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As global crude prices soften and the world demand heads southwards, exports growth may soften in the second half of the current fiscal.&nbsp;Experts told DNA Money that even though a depreciated rupee and a strong order book could provide some tailwind to exports, unfolding external factors like oil prices and slowing GDP growth in some economies could pin down its growth.

Ajay Sahai, director general and CEO, Federation of Indian Export Organisations (FIEO), said “maintenance” of exports growth will be a challenge from October onwards.

“Petroleum is the common factor in both imports and exports. On one hand, it boosts exports and on the other, it bloats the import bill too. Now, with the easing of crude prices, we expect the import bill to come down, but the bigger challenge from October onwards is that the base effect of crude price will kick in along with lower crude prices and so maintenance of export growth will be a challenge,” he told DNA Money.

Elaborating further he said; “if we look at the 17.86% growth in exports in October, the last figure reported, the net export, or the value of exports, is much less than the value in September, which was negative. In September, we suffered a negative growth. In October, we have a growth of around 17% but still, the value of exports in October is less than September”.

The October trade numbers, released by the government last week, reveal exports jumping over 17% to $26.98 billion compared to $22.89 billion last year. However, when compared to September this year, the month-on-month dip was 3.47% in October, down from $27.95 billion.

September had also seen the first slip in exports in the current fiscal as it fell 2.15% from $28.75 billion in the same month last year.

In the current fiscal, exports have consistently registered a robust growth till September. Experts see this trend reversing a bit.

Madan Sabnavis, chief economist, Care Ratings Ltd, also sees “moderate” export growth due to lower global crude prices. He expects the current fiscal year to end up with an export growth of 10-12%. Last fiscal, exports grew 9.8% to $303 billion.

“Growth in exports will be moderate, probably 10-12%. We should also remember that one of the major components of our exports is petroleum products. When the price of petrol goes up our exports benefit. That’s what we have gotten in the month of October also. It (October exports) can also be higher because our exports are going up. That kind of scenario (higher crude prices) will get moderated in the coming months, which will mean that exports are not going to grow at that kind of rate. It could be in the region of 10-12%, assuming crude remains below $70 a barrel and don’t start moving up,” he said.

The Care economist also feels that subdued global demand due to subdued growth in some major economies could also adversely impact India’s export growth.

“We are not looking at the world economic growth being steady as was expected earlier. Our exports depend on what happens to global economic conditions/ demand. That is why we were looking at 8-10% (exports growth), which we scaled up because of the advantage from higher crude in the last couple of months. I believe, we will not be exceeding 10-12%, which is on the higher side,” Sabnavis projected.

Recently, International Monetary Fund (IMF) revised world GDP growth downwards by 20 basis points (bps) to 3.7% for 2018 and 2019.

It has also cautioned about growth in many major economies slowing down in the coming months due to several economic and geopolitical factors.

FIEO’s Sahai has a higher growth forecast than Sabnavis at 15%. He sees Indian exports benefiting from the US-China standoff and a weaker rupee. According to him, exporters’ order books for the coming period are healthy and this has given the export group, he heads, the confidence to raise a robust growth outlook for the current fiscal.

According to him, exporters have informed him that when the rupee was at 65 per dollar, they were “outpriced” in the international market.&nbsp;&nbsp;

This article was first published in DNA as <a href="https://www.dnaindia.com/business/report-subdued-global-demand-may-hit-india-s-export-growth-2687047">'Subdued global demand may hit India's export growth'</a>

As global crude prices soften and the world demand heads southwards, exports growth may soften in the second half of the current fiscal.


Worry for India, these factors could pin down exports growth  

New Delhi: Was getting a waiver for US sanctions against Iran the best option or could India have looked at a more lasting solution like the European Union’s (EU) legislation against it? Most experts say a law like the EU Blocking Statute, which protects individuals and companies of EU member states from the “extra-territorial” US sanctions, holds more merit than a waiver.

They believe such a measure could be undertaken by India against the unilateral US sanctions against Iran without affecting its alliance with the US on other issues.

According to them, the legislative step could be taken on expiry of the 180-day exemption granted to India, along with seven other countries, by the US last week. In May, the US had re-imposed sanctions against Iran and set a deadline of November 5 for countries trading with the Persian Gulf nation to wean away from its imports.

Kartik Mittal, senior solicitor, UK-based Zaiwalla &amp; Co LLP, who spoke to DNA Money from London over the phone, said a similar option like the EU, through an Indian legislative instrument, is available to the government to legally protect Indian nationals and companies from US sanctions after the waiver is lifted.

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“India can come up with similar legislation. India is within its right to come up with a similar legislation, and in trying to protect its own nationals and companies incorporated in India (from US sanctions,” he said.

Arun Kumar Singhal, writer, author and the chief editor of energy publication Dew Journal, said India could consider EU kind of resolution to the sanctions against Iran if it works in the interest of the country.

However, he believes since the “set of imports” by India from Iran were different from EU’s it may not be taken up.&nbsp;

“Any option can be worked out in the interest of the country but we have a different set of imports (from Iran), unlike the EU. Keeping in view that we have been following a different kind of imports this (legislation like EU) seems quite unlikely to me,” he said.

Singhal said that while India was interested in Iran imports, it also wants to maintain a balance in its relationship with various allies.

“One of the reasons India has gone for acquiring a waiver from the US is because it is the simplest and the easiest thing to do. Also, we are able to keep cordial relations with all of those in the fray - US and Iran. We can’t afford to be one-sided with anybody. It’s always a tightrope walk for India in these kinds of situation,” he said

The Regulation (European Commission) No 2271/96, brought about earlier this year by EU Commission, acknowledges that the extra-territorial application of US sanction violates international law.

“The update was triggered by the US’ unilateral decision on May 8, 2018 to re-impose extra-territorial sanctions against Iran simultaneously with its withdrawal from the Joint Comprehensive Plan of Action (JCPOA), signed in 2015 between Iran, on the one hand, and China, France, Russia, the United Kingdom, Germany, the US and the European Union, on the other. The lifting of certain Iran-related sanctions is an essential component of the agreement. The re-imposition by the US of extra-territorial sanctions could potentially affect EU operators doing legitimate business with Iran. Such legislation will be re-imposed as of August 7 and November 5,” states point six of the guidance note of European Commission (EC) on the update of the Blocking Statute.

The EU has taken sweeping measures to protect persons and companies of the member states of the EU against the application of US sanctions against Iran through this statute.

Under the legislation, EU operators do not need to comply with the US sanctions against Iran unless such compliance is authorised by the EU Commission. They are also under an obligation to inform the EU Commission and provide requested information on the effect of US measures on their interest in Iran.

The statute gives them immunity from a judgment of a court or tribunal located outside the EU if it “relates to or give effects to or constitutes an action under the US measures”. Under it, the EU operators are entitled to claim any damages, including any legal costs, arising as a result of the US measures.

“Such recovery can be made against a natural or legal person or any other entity (such as US government) or from persons acting on its behalf (i.e. Individuals acting on behalf of the US government),” states the legislation.

It goes a step further by issuing a guidance that makes it clear that the “act of applying for an exemption from US Authorities, to continue activities in Iran, would itself be a breach of EU law unless EU authorises the EU operator to make such an application for an exemption to the US Authorities”.

Even as the statute protects the interest of EU individuals and companies doing business with Iran, it does not compel them to continue their business in Iran.

“In other words, the EU businesses are free to choose whether they want to start working, continue or cease business in Iran,” says the guidance note of EU Blocking Statute.

 
This article was first published in DNA Money: <a href="https://www.dnaindia.com/business/report-can-india-do-a-eu-to-tackle-us-sanctions-against-iran-2684692">Can India do a EU to tackle Iran ban?&nbsp;</a>

Most experts say a law like the EU Blocking Statute, which protects individuals and companies of EU member states from the “extra-territorial” US sanctions, holds more merit than a waiver.


On Iran ban, this is how India could assert its sovereignty without miffing US  

Will the entry of the world's largest steel producer ArcelorMittal in the Indian market trigger a price war in the steel sector? Many experts view the Lakshmi Narayan Mittal-promoted steel company's foray into the domestic market as a game changer. They believe it could do to the steel sector what Jio's entry did to the telecom sector.

