen rule the roost, often arm-twisting cash-strapped developers to sell out cheap.

Till about a few months ago, developers did not solicit the help of brokers to sell projects as buyers showed renewed interest to own property across Indian cities. But the tables turned when the government announced its decision to ban Rs 500 and Rs 1,000 notes in the first week of November. It has been a grind ever since. Developers are being forced to offer 5-7% as commission to off load inventory — which has swelled to over 6.71 lakh unsold units (across eight cities) in the second half of 2016. Consultants like Knight Frank not only count ready-to move-in units as unsold units but also commissioned projects that are pre-sold to buyers before completion. The likes of Mumbai, Delhi (NCR), Pune and Chennai may show a dip in unsold units, but that’s more a numerical mirage (See graphic).


“The dip in (unsold units) numbers is not because of actual sales but because of fewer number of new launches. Builders have stopped announcing new projects lately,” explains Samantak Das, chief economist and national director (research), Knight Frank. “It may take two to three years for developers to offload their full stock. In markets like Delhi-NCR, where there’s mass supply of residential units, it may cross four years.”

This is where brokers come into play. The canny ones are wheedling high net worth individuals (HNIs) and non-resident Indians (NRIs) to buy projects of small, capital-starved builders at prices almost 50% of the market rate.

The Faultlines
The year 2016 began well for the top residential markets (Mumbai, Delhi NCR, Bengaluru, Pune, Chennai, Hyderabad, Kolkata and Ahmedabad); sales volumes grew by 7% in the first half, as per data sourced from Knight Frank.

Factors such as probable interest rate cuts, political stability, economic growth, setting up of real estate regulators across states and an imminent goods and service tax augured well for the sector — at least from a buyers’ point of view. Analysts and builders viewed this phase as the turning point of the real estate sector, which had not fully recovered from the global financial meltdown of 2008 and 2009; and, more importantly, since the lending restrictions (on real estate developers) imposed by the RBI on banks in early-2015.

Optimism sustained in the second half of 2016 too, with sales numbers between July and October averaging better than the previous ten quarters. Things looked good and rosy till the time government announced its demonetisation plans. “Real estate sales dropped 40-44% across Indian cities post demonetisation. The fall was such that it brought down the yearly (2016) averages to below 2015 – which, again, was not a great year for real estate. The year ended with sales lower than in the past six years,” analyses Das of Knight Frank.

It’s not only sales of ongoing projects that have been affected. Builders have applied the brakes on new launches as they wrestle with uncertainties around latent demand, economic effects of demonetisation, implementation of Rea l Estate (Regulat ion and Development) Act or RERA and probabilities of further rate cuts. New residential project launches across eight key markets have fallen close to 28% in 2016, over a year ago, to 1.75 lakh units. There were 4.58 lakh new launches in 2012 – considered the best by far. “Real estate sector has weakened even further post-demonetisation. Demand for new projects is also not very encouraging,” admits Adi Godrej, chairman of Godrej Group, which owns Godrej Properties. “But we expect this to be more of a temporary blip… demand will pick up in a few months,” he believes.

Established builders like Godrej and Niranjan Hiranandani, chairman of Hiranandani Group, are not worried about the build-up in unsold inventory or lower number of new launches. Lower rates and setting up of RERA will embolden prospective customers to get off the fence and buy properties, they feel. “There’s demand for affordable ready-tomove-in units,” feels Hiranandani. “But there are not many buyers for under construction projects as of now… Project level booking have come down drastically post demonetisation; but that’s more psychological… People are simply deferring their decision to buy an apartment to a later date,” he says.

But such assurances are pretty unconvincing if one glances through actual residential property sales data. In 2012, over 3.59 lakh units were sold across eight Indian cities; this has fallen consistently over the next four years, hitting almost rockbottom in 2016 at 2.44 lakh units – a long term sales erosion of over 32%. Builders are putting up a stoic front. “We’re already seeing some revival in January. Demand is coming back gradually. Indians are value-seekers… and this definitely is their market,” says Cyrus Engineer, chief sales & marketing officer, SP Real Estate, a Shapoorji Pallonji Group company. “We’re cautiously optimistic about the sector. There’s a lot coming en route… RERA, GST… There could be some chaos when RERA is getting implemented,” adds Engineer. “Uncertainty will last for another six months. But I am positive about long-term prospects of the sector.”

