Neuromarketing In The Era Of Hyperactive Competition

By M H Ahssan

Market conditions are no longer just competitive, but hyperactive. And at the epicentre of this hyperactivity lies the consumer – caught in a perpetual flux as the constantly shifting dynamics rumble through his/her cognitive faculties. HNN explores the growing trend that is revolutionising the world of branding – Neuromarketing

To say that there is a surfeit of competition is stating the obvious. But how do companies ensure that consumers prefer them over the rest during that vital moment of truth, when the consumer is at the store within picking distance of their brand, or for that matter, their competitor’s. There are enough and more cases to highlight the fact that consumers walk the other way at the very last minute, leaving their preferred brand out in the cold. Shubhra S Kumar is one such consumer. When Kumar entered a large format retail store last week, she had already made up her mind on what she wanted to buy — three casual shirts, all Pepe. But when she walked out, her shopping bag did not have a single shirt from her preferred brand. Instead she had picked up a rather lesser-known brand Rig, without any salesperson pushing it down her throat. Why? Kumar states the obvious, that she found the range of Rig attractive in the key parameters of colours, finish and design.

For a new and growing tribe of experts in the field of marketing, this vague explanation is perfectly clear. For this is a set that probes for a deeper meaning using medical technologies like the functional magnetic resonance imaging (fMRI), to explore last minute changes in consumer behaviour. Did Kumar’s brain pick up signals from a hyperactive competitor at the point of sale? Did the mind play tricks, or did it take a short cut in the purchase decision process? Called Neuromarketing, it’s the new, advanced, marketing technique that’s catching on like forest fire. To put it simply, Neuromarketing studies the marketing stimuli among consumers using techniques that are perfected not in business schools, but in medical universities — sensory, motor, cognitive, affective response and so on.

Be doubly sure, this is no brain wave, but a technique that’s finding a remarkable acceptance in the marketing departments of large corporations. An Internet search of the term ‘Neuro marketing’ throws up 2.5 million results. And the companies that are currently using Neuromarketing to mine for insights to their increasing roster of marketing challenges include the top-notch marketing corporations ranging from automobile companies to beverage makers. You name them, they have tried it. In fact, as we were going to press with this issue, a source told BE about a large scale, and extremely successful Neuromarketing exercise, being undertaken by a leading consumer goods company in India (more about that later).

When the next big thing, does become The Big Thing, CMOs could come with the prefix of ‘Dr’ to their names. Because understanding Neuromarketing, could mean bringing the expertise of understanding the human brain to the marketing world. For example, when consumers avoid the brand in question, a Neuromarketer could conduct an fMRI analysis to understand which areas of the brain actually influence such aversive behaviour. Or it can identify certain genetic codes that separate the risk takers from the conservatives and help companies design campaigns that trigger the risk takers to take action and prefer their brand over the competition.

If experts in the field are to be believed this data can be tracked in a manner that’s completely non-invasive. “Neural activity results in the generation of electro-magnetic signals that can be captured by sensors. These signals are processed and then analysed statistically to draw behavioural patterns of consumers,” explains P C Kutty, J Eddie chair professor at the FRM school of business. He adds that the accuracy of these measurements, that can be filtered down to the order of milliseconds (one-thousandth of a second) has attracted the interest of researchers who are demystifying the decision-making process.

N Swami, a senior executive from an MNC that’s tried out Neuromarketing points out that another area of interest that’s gaining ground among Neuromarketers, is to track the connection between the codes passed by the optical nerves to the brain. Some questions that are being asked by marketers include, do consumers exhibit a bias to products that they see more often, through exposure to advertisements and product displays, or do they pick brands that they see first at the store shelves. Other questions that are being explored include, does a product being placed on the left stand a better chance of being picked — considering that in countries like ours, consumers are trained from a young age to look from left to right (remember, before crossing the road).

At another level, the science of Neuromarketing is also being used to track which is the best possible marketing channel strategy, how consumers react to different pack sizes and price points at various points, which distribution strategy works better in triggering the positive response, which distribution mechanism sends confusing codes to the brain and so on. R Banerjee at the The Retail Institute points out that even different retail chains can trigger different stimuli among consumers. “The same consumer may buy your product at one retail point, but choose your competitor at another retail destination. This can happen despite the space allocated to your brand remaining the same” he says. That’s because different retail chains can have a different influence on the perception and evaluation of the product.

Other factors that influence the decision making process include the brain retrieving the episodic memory, past experience with the brand, sensory memory (memory that is stimulated through the senses) and so on. Analysis by neuromarketers help in establishing which parts of the brain show the maximum activity while selecting or rejecting a brand. These findings help marketers find out what are the influencing factors behind consumer susceptibility and helps in positioning the product in such a manner that it results in developing a judgement bias in favour of the product and also develop even the right product and price strategy for the entire portfolio of offerings.

Take the case of a large consumer goods manufacturer who’s supposedly running one of the largest Neuromarketing programmes that the country has seen. In this case, the company saw a remarkable decline in several of its key categories particularly in some retail formats, that too in particular states in the last three months. As a part of its critical salvage operations, the company also initiated a Neuromarketing exercise that has in a short span delivered much more than what the company bargained for. What triggered this amazing turnaround?

POWER PLAY – Indi’a Most powerful CEOs

By HNN Research Desk

Great leaders know that power is all about bringing about deep and lasting change — which can never be achieved through coercion

Power has many definitions, depending on the context. In maths, it’s the product obtained by multiplying a number by itself, like two to the power of three is eight. In physics, it’s the rate at which work is done, expressed in units of watts or horsepower. In people-terms, my favourite definition of power is from an old organisational behaviour text which simply says, “power is getting people to do what they otherwise would not do.”

This little definition has stayed with me while I’ve forgotten almost everything else I learnt in business school because it’s been re-enforced time and again in real life. It neatly links power to the ability to bring about change, for if there’s one thing people do not otherwise do, it’s change. This, in turn, links to leadership, which is about bringing change (as opposed to management, which is mostly about promoting order and efficiency).

Powerful leaders, by definition then, are those who bring about the greatest positive change in society, improving the way people live, they way they relate and the way they think. This might be achieved by coercion, through rules and regulations that people must follow whether they like it or not. But most often, if it is to have a lasting impact, it is done by persuasion. Powerful leaders represent a great idea, which others make their own. They persuade people to do what they otherwise would not do through the force of their personalities.

Every year, HNN Corporate Dossier magazine commissions IMRB to conduct a survey to determine India Inc’s Most Powerful CEOs. The project starts inhouse, with a long-list of CEOs prepared by The Economic Times Intelligence Group, based on the size of the companies that the CEOs control. After that, the survey goes into the public domain, with roughly 500 executives in senior, middle and junior management across five cities doing the selecting. They are not allowed to pick their own group CEOs, but others who don’t have direct power over their lives and careers.

