On my recent trip to Delhi from Agra, I drove through the Yamuna Expressway, and it felt I was driving on Formula 1! I was in awe of our NHAI (National Highways Authority of India) when my wife told me that NHAI has got nothing to do with it!
She told me the road was constructed by a private investor and not the government of India. But just as I got a positive feeling about the privatization of the road and transport sector in India, I was stunned at the unreasonable amount of cash the toll booth operator demanded, which made me think otherwise.
Privatization is the way to Vikas!?
The Modi government is taking affirmative steps to sell the public sector companies by way of privatization.
The IPO (Initial Public Offering) of Indian railway finance corporation is raising Rs. 1541 crores for the government and the OFS(Offer For Sale) of IRCTC worth Rs. 4473 crores are a few ways of privatization. The capital raised by these moves is used for other growth oriented projects by the government.
“What happens after these top companies are sold?” is the discussion of the hour. Let’s find out.
Privatization: A double edged sword
Mishaps after privatization: the British experience
The best example of a dissatisfied public experience post privatization of a government run facility is the British rail.
The British rail was privatized in 1997 after which the ownership of the engines, rail tracks and the railway stations was handed over to different private companies. And as they say-”Too many cooks spoil the broth”; these three companies could not work efficiently together to provide good services to the public.
The exorbitant rise in ticket rates along with frequent rail accidents worsened the public experience. The private companies played blame-game with each other to safeguard their company from prosecution every time an occurrence occurred.
Success after privatization: The Japanese experience
The Japanese rail was privatized in 1987, and was sold to six different companies which acquired different parts of the system geographically.
This way of dealing with the situation worked really well as the onus of the one entire region was shifted to one entity. Unlike the British way, the public experience was enhanced. A competition between six different companies doing the same thing helped to develop a better customer experience.
The moral of the story is that privatization has got its pros and cons. Implementation and execution are the key.
Disinvestment- Target Vs Realization
The central government plans to sell the stake in most of the PSEs (Public sector enterprises) and raise lumps of money which will be used for growth purposes. To name a few – HPCL, BPCL, GAIL, HAL, HFL are renowned PSEs of the 348 PSEs in India.
For the current year, a target of Rs. 2.1 lakh crores was set through disinvestment. The government has planned to sell stakes of the CPSEs (Central public sector enterprises) worth Rs. 1.2 lakh crores . Also Rs. 90,000 crore will be raised from the stake sale in IDBI bank and LIC through the IPO route to make it a total of Rs. 2.1 lakh crore. But only Rs. 17957 crores have been realized till now.
Sectoral categorization to identify the scapegoats!
The classification of the CPSEs to be sold is broadly done as strategic and non-strategic.
Strategic sector stands for the crucial sectors for the government of India where control of the government is mandatory. Example- Atomic Energy, Space, Defense, Power, etc.
All other sectors in which the authority to take crucial decisions can be passed on to the private players are categorized as non-strategic sectors. Example: telecommunication, general insurance, etc.
The government has decided to entirely privatize all the non-strategic sector CPSEs or merge all the non-strategic sector CPSEs into one holding company.
And to minimize operational and administrative costs, there will be a minimum of one and a maximum of four CPSEs in every strategic sector. This move will keep the government control over all the strategic sectors.
Pros and Cons of Privatization in Public Companies:
Disadvantages of privatization in public companies
Concentration of economic power
A few business houses of India- famously the Adanis and the Ambanis – end up getting contracts of more such privatized firms. This will concentrate economic power in the hands of a few which can give rise to capitalism if things go wrong.
Concentrated geographical development
The private companies will look for cheap labor, raw materials and resources for setting up their factories or corporate offices. Hence, there can be an excessive drainage of resources of particular areas raising environmental concerns.
Also, employment will be concentrated in a few areas and other regional governments will have no say in this.
Without any government control, the private companies will get a free hand to hike rates for their products. In spite of government regulations, these companies can use the drawbacks in their contracts to hand hold the selling prices.
Interdependence on the government
Though it is the government who is privatizing their firms; but the same government regulations and rules can make working difficult for these private companies. Major decisions like the taxes, import, export, foreign currencies depend on the government.
Any such government decision not in line with the planning of the company will affect its performance.
The same factor can turn out to be an advantage in some cases, where the companies will have a free hand to decide the policies within their control and not have to depend on the government.
The privatization of the CPSEs in India will snatch employment from many existing CPSE employees. The ‘survival of the fittest’ will increase the competition within employees and only the best will survive; who in turn can work as much as two more employees.
The staff set up will be revised by the companies reducing the fresh recruitment as well.
Advantages of privatization in public companies
Optimum utilization of resources
The operational and administrative incompetence will be reduced as the available resources will be used to the fullest. The resources or assets which cannot be used to the fullest, will be sold by the companies to achieve an optimization.
The monopoly of the government companies will be reduced as many private companies will offer the same services to the customers. The customer will get to choose the best company for himself; thus maintaining a pressure on all companies to do well.
