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B&E This Fortnight
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Issue Date - 08/12/2011
Hike in retail FDI

The central government is all set to raise the limit of foreign direct investment in the retail industry in India. The Department of Industrial Policy and Promotion (DIPP) has moved a cabinet note to the proposal to increase the limit of foreign direct investment in single brand retail from 50% to 100%. DIPP was earlier in favour of upping the limit to 74% but later took an aggressive stand to allow complete ownership of a company by a foreign player in single brand retail. DIPP is of the view that if foreign luxury brands like Louis Vuitton of France and Swedish furnishing house Ikea are allowed to open more stores in the country, they will look to source their products locally due to the ramp-up in their scale of operations. Similarly, for multi-brand retail, the proposal is to allow 51% foreign direct investment. The move has come in a time when the government is trying hard to push through the proposal to allow more liberal foreign direct investment in multi-brand retail, which will allow big players like Walmart, Carrefour, Tesco, etc., to enter the Indian market and will help the government to shore up declining foreign direct investment.

No more good times

The flamboyant Vijay Mallya-led Kingfisher Airways is in a hot soup these days. After cancellation of over 200 flights in recent weeks due to oil companies’ stopping supplies because of non payment of their dues, it has received a show cause notice from the Director General of Civil Aviation. As on date, Kingfisher is due to clear a bill of around Rs.13 million to Hindustan Petroleum. It was the second time this year that the oil marketing companies stopped supply of aviation fuel to Kingfisher pending the clearance of huge dues. Besides, Kingfisher is also finding it difficult to service its Rs.6 billion in debt that it has taken at a high cost. The airline is in talks with the lenders for a debt restructuring plan. Presently over 23% of Kingfisher’s stake is owned by a consortium of 13 banks, including SBI, ICICI Bank, IDBI Bank, Bank of Baroda and Punjab National Bank.

Telcos under probe

A team of investigators raided the premises of telecom majors Vodafone and Bharti Airtel regarding the investigation of alleged wrongdoings in the sale of mobile phone airwaves back in 2001. A case regarding this has been registered by the CBI against the mobile companies and two government officials. Residences of Shyamal Ghosh, the telecom secretary in the federal government during 2001-02, and J.R. Gupta, then director at state-owned telecom company Bharat Sanchar Nigam Ltd were also searched. Meanwhile, both Vodafone and Bharti Airtel have denied any wrongdoing. Some people are of the opinion that a CBI probe into license allocations during the previous BJP-led NDA government can be a way of settling scores and strengthen the image of the UPA government.

Cyrus mistry nominated tata’s successor

After much speculation, the board of the Tata Group has nominated 43-year old Cyrus Mistry, younger son of billionaire Parsi business tycoon Pallonji Shapoorji Mistry, as Deputy Chairman for Tata Sons. It was a bit of an anti-climax of sorts, when you consider that Mistry senior holds an 18.5% stake in the group, valued at a whopping $8.8 billion. The view that this might be the major reason for the final verdict gains credence when you consider that Cyrus wasn’t the initial choice. Moreover, Cyrus is an insider of sorts, since he has been a board member for the Tata Group since 2006. But question arises about his credentials for leading a conglomerate as big as the Tata Group (he is currently serving as Director for Shaporji Pallonji Power Co. Ltd. & Shaporji Pallonji Finance Ltd. to name a few). He may have to be particularly assertive in his decision making in the beginning, which was how Ratan Tata himself prevailed when he became Chairman. But stakeholders can thank their lucky stars. When you look at some of the instances of succession planning in leading Indian corporate houses, the situation has hardly been rosy. The Ambani brothers split just three years after Dhirubhai’s death. The Birlas split into eight factions in the 1980s when the family structure became complex and a lot of mutual distrust creeped in. The Bajaj group split between brothers Rahul and Shishir Bajaj with the former taking Bajaj Auto and the latter taking up Bajaj Hindusthan. Similar was the case with the Thapar Group & DCM. In the case of the Tatas, the baton has passed rather peacefully with no bad blood involved. In fact, there was no ‘blood’ involved at all! Besides the fact that Ratan Tata has no heir to succeed him, the Tata group has successfully maintained a distance between family relations & business, which is a valuable lesson for India Inc. in general.


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