In the five years it’s been running, the top rankings in the survey have been occupied by business leaders who have had a great positive impact on Indian society. They have introduced products and services that improved the lives of their customers. They have created wealth for their investors. They have grown the business of their suppliers and dealers. They have created a pool of highly talented employees. And most importantly, they have influenced they way we think about ourselves.

For the first three years of the India Inc’s Most Powerful CEOs survey, the man at the top was NR Narayana Murthy. The glory of Infosys was then at its height and its CEO held unquestionable sway over India Inc. But power, as everyone knows, is a sifting thing, and its hard for any single person, however iconic he might be, to retain his hold on people’s minds in perpetuity. Last year, NR Narayana Murthy seceded the top position to Mukesh Ambani and slipped to third place. This year, the survey has thrown up a brand new No 1. And there are several interesting changes at the top, reflecting changing perceptions in a period of slowdown.

Set to hit the news stands on 3 April 2009, the special edition of Corporate Dossier (CD) containing the results of the India Inc’s Most Powerful CEOs survey features several articles on the theme of power. The lead article analyses the historic relationship between economic and political power in India, right from the days of the Harappan civilisation. There have been periods in history when those with economic power have managed to wield political power (The East India Company being a case in point) and then a period of backlash when those in political power sought to gain economic power (the License Raj).

In another article, business historian Gita Piramal analyses the way corporate power has become more democratic, with the old business houses giving way to new-gen entrepreneurs. She also looks at the fate of the PSU chiefs, who wield considerable power in terms of the assets they control and the large number of stakeholders they affect, but who never seem to climb very high in the power rankings, possibly because they are seldom in the public eye.

Then there’s a pictorial page, featuring some of India Inc’s prominent boardrooms, from the effecient-looking Bajaj Auto board room to the opulant Aditya Birla group board room in the western region. On a lighter note and on the eve of the IPL touranament, CD puts together the Indian Promters League, a dream cricket team.

Lastly, the CD special issue features ‘Musings On Power’, a series of very candid interviews with Deepak Parekh of HDFC, NR Narayana Murthy of Infosys and Sunil Mittal of Bharati Airtel. The panels alongside would give you an idea on how they handle this crazy little thing called power.

Change Begins With Your Vote

By M H Ahssan

There’s Growing Public Disgust With Corrupt And Incompetent Politicians. Now’s The Time To Make Your Voice Heard. Our Future Rides On It.

After Independence, India could easily have gone the ruinous way of so many former colonies. You don’t need to look beyond our neighbourhood for evidence — at Pakistan, Bangladesh, Burma, Nepal. Large swathes of Asia and Africa have been under the control of generals, dictators and decrepit monarchies, and are less familiar with democracy than they are with despotism. We have so far managed to prove wrong Winston Churchill’s imperialist prediction that once the British left, India would succumb to its “old hatreds and Oriental tyrannies”.

To the West, India’s 60-year-long engagement with democracy remains one the modern political wonders of the world — particularly in the way it swarms the polls every five years. How is it that this sprawling, populous, chaotic country, which is defiantly diverse — in its religion and culture, its geography and history —has stayed true to its Constitution through good times and bad (barring a brief 21-month interregnum in the Seventies)? If democracy has been hardwired into our political ecology, the credit in large part should go to the founding fathers of the Indian nation, visionaries like Gandhi and Nehru, to whom democracy, like freedom, was non-negotiable.

Unfortunately, it’s now become fashionable among a section of people to say, The problem with India is its democracy. Look at China — once it decides to do something, nothing and nobody can come the way.” But while the naive and the cynical extol the virtues of a bulldozer approach that brooks no opposition, most us Indians, even at the end of a gruelling day, like our freedom. We cherish our right to free speech (as Amartya Sen said, we are terminally argumentative), our right to choose our own gods, and our right to decide who should represent us. All of these are important to us. As Indira Gandhi rudely discovered, much as we would like our trains to run on time, we love our freedoms even more.

It is true that no political or economic system in the world is perfect. If communism was the anti-god that failed, the recent collapse of Wall Street has caught capitalism — once again — with its hand in the till. It is also true that, just as you can get yourself the sturdiest car in the world and then hand over the keys to a dangerous driver, you can have the best political/economic system but with mediocre and/or morally bankrupt people to run it.

We are all painfully aware that far too many of our so-called “leaders” are corrupt, sectarian, regressive, and in the extreme, even murderous. In their list of priorities, personal aggrandizement figures way above the welfare of the people they are meant to represent. In the past few years, the pages of this paper have been depressingly full of their shameful conduct. Inside Parliament, when they weren’t selling their votes for money, they were accepting cash to ask motivated questions. Outside Parliament, they were caught taking bribes to give contracts. An MP was held for human trafficking using forged passports. In the outgoing Lok Sabha, there were 120 MPs with criminal records — many of them with multiple charges ranging from murder, kidnapping and rape to robbery, fraud and extortion. The number of serious cases alone added up to 333.

As for the parliamentary workload of our MPs, consider the fact that in all of 2008, the Lok Sabha met for just 32 days — the lowest in our parliamentary history. What a fall when you consider that in the 1950s, it met for almost 140 days in a year. The attendance of many MPs has been abysmal — when farmer suicides were being discussed there was barely a quorum in the House. In the absence of contemporary laws, the judiciary has had to step in once too often to fill the void, which is not what it’s really supposed to do. This paper has chronicled in gory detail the plummeting standards of the legislature across the country, and how our MPs and MLAs have failed miserably in their primary role, which is to legislate. And what did one of the state Assemblies do when this paper criticized it for dereliction of duty? It charged us with breach of privilege.

Question is, can we afford to throw the baby out with the bathwater? Clearly, we can’t. Sure, we can debate what form of democracy would suit us best — and every few years the idea of a US-style presidential form of government is faithfully exhumed as an alternative to the parliamentary system we’ve inherited from the British. But as the excesses of the Bush years have shown, every form of democracy has its flaws. To return to our analogy of car and driver, a good set of wheels is of little point if there’s a wheeler-dealer in the driving seat. It’s obvious that the answer lies in finding a safe pair of hands.

The first step towards that is to vote. And yet, so many of us end up not exercising this basic right — either out of apathy or cynicism. Many of us would perhaps take the time and trouble to get ourselves registered as voters and when E-day comes, make that journey to the booth — if we believed our vote would make a difference. But we have convinced ourselves that our little say would make a smaller ripple in the electoral pool than would a drop in the Indian Ocean. Forget about swaying the verdict nationally, we don’t think we could even swing it in our own constituency.