No reservations in jobs
With privatization of government companies, the reservation system in jobs based on the caste and creed will be abolished forever. Merit will be the only criterion for selection in major companies of India.
This same factor can prove to be a disadvantage giving rise to geo-political tensions in the country. This can give rise to socio-economic rift within societies hampering the unity of India.
Is privatization really needed?
Privatization is a smart way of generating cash. With cash-in-hand, the government can channelize it towards growth activities like infrastructure, making viable employment opportunities and promoting economic growth. Uninterrupted flow of cash in the markets which is the first requirement for a developing economy.
The government is planning to sell stakes in a few public sector banks and Air India. A few oil companies are already undergoing the process of disinvestment which has already raised the eyebrows of the employees of various CPSEs of India.
The disinvestment in LIC by way of the IPO (Initial Public Offering) is under the cards as well. Hence, one of India’s biggest companies will be handed over from the government to other private investors which will raise huge lumps of money for the government.
Is privatization the only way?
The process of disinvestment has been hampered due to the Covid-19 situation. The stock prices of the CPSEs tell us that the CPSEs saw a huge fall in value during the Covid-19 initial days.
OFS (offer for sale) of many PSEs has occurred at such low share prices due to which erosion of the market capitalization of the companies has occurred in the past.
It is just like selling your house when the real estate rates are down and eroding the value (market capitalization in case of companies) of your house
With very few CPSEs left with a government stake of more than 50%, a small stake sale in these companies going forward will not yield any significant value as well due to the already eroded market capitalization.
Another problem here is that the government is planning to sell stakes in the profitable PSUs which are doing really well. But what when they turn to the not so profitable businesses like Air India after the big companies of the Indian economy are exhausted. This won’t be an easy ride for the government as there are many such businesses.
Note: Market capitalization is the number of shares of a company multiplied by the price of one share. It determines the value of the company to anyone who wants to buy it
An alternative to privatization can be to set up a sovereign wealth fund by transferring all the stakes of the government in the CPSEs to this fund. A huge corpus fund will be raised which will give huge interest as earnings (dividend is the correct word) to the government. This earning will be more than what they have been earning out of these CPSEs lately.
The government can raise frequent capital by selling minority stakes in this sovereign wealth fund.
The CPSEs can be managed professionally for a few years and then privatized at an increased value- which will be the true value of these Indian companies, unlike now!
What happens after all companies are sold?
You will definitely see some changes in the day to day working of the government companies after they are privatized.
Don’t be surprised to see every desk occupied at 9:30 am the next time you step into a central government undertaking office. You might even be made to feel important to them, unlike your previous experiences.
You might see lesser employees, each with high tech gadgets on their desk; an alternate counter during lunch hours to make sure you do not have to wait.
The government turned private employees will discover the potential in them for the first time. Whereas a retired government employee might feel alien like never before when he steps into his previous workplace.
So, what next after all the selling is done?
Nothing more will remain to sell! LOL
But may be; the need to sell won’t arise !
So, continuing the ride from the toll plaza towards Delhi on the Yamuna Expressway, I came across the Buddha International circuit at Noida. This project has been completed by The Jaypee group- a private company. Such projects are usually taken up by the government in India and that could be the reason India was deprived of an international standard racing track.
By the time I reached Delhi, I was convinced that privatization of top Indian companies is actually the ‘express-way’ of reaching the destination of a developed nation.
Private Company vs Public Company
The difference is more than literal
Do you know why you cannot buy shares of a private company?
So, can you only buy shares of a public company like ONGC, IRCTC, Indian Oil, etc.?
Then why are the shares of private companies like Infosys and Wipro listed on the stock exchange? Are these private companies to begin with?
Do you know a private company cannot have more than 200 members?
OMG! Somebody please answer all these questions.
Yes, the difference is more than literal.
Let us have a cut and dried distinction between a private and a public company.
Definition of Company
Let us take the bull by its horns and get the definitions out from the textbooks.
Companies Act 2013
A company is a legal entity that is formed by different individuals to generate profits through their commercial activities.
Majorly, a company can be classified into two strands- public company and private company.
Before knowing the difference between a public company and a private company, it is of utmost importance to check on the definitions of a public company and a private company as per the Companies Act 2013.
According to the Companies Act, 2013, a “public company” is a company which—
(a) is not a private company
(b) has a minimum paid-up share capital of five lakh rupees
According to Section 2(68) of the Companies Act, 2013, private companies are those companies whose articles of association restrict the transferability of shares and prevent the public at large from subscribing to them.
According to the Companies Act 2013, a public company has to mandate all legal proceedings which are not mentioned in the definition under Section 2(68) of the Companies Act, 2013, which pertain to a private company.
Difference Between a Public And Private Company
Let’s look at all the major pointers which differentiate a public Company and a private company.
Minimum Number of Members
In a public company, a minimum of 7 members is required to form a company; whereas a private company requires at least 2 members to form a company.
