India's Modi Aims to Rekindle U.S. Investment

- Wall Street Journal

Prime Minister's First Official U.S. Visit Includes Talks with Corporate Executives

NEW DELHI—When Indian Prime Minister Narendra Modi arrives for his first official U.S. visit on Friday, a top goal will be resuscitating investment interest in his country's sputtering economy.

Not too long ago, investors and executives had hoped the South Asian nation would follow China to become an Asian economic powerhouse. But many companies drawn by that potential ended up tangled in a knot of challenges.

Overstretched infrastructure, confusing and sometimes contradictory regulations, foreign-investment restrictions and tax authorities that sometimes seem to target big foreign firms convinced some firms India wasn't worth the trouble.

Foreign direct investment from the U.S. into India has shrunk in recent years—to around $800 million in the year ended March 31, from a peak of $1.9 billion four years earlier—as India's economic growth has slowed and executives have been disappointed by New Delhi's failure to modernize the country's infrastructure and pass key economic policy changes.

Mr. Modi was elected this spring after pledging to get the economy moving again. He has taken steps to cut red tape and open the economy wider to outside participation, but hasn't embarked on the kind of sweeping liberalization some businesses had hoped to see.

The Indian leader's U.S. trip will be an attempt to reassure American executives that he is serious about dismantling many of the country's long-standing barriers to doing business. The question is: Will that be enough?

On Monday, he will be meeting with more than 15 top executives from companies including General Electric Co., Boeing Co., International Business Machines Corp., Citigroup Inc. and PepsiCo Inc.

The day he departed for the U.S. on Thursday, Mr. Modi unveiled a campaign in New Delhi aimed at attracting more investment, especially for manufacturing.

"With the steps we have taken, your investments will not fail," he told local and international executives as he unveiled the country's new "Make in India" slogan and lion-shaped logo. "I have sensitized the bureaucracy to ensure they aren't creating hurdles."

Since taking office in May, Mr. Modi's government has announced plans to improve the country's infrastructure and open up the defense and insurance sectors to more foreign investment. He has also asked bureaucrats to cut back on the approvals businesses need and started making it easier for firms to hire and fire.

In India, some of the prime minister's biggest fans are executives that have done business in the western state of Gujarat, where Mr. Modi was chief minister for more 

than a decade.

Foreign firms have tended to be more cautious in their views of Mr. Modi, saying it is too soon to judge whether he can live up to the business-friendly reputation he built as a state leader.

At Thursday's event, Kenichi Ayukawa, managing director of Maruti Suzuki India Ltd., pointed to "the well-recognized fact that India is not the easiest place to do business." But he said he was optimistic about Mr. Modi's efforts to improve matters.

Maruti Suzuki, which is majority-owned by Japan's Suzuki Motor Corp. is one of India's biggest foreign-investment success stories. It makes close to 45% of all the passenger cars sold in India and is now building a new plant in Gujarat.

Among the international companies that have made big bets on India and ended up butting heads with authorities are Vodafone Group, Nokia Corp., Wal-Mart Stores Inc. and recently even Amazon.com Inc. and Uber Technologies Inc.

Vodafone is India's second-largest phone company in terms of subscribers, but it is stuck in international arbitration to resolve a multibillion-dollar tax dispute.

Indian tax authorities slapped it with a $2 billion bill on Vodafone's 2007 purchase of a controlling stake in an Indian phone company. India's highest court said in 2012 that Vodafone didn't owe taxes on the deal, but Parliament later passed a retroactive law to impose them.

Mr. Modi's party had pledged during the election campaign to end "tax terrorism." But since coming to power, it has affirmed the government's "sovereign right" to impose retroactive taxes—though it has said it won't ordinarily due so.

Tax issues have affected others as well. Nokia's handset factory near the southern city of Chennai, was left out of Microsoft Corp.'s acquisition of Nokia's handset business earlier this year as tax authorities froze the asset, claiming it had avoided taxes.

Meanwhile, Indian authorities have said they are investigating whether Amazon, which acts as an online marketplace in India rather than a retailer, is breaking foreign-investment rules and whether it owes taxes on products in its warehouse in Bangalore.

After years of lobbying for India to open up its retail industry to more foreign investment, retail giant Wal-Mart has put its big India roll out plans on hold until restrictions on foreign firms are eased. It currently operates only through wholesale outlets in India.