"Here (steel sector) also, like in the Jio case, we have this behemoth (ArcelorMittal) with immense financial muscle who can challenge the established players (Tata Steel, JSW Steel, Steel Authority of India (SAIL), Jindal Steel and Power Ltd (JSPL), ElectroSteel, etc)," said an industry player, who did not want to be named.

ArcelorMittal is all set to bag the 10-million-tonne (mt) steel asset of the bankrupt Essar Steel after an aggressive bidding process under the Insolvency and Bankruptcy Code (IBC).

Most analysts are anticipating a price war, similar to the kind unleashed by Jio to grab market share, between big steel players as the Luxemburg-based steel major goes after domestic steel clients.

"There is no doubt that ArcelorMittal will undercut and come out attractive offers for steel clients to retrieve lost market of Essar Steel. The Hazira plant (of Essar Steel) had not been operating at its optimal capacity for last few years. It was operating at around 50-55%. ArcelorMittal will ramp it up quickly to at least 80% to regain market," said an analyst, on condition of anonymity.

Interestingly, the global player is entering at a time when the domestic steel industry is going through an upcycle.

"First they will try to expand and improve the efficiency. That will take 6-7 months. They have existing customers, but they will have to look for more market either they will expand the Indian market and will export because it (Hazira steel plant) is port-based plant. They also have a huge customer-base abroad, which can be leveraged," he said.

The analyst said the Mittal-owned steel company could easily scale up to the major domestic players' capacity of around 18 mt in less than five years. "ArcelorMittal will definitely try to scale up from 10 mt capacity to 18 million tonne. I believe, in below three years, it will at par with JSW Steel and Tata Steel," he said.

A former analyst with a domestic broking house, who has is now working with a major steel company, said since Essar Steel predominantly had footprint in western India, and so players like JSW Steel will get impacted more. 
He said ArcelorMittal would have to fix the problem of gas availability and uninterrupted iron ore supply.

"They need to source uninterrupted gas and iron ore. They could try to source iron ore from abroad. They have mines abroad from which they can source. It is a port-based plant. So, if there is no significant distance between the domestic landed price and the imported price it will be better for them to import," he said.

The ex-analyst said ArcelorMittal could have a slight edge over domestic players in terms of better grade and technologically innovative steel products.&nbsp;"Domestic players will have competition in terms of highly value added and technically sound products," he said.

Today, the size of the domestic steel industry is around 125 mt, with major players having capacity of around 18 mt. Currently, most of significant domestic firms were in the process of expanding their capacity to over 20 mt.

R K Goyal, president, Karnataka Iron and Steel Manufacturers' Association (KISMA), did not expect the Jio effect to play out in the market with the entry of ArcelorMittal.

"No such thing will happen. They will bring a lot of technology and knowledge, which will help the industry. Nobody will like to burn money (by indulging in intense competition). I don't think they are coming to lose money here. Let them come. Let then produce. Let's see whether they able to produce 10 mt or 5 mt out of this. Then, the market share will come into the picture," he said.

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CONCRETE STRIKE

-ArcelorMittal is set to bag the 10 mt steel asset of the Essar Steel after an aggressive bidding process under the IBC&nbsp;&nbsp; 
-Interestingly, the global player is entering at a time when the domestic steel industry is going through an upcycle

Many experts view the Lakshmi Narayan Mittal-promoted steel company's foray into the domestic market as a game changer. They believe it could do to the steel sector what Jio's entry did to the telecom sector.


ArcelorMittal to do a Reliance Jio? Lakshmi Mittal out to shock and awe 

In what can be seen as the proverbial sword of Damocles removed from over the employers’ head, the Employees’ Provident Fund Organisation (EPFO) last week issued a circular to Central Provident Fund Commissioners (CPFCs) to “avoid any coercive action by way of prosecution” in provident fund (PF)-Aadhaar linking cases.

Though the government-owned PF firm has not yet put out a notice on withdrawal of its orders on the mandatory linking of PF accounts with Aadhaar.&nbsp;

Last week’s circular, a copy of which is with DNA Money, comes almost a month after the Supreme Court order on Aadhaar, which clearly states all benefits earned by an individual was not a government welfare scheme and therefore it’s linking to Aadhaar cannot be made mandatory.

“Please refer to the above circulars whereby it was requested to carry out the above direction. However, in view of the Hon’ble Supreme Court order on the Aadhar Act, 2016, dated 26.09.2018, it is advised to avoid any coercive action by way of prosecution till further orders,” says the circular sent out by EPFO last Thursday.

Suchita Dutta, executive director, Indian Staffing Federation (ISF), who has held several meetings with the EPFO officials over the last one year on the issue, said this came as a major relief as many employers had been slapped with prosecution notices for failing to remit their PF dues in time, mostly due to not being able to link their employees PF accounts with Aadhaar. She said they can now breathe easy.&nbsp;

“Yes, the EPFO has instructed all the CPFCs not to put any kind of pressure related to PF-Aadhaar linking on any of the companies. Earlier, they were pressurising companies to comply with the provident fund -Aadhaar linking rule by sending them prosecution notices or if they were not able remit PF of employees who had not done identity verification through Aadhaar,” she said.&nbsp;

Dutta, however, said most employers were now waiting for the second part of EPFO’s action on the SC’s order. According to her, provident fund-Aadhaar linking continued to be mandatory on the EPFO’s system.&nbsp; &nbsp;

She said authorities have assured employers’ representative bodies the PF-Aadhaar linking rule would be removed in due course.&nbsp;

“We had a discussion with EPFO authorities. At this point in time, they are working on it (removing of mandatory linking of PF accounts to Aadhaar). They have assured us that they will be coming out with something on it. They are in the process of doing something about it,” said the ISF chief.

Dutta said reversing to the old system of ID verification would require tweaking the information technology (IT) system; “they have said we should expect the change within next one month or so”.

Another issue that needed to be sorted out by the Employee Provident Fund before coming out with a notification was that of retaining Aadhaar verification for employees and employers availing of Pradhan Mantri Rojgar Protshahan Yojna (PMRPY) benefits.

Under the PMRPY scheme, the government pays the employers’ Employee Pension Scheme (EPS) share of 8.33% for new employees for the first three years of their job. This scheme, which was launched in late 2016, is targeted at workers earning wages less than Rs 15,000 per month. It is meant to incentivise micro, small, and medium enterprises employ more to avail of benefits.

“The argument is that anywhere where there is government subsidy or the government is involved, in those cases some form of Aadhaar linking is necessary. In case of PF, anybody who is using the PMRPY scheme, the government will be paying the employers’ share of joinees’ EPS. Hence, any new system will include that (PMRPY)”, she said.

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The apex court’s order on Aadhaar has limited the government’s scope of subsidies under Section 7 of the Aadhaar Act. The last month’s SC judgement very specifically states, “No doubt, the government cannot take umbrage under the aforesaid provision to enlarge the scope of subsidies, services and benefits. ‘Benefits’ should be such which are in the nature of welfare schemes for which resources are to be drawn from the Consolidated Fund of India.”

Source: DNA Money

Under the PMRPY scheme, the government pays the employers’ Employee Pension Scheme (EPS) share of 8.33% for new employees for the first three years of their job. This scheme, which was launched in late 2016, is targeted at workers earning wages less than Rs 15,000 per month.&nbsp;


EPFO gives massive relief, it will not lodge cases over these accounts

Structural changes taking place in the economy are slowly but surely altering the gross domestic product (GDP)-employment ratio as they slow down job creation in comparison to economic growth.&nbsp;HR consultants and economists told DNA Money such a trend had set in and is unlikely to reverse anytime soon.

Anandorup Ghose, partner, Aon Hewitt, cited structural changes such as higher government spending, automation and sluggish growth in the real estate sector as the three main reasons for the drop in the GDP-employment ratio in recent times.

“Earlier, for every percentage improvement in GDP, there was a corresponding improvement in employment. Over a period of time that the ratio of GDP-employment has come down very significantly. This is because a large part of the GDP growth is due to government expenditure, which doesn’t create a large number of (permanent) jobs,” said Ghose.