What Buyers Want

Home-buyers, on their part, are waiting for rate cuts before firming up their purchase plans. If bankers are to be believed, there could be at least 50 bps (one basis point or bps is equivalent to 0.01%) cut in rates over the next year. This may bring down home loan rates to as low as 8.25% (2007-08 levels); competitive, cash-flushed banks may start offering loans at even lower rates. It’s anybody’s guess if loan rates would touch 7.25%, the level of 2003–04. Potential customers are also hoping property prices to correct in the interim. But that’s unlikely, says builders and sector analysts.

The sector has already undergone a “time correction”, wherein prices have remained stagnant for years together. Since 2013, real estate price inflation has matched the pace of general retail inflation – which is mostly in single digits. “Property prices don’t come off overnight, only number of transactions falls,” opines Sharad Mittal, director & head of Motilal Oswal Real Estate Fund, which manages over Rs 1,500 crore across three real estate funds. “It’s mostly a time correction – and not really a price cut. But there could be some level of price correction in high-end property and plots. But that again would be very negligible,” says Mittal. Contrarily, a few developers such as Hiranandani expect prices to inch up a wee bit once RERA comes to the fore.

Higher cost of compliance, title insurance, ‘escrowing’ incoming funds (from home buyers) and defect liability clauses are likely to jack up prices post the installation of real estate regulators. Also, in metros, developers buy land parcels from institutions (and not individuals). Such land acquisitions are “allwhite dealings”, with no room for “underbilling” or covering up the purchase price to skirt transaction taxes. “Builders may not give discounts as they’ll be worried about taxmen. By lowering costs, developers may send wrong signals to the tax department that they’re collecting the reduced amount in cash,” says Hiranandani.

The sector is moving gradually towards only-cheque payments, thanks to stringent inspection of builder-to-buyer deals by tax department. Lesser use of cash could well ring the death knell for developers with dubious track records. “Absence of cash may hit local builders in smaller cities hard. Cities like Surat and Rajkot use 50–60% cash in their property transactions… Builders in these cities are in for hard times,” says Shashi Kumar, executive director, Ornate Spaces, a Mumbai builder. “In cities and metros, only builders with good institutional backing would survive in the long term. We’ll see a lot industrylevel consolidation soon,” envisages Shashi Kumar.

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Net neutrality 2.0: Eye on traffic management

NEW DELHI: A new phase of net neutrality discussions has begun, and this time it is sharply focused on the issue of traffic management plans.Such plans are put into place to make sure that internet bandwidth is maintained, or network security is in place.

The Telecom Regulatory Authority of India has asked a set of 14 questions in its latest consultation paper. Most of these seek comments on ideal internet traffic management plans, the ways to regulate them and to ensure that they do not violate net neutrality .

The principle of net neutrality mandates that all data be treated equally . Internet service providers and owners of large content-based networks can control how data moves through the pipes. Depending on the kind of service they offer, they can determine how quickly your video buffers or whether a website appears blocked for you. These actions are part of standard traffic management practices. An internet service provider may regulate the amount of bandwidth available to you depending on whether you are just sending an email or playing a graphic-heavy multiplayer online game.

However, doing all of this can require ISPs to distinguish between different kinds of data usages. “As a principle, discrimination in traffic may lead to harming the open internet. Hence, this needs to be regulated by clear rules,” says Supreme Court lawyer Apar Gupta, who is also part of the Internet Freedom Foundation.

Internationally , there is a precedent for this. Infamously, in March 2014, a tussle between online video streaming service Netflix and ISP Comcast came out in the open. Netflix CEO Reed Hastings accused Comcast of throttling the speeds of his service unless Netflix coughed up interconnect charges.

Industry bodies in India say they are still formulating a position on the various issues raised by the paper and want to stay focused on maintain ing network quality . “The issue of categorisation is still being worked on,” says Rajan Mathews who heads the Cellular Operators Association of India. “For us, there is only one type of traffic – data traffic. We only provide the roads for it. The fundamental principle for us is that we are responsible for the health, quality , and security of the network and making sure there are no bottlenecks,” says Mathews.

National Association of Software and Services Companies president R Chandrasekhar says he sees traffic management and prioritisation of apps as different issues. Clarifying that NASSCOM is still in the process of considering TRAI‘s questions, he says, “Traffic management is about optimising traffic dynamically based on how the network is being used. It doesn’t depend on which app is being used.”

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Tribunal says ‘Tata’ to Cyrus Mistry’s contempt plea

Mumbai: The National Company Law Tribunal (NCLT) on Wednesday dismissed a contempt petition filed by two investment firms of ousted Tata Group chairman Cyrus Mistry against Tata Sons for initiating the procedure for his removal as a company director.