These high-profile cases as well as the tough realities of doing business in India are among the reasons why India ranked 134 out of 189 last year in the World Bank's measure of ease of doing business. China ranked 96th.

While most global companies understand there is a great opportunity to make money in India as the incomes of a billion people rise, some think it just isn't worth it.

"India has long been identified unfortunately with red-tapism, inspector Raj and cumbersome rules and regulations that hindered smooth transaction of business," India's commerce minister, Nirmala Sitharaman, said on Thursday. "We are fully conscious of these perceptions. We want to chart out a new course, a new path wherein business entities are extended the proverbial red carpet," she added.

India needs to rev up its manufacturing and exports if it ever hopes to provide more quality jobs and better incomes for its populace of more than 1.2 billion people. India has some of the lowest wage rates in the world, but it has failed to become a major exporter.

Manufacturing still makes up only about 15% of India's gross domestic product. Its share of global exports has been stuck below 2% for the last 20 years. China's slice of the world's exports has jumped from less than 3% in 1995 to close to 12% last year.

"We have to increase manufacturing and at the same time ensure that the benefits reach the youth of our nation," Mr. Modi said on Thursday. "We have to create opportunities of employment. If the poor get jobs, the purchasing power of families will increase."

http://online.wsj.com/articles/indias-modi-hopes-to-rekindle-u-s-corporate-investment-1411664078

Climate change may lead India to war: UN report

Vishwa Mohan,TNN | Apr 1, 2014, 01.35 AM IST

NEW DELHI: Asia is facing the brunt of climate change and will see severe stress on water resources and food-grain production in the future, increasing the risk of armed conflict among India, Pakistan, Bangladesh and China, the latest report of a UN panel has warned.

UN's Intergovernmental Panel on Climate Change, in its report assessing impacts of climate change on human health, settlements and natural resources released on Monday, carried a dire warning. "The worst is yet to come," it said, if no measures are taken to curb the ill-effects of global warming.

India, like other developing economies, may lose up to 1.7% of its Gross Domestic Product (GDP) if the annual mean temperature rises by 1 degree Celsius compared to pre-industrialization level, hitting the poor the most.

The report also predicts an increase in extreme weather events such as last year's flash floods in Uttarakhand and cyclone Phailin in Odisha if steps are not taken to control the rise in temperature.

"Nobody on this planet is going to be untouched by the impacts of climate change," R K Pachauri, IPCC chairman said while making the report public in Yokohama, Japan.

The report says rise in temperatures would also affect 'beach tourism' in many countries. India surprisingly stands out as the most vulnerable among 51 countries where beach tourism is an important sector.

Climate change is not just about the future. The report said people around the world were already getting hit as it directly affects livelihoods, reduces food-grain production, destroys homes and raises food prices. These trends will accelerate if climate change is left unchecked.

Among other things, the report warns that climate change increases the risk of armed conflict around the world because it worsens poverty and economic shocks.

"Climate change is already becoming a determining factor in the national security policies of states", said a statement issued by the UN Framework Convention on Climate Change (UNFCCC) which has been working to arrive at a global climate deal by 2015 to fight the menace effectively through combined efforts of nations.

Though the report doesn't have country-specific predictions, its region-wise findings brought out many eye-opening conclusions for India.

Aromar Revi, lead author of one of the chapters of this report, said the impacts of climate change would be felt severely in Indo-Gangetic plains, affecting poor people in the entire region. "The areas which are facing frequent floods these days may face drought like situation in the distant or near future. We cannot ignore the changes which are taking place either in the Indus river basin or in Brahmputra river system over the longer period," said Revi, explaining the implications of the report in Delhi.

Another lead author, Surender Kumar, explained how climate change would affect the poorer nations. He said if mean temperatures increased beyond 1 degree C, it would knock 3% off the GDP of developing economies.