“The second reason is the substitution of labour with technology is very high. The third factor is that the largest employment generating sector, real estate, is in a very slow phase of growth right now. These are a structural shift and they wouldn’t reverse soon,” he added. A recent study by credit rating agency Care Ratings on employment revealed that the rate of addition of new jobs by the corporate houses last fiscal at 3.8% was below the GDP growth rate of 6.7%. This employment growth rate was also lower than the 4.2% GDP in FY17.

“There has been a moderation in the overall employment growth in FY18 over FY17. However, the employment growth of 3.8% in FY18 for the samples covered has been much slower than the 6.7% economic growth achieved in FY18, reflective of the proposition that higher economic growth is weakly translating into higher job creation,” concluded the Care report, which has been authored by Madan Sabnavis, chief economist, and Sushant Hede, associate economist.

Speaking to DNA Money, Sabnavis said despite the revival in economic growth over the last few quarters, employment generation has not kept pace with it.

“The thump rule is in the best of times, GDP and employment growth rate should be 1:1, whereby if GDP growth is 7.5% then employment growth rate should also be 7.5%. Now, even if the job grows substantially at 3.8% or 4% or 5%, it will still be lower than 7.5%,” he said.

The Care economist added a caveat that corporates were adding a lot of people off the company rolls.

“One caveat here is that many companies do not take people on their roles, which cannot be captured. That trend is increasing a lot. These roles are being treated as admin or miscellaneous expenses. Lots of companies are doing this. This is the only discretionary cost which companies can cut back on when your top line is not growing at an adequate pace,” he said.

Last few years have seen companies struggling to improve their performance in the face of demonetisation and implementation of the Goods and Services Tax (GST).

“There was the initial problem of your output, pricing and so they (companies) were not able to comply with it (GST). Therefore, their sales got affected and their employment also got affected,” said the lead economist of Care Rating.

Ghose alluded to the rise in the temporary workforce taken aboard by companies but said the base of this segment of employees was not “relevant” enough to change the job growth numbers.

“Yes, there is a growth in the temporary workforce but in relative size, it is so small that even if the growth were to be around 50% or 60%, its numbers would still be very small compared to many multiples of percentage growth of fixed employment,” he said.

According to him, India has registered a temporary workforce of around 1-1.5 crore people or even less. He said this was a very small percentage of India’s total population of about 130 crore.

Suchitra Dutta, executive director of Indian Staffing Federation (ISF), said delays in some projects which were to push growth in the infrastructure and manufacturing sectors could have witnessed subdued employment numbers.

“Overall, there are delays in some projects because of which infrastructure and manufacturing were looking like they would pick up some speed. This did not happen. The momentum in the infrastructure is a little slow because (removed ‘of’ here) some of the projects have got delayed,” she said.

Ghose said corporate confidence in the future prospect has been wavering as order books remained stable but capacity utilisation has been hovering at 71-72% over the last 16 quarters. He said new employment generally starts once a company reaches a comfortable capacity utilisation level.

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“There is still so much underutilised capacity that new capacity will come in only later. Capacity utilisation means employment is being stabilised. Generally, when it starts crossing 80-85%, new employment starts,” said the HR expert.

Source: DNA Money

Higher government spending, automation and sluggish growth in the real estate sector have been slowing down job growth rate to below economic growth rate in the last few years


Jobs 2018: This is what is slowing down employment growth

Trade and industry bodies could lose a huge amount of input tax credit (ITC), which could hit their profitability and cash flow if they fail to match their ITC claims under goods and services tax (GST) with the returns filed by vendors by tomorrow.

They are aggressively lobbying with the finance ministry, Central Board of Income Taxes and Customs (CBIC) and GST Council to extend the last date for filing ITC claims - October 20 - so that the date for filing ITC claims is properly aligned with that of vendors’ filing of returns for their reconciliation.

A letter shot off by The Institute of Chartered Accountant of India (ICAI) to finance minister Arun Jaitley and copied to Hasmukh Adhia, finance secretary - Department of Revenue and other government officials last week sought extension of the deadline for filing ITC claims to December 31.

Listing 12 reasons for its request, ICAI said the way the dates for filing returns were currently set, it was “impossible” to ensure that claims matched with the vendors’ returns.“As disclosed by official statistics, at least 30-35% of the registered taxpayers, who have filed GSTR-3B returns (for ITC claims), have not filed the GSTR 1 returns (reflecting vendors’ returns). In such a situation, it is impossible for the recipient to confirm by October 20 that credit has correctly been availed for in invoices issued up to 31/3/18,” states the letter written by Navin N D Gupta of ICAI last week.

The letter, a copy of which is with DNA Money, said, “Further since complete GSTR-2A becomes available only in May 2018 (with the last date for GSTR1 of March 2018 being May 2108), an additional time need to be provided to recipient to take up cases with vendors where they have either not uploaded the invoices or filed their GSTR 1 and get them to take appropriate action”.

The crux of the whole issue is that if the companies’ ITC claims filed by October 20 do not match with their vendors’ returns, it will be rejected. Since this was on an annual basis, it gets locked and they will not get a chance to correct it and so it would be lost forever.

Rajeev Dimri, partner, Deloitte Touche Tohmatsu India LLP, said the loss of ITC due to mismatch of invoices could be a significant number. “Even if we deal with a fraction of ITC claims, it is a large amount of money”.

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He said this would hit the profit of a company. Another executive with a leading accounting firm said one his clients with a turnover of Rs 500 crore had a credit mismatch of Rs 12 crore.

Trade and industry bodies could lose a huge amount of input tax credit (ITC), which could hit their profitability and cash flow if they fail to match their ITC claims under goods and services tax (GST) with the returns filed by vendors by tomorrow.


Input tax credit (ITC) crisis brewing, profitability, and cash flow under threat

Gaining from a depreciated rupee against the dollar, better pricing and large deal wins, the second largest information technology (IT) services frim Infosys beat market estimates on revenue front but missed the margins expectation in the September quarter of the current fiscal. The company posted a 10.3% jump in its September quarter consolidated net profit at Rs 4,110 crore.

M D Ranganath, chief financial officer (CFO) of the company, said the 150 basis points (bps) margin benefit that came from weak rupee and pricing does not reflect in the operational margin as it has been utilised for higher variable pays, sub-contracting expenses and other spends.

"We had a currency benefit of 80 bps, as you know 70% of our revenue is still in dollar and 30% in non-dollar. Another 70 bps positive impact came from better pricing and reduction in the onsite mix. This was a 150 bps benefit. That was utilised for higher variable pay as well as compensation increases that we had planned earlier for Q2. Also, we had to do certain intervention to check attrition. This accounted for 100 bps. The balance 50 bps was due to higher sub-contracting expenses that we had to make to ensure that our talent supply chain does not get impacted and there was some investment in the localisation that we made," he told the media after announcing the results on Tuesday.

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The operating margin of the IT bellwether in the last quarter was 23.7% against the market expectation that it would breach the upper end of its guidance of 22-24% because of strong currency tailwind in the recent months. Harit Shah, analyst with brokerage firm Reliance Securities, told DNA Money that Infosys's revenues and large deal win for the quarter had come above his expectations but margins disappointed.

According to him, the main drivers of revenues were financial services, retail and digital. He said even though attrition rate had reduced in the June-September to 19.9% from 20.6%, it was still above a comfortable level. "An attrition rate of 14-15% would be a more comfortable level," said Shah.

The tech company's revenues in dollars for the second quarter rose 7.1% year-on-year while it was up 8.1% in constant currency. Sequentially, it climbed 3.2% in dollars and 4.2% in constant currency. Digital, which offers better margins compared to other services, contributed a significant portion of its revenue at 31% and grew at 33.5% annually and 13.5% sequentially in constant currency. The company's large deal wins in the quarter doubled to $2 billion from $1billion in the quarter before.

Salil Parekh, CEO and managing director (MD), said he saw a strong demand outlook due to improved fundamentals in the US and Europe. "Overall, we remain confident. We have made an investment in automation and artificial intelligence (AI) that has started to benefit us. (With) stable pricing and these investments, we see a reasonably bright future," he said.

The company's pricing had fallen by 1.5% during fiscal 2016 and 2017 but has now stabilised. Parekh said the company had a very robust operational cash generation in the first half of the year. "The first steps of our three-year transformational programme are being put in place and are starting to show some traction," he said.