The question we then need to ask ourselves is, do we give up without fighting the fight? More importantly, is this a fight that’s not even worth fighting? Do we hand over the keys to our House to a bunch of unworthies by default? If the answer is yes, then we’re consciously choosing to walk away from the possibility that our vote might — just might — help build a stronger, safer and more equitable India for our children and our grandchildren. There is some wisdom in the old finger that curls to point chestwards and says, “We get the government we deserve.”

As a enewspaper, HNN has written about the good, the bad, and the ugly—because that’s life. But we have never stopped believing in the power of good—or, as A R Rahman said at the Oscars, in “the power of hope”.

When we launched our Vision India initiative, sometime back, the idea was to focus our collective attention on the need for better leadership. We truly believe this country is blessed with incredible potential — both human and natural — and that there is enough and more talent to overcome the considerable challenges that stand in our way. What we need are leaders who can help realise our full potential rather than impede progress.

Without meaning to sound immodest, we believe Lead India struck a chord among the urban middle class. It seemed like an idea whose time had indeed come. Did we believe our hunt for a new generation of leaders would throw up a future Prime Minister? Not really. Our objective was at once more modest and more ambitious — paradoxical as that might sound. We weren’t looking for a person who could be Manmohan Singh’s successor’s successor; we were instead hoping to create a larger consciousness about the desperate need for many more clean, efficient and enlightened political leaders.

We structured Lead India as a talent hunt, and in the final stages, took it to television, in order to enlarge the circle of interest around what to us was an idea both serious and powerful. In the months since the culmination — around Republic Day of 2008 — of our first Lead India campaign, we have repeatedly been asked by readers, “What are you doing next? Please don’t give up, please don’t lose heart.” The thought of “giving up” has not once crossed our mind. The overwhelming response that our subsequent Teach India initiative has received—in the form of over one lakh volunteers—has only reinforced our belief that there is an army of good men and women out there who want a better future not only for their own children but for all children. They have shown by their actions that they will walk that extra mile for the India of their dreams.

Today, we rededicate ourselves to the idea of honest, thoughtful, decisive governance with the launch of the second edition of Lead India. This time around, there will be no televised talent hunt. We don’t need one — there is no bigger reality show in this country than a general election.

We have therefore decided to build this year’s Lead India around the election. It will be HNN endeavour to help you, through our extensive research and analysis, to choose your MP well. Our aim is only to set the compass, not dictate the choice. The average Indian voter is savvy, and we wouldn’t presume to tell him/her whom to vote for.

For starters, we will seek to define the qualities of a good MP: Is it the number of hours he spends in Parliament, the quality of his speeches, the questions he asks? Or the knowledge and commitment he brings to the House committees on which he serves? Or the toilets and roads he helps build in his constituency? Is his primary responsibility to constituency or country?

On a broader plinth, we will compare, across parameters, the performance of the Congress-led UPA government with that of its predecessor, the BJP-fronted NDA. And in the weeks leading up to the elections, we will focus on the key issues the next government will need to tackle, in the short as well as long term.

Does The Times of India believe it can influence the outcome of the election? We would be deluding ourselves if we did. We may be the largest English language paper in the world, but we reach out to a small percentage of the country’s voting population — our readership is overwhelmingly urban, educated, middle-to-upper class (although our concerns are universal). For decades, this segment felt that its voice was of little consequence, that our politicians were more interested in the rural vote, the slum vote, the minority vote, the Dalit/OBC vote. Vote banks have been and will continue to be an unavoidable part of any democracy. What’s changed in recent times is that the expanding middle socio-economic class has become an influential demographic in Indian polity; it can no longer be taken for granted. (It’s a sad fact that it took an attack on south Mumbai’s two best-known hotels to finally shake the home minister out of his job.)

We’d like to emphasise that this paper is not aligned to any party or politician; all we want is for the citizens of this country to have the best possible 543 women and men in the Lok Sabha, irrespective of caste, creed and sexual preference. We fervently hope that at least the major parties will choose their candidates well. It’s time they said no to history-sheeters, and if they don’t, we hope voters will. It would be foolish of us to believe that politics can overnight be rid of money and muscle-power, but as voters, our message needs to be loud and clear: merit and integrity matter.

Every election is important, but some, perhaps, more so than others. Just as it was in the US, this year’s election could be crucial for India. The country faces a distressing economic situation — brought on in large part by global forces—and a serious security threat. The 26/11 attack showcased — in a deeply sad and horrifying manner — the collapse of governance. The anger on the street was trained as much at the politician as it was at Pakistan.

But seven days of anger will not redeem us. Candlelight vigils and human chains have an immediate emotional flicker, but do not last beyond next morning’s headline. The most powerful instrument of change, of sending a message to our politicians, is one that is huge, messy, but largely consensual: the electoral process. If you really want to make a fundamental, longterm difference, you need to vote.

As Martin Luther King famously said in his ‘I have a dream’ address, there is a “fierce urgency of now”. India is truly at a crossroads, we cannot afford the luxury of a wrong turn. About 40% of our population is aged under 18, and 70% under 35 — India needs to get its future right.

The election of Barack Obama has come as a beacon of hope to the world. Change is possible, if we truly believe it to be. To quote A R Rahman once more, “All my life, I had a choice between love and hate. I chose love, and here I am.”

We too have a choice — between hope and hopelessness. Which would you rather choose?

Nurturing entrepreneurship in India’s villages

By M H Ahssan

The world’s great cities and the professionals who live in them are linked more tightly to one another than they are with their own rural hinterlands. Yet true prosperity starts in the countryside.

It’s not surprising that well-travelled professionals living in global cities, such as New Delhi, New York, Paris, Rio, and Shanghai, have more in common with one another, in lifestyle and values, than they do with rural citizens in their respective nations. In general, villagers, particularly in the emerging world, have benefitted less from globalization than urbanites have. Seventy percent of India’s citizens, for instance, live in rural isolation, largely disconnected from the benefits of their nation’s fast-paced economic growth.

These are globalization’s forgotten frontiers, where more must be done to connect urban markets with rural ones in order to speed their development. How this happens will vary from nation to nation. In China, for instance, the government actively spurred the village economy, largely through agricultural-reform measures implemented during the 1980s. By contrast, India’s government has only a limited ability to bring about real change in the country’s villages. Private entrepreneurs might well be more effective.

Recently, I trudged through the mire of a government-run food auction yard, or mandi, in Bangalore, the global economy’s offshoring capital. Piles of supposedly fresh produce lay everywhere, rotting in the sun and competing with mangy dogs and scampering mice for my attention. Huddles of impecunious farmers, wearing the traditional dhoti, looked on with resignation. A government agent, pen tucked behind ear, offered a pittance for the produce on display.

