Anand Krishna’s musings

Crude oil is now selling for almost $135 a barrel. This is three times the $45/barrel price that prevailed only about 3 years ago. Not surprisingly, inflation is on the rise. Everyone seems to be focused on asking OPEC to increase production, so that prices will come down. Personally, I think that is the wrong approach. What is OPEC’s incentive to increase production? Even at current levels of oil prices, there seems to be no dearth of buyers- including countries like India and China- and of course, the US. The OPEC countries will naturally want to make hay while the sun shines. Known oil and gas reserves may not last for more than another 75 years- and if production were to increase, even this time horizon could reduce.

What is needed is for large consumers like the US, China and India to focus urgently on policies that will curtail consumption and hence demand. With the subsidy on diesel, petrol and cooking gas, what is happening is a forced redistribution (transfer) of wealth from the public sector oil marketing companies to consumers. In other words, Peter is being robbed to pay Paul. The current subsidy is uniform, and does not discriminate between someone who earns Rs100,000 per month and someone who earns say, Rs10000 per month. Both pay the same prices for fuel; for the latter, the rising fuel price makes a much bigger dent on his/her monthly budget than for the former.  Maybe fuel should be priced based on people’s income. If income is not something that can be practically tracked for such purposes, the cars that people drive can be a good proxy. It is reasonable that someone driving a Mercedes Benz, Toyota Corolla or Hyundai Embera is wealthier than someone that drives a Maruti Alto, Tata Indica or Hyundai Santro. Similarly, let someone  riding a Hayabusa or Ducati pay more for fuel than someone riding a lower-end motorcycle/scooter. Let the price of fuel be based on what vehicle you drive- the more expensive the vehicle, the more you pay.

Another critical element of demand management for oil is the creation of quality mass transit infrastructure at adequate service levels. For instance, the new airport at Bangalore is a good 35-50 Kms from most main residential areas of Bangalore. If people use their cars to get picked up and/or dropped, their cars will consume a good amount of fuel. If, on the other hand, they use the air-conditioned Volvo buses (the Vayu Vajra service) that BMTC has introduced, significant amounts of petrol/diesel will be saved everyday. And if bus fleets in large cities are converted to CNG, that too will save money in a couple of years (of course, there is the initial investment to worry about). And a major side-benefit will be reduced emissions from buses that run on fossil fuels.

Once can only hope that in the next decade or so, alternative fuels will become more mainstream and the world as a whole will depend less on conventional petroleum-based fuels.

The BJP has won 110 of the 224 seats in the Karnataka assembly polls. The Congress bettered its performance compared to last time, and the JD(S) has been all but annihilated. Fears of a hung assembly have been belied; however, although the BJP is projecting Mr B S Yeddyurappa as the next CM (and says he will be sowrn in on May 28th), the party may well need support from others since it has fallen short of absolute majority by just 3 seats.  Who will provide he support, whether the supporters wil be part of the government or will remain “outside” etc. are questions that will be answered over the next few days, as hectic parleys occur in and around Bangalore.

The BJP specifically spoke about its Bangalore agenda, and this may have had a role to play in its performance (although voter turnout in Bangalore was not very heavy). But perhaps more importantly, the BJP benefitted from the “sympathy wave” that was created last year when the JD(S) pulled the rug from under the BJP’s feet. Deve Gowda was seen as being unreasonable and petty. The results will undoubtedly dent his- and the JD(S)’ image. But whether he will learn from his mistakes is quite another question. It will be very unfortunate if the BJP has to turn to him and the JD(S) to form the government. Of course, if it can engineer a vertical split in the JD(S)- now that some stalwarts from the JD(S) have lost- then life may become easier.

But no matter who forms the government in Karnataka, I hope it is focused on the important issues around development, education, infrastructure etc.

By now, HP’s decision to acquire EDS is no longer news; indeed, it is almost two weeks old. And I am somewhat underwhelmed (this word is used frequently by Americans, alhough I am not sure if it is a legitimate word in English vocabulary) by the general lack of coverage beyond the first day or two.