Interestingly, the company has kept the guidance for the current fiscal unchanged at 6-8% for revenue and 22-24% for operating margin despite strong currency tailwind. "That (retaining the earlier guidance) is a disappointment but the strategy of investing for future is a good sign," said the Reliance Securities analyst.

Most analysts are expecting IT sector to gain from the 13% decline in the rupee against the dollar since the beginning of this year. Last week the largest tech services company Tata Consultancy Services (TCS) also reported robust financial numbers. IT lobby body NASSCOM has projected the IT and business process outsourcing (BPO) exports to grow by 7-9% to $137 billion in the current fiscal.

 
CRACKING DIGITAL CODE 
Digital, which offers better margins compared to other services, contributed a significant portion of its revenue at 31% and grew at 33.5% annually

MEETING THE ST 
*10.3% – Jump in its consolidated net profit in September quarter&nbsp;&nbsp; 
*7.1% – Rise in dollar revenues for the second quarter&nbsp;&nbsp; 
*31% – Digital segment contributed to its revenue

Gaining from a depreciated rupee against the dollar, better pricing and large deal wins, the second largest information technology (IT) services frim Infosys beat market estimates on revenue front but missed the margins expectation in the September quarter of the current fiscal.


Infosys Q2: How weak rupee gains were offset even as it beat estimates

Crunched for cash, Jet Airways has begun belt-tightening exercise with sources claiming that the full service carrier (FSC) has been cutting capacity and flights to curtail cash burn to keep afloat. An industry source, who spoke to DNA Money on condition of anonymity, said, “Three A330s have been grounded: one in Chennai, one in Abu Dhabi and one in an undisclosed location in Europe. Hence six routes have been reduced. The aircraft could have been grounded for reducing capacity, and not routes”.

The source told DNA Money the grounding of the aircraft could have been done to prune capacity by merging flights with negative operating margin on a route to cut costs, and thereby reduce losses. Another source also claimed that Jet’s aircraft have been grounded but could not confirm the aircraft type or the reasons for it.

In a written response to DNA Money’s queries, the Naresh Goyal-promoted airline refuted this and said “occasional aircraft changes were a result” of its network optimisation efforts.

“Jet Airways would like to state that your information is false and incorrect. The airline is always working to optimise its network and occasional aircraft changes are a result of such efforts as well as scheduled maintenance from time-to-time,” replied the beleaguered airline, which has been defaulting on or delaying payments of senior employees’ salaries over the last few months.

Till June, out of Jet’s total fleet of 120 aircraft, 119 were operational. As per information available on its website, the airline currently has a fleet of 124 aircraft, including those on dry leased to other air carriers.&nbsp;

Aviation expert Pankaj Pandit said grounding of aircraft was normal during the financial crisis. According to him, long-haul aircraft consume more fuel and so are, generally, among the first to get hit when an airline starts cutting operations. He said this helps airlines trim variable costs such as fuel, landing, navigation, handling, crew allowances, distribution and marketing and others.

“Airlines meet a large part of their working capital requirement from operating flights, but if a flight turns cash negative (having negative operating margin) then it’s better to ground them and stop the cash burn. It is the easiest thing to do rather than wait for the times to improve. Just like companies cut down production by shutting factories, airlines stop operating certain flights or aircraft, which are cash negative,” he said.

The operating margin of domestic airlines have been declining in recent times.

As per data available from Directorate General of Civil Aviation (DGCA), it fell to 3% in fiscal 2017 from 6% in 2015-16. It was in the negative at -5% in FY15, -11% in FY14 and -6% in FY13. The latest official data is not available.

Pandit believes operating margin may have moved in the negative territory in FY18 due to rising operational cost, primarily because of higher aviation turbine fuel (ATF) jet fuel prices.&nbsp;

According to numbers put out by Jet Airways for the first or the June quarter of the current fiscal, Jet’s actual plane load factor (PLF) at 80% was below its breakeven PLF of around 94%. And since June the crude prices have climbed quite a bit, the gap between the breakeven PLF and the actual PLF may have widened further, unless the yield were also proportionately up.

As per Jet’s April-June quarter figure, the airline’s aircraft fuel expenses shot up 53% to Rs 2,332 crore from Rs 1,524 crore a year ago. Jet fuel spends are a major cost of scheduled air operators, constituting around 50% of their total cost. The full service airline’s expenses on employees were up 12.6% to Rs816 crore from Rs 725 crore and lease rental rose 11% to Rs 637 crore from Rs 511 crore during the same period.&nbsp; As of March this year, Jet’s total debt stood at Rs 8,424 crore.

Its earnings before interest, depreciation, tax and amortisation (Ebidta) slipped to -15% in the first quarter from 6% a year ago. The airline’s Ebidta for the three months ending June 2018 was negative at Rs 962 crore compared with Rs 399 crore in the same period in the previous fiscal.

Its revenue per available seat kilometre (RASK), measured by dividing operating income by available seat kilometre, has also dropped 3.9% to Rs 4.10 on a year-on-year basis. What has made matters worse for the airlines, especially Jet, is that despite a fall in RASK they have not been able to raise fares as they do not possess much pricing power due to the competitive intensity in the market.

Watch This Zee Business Video Here:

<iframe allow="autoplay; encrypted-media" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/T-2Ozt070BY" width="100%"></iframe>

The airline recently raised Rs 258 crore through advance sale of tickets from Jet Privilege, a customer loyalty programme.&nbsp; This will meet its immediate working capital requirement even as it struggles to pay employee salaries. To DNA Money’s query on delayed salary payment, the listed airline firm said, “While the company has been diligent in running its payroll as per schedule for all employees, it is only in the last couple of months that the schedule has been impacted due to unavoidable reasons.”

Source: DNA Money

Crunched for cash, Jet Airways has begun belt-tightening exercise with sources claiming that the&nbsp; full service &nbsp;carrier (FSC) has been cutting capacity and flights to curtail cash burn to keep afloat.


Flying on Jet Airways? Know this before booking ticket

Prices of diesel, an important component of cost in most products and services, are inching towards a record high of Rs 80 per litre but surprisingly consumer price index (CPI) inflation till now has remained under control. Experts are attributing this logic-defying phenomenon to lower weightage of diesel in the overall CPI basket, lower dependence on it by agriculturists due to electrification of villages, food prices remaining mostly at low levels, inability of diesel price rise to become “generalised”, etc.&nbsp;&nbsp;

Rishi Shah, economist, Centre for Digital Economy and Policy, told DNA Money that even though manufacturers were paying higher prices to transporters due to a spike in diesel prices over the last one year, it was not reflecting in the CPI inflation.

“I am not aware of what is happening in the mandi (agricultural produce market) but I know for a fact that manufacturers have had to pay higher prices to transport their goods. However, up till the last print, the prices of food, in general, were all coming down. They have not seen major impact (diesel) price hike. And within the CPI basket, the fuel part comes in the miscellaneous category, which has gone up because rates at the pump have moved up but until now we are not really seeing any generalised inflationary environment develop,” said Shah.

The latest retail inflation number released by the government show CPI inflation in August rose 3.69% from a year before, down from 4.17% in July. It was the first time in 10 months that it had come below the Reserve Bank of India’s (RBI) target of 4%.

The Consumer Price Index for Industrial Workers CPI-IW) for the month, published by the government on Monday, also rose to 5.61%, up from 2.52% in the same month last year but stagnant on a sequential basis. This was mainly due to rise in prices of food items and petroleum products. Despite food inflation coming at -0.32% in August compared to 1.61% in the corresponding period a year-ago, maximum pressure in current index came from miscellaneous and food groups contributing 0.25 and 0.07 percentage points respectively to it.

width: 700px; height: 131px; border-width: 1px; border-style: solid;

According to Shah, diesel is part of miscellaneous items, which has a weightage of 27.26% for rural, 29.53% for urban and 28.32% for combined, respectively. And within miscellaneous, it is measured under the head of transport and communication, which constitutes 8.59% of the total CPI basket. Further, diesel accounts for a minuscule 0.5% of the transport and communication, slightly lower than petrol at 1.5%.&nbsp;&nbsp;

In contrast, food and beverages form a higher part of the CPI, as per the new series released in 2015, at 54.18% for rural, 36.29% for urban and 45.86% combined.