The farmers’ day had started before dawn. Chugging along on narrow so-called highways, they came to the auction yard in ramshackle public buses, bullock carts, trucks, and even tractors. Their produce unloaded, they accepted whatever they got. After snatching a few hours’ sleep in a shady corner, they retraced their steps home.

In India, agricultural mandates have long required farmers to sell their produce through such wholesale yards. Although meant to free poor farmers from the clutches of local moneylenders, the mandi has become a monopoly. The farmer remains exploited, but now by local political interests.

But let’s change the scene from a city market in India to a rural village in China. Not long after I visited Bangalore, I crisscrossed parts of Henan—the name means “south of the Yellow River” (Huanghe). The province, one of China’s most populous, is home to more than a hundred million people. I started in Zhengzhou, the capital, a major industrial center and railway junction, and traveled to Chengguan, a county seat with 100,000 inhabitants. Chengguan was scrupulously clean; municipal services were apparent even in the predawn hours. The city bustled, but there was no squalor in the streets. I then headed to the very small village of Qiu, with a population of no more than a few thousand. The paved roads, in better condition than the Massachusetts Turnpike and other highways I know at home, led right up to the cornfields on the edge of the village. Qiu itself, if not quite prosperous, had none of the desperation so obvious in many Indian villages.

Rural development is crucial for the overall development of a nation’s economy. China’s economic revolution started with the reform of its village enterprises; foreign direct investment followed. Agricultural development in rural areas generated economic surpluses that in turn fed light manufacturing in rural and semiurban areas and, ultimately, industrialization in urban ones. A virtuous cycle ensued. The economic surplus promoted reinvestment in new technology and released human capital for broader development. This was China’s path, as it was Indonesia’s, and Vietnam has taken it since 1989.

India, however, has not. The nation’s government has failed to invest in its villages. The farmers who sold their produce in a mandi in Bangalore live a daily struggle for existence in their home villages. Today, 89 percent of all rural households do not own a telephone, and 52 percent have no domestic power connection. The average village is two kilometers away from an all-weather road, and 20 percent of rural habitations must walk for miles to obtain safe drinking water, have access to it for only a few hours a day for much of the year, or have no access at all.

Where India’s government has failed, social and business entrepreneurs are accumulating a better track record. The Self-Employed Women’s Association (SEWA), for example, centered in Gujarat, has economically empowered hundreds of thousands of women, helping them to become economically self-sufficient by providing small loans to start myriad businesses catering to health care, elementary education, and the like. Companies such as Hindustan Unilever and Indian Tobacco Company (ITC) have long had distribution networks that provide some investment, goods, and services to Indian villages beyond the government’s reach.

India should take a page from China’s playbook and fix its villages, but not in the way China has. China’s strong government was able to force the rapid dissemination of rural agricultural reforms. India’s weak one cannot accomplish anything remotely comparable. Instead, India should seek to empower its villagers and nurture entrepreneurial activity, while also taking advantage of its strengths in the private sector. Corporations need a seat at the table of village reform—even multinationals, because the task of reform is so enormous. Outright foreign direct investment, by Düsseldorf-based Metro AG, for example, should be welcome, as should joint ventures, like the one between Bharti Enterprises and Wal-Mart Stores. Such businesses, together with local ones, can lay the foundations for a modern agricultural supply chain linking the village farmer with the urban market.

Only then will India, and not just its global cities, rise.

Needed, innovative ideas to spur the economy

By M H Ahssan

India need not go by the global mantra of unlimited fiscal expansion. It should rather creatively target government spending.

Political parties have a great opportunity to come up with truly innovative and inclusive ideas to re-energise India’s economy as the western world slips into the worst recession since the great depression of 1930. Even as political parties prepare to release their election manifestos over the next week or so, it will be interesting to see how leading formations like the UPA and NDA respond with new ideas to the unprecedented situation developing in the global economy.

Even if the full impact of job losses and economic distress is yet to be felt uniformly across the country, especially in rural India, the climate of growing distress and insecurity will force political parties to come up with new ideas to mitigate the impending crisis.

In some sense, this is an inflexion point for India’s political economy which is waiting for the political class to introspect and look carefully within and come up with ideas specific to local culture and situations.

Globally, the new mantra is unlimited fiscal and monetary stimulus. But it may be foolish to blindly follow the herd. Strangely, as the IMF exhorts the world to expand the fisc to lift the global economy, rating agencies like S&P are busy downgrading the outlook for every economy that is expanding the fisc. Except, of course, that of the United States. The US enjoyed the highest rating at the end of Bill Clinton’s presidency when America had a huge fiscal surplus and it is still rated AAA when the US fiscal deficit is projected to expand to an unprecedented 15% of GDP! Simply because it runs the printing machine for a currency which the world habitually accepts.

So the short point is, emerging economies like India will have to think for themselves. It is here that the innovativeness of the Indian intelligentsia and its political class will be tested. One important component of this will be how the Indian government targets its increased spending at the Centre and state levels. If the gross borrowings of the Centre and states together has increased from some 7% to 12% of GDP since 2007-08, we surely need to figure out how the extra 5% of GDP or $50 billion is being spent. It must stimulate the economy in some way or the other.

The current global crisis provides the biggest opportunity to creatively target spending by the Centre and states. One successful example is the way the government set aside Rs 5,000 crore for replacement of old state transport buses that had been fully depreciated in the books decades ago. According the Cabinet Secretary, KMChandrasekhar, orders have been placed by various states for 14,000 buses which are to be delivered in the next few months. “I am informed by the Chief Secretaries of various states that the companies supplying the buses don’t have the capacity to supply so many buses before the June deadline. So the deadline may get extended after a new government is in place”, said Chandrasekhar. This is one fiscal stimulus scheme which appears to be delivering quick results. India needs a hundred such targeted schemes which will deliver results within six months.

Public sector banks could play a big role by setting up special loan appraisal division for small entrepreneurs and self-employed businesses. For instance, the thousands of decrepit taxis and smaller commercial transport vehicles—over 25 years old— plying in cities like Mumbai, Delhi, Chennai etc could be offered replacement loans by banks. The repayment period could be made longer and part of the interest component subsidised by the government. This would not only raise demand for vehicles in the immediate future but also raise productivity in a big way, besides improving energy efficiency.

The Centre and states could work together in many other ways. For instance, the home ministry can work with state home departments to refurbish thousands of police stations and other infrastructure across the country. This would increase the offtake of cement and metals and other items that the small scale industry provides. In short, there is a need for hundreds of such small ideas that can bear results in the immediate future. India has the advantage of volumes. Every small idea, in terms of value, can multiply in millions.India is fast urbanising and waste management and environmental pollution is a huge issue. This is also a unique opportunity for public policy.