So- if this deal does go through- will it be a big deal? In terms of the deal size, it will be large enough to leave investment bankers, accountants, lawyers and others drooling. But the impact will be more on the IT services industry overall- and consequently, on clients using such services. Here are some thoughts on how suppliers might be impacted:

1. For the first time ever, IBM will see a large competitor that has enough muscle both in hardware and services.
2. This new combine will get access to additional ready-to-use offshore capability in the BPO space (remember EDS acquired Mphasis in the not too distant past?). This of course complements HP’s own India  ops that are significant enough in the IT services space.
3. Large non-India based global Consulting & SI firms such as Accenture, Deloitte, CapGemini and others will have to deal with a new threat- and HP-EDS may have the stomach (and deep pockets) for an intense war.
4. Indian IT services companies like TCS, Infosys, Wipro etc. will have one more 900 pound gorilla to worry about. HP-EDS may become a serious competitor simply because it gets invited to bid for large deals- a space that Indian players have not completely dominated. The same deep pockets mentioned above can cause pain to the highly margin-sensitive Indian players. Erosion in margins also unleashes another dynamic- market capitalization will decline, and with it, Indian companies’ ability to make their own acquisitions overseas.

And what about the impact on client companies? Here too, the impact can be felt in many ways:

1. HP-EDS can unleash a price war by lowering prices in the short run.
2. Offering hardware bundled with software and services can be an attractive proposition for clients, who may get a real option to IBM.
3. EDS clients who may have felt trapped under the weight of long-term contracts may no longer feel an urgent need to switch suppliers.

I am now happy for Rahul Dravid and the Royal Challengers. Just a few thrilling minutes ago, they defeated Dhoni’s Chennai Super Kings by 14 runs, finally moving the needle beyond 2 wins (where they have been stuck for the last month or so). At the end of the Bangalore innings, the target was a modest 127 runs- something that would normally have been a walk in the park for MSD and co. But today, the fates willed otherwise. Aided by unquestionably their best bowling and fielding performance so far in the tournament, the Royal Challengers pulled off a very creditable win. Kumble, whose 4 overs fetched him 3 wickets for a miserly 14 runs, was the deserving man of the match. Dravid top scored in the match, with 47.

With charectristic candour, Dhoni admitted that his team was a tad over-confident. With equally disarming honesty, Dravid acknowledged the relief at finally winning a game. Many of their previous 10 games were close, but that they have won only 3 of their 12 games must surely rankle the entire team. Steyn, Boucher, Misbah, Kumble…. everyone had a smile. And why not? Go Challengers! You still have the opportunity to salvage a wee bit of pride.

This result- and the outcome of the other game today (where Mumbai lost to Punjab by a solitary run)-means that it is still not entirely clear which two teams from among Mumbai, Delhi, Chennai and Kolkata will join Jaipur and Mohali in the semi-finals.

The next week or so promises to be even more interesting than the last few weeks have been. Watch this space as the mystery unfolds….

For the last few months, the Indian IT services industry has fretted and worried about the slowdown in the US economy and its impact on business. It has reacted on expected lines:

• predicting a slower growth in top and bottom lines
• going easy on hiring
• limiting salary hikes
• reducing bench strength and increasing utilization
• cutting down on discretionary spends

These are well and good; but what is needed is to use this time to change the rules of the game. Different (and differentiated) business strategies are needed. Companies should explore new models to break the linear relationship between revenues and number of bilable employees. “Build once, use many times” could be one possible approach, wherein a cmpany develops an application “platform” that can be sued for multiple clients. Naturally, adequate security measures will need to be in place, and more importantly, disparate clients must be convinced to standardize processes and not worry about ownership of IT assets so long as business service levels are met.

This may be a good time to target Africa both as a potential market as well as a location for a development center.

Rather than cut back on marketing, this is a good time to pick up desirable media slots at a relatively lower price and lock them down for the next two years or so. That way, 6 or 9 months from now, when the miasma in the marketplace is going, companies will be ready to hit the ground really hard.

This may also be a good time to look inwards and rationalize teams.

Rather than indulge in infructuous navel-gazing, this is the time for Indian IT services companies to differentiate themselves . At a time when clients are woried about costs, Indian companies should start taking the lead in demonstrating value that goes beyond being “body shops”.

The first phase of polling in Karnataka went of peacefully last week. Rural areas reported a much higher turnout than urban areas. There is hope that many more younger voters will exercise their franchise. While that remains to be seen, I sincerely hope that voters will cast their votes after giving due thought to the shenanigans that have marred the coalition government over the past 4 years. The coalition partners have spent more time sparring and trying to pull the rug from under each other’s feet than on governance. Not surprisingly, the state’s development has suffered. New investments into the state have slowed down. Infrastructure has not been given as much attention as necessary and Bangalore has palpably worsened.

Yes, the Metro is finally off the blocks- more than a decade after it was first proposed and the first feasibility report was done. But the new international airport has not become operational yet; connectivity issues to Devanahalli remain unresolved and I suspect that for the first 6 months after the BIAL airport becomes functional, it will take more time for passengers from neighbourhoods in South Bangalore to reach the airport and check in than it will to even fly from Bangalore to Delhi or Kolkata. And if the HAL airport remains open (as may well happen), the chaos will only amplify. Interestingly, Bangalore has become a key point on the election manifestos of both the Congress and the BJP- explicit acceptance that the previous governments have let the state capital down badly.