The Centre for Digital Economy and Policy economists said if the government takes steps to pin down the effect of diesel price hikes on food prices then the inflation can be reined in.

“A lot of transportation of perishable (farm produce) happens via road transport, essentially trucks. Truckers, in general, have raised the prices of transportation quite a bit. This should translate into food price rise. The important part is that what kind of steps does the government take to ensure that it doesn’t, in turn, manifests itself into the generalised inflationary environment,” said Shah.

A close look at the food inflation shows that over the last few months it has risen below 3%. In August, it slowed to 0.29% from a year ago. It was down from 1.37% in July. Food inflation has consistently slackened since the beginning of this year, from 4.7% in January to 3.26% in February. It continued slowing in March by 2.81%, firmed up by 3.1% in May but slowed again by 2.91% in June.&nbsp;&nbsp;

Interestingly, the government has been keeping abnormal spurt in food prices in check through “supply management measures”.

The RBI’s annual report for 2017-18 reveals how the government was able to successfully pin down a 159% rise in onion prices last fiscal through this means.&nbsp;&nbsp;

“Inflation in prices of onions was another shock to food prices during 2017-18. From (-) 14% in April 2017, onion price inflation rose to 159% in December. Again, while the unfavourable weather was a factor, large procurement of onions by a few state governments was the other principal driver. Post-December 2017, onion prices plunged with the arrival of fresh winter crops, supported by supply management measures by the government,” the central bank report said.

Any rise in food inflation due to diesel price hike can be checked through supply management measures.

As per the apex bank, the fuel group, which has a 6.8% weight in the CPI, contributed 11.3% to headline inflation last fiscal, up from 4.8% a year ago. It said fuel inflation picked up from July 2017 and reached a high of 8.2% in November 2017 from an intra-year low of 4.5% in June 2017, before easing to 5.7% in March. Deepak Mahurkar, partner and leader, oil and gas industry practice, PwC India, also said the “multiplier effect” of diesel price on inflation has not been playing out as in the past.

Prices of diesel, an important component of cost in most products and services, are inching towards a record high of Rs 80 per&nbsp;litre but surprisingly consumer price index (CPI) inflation till now has remained under control. Experts are attributing this logic-defying phenomenon to lower&nbsp; weightage &nbsp;of diesel in the overall CPI basket.


Diesel price and good news? Miracle? Check how this rate hike may not impact you as badly as expected

Even as Supreme Court’s (SC) Aadhaar verdict is being digested by all, there is utter confusion over how the striking down of Section 57 can be read and whether there was still hope for private companies to use Aadhaar for electronic-know your customer (e-KYC).

Rahul Narayan, SC lawyer, claimed that even though the judgement clearly bars the use of Aadhaar by private firms, few sections of the corporate and legal sectors believe there was some scope for interpretation.

“People are saying there is some scope for interpretation. The government is trying to do something to see how companies can do e-KYC again. It (government) is evaluating, and fintech companies are also talking to it to see whether something can be done to revive the use (of Aadhaar for customer verification),” he told DNA Money.

Narayan, however, was very sure that any legislation or guidelines brought out by the government would not survive the Constitutional challenge.&nbsp;&nbsp;

The Section 57 of the Aadhaar Act allowed private entities, in addition to the state, to use the 12-digit unique ID under Aadhaar for “establishing the identity of an individual for any purpose”, pursuant to law or any contract to this effect, subject to the requirement of informed consent under Section 8 and protection of information under chapter VI of the Act.

Now that this section of the Act has been struck down by the apex court, private companies will not be able to use the unique ID number for customer authentication.

Nayaran, along with his colleague Brinda Bhandari, is very clear that enactment of any law to resume usage of Aadhaar by private sector would be seen as “unconstitutional” in the light of last week’s court order.

“While there has been some speculation about whether a new law could be enacted to allow use of Aadhaar by private players again, we believe that on a holistic reading of the judgment, it is clear that all five judges agree that the use of Aadhaar authentication by private entities (“body corporate or person”) is now unconstitutional. Hence, it cannot be resurrected through legislation,” the duo wrote in an article for an online news portal.

According to the two advocates, some private parties could hope for the observations of justice Sikri in para 367 of the majority opinion coming to their rescue, “and that a new law could permit private persons to use Aadhaar authentication to establish identity”.

Both saw some scope for interpretation in Justice Sikri’s comments in para 367: “respondents may be right in their explanation that it is only an enabling provision….. If such a person voluntary wants to offer Aadhaar card as a proof of his/her identity, there may not be a problem.”

“The parliament may enact a law specifying the purposes for which Aadhaar numbers may be used by the state, which will be subject to judicial scrutiny. However, for the reasons elaborated below, any law extending this facility to private persons would be tantamount to re-enacting a law that has been struck down, and would be held to be unconstitutional,” said Narayan and Bhandari in their write-up.

Khushroo Panthaky, senior partner, Walker Chandiok &amp; Co LLP, said while the Aadhaar was economical and efficiency driven means of ID verification, it will not be difficult for companies to switch over to alternative methods with so many other documents for authentication available - 10-digit Permanent Account Number (PAN) card, passport, driving license, voter ID and others.

He said companies may also have to incur the cost for deleting Aadhaar details with them if they were mandated to do so.&nbsp;

“Banks (and others companies with Aadhaar data) are also supposed to erase this (Aadhaar) information. That could be a cost too. I don’t know how much it would be but I’m sure it’ll be tedious process,” he said.

Rajan S Mathews, director general, Cellular Operators Association of India (COAI), said operators were looking to the department of telecom (DoT), along with the Ministry of Home Affairs (MHA), to define secure ways to do KYC that can deal with counterfeit documents, high operational costs, customer privacy, etc.

“This is how Aadhaar-based e-KYC came about. Now that the SC has issued its order on Aadhaar, the operators will await new instructions from the DoT. The industry is reviewing the order but believes Aadhaar based e-KYC is the best method to ensure security, avoid counterfeiting and provide ease of doing business,” he told DNA Money.

He dismissed any concern over sensitive Aadhaar data with telecom companies.

Source: DNA Money

Even as Supreme Court’s (SC) Aadhaar verdict is being digested by all, there is utter confusion over how the striking down of Section 57 can be read and whether there was still hope for private companies to use Aadhaar for electronic-know your customer (e-KYC).

&nbsp;


Aadhaar for e-KYC: A few firms believe there is some scope for interpretation   

<div>
The landmark Supreme Court (SC) judgement on Aadhaar on Wednesday has brought cheer to employers and employees on the provident fund (PF) front as it clearly states "benefits earned by an individual" cannot be covered under Section 7 of the Aadhaar Act.

This means the government cannot make linking of an employee's PF account to his Aadhaar number mandatory, or put the responsibility of validating an employee's Aadhaar details with his PF account information on employers.

"We also make it clear that a benefit which is earned by an individual (e.g. pension by a government employee) cannot be covered under Section 7 of the Act, as it is the right of the individual to receive such benefit," says the SC verdict in paragraph 322.

The SC's wording in its order implies that PF cannot be taken as a subsidy or a welfare scheme and therefore making its linkage to Aadhaar would now be unconstitutional.

"Another facet which needs examination at this stage is the meaning that is to be assigned to the expression 'benefits' occurring in Section 7 of the Aadhaar Act, along with 'subsidies' and 'services'. It was argued that the expression 'benefits' is very lose and wide, and the respondents (government) may attempt to bring within its sweep any and every kind of governmental activity in the name of welfare of communities, which would result in making the requirement of Aadhaar virtually mandatory," says the apex court verdict.

Rahul Narayan, an SC advocate, said the government will no longer be able to add services to the Aadhaar list in an ad hoc manner. He said as per the SC's order primarily only services which receive money from the Consolidated Fund of India can be mandated linkage to Aadhaar.

"They (government) have limited scope of subsidies under Section 7 of the Act. Therefore, the government can no longer keep adding to the list (of services) wherever they want through its notifications unless there is money coming out of the Consolidated Fund of India. And this is not the case with PF," he said.