Key messages from IPCC report 

* Coming years will see more extreme weather events (floods, cyclones, cloud bursts, unseasonal excessive rains and drought etc) in most parts of the globe 

* Maldives, China, India, Pakistan, Bangladesh and Sri Lanka will be among the most affected countries in Asia 

* Severe stress on fresh water resources in South Asia and China (Himalayan river basins) may become a reason for armed conflict in the region by middle of the 21st century 

* Climate change may be a determining factor in national security policies 

* Coastal flooding will not only kill people and cause destruction, it will also affect tourism in India (like in Goa and Kerala) 

* Decline in foodgrain production (wheat in India/Pakistan and wheat and maize in China) 

* Big coastal cites like Mumbai and Kolkata will be affected by sea-level rise in 21st century 

* Some fish and other marine animals will face extinction by 2050, affecting fishing community 

* In many regions, changing precipitation or melting snow and ice are altering hydrological systems, affecting water resources in terms of quantity and quality 

* Glaciers (including Himalayan) continue to shrink almost worldwide due to climate change, affecting run-off and water resources downstream 

* Climate change will impact human health mainly by exacerbating health problems that already exist.


http://timesofindia.indiatimes.com/home/environment/global-warming/Climate-change-may-lead-India-to-war-UN-report/articleshow/33034504.cms

The rise of the digital bank

- Mckinsey

As European consumers move online, retail banks will have to follow. The problem is that most banks aren’t ready.

July 2014 | by’Tunde Olanrewaju

Across Europe, retail banks have digitized only 20 to 40 percent of their processes; 90 percent of European banks invest less than 0.5 percent of their total spending on digital. As a result, most have relatively shallow digital offerings focused on enabling basic customer transactions.

Neither customers nor digital upstarts are likely to wait for retail banks to catch up. Recent analysis shows that over the next five years, more than two-thirds of banking customers in Europe are likely to be “self-directed” and highly adapted to the online world. In fact, these same consumers already take great advantage of digital technologies in other industries—booking flights and holidays, buying books and music, and increasingly shopping for groceries and other goods via digital channels. Once a credible digital-banking proposition exists, customer adoption will be breathtakingly fast and digital laggards will be left exposed.

We estimate that digital transformation will put upward of 30 percent of the revenues of a typical European bank in play, particularly in high-turnover products such as personal loans and payments. We also estimate that banks can remove 20 to 25 percent of their cost base by leveraging this digital shift to transform how they process and service. Put together, the economics of a digital bank will give it a vast competitive edge over a traditional incumbent. It’s fair to say that getting digital banking right is a do-or-die challenge.

So why are European banks not aggressively moving in this direction? One of the reasons for the slower transformation in banking is that bank executives have tended to view digital transformation too narrowly, often as stand-alone front-end features such as mobile apps or online product-comparison charts. Commonly lost in the mix are the accompanying changes to frontline tools, internal processes, data assets, and staff capabilities needed to stitch everything together into a coherent front-to-back proposition. Although the journey may begin “digitally” on an online form or payment calculator, it does not remain so for long, as anyone who has taken on a mortgage can attest. Instead, the onerous documentation requirements and significant manual intervention that characterize the typical bank’s mortgage process soon emerge. This can seem jarring to customers accustomed to more seamless interactions with nonbanking services.

Some banks point to security and risk concerns as justification for their slow approach, but this is a contrast to other industries. The airline industry, arguably beset by even stronger risk concerns, has automated just about every aspect of its customer experience in the last ten years, boosting customer service without compromising safety. Banks can do the same. What’s more, the effort is likely to pay for itself—and then some.

Where exactly is the value in digital banking?

Our modeling indicates that European retail banks that pursue a full digital transformation, pulling all improvement levers, can realize improvements in earnings before interest, taxes, depreciation, and amortization of more than 40 percent over the next five years. Almost two-thirds of this potential value comes from the impact of digital on the cost base and loss provisions rather than from revenue uplift, which is why a focus beyond front-end investments is critical.

While the cost-saving opportunity for banks comes in many forms and touches every area of the bank, there are two areas that are especially significant and represent the bulk of the value: automation of servicing and fulfillment processes and migration of front-end activity to digital channels. On automation, European banks can realize 40 to 90 percent cost reductions in a range of internal processes through careful deployment of work-flow tools and self-servicing capabilities for customers and staff. On front-end transformation, beyond diverting existing branch activity into digital channels, digital tools can also be used to augment frontline servicing (for example, with iPad forms rather than paper forms, or videoconference access to specialists to maximize their utilization)—easily doubling staff productivity and enhancing the customer experience.