The Congress party can revive Rajiv Gandhi’s aborted plan for cleansing the Ganga. The original effort did not fully succeed because it became a bureaucratic, top-down project. The same idea can be revived in a bottomup fashion by involving village panchayats and municipal bodies in small towns. The idea must be to create thousands of small infrastructure related to waste management, for the millions of inhabitants alongside the Ganga. Ganga has a powerful cultural connotation and if conceived well this could well turn out to be a grassroots movement. The existing funds under NREGA or JNURUM could be used in the Ganga project. Both the main political parties of the country, Congress and BJP, are struggling to become relevant in the Gangetic belt. Even politically, a massive effort related to improving the infrastructure around the Ganga could provide the right socialeconomic fillip. Any takers?

Vital ingredient for bird flu drug found in India

By Sakshi Aiyyer

Shikimic Acid Used For Making ‘Tamiflu’ Has Been Discovered In 7 Plants Species Of Western Ghats

Shikimic acid, the most vital ingredient used to make Oseltamivir, (Tamiflu) the only known drug to combat the deadly bird flu, has been found in trees in the Western Ghats.

Scientists from Bangalore have found at least seven plant species that yielded shikimic acid from the Western Ghat forests, known as one of the world’s 10 hottest biodiversity hotspots.

The team from University of Agricultural Sciences, Bangalore, said it scanned through 210 plant species to shortlist “a few promising species whose leaves yielded shikimic acid level higher than 1%”.

Presently, the majority of the acid’s global availability is met by China because it is extracted from the fruits of the Chinese star anise tree, that contains up to 5% of the acid. But the 10-metre tree attains its seed-bearing stage after six years of growth, making it unlikely that the growing market demand of the acid would be met by the single source alone.

The fruits of this tree are traditionally used in China for culinary and medicinal purposes as they contain 2%-7% of shikimic acid, the highest reported estimate from plants.

Interestingly, the trees discovered by Indian scientists have yielded 1%-5.02% of the acid, with a plant species called Araucaria Excelsa yielding almost 5.02% of shikimic acid. The most significant advantages of the newly identified Indian sources is that the estimates are from leaves and not fruits as is the case with star anise.

Reporting their finding in the latest issue of the medical journal ‘Current Science’, the scientists said a total of 193 angiosperms (flowering plants) belonging to 59 families and 17 gymnosperms (plants in which the seeds are not enclosed in an ovary) belonging to five families were collected for the study. “Only 7 of the 193 angiosperm species yielded shikimic acid in excess of 1% while the rest yielded no or low shikimic acid. The most promising species were Calophyllum Apetalum (4.10% shikimic acid). All the 17 gymnosperms had detectable levels of shikimic acid with six species accumulating greater than 1%. Among these, Araucaria Excelsa yielding almost 5.02% of shikimic acid,” the scientists said.

They said that since so much of the acid is being used for industrial and pharmaceutical uses, it is imperative that newer sources of this chemical are identified. It is estimated that nearly two-thirds of the requirement of shikimic acid is being sourced from plants while the remaining one-third is obtained from genetically engineered E Coli.

The team added, “The leads presented here appear more promising than most others. In few of these species, the estimates are comparable to those reported from star anise. Because the estimates are from leaves, the sheer volume of the biomass offered by the leaves would render it economically feasible.

This finding of the new source of shikimic acid can potentially be used to meet the emerging needs of both the domestic and international markets.”

Union health ministry sources said, “Getting the raw material to make Tamiflu in India has been our biggest hurdle. At present, it is found only in China and Germany.” Tamiflu, the drug which blocks the replication of the flu virus, is presently being stockpiled by most countries as a precautionary measure in case of an outbreak of the bird flu among humans.

The price of shikimic acid has, therefore, skyrocketed. Pharma companies in India say the acid, which used to cost $40 a kg earlier, now costs around $1,000 per kg.

What will Obama do with KBR?

By M H Ahssan

President Barack Obama will almost certainly touch down in Baghdad and Kabul in Air Force One sometime in the coming year to meet his counterparts in Iraq and Afghanistan, and he will just as certainly pay a visit to a United States military base or two.

Should he stay for breakfast, lunch, dinner, or midnight chow with the troops, he will no less certainly choose from a menu prepared by migrant Asian workers under contract to Houston-based KBR, formerly Kellogg Brown & Root and once a subsidiary of Halliburton.

If Obama takes the Rhino Runner armor-plated bus from Baghdad Airport to the Green Zone, or travels by Catfish Air’s Blackhawk helicopters (the way mere mortals like diplomats and journalists do), instead of by presidential chopper, he will be assigned a seat by US civilian workers easily identified by the red KBR lanyards they wear around their necks.

Even if Obama gets the ultra-red carpet treatment, he will still tread on walkways and enter buildings that have been constructed over the last six years by an army of some 50,000 workers in the employ of KBR. And should Obama chose to order the troops in Iraq home tomorrow, he will effectively sign a blank check for billions of dollars in withdrawal logistics contracts that will largely be carried out by a company once overseen by former vice-president Dick Cheney.

Questions for the Pentagon If Obama wants to find out why KBR civilian workers can be found in every nook and cranny of US bases in Iraq and Afghanistan, he might be better off visiting the Rock Island Arsenal in western Illinois. It’s located on the biggest island in the Mississippi River, the place where Chief Black Hawk of the Sauk nation was once born.

The arsenal’s modern stone buildings house the offices of the US Army Materiel Command from which KBR’s multibillion dollar Logistics Civilian Augmentation Program contract (LOGCAP) have been managed for the last seven years. This is the mega-contract that has, since the September 11, 2001 attacks, generated more than $25 billion for KBR to set up and manage military bases overseas (and resulted, of course, in thousands of pages of controversial news stories about the company’s alleged war profiteering).

Even more conveniently, Obama could pop over to KBR’s Crystal City government operations headquarters in Arlington, Virginia, just a mile south of the Pentagon and five miles from the White House. On Crystal City Drive just before Ronald Reagan National Airport, it’s hard to miss the KBR corporate logo, those gigantic red letters on the 11-story building at the far corner of Crystal Park.

Many people who know something about KBR’s role in Iraq and Afghanistan might want Obama to question the military commanders at Rock Island and the corporate executives in Arlington about the shoddy electrical work, unchlorinated shower water, overcharges for trucks sitting idle in the desert, deaths of KBR employees and affiliated soldiers in Iraq, million-dollar alleged bribes accepted by KBR managers, and billions of dollars in missing receipts, among a slew of other complaints that have received wide publicity over the last five years.

But those would be the wrong questions.

