| Flexibility in IKEA case to draw more investors | ||
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The Foreign Investment Promotion Board's decision to allow Swedish furniture major IKEA to set up stores, along with cafes, in India and offer its entire range of products is being seen as a positive signal for investors, including retail majors. When IKEA chief executive Mikael Ohlsson and Commerce & Industry Minister Anand Sharma had sealed the deal in- principle at St Petersburg, Russia, seven months ago, international investors had taken note. With FIPB clearing the proposal ahead of the World Economic Forum in Davos, investors are again expected to see IKEA as a test case for entering India, said agovernment official. A retail sector analyst with an international consulting firm told Business Standard, " The IKEA case, especially the government's flexibility, is a good signal to large retailers across the world." It showed if the investment was significant and the company was serious, the government could be flexible, he added. By flexibility, the analyst referred to the government's decision to relax the guidelines for mandatory sourcing from the small and medium sector. The government had also changed its stand of not allowing the company's complete product categories, as well as cafes and restaurants within IKEA stores. Arvind Singhal, chairman, Technopak Advisors, a leading retail consultancy, said approval for IKEA would mean a vote of confidence for the Indian system. " The government has shown maturity in dealing with this proposal," he said. On whether other retail chains would now be encouraged to enter India, Singhal said, " Surely, some more iconic brands will come." He added if big retail chains such as H& M ( Sweden), Uniqlo ( Japan), and GAP (US) decided to enter India, it would make ahuge difference to the Indian retail landscape. On condition of anonymity, another consultant said so far, people were watching IKEA and the happenings around it. Through the next couple of months, there would be some activity, at least in the singlebrand category, he added. "The clearance to IKEA, almost as envisaged by the Swedish company, is a clear signal the government wouldn't allow its FDI (foreign direct investment) decisions to be derailed or even slightly diluted by the various lobbies against it," said a bureaucrat. He added the speed with which the clearance was given would do more to encourage investors than statements of intent. Experts say the multi- brand retail segment presents more challenges. State- by- state clearance for retail chains and the mandatory clause of sourcing 30 per cent from small and medium enterprises were the biggest hurdles, said Singhal. WINDOW OF OPPORTUNITY |When IKEA's CEO & India's industry minister sealed a deal in- principle last year, foreign investors took note |With IKEA's proposal being cleared ahead of the World Economic Forum, investors are again expected to see the firm as a test case for entering India |Experts say the multi- brand retail segment presents more challenges | ||
| Soon, option to pay home loan EMIs for 30 years | ||
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Mumbai, 22 January In a move to protect borrowers from interest rate fluctuations and reduce the burden of equated monthly instalments ( EMIs), a Reserve Bank of India ( RBI) committee has suggested banks offer loan products with a repayment period of 30 years. Such loans, goes the proposal, could have an interest reset provision every seven to 10 years but lenders should be mindful of the customer's interest and not violate regulatory guidelines on the base rate. "The Indian financial system has G- secs ( government securities) up to 30 years and 30- year bonds by banks. Banks could, therefore, make efforts to offer longer- tenor fixed rate loans, say up to 30 years, which would help reduce the EMIs of borrowers," says the K K Vohra panel's final report, presented today. It was appointed to study the feasibility of introducing more long- term fixed interest rate loan products. The panel feels banks could have the option to fix a reasonable cap and floor ( 200 or 300 basis points) at the time of reset in relation to the interest rate originally charged to the borrower. The suggestion is made to protect both customers and banks from the risks arising out of adverse movements in interest rates. Banks have also been advised to introduce hybrid loan products, having both fixed and floating interest rate loans with a higher proportion of the former. Fixed rate loan products were popular before 2000 and lost their sheen once interest rates started to fall, which made banks focus on floating rate products. The panel has observed most home loan products are generally on a 15- 25 year maturity and floating in nature. Automobile loans, of five to seven years' tenure, mostly offer fixed rates. Since bank deposits are mostly below five years, emphasising on longer term fixed rate loan products might create an asset- liability mismatch for banks. So, the panel suggested banks should issue more long- term bonds, with a minimum maturity of five years, to the extent of their exposure to the infrastructure sector ( minimum residual maturity of five years). "Banks should popularise fixed deposit schemes with tenors above five years, as these are eligible for tax exemption. This would to some extent meet the long- term funding requirement of banks," the panel said. RBI committee nudges banks for long- term fixed loan product BANK BROCHURE Fixed vs floating retail loan portfolio of banks (%) Note: Based on data collected from a sample of 21 banks Source: RBI | ||