The Wednesday's Aadhaar judgement very specifically states: "no doubt, the government cannot take umbrage under the aforesaid provision to enlarge the scope of subsidies, services and benefits. 'Benefits' should be such which are in the nature of welfare schemes for which resources are to be drawn from the Consolidated Fund of India".

The central government was reportedly aggressively planning to link details of employees with Aadhaar for a more efficient collection of data on jobs and to improve delivery of services related to pensions, employees' provident fund and insurance for workers before the next year's general election.

Narayan said any ambition of the government to link all PF numbers with Aadhaar will now require amendment of the PF law.

"As the law stands now, there is no requirement for it (Aadhaar linkage to PF). If the government wants to still go ahead with its plans, they have to amend the PF Act but that has many challenges," he said.

Rituparna Chakraborty, president, Indian Staffing Federation (ISF), saw the SC's ruling as major relief for both employers and employees. For over a year now, she had been grappling with Aadhaar-related challenges since the Employees' Provident Fund Organization (EPFO) made it compulsory for employers to upload Aadhaar details of employees to generate Universal Account Number (UAN).

Chakraborty said she struggled to generate the UAN in many cases due to discrepancies between the employee's information and Aadhaar details. As a result, she was unable to remit PF into the employee's account and was slapped with several penalty notices.

"The employers may not be mandated to collect the (employee) data. It (data) may be a requirement but employers may not be mandated to ensure the validation of Aadhaar details. There was an obligation sitting on employers' shoulders, where legally they could be penalised. I believe that may undergo a change now. Many employers were getting penalty notices on account of not being able to generate UAN for their employees. This may change now," she said.

ISF chief, however, said she had still not received any notification of PF being withdrawn from the list of Aadhaar services.

"I am expecting that the EPFO will come out with a notification explicitly stating that Aadhaar linkage is not required for PF. Right now, no such notification has been issued," she said.

Narayan said any order from the EPFO demanding Aadhaar linkage would be unconstitutional in the light of the SC judgement.

"Now that the SC has said that it (linking Aadhaar to PF) is unconstitutional, they (EPFO) can no longer make those (for Aadhaar) demand or send penalty notifications to anyone. The basis on which they were sending these notifications has been struck down by the court. If the government wants to do that, it will have to pass a new legislation, and that new legislation will be tested on these grounds again. It (linking Aadhaar to PF) no longer can be done under the Aadhaar Act," he emphasised.

Source: DNA Money
</div>

The landmark Supreme Court (SC) judgement on Aadhaar on Wednesday has brought cheer to employers and employees on the provident fund (PF) front as it clearly states "benefits earned by an individual" cannot be covered under Section 7 of the Aadhaar Act.

&nbsp;

&nbsp;


Have Employees Provident Fund? Stop doing this now

Global steel giant ArcelorMittal stirred up a hornet's nest on Monday when it shot off a revised proposal to the lenders of bankrupt Essar Steel, raising its bid to Rs 42,000 crore from the earlier Rs 37,000 crore.

This offer for the stressed assets of Ravi Ruias' steel plant would mean a recovery rate of 85% of the total debt Rs49,000 crore for the lenders, and could possibly be the highest rate for the resolved steel assets that have been put on the block till now.

The Lakshmi Niwas Mittal promoted steel company's revised bid came hours before the National Company Law Appellate Tribunal's (NCLAT) deadline of September 11 (today) to clear its outstanding dues to become eligible to bid for the stressed assets of Essar Steel expires.

This raised the issue of whether its bid was valid in the first place.

A source, who has gone through the two-page proposal, told DNA Money the letter of the revised bid was "invalid" till ArcelorMittal pays up the defaulted amount owed by Uttam Galva and KSS Petron, in which L N Mittal was a promoter.

"If you look at the NCLAT order, it clearly states that you (ArcelorMittal) have to first clear the dues and then join the race. This does not mean that first you commit and then you increase your bid. Their deadline to clear his liabilities in the companies that have defaulted expires tomorrow. Only after they pay up that money, they can revise the bid. Till then, any revised offer or bid they make is invalid," he said.

A statement issued ArcelorMittal confirmed that it's revised offer "represent(ed) a material increase to the previous offers made by the company".

"The financial terms of the proposal are confidential, but represent a material increase to the previous offers made by the company. The revised offer, which includes a commitment to pay the entire amount due to the financial creditors of Uttam Galva and KSS Petron, therefore represents unprecedented value to all concerned creditors. Through the revised offer ArcelorMittal demonstrates its serious commitment to India, creditor banks and all ESIL's stakeholders," it said.

Uttam Galva and KSS Petron are said to have defaulted to the tune of Rs7,000 crore.

Last week, the NCLAT ruled that Numetal and ArcelorMittal's second round of bids for Essar Steel could be considered by the committee of creditors (CoC), but on the condition that the latter's bid would be eligible only after its outstanding dues were cleared.

Both the bidders' first offer were found ineligible under Section 29A of Insolvency and Bankruptcy Code (IBC), which disallows defaulting promoters and their related parties to bid for the stressed asset. The NCLAT had asked both of them to cure the defect in their bids and come back with a fresh offer.

Another source, who spoke on spoke off-the-record, termed the ArcelorMittal's proposal an "eyewash" saying the company could not make the offer on basis of a "commitment".

The source raised three points after going through the L N Mittal's steel MNC's proposal; "You cannot just commit and increase your bid. As per NCLAT, you have clear the dues. Second point is that, at end of the letter to the CoC, it says I reserve my right to go to the Supreme Court. If you reserve the right then why are you writing a letter? You should have gone to the court against the NCLAT order today itself. They have increased the bid from Rs 35,000 crore to Rs42,000 but it also says that I am committed to pay. It (letter) is also asking me to let them know the modality of payment and how much they (ArcelorMittal) have to pay. Everybody knows they have to pay Rs7,000 crore. As for modality, it is not petty cash, you have to transfer the money to the creditors. Basically, they are buying time to beat the system".

A steel expert said the race for acquiring Essar steel asset is intense because it is one of the best assets amongst those put on the block. It'll quickly boost any acquiring company's capacity by 10 million tonnes (MT), which would otherwise take 4-5 years to create. This would give a huge edge to the winner at a time when the steel industry is experiencing an upcycle. The only downside is the operating cost structure of Essar Steel, which is not one of the best in the domestic steel industry.

"Everyone is keen on getting this asset as it will add 10 million tonne straight off to their kitty. It's a quick way of adding capacity. It will definitely be a good deal for anyone because if you set up a plant yourself you will pay a higher cost and will take at least 4-5 years to do so. Today, the steel market is in a good shape and is going through an upcycle. If you wait to develop your own plant capacity, you don't know whether the steel price will still be good till you complete it. Although, operating cost-wise, it (Essar Steel) is not the best of the assets. ArcelorMittal surely wants a foot in the door in India and this seems to be a good deal," he said.

According to him, ArcelorMittal had done a due diligence for the Bhushan Steel but, for some reason, did not put in a bid for it.

RISING VALUE

<ul>
	<li>ArcelorMittal has raised the bid to Rs 42,000 crore from the earlier Rs 37,000 crore&nbsp;&nbsp;</li>
	<li>This offer would mean a recovery of 85% of the total debt of Rs 49,000 crore for the lenders</li>
</ul>

Source: DNA Money

Global steel giant ArcelorMittal stirred up a hornet's nest on Monday when it shot off a revised proposal to the lenders of bankrupt Essar Steel, raising its bid to Rs 42,000 crore from the earlier Rs 37,000 crore.


ArcelorMittal raises Essar Steel bid to Rs 49,000 crore

In April, the chill in San Francisco was unusually harsh. Indian IT majors, operating in Bay Area, had already scaled back visa filings and stepped up the intake of foreign workers. As they adapted to tighter enforcement and increased scrutiny by the Trump administration, dreams of thousands of Indian techies lay shattered. The heat from the 'Buy American, Hire American' campaign threatened to burn down several Indian service providers.

But they emerged stronger from what many believed could have been the ashes. Yes, when the going got tough, the tough got going.