Obama needs to ask his Pentagon commanders this: Can the US military he has now inherited do anything without KBR?

And the answer will certainly be a resounding “no”.

Keeping a Volunteer Army Happy
Tim Horton is the head of public relations for Logistical Supply Area Anaconda in Balad, Iraq, the biggest US base in that country. He was a transportation officer for 20 years and has a simple explanation for why the army relies so heavily on contractors to operate facilities today: What we have today is an all-volunteer army, unlike in a conscription army when they had to be here. In the old army, the standard of living was low, the pay scale was dismal; it wasn’t fun; it wasn’t intended to be fun. But today we have to appeal, we have to recruit, just like any corporation, we have to recruit off the street. And after we get them to come in, it behooves us to give them a reason to stay in.

Even in 2003, the US military was incredibly overstretched. For the Bush administration to go to war then, it needed an army of cheap labor to feed and clean up after the combat troops it sent into battle. Those troops, of course, were young US citizens raised in a world of creature comforts. Unlike American soldiers from their parents’ or grandparents’ generations who were drafted into the military in the Korean or Vietnam eras and ordered to peel potatoes or clean latrines, the modern teenager can choose not to sign up at all.

As Horton points out, the average soldier gets an average of $100,000 worth of military training in four years; if he or she then doesn’t re-enlist, the military has to spend another $100,000 to train a replacement.

“What if we spend an extra $6,000 to get them to stay and save the loss of talent and experience?” Horton asks. “What does it take to keep the people? There are some creature comforts in this Wal-Mart and McDonald’s society that we live in that soldiers have come to expect. They expect to play an Xbox, to keep in touch by e-mail. They expect to eat a variety of foods.”

A quarter-century ago, when Horton joined the US Army, all they got was a 14-day rotational menu. “We had chili-mac every two weeks, for crying out loud. What is that? Unstrained, low-grade hamburger mixed with macaroni. Lot of calories, lots of fat, lots of starch, that’s what a soldier needs to do his job. When you were done, you had a heart attack.”

Today, says Horton, expectations are different. “Our soldiers need to feel and believe that we care about them, or they will leave. The army cannot afford to allow the soldier to be disenfranchised.”

When I visited with him in April 2008, Horton took me to meet Michael St John of the Pennsylvania National Guard, the chief warrant officer at one of Anaconda’s dining facilities. St John led me on a tour of the facility, pointing out little details of which he was justly proud – like the fresh romaine lettuce brought up from Kuwait by Public Warehousing Corporation truck drivers who make the dangerous 12-hour journey across the desert, so that KBR cooks have fresh and familiar food for the troops.

Stopping at the dessert bar St John explained, “We added blenders to make milkshakes, microwaves to heat up apple pie, and waffle bars with ice cream.” The “healthy bar” was the next stop. “Here,” he pointed out, “we offer baked fish or chicken breast, crab legs, or lobster claws or tails.”

“Contractors here do all the work,” St John added. He explained that he had about 25 soldiers and six to eight KBR supervisors to oversee 175 workers from a Saudi company named Tamimi, feeding 10,000 people a day and providing take-away food for another thousand.

“They do everything from unloading the food deliveries to taking out the trash. We are hands off. Our responsibility is military oversight: overseeing the headcount, ensuring that the contractors are providing nutritional meals and making sure there are no food-borne illnesses. It’s the only sustainable way to get things done, given the number of soldiers we have to feed.”

Horton chimes in: “I treat myself to an ice-cream cone once a week. You know what that is? It’s a touch of home, a touch of sanity, a touch of civilization. The soldiers here do not have bars; all that is gone. You’ve taken the candy away from the baby. What do you have to give him? What’s wrong with giving him a little bit of pizza or ice cream?”

Between a chili-mac military and a pizza-and-ice-cream military, the difference shows – around the waistline. Sarah Stillman, a freelance journalist with the website TruthDig, tells a story she heard about a PowerPoint slide that’s becoming popular in Army briefings: “Back in 2003, the average soldier lost fifteen pounds during his tour of Iraq. Now, he gains ten.”

Stillman says that the first warning many US troops receive here in Baghdad isn’t about IEDs (improvised explosive devices), RPGs (rocket-propelled grenades), or even EFPs (explosively formed projectiles). It’s about PCPs: “pervasive combat paunches”.

Privatizing the US Army
KBR has grossed more than $25 billion since it won a 10-year contract in late 2001 to supply US troops in combat situations around the world. As of April 2008, the company estimated that it had served more than 720 million meals, driven more than 400 million miles on various convoy missions, treated 12 billion gallons of potable water, and produced more than 267 million tons of ice for those troops. These staggering figures are testimony to the role KBR has played in supporting the US military in Iraq, Afghanistan, and other countries targeted in former president George W Bush’s “global war on terror”.

And in the first days of the new Obama administration, the company continues to win contracts. On January 28, 2009, KBR announced that it had been awarded a $35.4 million contract by the US Army Corps of Engineers for the design and construction of a convoy support center at Camp Adder in Iraq. The center will include a power plant, an electrical distribution center, a water purification and distribution system, a waste-water collection system, and associated information systems, along with paved roads, all to be built by KBR.

How did the US military become this dependent on one giant company? Well, this change has been a long time coming. During the Vietnam War in the 1960s, a consortium of four companies led by the Texas construction company Brown & Root (the B and R in KBR) built almost every military base in South Vietnam.

That, of course, was when Lyndon B Johnson, a Texan with close ties to the Brown brothers, was president. In 1982, two years into Ronald Reagan’s presidency, Brown & Root struck gold again. It won lucrative contracts to build a giant US base on the Indian Ocean island of Diego Garcia, a former British colony.

In 1985, General John A Wickham drew up plans to streamline logistics work on military bases under what he dubbed the Logistics Civilian Augmentation Program (LOGCAP), but his ideas would remain in a back drawer for several years. In the meantime, Dick Cheney, as secretary of defense in the administration of the elder George Bush, loosed the American military on Iraq in the First Gulf War in 1991, and hired hundreds of separate contractors to provide logistics support.

The uneven results of this early privatizing effort left military planners frustrated. By the time Cheney left office, he had asked Brown & Root to dust off the Wickham LOGCAP plan and figure out how to consolidate and expand the contracting system.

President Bill Clinton’s commanders took a harder look at the new plan that Brown & Root had drawn up and liked what they saw. In 1994, that company was hired to build bases in Bosnia and later in Kosovo, as well as to take over the day-to-day running of those bases in the middle of a war zone.