| Arbitration in the doldrums | ||
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Last week, the Supreme Court heard an application moved by a state housing board that pleaded it could not afford the fees charged by the three arbitrators nominated by ahigh court to adjudicate its dispute with a reputed builder. Two of them are retired Supreme Court judges and the third is a former high court judge. They are charging each party ₹ 40 lakh. The arbitrators are from different parts of the country and getting them together itself is an arduous job. And when they do meet, the hearing is adjourned by an average of three months. The housing board asked the court of the Chief Justice to appoint one arbitrator to clear the "mess" it was in. The case confirms Supreme Court's remarks in a judgment (Union of India vs Singh Builders) that when retired judges are appointed, the cost shoots up and exceeds the disputed amount. In another case, Sanjeev Kumar vs Raghubir Saran, the court lifted the veil and described what happens during the sittings: Two sessions in aday are treated as two hearings to compute fees; a two- hour session is treated as a full session; and a nonproductive session is treated as a fully chargeable hearing. The cost is, thus, artificially raised to ₹ 10 lakh or more for each session. The judgment suggested that the fees should be disclosed beforehand. The court appointing the arbitrators should fix the fee or the parties should go to institutional arbitration. No thought has been given to these ideas. If former judges behave like this, other arbitrators cannot be far behind. What most of them do during the sittings in five- star hotels – after usual bonhomie and burps – is to decide the place and time for the encore. The result is reflected in a few recent cases from the Supreme Court and the high courts. In a case decided a few months ago by the Supreme Court ( Tehri Hydro Development Corporation vs Jai Prakash Associates), the dispute was over bills for work completed in 1985. Arbitration started in 1986. Objections were taken to the district judge who passed an order in 1997. The appeal to the Uttarakhand High Court was decided in 2006. The Supreme Court finally settled the issue in September 2012, applying the rules of the now- repealed arbitration Act of 1940. Thus, 26 years of arbitration has been little better than the dreaded civil litigation. Another prominent case involving a" mother agreement" and a host of ancillary contracts started in the Bombay High Court in 2004. The multiple questions involving even third parties moved to the Supreme Court, which passed an 80page judgment a few months ago (Chloro Controls vs Seven Trent). It decided only the legal issues and then sent all disputes to the arbitration tribunal. It may still return to the apex court; it is just au revoir. The situation in high courts is a little better. A dispute between the army and a contractor was referred to an arbitrator in 2004. Following legal roadblocks, the Kerala High Court delivered a judgment clearing the legal aspects, but ultimately ordered fresh arbitration ( Union of India vs Bharat Builders). There were 75 claims and seven counter claims. Presumably, the story is not going to end there. The Delhi High Court decided an arbitration case that started in 2000. The 2: 1 award came in 2004. The high court decision came now ( Hindalco Industries vs IFFCO). Individuals who are lured by arbitration touted as a short cut to justice fare no better. Two sisters in Delhi quarrelled over property in 2001. The arbitration award came in 2006. The high court decision came now — when one of the women had died. Though organisations of industries and commerce claim that India provides ideal conditions for arbitration, the really serious contestants move their disputes to Singapore, Kuala Lumpur or other countries where the legal system is more professional and devoid of legal clogs. Although the old arbitration law of 1940 was repealed, one can still find cases being fought under it. The Arbitration and Conciliation Act of 1996 has not been found satisfactory. The Supreme Court has to interpret vague clauses and review them in scores of judgments. A Bill to iron out some serious flaws is still being tinkered with. Parliamentarians are not all that anxious to pass a better legislation, despite all the talk of globalisation and foreign investment. So, arbitration has become both a farce and atragedy. Cost and delays blight what is promoted as an alternative to courts OUT OF COURT MJ ANTONY Although the arbitration law of 1940 was repealed, cases are still being fought under it. The Court has to interpret vague clauses and review them. A Bill to iron out some serious flaws is still being tinkered with but Parliamentarians are not all that anxious to pass a better legislation | ||
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Company Secretary, Chennai
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