The potential for revenue uplift is not quite so concentrated. Rather, European banks need to pursue a broader range of opportunities, including improved customer targeting via digital marketing and microsegmentation, more dynamic, tailored pricing and product bundling, third-party integration (for example, with Facebook), product white-labeling, appropriate distribution via aggregators, and, of course, establishment of distinctive mobile and online sales offerings. In the near term, we expect shorter-tenure, high-turnover products like credit cards, loans, and payments to see the most digital transformation. In fact, these are the areas most under attack from new digital entrants. Looking further ahead, bank accounts and mortgages, which together drive more than 50 percent of many banks’ revenues and usually provide “sticky” annuity streams, will be brought into the fray. Given this development, European banks will need to carefully watch the evolution of their digital share and the success rate of digital products in the front book. The future replacement rate of these annuity streams will be increasingly dependent on digital capabilities. In essence, it’s about securing the future and not being lulled into a false sense of security based on the back book.

How to go digital without going crazy

Going digital doesn’t have to mean millions in new investment dollars or convulsive upheaval in IT. Sizable investment will no doubt be necessary in some areas, but in general, many of the elements banks need to exploit this opportunity may already be in place. Banks just need to leverage them better and invest in these targeted ways.

Maximize the use of existing technology. Many banks have widely deployed imaging and work-flow systems, online servicing, capacity-management software, interactive-voice-response systems, and other connectivity and work-management technologies. But they’re not using them widely or well enough. One European bank, for instance, installed a new high-resolution-imaging platform but never fully enforced its use. Customer-service representatives continued to send documentation by fax, and the poor image quality led to significant inefficiency in downstream processing. Addressing this problem requires systematic evaluation of existing capabilities, their usage rates, and barriers to adoption.

Apply lightweight technology interventions. Banks can generate significant performance gains with surprisingly small targeted investments. Examples include wider deployment of tools like e-forms and work-flow systems, which can be implemented relatively rapidly, sometimes without deep integration into complex legacy architectures. The relationship managers and underwriters at one bank, for instance, got together with IT to design a stripped-down and user-friendly online loan application. The form automatically adapts to input data and guides underwriters on which risk processes to follow. Another European bank sped up mortgage decisions by tweaking its existing application to follow standard rules, such as minimum down-payment thresholds and rating data, which allowed applications to be scored and routed faster, with less manual intervention.

Place a few selective big bets. There will be places where you need to pursue more sweeping transformation investments. However, instead of trying to automate every aspect of a given process or product, home in on the few that drive the most capacity consumption and give the greatest return. Do not build a gleaming digital empire for the sake of it. One European bank that went through a systematic mapping of its processes for automation potential found fewer than ten processes that represented the bulk of full-time-employee capacity. In these targeted areas, the bank embarked on more radical investments, retiring old platforms, deploying new digital solutions, and reinventing the way the process works.

Address the people dynamics

No amount of technology will help if you don’t address the people issues driven by digital. Success requires more than rethinking technology; it requires rethinking the organizational model, too, especially when it comes to skills, structure, incentives, and performance management. The following steps can help.

Set the right structure and incentives. There’s more than one way to organize around digital. Some European banks appoint a head of digital with profit-and-loss responsibility. Others use a center-of-excellence (COE) model to develop offerings that the rest of the business can take and deploy. Either model can work, but you must make concerted efforts to realign incentives to ensure collaboration. For instance, creating a COE but not giving the business digital targets often leads to a lot of technology being successfully built, but with limited drive and pull for adoption. In extreme cases, the wrong functionality is built—it’s exciting to demonstrate to senior leaders and wins awards externally but ultimately creates no bottom-line impact.

Increase the focus on business outcomes, not digital activity. Too often, banks manage the progress of their digital transformations by tracking activity metrics, such as the number of app downloads and log-in rates. Such metrics are inadequate proxies for business value. Banks must set clear aspirations for value outcomes, looking at productivity, servicing-unit costs, and lead-conversion rates, and link these explicitly to digital investments. Only then will the collective focus be on shaping the right actions to fully capture the value available.

Formulate and implement a people vision. Finally, you need a vision for the role of employees in the new digital reality. This takes two forms: expectations of how they spend their time and how they work alongside the new technologies, and clarity on what technology competencies they need to develop. Digital transformation will clearly diminish the importance of some roles, which is why many employees will view it as a threat and be resistant to the change that digital brings. However, it also shifts the focus of many workers’ time toward higher-value tasks, creating exciting new opportunities for development. For example, relationship managers will spend less time capturing customer details and more time giving valuable advice. Additionally, deeper awareness of the technical capabilities available and how they can affect processes will be a prerequisite to effectively manage in this new world. Business leaders need to be conversant in how technology can be leveraged to address commercial challenges. You cannot rely on bringing in new talent from digitally savvy industries to transform your bank. New talent provides an important stimulus, but digital needs to become a new management competence across the organization.