The quasi-judicial tribunal’s Mumbai bench, while not restraining Tata Sons from conducting an extraordinary general meeting (EGM) for Mistry’s removal on February 6, however, said it would decide on it along with another petition by Mistry’s two companies seeking supersession of the Tata Sons board and relief against his removal as its director during hearings scheduled on January 31-February 1.

The tribunal also allowed the two firms, Cyrus Investment and Sterling Investment, to file an affidavit in three days on their plea against the EGM and three days for a rejoinder from Tata Sons.

A bench of judicial member B S V Prakash Kumar and member V Nallasenapthy passed the order at 5 pm in less than a minute as counsels from both sides — Ravi Kadam and Bharat Vasani for Tata Sons, and Milind Sathe, Janak Dwarkadas and Somasekhar Sundaresan for Mistry and his companies — waited silently.

Mistry is the largest individual shareholder in Tata Sons along with his brother. Together, they own 18.4%. Mistry’s two companies had last month moved the tribunal for relief against his proposed removal as Tata Sons director, and for action on Tata Sons for “oppression of minority shareholders” and “mismanagement” of Tata Group companies. The tribunal had fixed January 31 as the hearing date after recording that parties agreed to “not file any interim application or initiate any action or proceedings over this subject matter…”

Mistry’s companies later filed a second petition for contempt alleging violation of the NCLT order by Tata Sons, Ratan Tata, other directors and several Tata trustees after a notice was issued calling for an EGM on February 6 for Mistry’s removal as director.

Aryama Sundaram, counsel for Mistry’s companies, had on Monday argued that his party was the largest minority shareholders of Tata Sons for decades and were only trying to protect rights to be “represented” by a director and against mismanagement of the $103-billion Tata Group.

Abhishek Singhvi, counsel for Tatas, denied charges of contempt, while accusing Mistry of “stabbing the company in the back”. Singhvi cited a letter written by Mistry to the income tax authorities in January giving details of Tata Trusts. He said the contempt plea was just a bogey to reargue the main case where Mistry had got no relief on December 22. He said there was no undertaking that barred the company from conducting its affairs.

Mistry’s counsel Dwarkadas said Tata Sons was wrongly describing his actions in responding to a summons from the income tax department as “a stab in the back.” Dwarkadas added, “They (Tata Sons) had no reasons to remove Mistry. The fact is that I-T sought information with regard to Tata Trusts from the company and its directors, and such information, when given by Mistry, was being dubbed as leaking information and stabbing the company in the back…the cat is out of the bag as it is our contention that the Trusts are controlling the group companies.”

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Supreme Court order puts 42% liquor biz in limbo

Mumbai: After raising a toast to road safety in their campaigns for years, global drinks giants Diageo and Pernod Ricard have fallen silent on last month’s Supreme Court order banning liquor outlets and bars on national and state highways. The reason: They, along with other Indian distillers, are probably bracing for a significant business disruption with data suggesting that 42% of liquor vends in the country face dislocation when the court directive takes effect on April 1.

In India, 330 million cases (9 litres each) of branded liquor are sold through more than 64,000 licensed outlets. Nearly 26,800 of them need to be relocated or closed down, according to industry data vetted by the country’s top distillers.

On December 15, the apex court ruled that shops and bars selling all forms of liquor within a 500-meter radius of highways should cease to exist citing the rising incidence of alcohol-fuelled road accidents. The public works department is expected to determine whether the vends would attract the court gag and must relocate, a complex process which requires the nod of excise departments and local civic bodies.

“While we fully respect the court order, the fact is that most Indian urban agglomerations are centred around highways, making it disruptive for the alcoholic beverages industry. This dislocation of retail trade comes at a very inopportune moment. I have never seen a period worst than the current financial year in my 38-year-old career,” said Deepak Roy, vice-chairman of Allied Blenders & Distillers (ABD), the third largest distiller in the country.

The domestic liquor consumption has swung negative, with 1% degrowth and volume sales declining for major companies like Diageo-controlled United Spirits and ABD. Pernod Ricard is reporting 2% growth, but is staring at its lowest India growth.

Predictably, United Spirits and Pernod Ricard declined to comment on the story.

Several retail associations are moving a review petition in the top court, the fate of which would be known in the coming days. These petitioners are likely to plead that less than 6% of road accidents in the country are alcohol-induced ones. Roy said the impending dislocation has the potential to push a large part of the trade underground, or causing them to dry up. “The fact that we are perceived as a sin industry and a heavily regulated one reduces the manoeuvring space,” he added.