In April, Indian companies such as Wipro, Infosys, and TCS reduced visa filings, revealed San Francisco Chronicle quoting a study. This is in contrast to the number of Indians who went to the US on H1B visas in the last three years, which stood at a shade above two lakh.

Today, this long-running problem of US visa is something that the domestic tech services firms have learned to live with. They are weaving their new business models around it and slowly deflecting any hit on their revenues or margins.

As the tighter norms for H-1B and L-1 visas threaten the financial health of domestic information technology (IT) companies, they are swiftly moving to tweak their business model. To reduce their dependence on US specialist visas, the Indian tech majors are hiring more locals in the US, automating repetitive processes and moving to high-end services like digital transformation, artificial intelligence, data analytics, etc.

V Balakrishnan, former chief financial officer (CFO) and board member of Infosys, avers that IT majors were trying to reduce their dependence on US work visa by hiring more locals in the US and through automation. "IT companies have started hiring locally (in the US) and automating repetitive processes to reduce their dependency on H1B visas. This means they are trying to see whether they can automate more or reduce workforce," he says.

[[{"fid":"51445","view_mode":"default","type":"media","link_text":null,"attributes":{"height":720,"width":1280,"class":"media-element file-default"}}]]

Altering business models 
The clampdown on employers using H-1B visas for their projects in the US by various governments has forced major IT services companies like Infosys, Tata Consultancy Services (TCS), Wipro, Cognizant, HCL and others to alter their business models.

The H-1B is a visa in the US under the Immigration and Nationality Act that allows US employers to employ foreign workers in specialty occupations. It has been used by domestic tech firms and multinationals based in India to execute their US projects using cheaper technical staff to bolster their margin.

Different governments and lawmakers have blamed it for declining jobs in the US and promised action in their election campaigns. One of the actions, taken about a decade back, was additional fee for "50/50" employers under the Consolidated Appropriations Act.

Here, the 50/50 employers were companies with employee strength of more than 50 in the US and who had more than 50% of their workers on H-1B and L-1 visas. Since 2010, these employers were mandated to pay an additional fee of $2,000 on every H-1B visa and $2,250 on L-1 visa. The fee had sunset on September 30, 2015. It was extended by the Barack Obama government by 10 years till 2025, and the fee has been doubled to $4,000 for H-1B visa and $4,500 for L-1 visa.

Even though the tech services majors have taken the extension and fee hike in their stride, they are gradually weaning away from their reliance on these visas.

After reaching a peak of three lakh H-1B visa petitions in 2016, the number of applications filed by employers from India fell 17.6% to 2.47 lakh in 2017. India, however, still continues to be the highest user of H-1B visas. In 2017, petitions of firms from India were 73.76% of the total applications.

Bellwether Infosys is the company with most H-1B filings up till 2017 at 1.10 lakh petitions, followed by TCS at 69,920 and Deloitte at 42,835.

The Trump administration has continued to put pressure on these companies with the United States Citizenship and Immigration Services (USCIS) having significantly increased the number of denials of H-1B petitions. The US immigration authority has also made stringent the scrutiny of applications by issuing more request for evidence (RFE). All this seems to have affected India-based companies more than anyone else.

[[{"fid":"51444","view_mode":"default","type":"media","link_text":null,"attributes":{"height":274,"width":644,"class":"media-element file-default"}}]]

According to a report brought out by the US-based National Foundation for American Policy, the number of RFE received by Indians was 72% compared to 61% by other nationals in 2017. 
The report clearly states the rise in denials and RFE for US work visas was due to the new Trump administration policies.

The margin game 
Even as these trends unfold, tech companies have swung into action to safeguard their revenues and margins. 
For instance, Balakrishnan says that Infosys has hired around 2,000 locals in the US over the past one year. He says most IT companies have created development centres in the US and are hiring fresh local graduates from American tech institutes and training them.

"Infosys has hired some 2,000 people in the US and is training them. They have created development centres there. Indian companies are trying to replicate in the US what they are doing in India. This means they hire fresh graduates, train them on technology which is required and then deploy them on projects. They are creating the same (business) model which they have in India in the US too. This way their dependency on H-1B and L-1 visas have come down," he said.

The National Association of Software and Services Companies (Nasscom), representative of Indian IT and business process outsourcing (BPO) industry, said the use of visas by Indian companies has gone by around 43% over the last two years.

The IT lobby body claimed India's usage of H-1B visa was less than 12% at 8,500 of the total 65,000 available every year.

Ganesh Natarajan, chairman of 5F World and former chairman of Nasscom, said the new visa regime has made the business model more proximity-based and slightly costlier.

"The model is becoming more proximity-based and is a slightly higher cost model. Fortunately, the current weak Indian rupee against the US dollar is cushioning the profit but in the longer term the profitability of the industry will be lower because of the digital trend and the difficulty of visas and difficulty of movement of people," he said.

Drivers for fresh hiring 
Som Mittal, director of ExlService Holdings Inc and former president of Nasscom, said there were other "drivers" for hiring more people in the US companies other than difficult visa environment.

"There are many drivers for hiring people in the US. The reasons for their hiring is not just visas but also because the whole technology world is moving towards digital and we need proximity of people to the workplace. We also need expertise and context, for that we need local people in the US," he said.

The former Nasscom head believes it would be the US technology giants, operating out India, which will get affected more than domestic IT companies.

"H-1B visas are widely used by US companies. Microsoft, Google, Apple, Amazon and other global majors hire foreign nationals, most of them are Indians. They are using H-1B visas for this. So, any restrictions in the use of H-1B visas is actually going to impact the American companies much more. They are saying it is going to be negative for them. The American companies' point of view is when we give so many visas to Indians, it's not about Indians but it's about the need for technical people. It just happens that a large number of Indians are technical specialists and they get those visas," he said.

As per the USCIS data, six out of ten 10 companies with highest approvals in 2017 were Indian IT majors, including Cognizant (28,908), TCS (14,697), Infosys (13,408), Wipro (6,529), Tech Mahindra (4,931) and HCL Tech (4,392). It has four US-based company names – Deloitte (6,027), Accenture (5,070), Amazon.com (4,767) and Microsoft (4,069). 
Going forward, Mittal expects the noise to continue but does not see much action on the ground. He also believes domestic IT services companies have transformed into full services providers and are no longer effort-based service providers. This, he said, would require more onsite hiring for projects due to the requirement of domain expertise.

"You should also be sure that Indian companies are no longer offshore firms. Customers are not hiring Indian IT companies because offshore work can be done cheaply. That phase is over. Now, Indian companies are full-service providers and no different from IBM, HP or Accenture, who have a large presence in the country. They have also become global. So, we should not be comparing them (Indian companies) to what used to happen in early 2000, where offshore was the only way to serve customers. Today, customers are being served much more onshore," he said.

Indian dreams on the wane

The flipside of domestic IT firms hiring more in the US is IT jobs in the domestic market is dwindling. Nasscom has estimated hiring of around one lakh engineers in the current fiscal, way below the over two lakh jobs created only a few years back.

Natarajan says even salary hikes were down from around 25% some years back to single digit increments today. According to him, the skills required by companies have also moved away from Java programming to digital expertise, data sciences, artificial intelligence (AI) and other such skills.

And as domestic tech companies move towards automation and high-end services like digital, AI, data analytics and others, they are able to not only tackle the US professional visa issue but are also able to safeguard their margins and revenues.

All this has helped IT companies to sustain their profit margins above 20%. For instance, Infosys's profit margin, which had hit a low 18.54% in the September quarter of 2013 from a high of 30.01% in March quarter of 2007, has been above 20% in the quarters after that. In the last quarter of the current fiscal, it was 23.7%.

In its latest quarterly industry review, released in June, Nasscom said, "The revenue growth is upbeat at 2.8% and incremental revenue addition is strongest in the last four years."

Balakrishnan says, even though H-1B visa issue may cause some "cost impairment" in the short term if all the fresh developments in the industry come together, it would collectively be positive for the sector. 
"In the short term, there could be some cost impairment but in the long run with automation coming in, dependency on people coming down and technology becoming more non-linear, I think it should be very positive for the business," he predicts.

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And so as local IT companies relegate the H-1B and L-1 issues to the margins, it is unlikely that it will feature prominently in the two-plus-two talks between the US and Indian diplomats.