Digitization will change the traditional retail-banking business model, in some cases radically. The good news is that there is plenty of upside awaiting those European banks willing to embrace it. The bad news is that change is coming whether or not banks are ready.

About the author

’Tunde Olanrewaju is a principal in McKinsey’s London office. This article was originally published in the Financial Times on October 25, 2013 (ft.com).

http://www.mckinsey.com/Insights/Business_Technology/The_rise_of_the_digital_bank?cid=DigitalEdge-eml-alt-mip-mck-oth-1407

BCIM project cooperation could be key to development of border regions

By K. Yhome

The Bangladesh-China-India-Myanmar (BCIM) economic corridor is a test case for cooperation between India and China in regional development as well as addressing common challenges. India's development initiatives in the Mekong region and China's growing presence in South Asia are now converging in the BCIM region. 

India and China's inroads into each other's peripheries have increased their economic presence and political profile. The ideas driving the BCIM economic corridor project are a combination of domestic and external interests of both New Delhi and Beijing, notwithstanding the security reservations in some quarters of the Indian establishment.

The past decades have witnessed phenomenal economic growth in both India and China. 

A major challenge has been to address the economic imbalance between the coastal developed regions and the underdeveloped frontier regions. Given the continental size of both, the interior regions have not benefited as much as the coastal regions that enjoy the geographical advantage of maritime connectivity. 

The BCIM project is an important part of New Delhi's and Beijing's strategies to open up their landlocked frontier regions to the neighboring countries.

Yunnan Province of China is a landlocked region far-off from the booming coastal areas in the east. Regional cooperation allows China to provide sea access to its southwest provinces or what some Chinese scholars refer to as "from continental to maritime economies." 

Since the launching of the "Gateway Strategy" in 2009, Yunnan has been made the gateway to Southeast and South Asia with several networks of road, rail, and air connectivity being planned to connect Yunnan with the neighboring countries.  

An important part of the strategy is to revive the ancient "Southern Silk Road," believed to have connected China with India. Within the renewed China's "Going Out" policy, Yunnan's geographical location that shares common borders with Myanmar, Laos and Vietnam is seen as the gateway. 

Similarly, India's landlocked Northeast region has lagged behind compared to other parts of the country. Within the "Look East" policy, New Delhi's strategy has been to encourage greater economic integration of the Northeast with the neighboring economies through border trade and connectivity to provide sea access to the region.

Like Yunnan Province, the Northeast region shares common borders with Bhutan, Bangladesh, Myanmar and China, making it the bridge between India and its eastern neighbors. 

This is also in line with India's new approach toward its periphery that aims at creating a regional environment conducive for economic growth. The idea of regional connectivity has become synonymous with New Delhi's new regional diplomacy. 

The border regions of the BCIM countries have a complex development-security nexus. The protracted ethnic conflicts in India's northeast and northern Myanmar have had serious security and development impacts on the border areas of the BCIM region. 

The "geographical isolation" argument has long been the main reason for the underdevelopment of these border areas, fuelling and sustaining ethnic unrest. 

The BCIM region has a geographical advantage of connecting South, Southeast and East Asia. This subregion is viewed as having the potential to promote the economic integration of Asia. 

Two issues could emerge with serious implications. The line dividing "internal affairs" and "external interference" may narrow and if not handled carefully, could even threaten relations among the countries involved.

China's rethink of its "Going Out" policy in the region, particularly, after its experiences in Myanmar, is critical for the BCIM project. An engagement policy that is guided by respect and sensitivity to culture and the environmental concerns of local people is key for the success of "win-win cooperation" in these border regions of BCIM countries, which are rich in biodiversity and ethnically diverse people.

The BCIM economic corridor has the potential of transforming a conflict zone into a cooperation zone. This can happen only if adequate measures are taken to check any possible negative impacts of the corridor by involving all of the key stakeholders. 

The author is a research fellow at the Observer Research Foundation, New Delhi. yhome@orfonline.org

http://www.globaltimes.cn/content/832878.shtml#.Us5eu_QW28g