By the time Donald Rumsfeld took over as secretary of defense under the younger George Bush, he had embraced the revolution that Wickham had begun, and Clinton and Cheney had implemented. At a Pentagon event on the morning of September 10, 2001, one day before three aircraft struck the Pentagon and the World Trade Center, Rumsfeld identified the crucial enemy force his assembled senior staff would take on in the coming years: The topic today is an adversary that poses a threat, a serious threat, to the security of the United States of America. This adversary is one of the world’s last bastions of central planning. It governs by dictating five-year plans. From a single capital, it attempts to impose its demands across time zones, continents, oceans, and beyond. With brutal consistency, it stifles free thought and crushes new ideas. It disrupts the defense of the United States and places the lives of men and women in uniform at risk. You may think I’m describing one of the last decrepit dictators of the world. The adversary’s closer to home. It’s the Pentagon bureaucracy.

We must ask tough questions. Why is DOD [Department of Defense] one of the last organizations around that still cuts its own checks? When an entire industry exists to run warehouses efficiently, why do we own and operate so many of our own? At bases around the world, why do we pick up our own garbage and mop our own floors, rather than contracting services out, as many businesses do?

He outlined a series of steps to slash headquarter staffs by 15% in the two years to come and promised even more dramatic changes to follow. While the invasion of Afghanistan the following month was conducted by military personnel, Rumsfeld’s ideas started to be implemented in the spring of 2002. Indeed, the building of bases in Kuwait in the fall of 2002 for the coming invasion of Iraq was handled almost entirely by KBR.

Today, there is one KBR worker for every three US soldiers in Iraq – and the main function of these workers, under LOGCAP, is to build base infrastructure and maintain them by doing all those duties that once were considered part of military life – making sure that soldiers are fed, their clothes washed, and their showers and toilets kept clean.

While many stories have been written about the $80,000 annual salaries earned by KBR truck drivers, most of the company’s workers make far less, mainly because they are hired from countries like India and the Philippines where starting salaries of $300 a month are considered a fortune.

Outsourcing the kitchen patrol
The majority of KBR’s labor force, some 40,000 workers (the equivalent of about 80 military battalions), are “third country nationals” drawn largely from the poorer parts of Asia. In April 2008, I flew to Kuwait city where I spent time with a group of Fijian truck drivers who worked for a local company, PWC, doing subcontracting work for KBR.

My host was Titoko Savuwati from Totoya Lau, one of the Moala Islands in Fiji. He picked me up one evening in a small white Toyota Corolla rental car. The cranked-up sound system was playing American country favorites and oldies. Six-feet-tall with broad, rangy shoulders, short-cropped hair, and a goatee, Savuwati had been a police officer in Fiji. He was 50 years old and had left at home six children he hadn’t seen in four years. When he got out of his car, I noticed that he had a pronounced limp and dragged one foot ever so slightly behind him.

We joined his friends at his apartment for a simple Anglican prayer service. Deep baritone voices filled the tiny living room with Fijian hymns before they sat down to a meal of cassava and curried chicken parts and began to tell me their stories.

Each had made at least 100 dangerous trips, driving large 18-wheeler refrigeration trucks that carry all manner of goodies destined for US soldiers from Kuwaiti ports to bases like LSA Anaconda. They slept in their trucks, not being allowed to sleep in military tents or trailers along the way.

Savuwati had arrived in Kuwait on January 14, 2005, as one of 400 drivers, hoping to earn $3,000 a month. Instead, his real pay, he discovered, was 175 Kuwaiti dinar (KWD) a month (US$640), out of which he had to pay for all his food and sundries, even on the road, as well as rent. Drivers were given an extra 50 dinar ($183) allowance on each trip to Iraq.

“I came to Iraq because of the large amount of money they promised me,” he said, sighing. “But they give us very little money. We’ve been crying for more money for many months. Do you think my family can survive on fifty KWD?” He sends at least 100 dinars ($365) home a month and has no savings that would pay for a ticket home at a round-trip price of roughly $2,500.

I did a quick calculation. For every trip, if they worked the 12-hour shifts expected of them, the Fijians earned about $30 a day, or $2.50 an hour. I asked Savuwati about his limp. On a trip to Nasariyah in 2005, he told me, his truck flipped over, injuring his leg. Did he get paid sick leave? Savuwati looked incredulous. “The company didn’t give me any money. When we are injured, the company gives us nothing.” But, he assured me, he had been lucky – a number of fellow drivers had been killed on the job.

The next day, I stopped by to see the Fijians again, and Savuwati gave me a ride home. I offered to pay for gasoline and, after first waving me away, he quickly acquiesced. As he dropped me off, he looked at me sheepishly and said, “I’ve run out of money. Do you think you could give me one KWD [$3.65] for lunch?” I dug into my pocket and handed the money over. As I walked away, I thought about how ironic it was that the men who drove across a battle zone, dodging stones, bullets, and IEDs to bring ice cream, steak, lobster tails, and ammunition to US soldiers, had to beg for food themselves.

This, of course, is the real face of the American military today, though it’s never seen by Americans.

Obama’s Army
Pentagon commanders often speak of a “revolution in military affairs” when summing up the technological advances that allow them to stalk enemies by satellite, fire missiles from unmanned aerial vehicles, and protect US soldiers with night-vision goggles, but they rarely explain the social and logistical changes that have accompanied this revolution.

Today, US soldiers are drawn from a video-game culture that embraces computers on the battlefield, even as the US Army bears ever less relation to the draft armies that did the island hopping in the Pacific in World War II or fought jungle battles in Vietnam. Indeed, the personnel that Obama will soon visit in Iraq and Afghanistan is generally supplied with hot food and showers around the clock in combat zones in the same way they might be on a Stateside base – by workers like Savuwati.

Undoubtedly, an Obama administration could begin to cut some of the notorious fat out of the contracts that make that possible, including multi-million dollar overcharges. Obama’s potential budget trimmers could, for example, take whistleblowers inside KBR and the Pentagon seriously when they report malfeasance and waste.

But could Obama dismiss KBR’s army, even if he wanted to? Will Obama really be willing to ask American volunteer soldiers to give up the bacon, romaine lettuce, and roast turkey that they have come to expect in a war zone? And even if he could do so, those are only the luxuries.

Keep in mind that, on US bases in Iraq and Afghanistan, every single item, from beans to bullets, is shipped using contractors like PWC of Kuwait and Maersk of Denmark. In the last two decades, the US military has even divested itself of the hardware and people that would allow it to move tanks around the world, relying instead on contractors to do such work.

The White House website states that “Obama and Biden support plans to increase the size of the Army by 65,000 soldiers and the Marine Corps by 27,000 Marines. Increasing our end strength will help units retrain and re-equip properly between deployments and decrease the strain on military families.”

As part of the same policy statement, the site claims the new administration will reform contracting by creating “transparency for military contractors,” as well as restoring “honesty, openness, and commonsense to contracting and procurement” by “rebuilding our contract officer corps”.