Irrespective of what exit polls predict, the calculus of coalitions and who finally gets to form the government and becomes CM will become clear only towards month-end, when all 3 phases of polling are done and the results declared. Politics makes for strange bed-fellows and my fear is that we may again end up with dirty coalition politics that further stymies Karnataka’s progress. I hope I am proved wrong.

Nearly three decades ago, my grandfather told me a little story. There was this man, who had a pet dog. One day, in a fit of rage, the man picked up a stick and beat the dog. The poor dog dumped right there inside the house. The man had to clean up after the dog. A neighbour, who supposedly watched the entire episode, asked wryly “why beat the dog and why carry the “done”?” In essence, why do something whose outcome will only cause more misery or nuisance- and you have to end up doing something painful or distatsteful to remedy the situation?

I was reminded of this story when I read recently that Vijay Mallya has declared that he has tremendous faith in his team and that he wishes he would get the privilege of sorting things out in the privacy of the dressing room or team meetings. After all, it was Mr Mallya who first spoke to the media about his dissatisfaction with Dravid’s team selection and so on. Dravid, ever the gentleman, simply accepted his franchise owner’s outburst s justified, given the team’s lacklustre performance in the IPL thus far.

Just as Shane Warne alone has not wrought wonders for the Jaipur franchise, the Royal Challengers’ performance cannot be blamed on Dravid alone. In both cases, it is the team that either did or did not consistently deliver. One individual may play a key role on a particular day, but that’s usually it. Sanath’s brilliant century againts Chennai would have been in vain if the bowlers had not bowled well and the fielders had not held catches and effected run-outs. Today’s match, where Dravid scored an uncharecteristically aggressive 75 n.o. (6 sixes and 6 fours, 36 balls) is another example where Dravid has done quite well, but received no support from his team-mates.

Just out of curiosity, I wonder if Mr Mallya also treats the managers in his employ in similar fashion, and what attrition rates at the UB Group are.

As owner of the IPL’s Royal Challengers franchiese, Vijay Mallya has every reason to be angry and disappointed; after all, his team has won only 2 of its last 9 matches. And at the time of writing this blog, it is well on the way to losing its 10th match. However, venting his spleen in public, as he has done is not likely to help his cause or indeed, his team’s cause.

Dravid, the captain, is already under severe pressure. His team has not performed to its potential. He himself has done quite well, considering that just some months ago, he declined to play the T20 World Cup in South Africa, saying the format was meant for younger legs. His foreign “mercenaries” - Kallis, Boucher, Steyn, Chanderpaul, Cameron White, Misbah ul Haq et al have not performed as well as Dravid, or indeed, most of us cricket fans living in Bangalore, might have expected. This is in stark contrast to say Shaun Marsh or Shane Watson, who have delivered.

Mr Mallya should have kept his frustration under wraps for some more time, and even better, chosen to expose it in the dressing room or behind closed doors. And though he has today said that he has asked Dravid to focus on the game and forget the unseemly controversy around which players to have picked, the damage has been done. In case you are wondering what I am talking about- Mr Mallya reportedly said yesterday that he had given Dravid and Charu Sharma a free hand, but that the team that was finaly put together was more suitable for test cricket than it was for T20.

Looking ahead, Mr Mallya’s unfortunate comments might well have the following impact:

1. Dravid’s international cricket career may come to a premature end.
2. Dravid may choose to resign as captain of the Royal Challengers. If that happens, who takes over? Boucher? Kallis? Kumble? Zaheer?
3. The franchise will lose its sheen for next season, as few players will be willing to countenance a franchise owner who shoots his mouth off to the media.
4. Foreign players may have second thoughts about signing up for the franchise.
5. Other teams may start worrying about what their franchise owners may or may not say and do.

All in all, a distresing time for the Royal Challengers. And given the bad news for Team Force India on the Formula One circuit, little wonder that Vijay Mallya is fulminating.

Right from the time Mr S M Krishna and Mr Chandrababu Naidu were respectively chief ministers of Karnataka and Andhra Pradesh, the two states have been openly competing with each other to attract investment into their jurisdictions, improve infrastructure (at least in Bangalore and Hyderabad), and project the two cities as the more pre-eminent “IT Capital” of India. Both states have seen some success, and although there is no incontrovertible evidence of either state/city being unquestionably ahead, my own view is that Hyderabad has stolen a march on Bangalore at least in terms of infrastructure development. The Hyderabad airport, which was approved a couple of months after the BIAL airport, became operational a good two months before the Bangalore airport (which, for the record, is still not operational).