The impact on liquor trade will be the most in hilly regions like Meghalaya, Jharkhand and Uttarakhand and densely populated markets — which would include the high-profile business corridors in Gurgaon and even the Western Express highway in Mumbai. Most big states such as Maharashtra, Telangana, Andhra, Rajasthan and West Bengal will see between 40% and 60% of the retail trade facing the axe. Telangana is considering a move to denotify state highways in urban centres as excise revenue from the liquor trade fills the coffers of several federal governments.

Interestingly, the Supreme Court order came on a plea by Tamil Nadu challenging the constitutional proprietary of the Central government circular asking state governments to close liquor vends on highways.

Some industry watchers argue that the court order may benefit the alcoholic beverage industry. “This could feed into the long-term story of premiumising the industry. The nature of trade dislocation may be such that the impact will be significant on regular and economy-priced brands, and much lighter on the premium ones,” said Sanjay Jain, director at Taj Capital, an investment advisory firm working with the sector. “But there must be a balance between regulation and industry viability,” Jain added, alluding to rising restrictive moves on the industry.

The talk of prohibition has gathered momentum after Bihar announced one last year, giving fresh lease to a populist political rhetoric which failed in the 1980s and the ’90s.

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Supreme Court order puts 42% liquor biz in limbo

Mumbai: After raising a toast to road safety in their campaigns for years, global drinks giants Diageo and Pernod Ricard have fallen silent on last month’s Supreme Court order banning liquor outlets and bars on national and state highways. The reason: They, along with other Indian distillers, are probably bracing for a significant business disruption with data suggesting that 42% of liquor vends in the country face dislocation when the court directive takes effect on April 1.

In India, 330 million cases (9 litres each) of branded liquor are sold through more than 64,000 licensed outlets. Nearly 26,800 of them need to be relocated or closed down, according to industry data vetted by the country’s top distillers.

On December 15, the apex court ruled that shops and bars selling all forms of liquor within a 500-meter radius of highways should cease to exist citing the rising incidence of alcohol-fuelled road accidents. The public works department is expected to determine whether the vends would attract the court gag and must relocate, a complex process which requires the nod of excise departments and local civic bodies.

“While we fully respect the court order, the fact is that most Indian urban agglomerations are centred around highways, making it disruptive for the alcoholic beverages industry. This dislocation of retail trade comes at a very inopportune moment. I have never seen a period worst than the current financial year in my 38-year-old career,” said Deepak Roy, vice-chairman of Allied Blenders & Distillers (ABD), the third largest distiller in the country.

The domestic liquor consumption has swung negative, with 1% degrowth and volume sales declining for major companies like Diageo-controlled United Spirits and ABD. Pernod Ricard is reporting 2% growth, but is staring at its lowest India growth.

Predictably, United Spirits and Pernod Ricard declined to comment on the story.

Several retail associations are moving a review petition in the top court, the fate of which would be known in the coming days. These petitioners are likely to plead that less than 6% of road accidents in the country are alcohol-induced ones. Roy said the impending dislocation has the potential to push a large part of the trade underground, or causing them to dry up. “The fact that we are perceived as a sin industry and a heavily regulated one reduces the manoeuvring space,” he added.

The impact on liquor trade will be the most in hilly regions like Meghalaya, Jharkhand and Uttarakhand and densely populated markets — which would include the high-profile business corridors in Gurgaon and even the Western Express highway in Mumbai. Most big states such as Maharashtra, Telangana, Andhra, Rajasthan and West Bengal will see between 40% and 60% of the retail trade facing the axe. Telangana is considering a move to denotify state highways in urban centres as excise revenue from the liquor trade fills the coffers of several federal governments.

Interestingly, the Supreme Court order came on a plea by Tamil Nadu challenging the constitutional proprietary of the Central government circular asking state governments to close liquor vends on highways.

Some industry watchers argue that the court order may benefit the alcoholic beverage industry. “This could feed into the long-term story of premiumising the industry. The nature of trade dislocation may be such that the impact will be significant on regular and economy-priced brands, and much lighter on the premium ones,” said Sanjay Jain, director at Taj Capital, an investment advisory firm working with the sector. “But there must be a balance between regulation and industry viability,” Jain added, alluding to rising restrictive moves on the industry.

The talk of prohibition has gathered momentum after Bihar announced one last year, giving fresh lease to a populist political rhetoric which failed in the 1980s and the ’90s.

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