Nowhere, however, does that website suggest that the new administration will work toward ending, or even radically cutting back, the use of contractors on the battlefield, or that those 92,000 new soldiers and Marines are going to fill logistics battalions that have been decimated in the last two decades.

What we already know of the military policies of the new administration suggests instead that President Obama wants to expand US military might. So don’t be surprised if the new LOGCAP contract, a $150 billion 10-year program that began on September 20, 2008, remains in place, with some minor tinkering around the edges to provide value for taxpayer money.

KBR’s army, it seems, will remain on the march.

Retail wallets closed to Indian mutual funds

By Indrajit Basu & M H Ahsan

Ask bankers or a heads of insurance companies in India about how many retail customers they have added in the past year and chances are that most would give you a number close to the nearest hundred. After all, retail clients are the backbone of their growth, they say, and acquiring new clients is their top priority. But place this question to a fund manager of any of India’s 44-odd mutual funds, and most would draw a blank. No official numbers regarding retail investors in mutual funds are available, but “we have many”, they say. Some even evade the question and try to direct attention instead to the sizzling growth in the amount of money they manage (called assets under management – AUM in industry parlance), which most funds consider a key benchmark for their performance. They can always find an excuse, though, for not having enough retail clients.

According to reported figures, the penetration of mutual funds in India has languished at a mere 3% of household savings, compared with 16% in most developed and developing economies. “If you compare the overall investments of the retail investors, the mutual-fund industry is still struggling to gain the attention of the retail investors,” said Krishnamurthy Vijayan, director and chief executive officer of JPMorgan Asset Management Co. Indeed, although the Indian mutual-fund industry has finally started growing like a teenager since mutual funds in their true sense were opened to the private sector in 1993, the fact is that the sector continues to be the favorite for only the big guns, while most investors from the street push this investment avenue, supposedly the retail investor’s best, way down their preference list. On the face of it, though, the mutual-fund industry has never had it so good.

The AUM or the total corpus of this industry grew by a stunning 21% over the year ending July to exceed US$125 billion. But, said T C Nair, a member of the country’s capital-market regulator, the Securities and Exchange Board of India (SEBI), even as it is “astonishing that assets managed by mutual funds have doubled in less than 18 months, the mutual-fund industry is still very urban and geared toward institutional investors”. And this has happened despite the fact that the industry aggressively positions itself as a safe investment avenue that can offer better returns than most fixed-interest-bearing investment instruments, such as bonds and deposits. Take these numbers, for instance: according to SEBI, of the $125 billion AUM, as much 81% comes from the eight largest cities of India, while half of the AUM “belongs to corporate clients, banks and financial institutions”. But there’s not much participation of retail investors in the other half, either.

According to industry numbers, there are about 32 million retail accounts in Indian mutual funds. “However, the point to note is that much of this too belongs to the high-net-worth investors, because most usually invest though multiple accounts,” said Jhelum Chowdhury, a financial planner and a mutual-fund broker. Therefore, said Krishnan Sitaraman, head of fund-services and fixed-income research for the credit-rating agency CRISIL, “Although there’s no concrete information on that [retail investors in mutual funds] number, we reckon that no more that 25% of the AUM belongs to the retail investor.” Compare mutual funds in India with its peers in the developed countries, say the United States, where mutual funds truly function as they should – to increase the wealth of smaller investors – the picture looks completely different: more than 80% of the AUM belongs to retail investors.

The ratio is similar in Europe and elsewhere in Asia. So why don’t millions of investors find Indian mutual funds hot? “One major issue with less retail participation [in mutual funds] is the income level of smaller investors,” said Rachana Baid, a professor at the Mumbai-based Indian Institute of Capital Markets. “Indian investors follow a typical investment hierarchy where risk-fee investments like bank deposits and bonds get the top priority and, after making such investments, there is little money in the hands of the investors to invest in equity-linked mutual funds.”

Then there’s the question of risk perception. Experts say that since equity-linked mutual-fund plans – the only mutual-fund plans that retail investors actually invest in – invest primarily in stocks, retail investors perceive “such investments as a proxy for a punt on the stock market”, said Krishnamurthy Vijayan of JPMorgan. Moreover, added Baid, the Indian mutual funds have not been able to communicate their risk profile to the retail investors segment properly. “It is true that mutual funds per se could be risky too, but when one considers this investment avenue from a longer-term perspective, say 30 years, the daily or even few months of volatility of the stock markets should not matter,” said Baid.

Nevertheless, the biggest reason Indian mutual-fund plans haven’t been able to penetrate deep into the retail segment is the mutual funds themselves: all have the principal focus on growth of their AUM in which corporate and institutional markets offer an easy way. “And there are understandable reasons for it,” including a sweetener in the Indian income-tax laws, said Dhirendra Kumar of Valuresearch, which claims to be the first dedicated fund-research company in India. After tax concessions extended to mutual funds in 1999 where dividends from equity funds were made tax-free and where debt funds were taxed concessionally at 10%, “Companies and other large investors prefer to put their money in debt funds of mutual funds instead of putting their money directly in fixed-income-bearing securities, where the earnings are treated as interest income and hence taxed at much higher rates,” said Kumar.

That is also why, say industry sources, about 65% (although SEBI claims it is about 50%) of the AUM consists of debt plans. “Moreover,” said Krishnamurthy Vijayan, “most mutual-fund companies in India are grossly undercapitalized [meaning they do not have enough capital to expand their marketing efforts], so they tend to address the meaty area [where one marketing call could get them the business of many retail clients] to grow.” Small wonder that SEBI is unhappy about the way mutual funds in Indian operate. In a public forum last month, SEBI chairman M Damodaran pointed out that “the mutual-funds industry seems to be prematurely patting itself on the back” and that “the question of who has made what sort of growth provokes more questions than it provides answers”. Damodaran also urged the industry to examine the possibility of getting different kinds of money into funds, rather than bank overwhelmingly on institutional investors, since such “large investments by corporate houses in mutual funds generate conflict of interest”.

The truth, then, is that in India, mutual funds are hardly what their original concept mandates: individual investors should form the bulk of fund investors or participants. But the good news is that this may be changing. Lately, claim both Vijayan of JPMorgan and Vikaas Sachdev, country head of business development for ING Investment Management, some large fund houses have started venturing deep into the micro-investment segment through the systematic investment plans route, and by getting non-government organizations to mobilize funds from even rural areas. “

The inflection point is now,” said Sachdev. “With rising disposable incomes and confidence following three years of a sustained bull run, the share of the retail investors’ wallet in the MFs [mutual funds] is going up; the industry expects that retail participation [will] grow much faster in the next few years.”