Both TDP and Congress lost power- ostensibly because Naidu and Krishna were obsessed with their state capitals, and ignored the rest of the states. Drought caused by poor monsoons in 2004 may also have had a hand to play.

This rivalry now seems to have extended to the IPL arena. But sadly, both Bangalore’s Royal Challengers and Hyderabad’s Deccan Chargers seem to be trying to beat each other in the race to the bottom. On paper, both teams have some solid cricketers. But neither team has been able to combine as a unit and consistently bat, bowl and field better than their opponents. Consequently, these two are currently ranked 7 and 8. Bangalore perhaps is worse off because off their lower net run rate, which suffered hugely at the hands of Brendan McCullum in the tournament opener. In the next few weeks it will be clear who is reallyat the bottom of the table.

Earlier this evening, the Chennai Super Kings led by M S Dhoni trumped Yuvraj Singh’s Kings XI Punjab. (I must say there is a lot of “royalty” playing in the IPL, with as many as 3 of the 8 teams having some form of the words kings or royals in their names)). And what a match it was! After a shaky start, Badrinath and Raina asteadied the innings, with the former playing superbly. Later, Badri was joined by Dhoni, and by the 15th over, it seemed that Yuvraj & Co would again have to chase a taregt of 200+ runs (if I am not wrong, Chennai totted up a mammoth 240 the last time these two teams played- and Punjab scored a creditable 210 or so). And that is when inspired bowling by Sreesanth, Hopes, VRV Singh and Pathan choked Chennai. Badri and Dhoni were both out after scoring 60 runs apiece, and the last 5 overs yielded just over 35 runs.

Punjab too got off to a less-than-great start, losing Hopes to a leg-side delivery from Albie Morkel that, in most cases, would have been dispatched to the ropes. Young Shaun Marsh, the other opener, played some delectable strokes and showed clearly why he is a very exciting prospect for Australia (he has already been selected for the Aussie ODI squad for the Wes Indies tour). They were cruising along at a decent clip when Dhoni brought on L Balaji- he that was destroyer-in-chief during the India’s tour of Pakistan in 2004 (05?). After a long period away from the game due to major fitness problems, Balaji struck body blows, ending with amazing figures of 4-0-24-5. IN the process, he also took the first hat-trick of the IPL (and possibly, T20 cricket) in what was his last over, which also became the last over of the match.

Punjab’s 5 match winning streak has been broken and after a mid-tournament stutter, when Chennai lost 3 matches, they are back to their winning ways, having beaten the Delhi Daredevils last week in what was another humdinger of a match that was decided in the last ball.

At this stage, it is still not clear who will make it to the semi-finals. But I’d have to say that barring major reversals in fortunes over the next two weeks, Punjab, Chennai, Rajasthan and either Delhi or Kolkata will almost ceratinly make it. Mumbai, Hyderabad and Bangalore will bring up the rear.

At the end of the first half of the IPL tournament, Bangalore’s Royal Challengers are at the bottom of the table, having won just two of their seven games (and keeping in mind the net run rate at this time). Based on the likely result of the ongoing Mumbai-Jaipur match (I am reasonably sure Jaipur will lose), Mumbai will have won 3 of its matches. Only Hyderabad’s Deccan Chargers are in the same boat as Bangalore- having lost all but 2 of ther games.

On paper, The Royal Challengers, to give the team its official name, was not the weakest. With Zaheer Khan, Dale Steyn, Praveen Kumar, Jacques Kallis and Kumble, their bowling attack is by no means a pushover. So if Bangalore finds itself in a hole, the credit goes entirely to the batsmen. Barring Ross Taylor, who scored well in the 5 games that he played, none of the team’s batsmen have fired. Jaffer and Dravid looked hopelessly out of their league in the first few games, but therafter, both have picked up (Dravid in the last game scored over 65 runs at a strike rate of 130+). Sadly, that is more than one can say of Virat Kohli, who looks a shadow of the aggressive youngster who captained the Under-19 team to victory at the T20 World Cup barely 6 weeks ago. And while Boucher and Kallis have looked good in parts, neither has displayed the consistency they are generally known for. Misbah too has not looked the match-winner he was for Pakistan during the World Cup in South Africa some months ago. Of course, he got a bad decision- but 5 ducks in a match? That is what the Royal Challengers’ score card showed at their last match. And no team can win from such a hopeless situation- especially in the T20 format where every over must count for at least 6 runs on average.