"There'll always be a discussion on all the trends on a generic basis but whether H-1B matter will get specifically raised, I doubt it. I don't think it is such a big issue at this point in time to anybody," said Natarajan, shrugging off the issue.

Source: DNA Money

In April, Indian companies such as Wipro, Infosys, and TCS reduced visa filings, revealed San Francisco Chronicle quoting a study. This is in contrast to the number of Indians who went to the US on H1B visas in the last three years, which stood at a shade above two lakh.


H-1B, L-1 visas row: How India's tech majors are looking to beat Trump caused crisis

Uncertainties over safeguard duty on Chinese and Malaysian solar panels and modules and other issues, in general, have led to a drop in import orders and installations even as the average selling price (ASP) of modules softened in the last quarter.

Gaurav Mathur, CEO of Trina Solar India, a subsidiary of Chinese solar component manufacturer, said after the announcement of safeguard duty on modules and cells customers were delaying orders despite the interim relief provided by the Orissa High Court.&nbsp;

“We had initially booked a lot of orders from Indian customers. They are now delaying those orders after the announcement of safeguard duty and due to other uncertainties in the market. People are not taking the entire volume of the order. Say, if the order is for 100 megawatt (mw), they are lifting just 60 mw,” he said.

Mathur said Trina’s import orders had come down 15-20% over the last few months.

Shekhar Dutt, director general, Solar Power Developers Association (SPDA), alluded to suspensions and cancellations of orders due to uncertainties triggered largely by safeguard duty.&nbsp;

“The uncertainties from safeguard led to severe disturbance in the supply chain. Significant number of orders for modules imports were either suspended or cancelled. Hundreds of containers were also stuck at ports until Madras High Court ordered for provisional clearance of shipments without charging any duty while hearing the petition filed by an importer (Shapoorji Palonji),” he told DNA Money.

Dutt believes all projects awarded before the notification of the safeguard duty should not attract the levy. “Decision on imposing safeguard is now sub-judice in Orissa High Court. In any case, every project allocated prior to the date of notification on safeguard must be completely exempted from any such duty,” he said.

Solar installations data for the March-to-June period, released by the clean energy research firm Mercom Communications, shows it had sequentially fallen 52% to 1,599 mw while year on year it had declined 21%.

“The drop in solar installations in Q2 2018 after four consecutive quarters of growth was expected and can be attributed to uncertainties around trade cases, module price fluctuations, and PPA (power purchase agreement) renegotiations after record low bids, which contributed to a slowdown in tenders and auctions in 2017. All of this resulted in a weaker project pipeline for 2018,” said Raj Prabhu, CEO and co-founder of Mercom Capital Group.

Mercom’s data revealed that the ASPs of Chinese modules sequentially fell by 5% to Rs 22.58 per watt in the second quarter from Rs 23.68 per watt while it fell 9% for Indian modules during the same period.

In order to protect the domestic solar manufacturing industry, the Directorate General of Trade Remedies (DGTR) has notified imposition of safeguard duty of 25% on solar panels and modules imported from China and Malaysia for a year, followed by 20% duty for the next six months and 15% duty for another six last month.

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Currently, 90% of the solar panels and modules are imported from China and Malaysia as they are cheaper than domestically produced solar components.

The new levy is being opposed by solar power project developers, who have won bids based on prices of Chinese and Malaysian modules and panels. The safeguard duty will hike their pricing, which could create project financing troubles. Acme Solar, project developer, has moved the Orissa High Court against the government’s decision and got a stay on the safeguard duty notification until the matter is disposed.

Speaking as SPDA representative, Dutt said the safeguard duty will push up the project cost by 20%.

“Cost of solar projects will be additionally burdened by 20% after imposition of 25% duty on the import of solar modules (contributes 60% of the total cost). It has created a huge risk on the viability of on-going projects unless these existing projects (allocated before the date of safeguard duty notification) are exempted from the imposition of duty,” he said.

Source: DNA Money

Uncertainties over safeguard duty on Chinese and Malaysian solar panels and modules and other issues, in general, have led to a drop in import orders and installations even as the average selling price (ASP) of modules softened in the last quarter.

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Solar developers cancel orders; installations down 52%

Challenging external environment and widening trade deficit notwithstanding, most economists believe India’s GDP grew at the fastest rate in the world at over 7% in the first quarter of the current fiscal as industrial output and private investment picked up.

This is likely to come right after a 7.7% economic growth in January-March or the fourth quarter of last fiscal.

Economists also do not see the government going overboard with their capital expenditure to stimulate growth in a scenario where household savings growth is slowing down.

Devendra Pant, chief economist and senior director, India Ratings and Research (Fitch Group) and D K Srivastava, chief policy advisor, EY India, both project GDP to come in at over 7%. Pant pegs it at 7.5% while Srivastava sees it coming between 7.3% and 7.5%.

The only difference is Pant predicts GDP growth to ease a bit in the second half of the fiscal compared with the first half.

The EY economists, on the other hand, believes economic growth could pick up in the later part of the fiscal.

The Reserve Bank of India (RBI) has forecast GDP growth of 7.4% in this fiscal. Most domestic and overseas rating agencies also believe India is likely to grow at over 7%.

The government is most likely to publish the first quarter GDP numbers by the end of this month.

Hugo Erken, senior economist of Rabobank, who accurately predicted the slump in GDP growth in the quarter after demonetisation in 2017, also estimates the first quarter GDP number to be at 7.6%, based on the “nowcasting” model.

His expenditure component model throws up a growth rate of 7.5% in the June quarter.

“We used a couple of projection models. Expenditure component model arrives at 7.5% GDP growth. We also have the nowcasting model, which uses high frequency indicator data and is a little bit more accurate than the others. Based on that, we came at 7.6% GDP growth. We have to wait and see whether that is correct,” he said.

Erken said he used indicators like vehicle sales, cement sales, purchasing managers’ index (PMI), investment proposals and other such high frequency month-on-month data in the nowcasting model.

The Dutch economist, however, still sees India

lagging its potential growth due to negative output gap. “There is still some slack as far as potential growth is concerned. There is still some negative output gap. We have seen a couple of important reforms such as GST, which have enhanced the potential growth of India. We have arrived at potential growth of somewhere below 8%, at around 7.8%,” he said.

India Ratings’s Pant said one of the reasons for high print in the April-June period was the base effect.

Last year, GDP growth during the same period had been 5.6% due to the impending GST implantation, which had resulted in huge de-stocking by businesses, and demonetisation hangover.

“It’s an outcome of both base effect and revival in industrial growth. Last fiscal the GDP growth was low and even the industry was weak in the first quarter. This year it’s better than last year so we could see some improvement in growth,” he said.

According to him, even the consumption and the capital expenditure data fuelled confidence among economists for the first quarter number.

Arvind Virmani, former chief economic advisor to the government, refrained from giving a GDP growth projection for the June quarter, but said loose fiscal policy would heighten macroeconomic risks in an “an uncertain global environment”.

“I don’t expect a policy of fiscal expansion to stimulate growth. This would increase the risks in an uncertain global environment marked by rising interest rates and US-China tariff war. I don’t make quarterly forecasts, because quarterly GDP is based on extrapolation and interpolation and not directly estimated,” he said.

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Virmani’s GDP growth outlook for 2018-19 is between 7.25% and 7.5%. “In terms of consumption and from the expenditure side also when we look at GDP, it looks good. Last year, investment growth was not very good. This year, it’s a relatively stronger investment number and so putting all of it together we expect 7.5%,” said Pant.

EY’s Srivastava says a realistic estimate of GDP growth would be some between 7.3% and 7.5% and anything closer to 8% would be a tad optimistic. Axis Bank has reportedly given an outlook of an economic growth upwards of 8% for the last quarter.

The EY economist sees the first quarter growth driven entirely due to domestic factors. “There is a revival in investment, with both private and public sector investments growing. The private investment is mainly gathering momentum now and capacity utilisation figures are also better.

Source: DNA India

Challenging external environment and widening trade deficit notwithstanding, most economists believe India’s GDP grew at the fastest rate in the world at over 7% in the first quarter of the current fiscal as industrial output and private investment picked up.

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Praveena Sharma