Too many experiments with the batting order haven’t helped either. And as if that would help, yesterday saw the resignation/sacking of the team’s CEO, Charu Sharma. Whether he resigned or was asked to go (as some seem to sugggest) is not fully clear yet. But suffice it to say that this will only add to the team’s woes and compound the pressure.

Theoretically, the Royal Challengers can still make it to the semi finals. But to do so, they probably need to win maybe 5 or 6 of their next 7 games. And with most being away games, the odds of this are not that great. Although Vijay Mallya does not have brands called Royal Mess or Royal Disasters, both these names describe the Bangalore team’s current status rather well. Don’t get me wrong- I like Dravid as a cricketer. But somewhere along the line, I think he ought to seriously look at the current state of the team and figure out a way of turning things around quickly. Obviously, T20 is not an individual sport; so Dravid by himself cannot do much. It is important for the other 10 players in every game to stand up and be counted. If not, one thing is quite clear- not too many of the current crop of the Royal Challengers will be around in next year’s IPL tournament.

A little while ago, I saw a TV news headline that said that US President George Bush has linked the current world food shortage/rising food prices to India’s growing prosperity and its large middle class. At a very global, macro-economic level, it is true that as India’s economic power increases due to faster growth relative to nations such as the US, its currency strengthens vis-a-vis the US$, its forex reserves increase, its BOP position becomes more favourable (to India). Consequently, the purchasing power of the Rupee too rises- and India can afford to spen more on foodgrain or edible oil import.

But India’s growing economic clout in world markets is only one part of the equation. Supply of foodgrains has been hit because of drought in Australia (a major wheat producer), growing urbanization in India as well as in other developing countries (which means less land is available for growing food), the trend to diverting corn and other crops for production of ethanol and other biofuels and a general reduction in farm productivity. There is also a move by farmers to grow other cash crops that yield higher profits per unit land than conventional foodgrains such as rice, wheat and corn.

There is also the issue of waste- whether in India, because of a poor supply chain (poor warehouse facilities), or in the US, where average portion sizes tend to be large (not to mention “Texas sized portions”), resulting in a fair amount of waste. In energy-starved societies like India, even refrigerated food sometimes tends to spoil, leading to waste.

Therefore, all told, the argument that India is somehow solely responsible for the current global food crisis is laughable at best and a flawed thought process at worst. But to be fair, I think President Bush was not trying to point an accusatory finger at India. He was only highlighting the other side of globalization.

We are now roughly half-way into the inaugural IPL tournament and expectedly, there have been some upsets and reversals. Of course, the very format of the T20 format increases the odds of upsets. The Jaipur Royals, captained by Shane Warne, have got the better of teams that boasted of a stronger line-up at least on paper. At the other end, Ganguly’s Kolkata Knight Riders have now lost 3 matches, after annihilating Bangalore’s Royal Challengers in the tournament opener to weeks ago.  And in spite of Gilly and Symonds, Hyderabad’s Deccan Chargers are languishing near the bottom of the league (with Bangalore below them).

So is the IPL a success? Or has it failed? I would say that the reality lies somewhere in between. Without a doubt, unknown youngsters from India have got a chance to play with and against some of the world’s best. This will undoubtedly hone their skills and boost their confidence. But at the other end of the spectrum, players like Sachin have not yet taken the field- and the pyrotechnics expected of the Jayasuriya-Tendulkar combo still remain a dream.  There is also the risk of cricket fatigue setting in. International stars leaving at the half-way stage can significantly impact the drawing power of future matches. Tempers flaring on and off the field have resulted in key players like Harbhajan Singh being banned and Warne and Ganguly being fined a part of their match fees. And finally, commercial success of individual franchises remains a question-mark. I think at least half the franchises will find it hard to break even. And that may well determine their willingness to invest in the teams going forward.

A TV channel sting operation was the undoing of long-time IHF Secretary Jothikumaran. And soon after, KPS Gill has been eased out of his post as IHF President. If the IOA could do it now, why could it not have done it earlier? Anyway, one just hopes that at least now, the process of rebuilding Indian hockey can (and will) begin in earnest. A group of experienced hockey players has been chosen to select the team and one hopes that the collective expertise and experience this group has will enable it to efficiently discharge the responsibility entrusted to it by the nation. Now that there will hopefully be no more “instructions from the top” regarding selection, training, coaching etc., one hopes that Indian hockey will again see an up-tick. Obviously, things cannot change in a month ot two. The new dispensation will have to work tirelessly at strengthening hockey at the grass-roots level and at restoring public confidence and pride in the Indian team and the sport at large. And for its side, what the Indian public will need to do is trust the new establishment - at least give it a fair trial- at least for the next few tournaments.