Maximum Number of Members
In a private company, a maximum of 200 members can be present to form a company; whereas in a public company there is no such restriction on the maximum number of members to form a public company.
Invitation To Public
A public company can freely invite the public for subscription, which implies it can issue a prospectus. On the other hand, a public company is prohibited from inviting the public for its share capital, which means a private company cannot issue a prospectus.
Number Of Directors
In a private company, a minimum of 2 directors is required; whereas in a public company, a minimum of 3 directors is required.
Transferability Of Shares
There is no restriction on transferability of shares in a public company; whereas in a private company there are complete restrictions on transferability of shares, through its article of association.
A public company must disclose the annual financial report; whereas for a private company, there is no such obligation to disclose their annual report to the public.
Index Of Members
In a public company, it is mandatory to maintain an index of all members in the company, whereas in a private company, it is not needed to maintain the index of its members.
The minimum paid-up capital for a private company is Rs. 1 lakhs; whereas the minimum paid-up capital for a public company is greater than that of a private company. It is Rs. 5 lakhs for a public company.
In case of a public company, it is defined that total managerial remuneration cannot exceed 11% of net profits and in the case of inadequate profit, the maximum amount to be paid is Rs. 87,500. Whereas in a private company there is no such restriction on the maximum cap for directors’ remuneration.
Quorum For Meetings
In the case of a public company, it is mandatory to have a personal presence of five members in a meeting to constitute quorum, whereas in a private company, it requires a minimum of two members to maintain a quorum for meetings.
Below is an array with a list of pointers that differentiates a public company and a private company.
|S.NO||BASIS||PUBLIC COMPANY||PRIVATE COMPANY|
|1||MINIMUM MEMBERS||AT LEAST 7 MEMBERS||AT LEAST 2MEMBERS|
|2||MAXIMUM MEMBERS||NO MAXIMUM LIMIT||CAN’T EXCEED 200 MEMBERS|
|3||INVITATION TO PUBLIC FOR SHARE CAPITAL||POSSIBLE WITH THE HELP OF PROSPECTUS||CAN’T INVITE PUBLIC FOR ITS SHARE|
|4||NUMBER OF DIRECTORS||MINIMUM OF 3 DIRECTORS||MINIMUM OF 2 DIRECTORS|
|5||TRANSFERABILITY OF SHARES||FREELY TRANSFERABLE||RESTRICTIONS ON TRANSFERABILITY|
|6||ANNUAL REPORT||COMPULSORY TO SUBMIT ANNUAL REPORT TO ROC||NOT A MANDATE TO SUBMIT ANNUAL REPORT TO ROC|
|7||INDEX OF MEMBERS||MAINTAINING INDEX OF MEMBERS IS MANDATE||NO NEED TO MAINTAIN INDEX OF MEMBERS|
|9||DIRECTORS/MANAGERIAL REMUNERATION||CANNOT EXCEED 11% OF NET PROFIT||NO LIMIT / NO RESTRICTIONS|
|10||QUORUM FOR MEETINGS||5||2|
“The best investment is in the tools of one’s own trade.”- Benjamin Franklin
It is always better to be well versed with the tools of one’s own trade and the management of the inflows and outflows.
An avid tradesman associates their trade to generate profits and simplify the trade complexities by forming a company. These differences stated above lay down the basics of companies and form a guided path for a better approach to start with a company.
Here Is Why Entrepreneurs Should Go Out and Start Networking
Don’t hide behind. Face your circles. It’s high time you start networking.
We have often watched Hindi films where protagonists aspire to be a rich men as a kid. And hence they start thinking of different business ideas to be successful.
Well, this happens in reality as well. Who doesn’t dream of starting their own business one day, right?
However, business is not as easy as eating a piece of cake. And no, you don’t need to have a Ph.D. or an MBA degree to start a business.
You just need to have clarity of thoughts; about the business idea, sales and marketing, and most importantly, NETWORKING.
Today, everyone needs everything. The circle of needs and demands has become wider. Everything in entrepreneurship is becoming more interconnected. Just like the Past, Present, and Future in the web series “Dark”.
Networking is the one and only way to get to know what’s around you. From having conversations with your parents to your fruit vendors or even your house helps, you never know what brings you to the peak of your business.
We will share our two cents to convince you enough to go out and start networking if you are a budding entrepreneur. Pardon us if these two cents become 4 or more, but you will definitely not regret reading this till the end.
Entrepreneurship And Networking
The first thing that any budding entrepreneur does, while starting their own business, is to spread the word about it.
The first set of people that they talk to are their family, friends, and even banks (for financial purposes). Although these efforts may or may not materialize into something fruitful, you learn a thing or two about the ABCs of networking.
Networking is one way to get clarity of thoughts about your business. It’s like building a blueprint of your business in mind. You not only know the industry better but also get to know the loopholes and healthy shortcuts that will save time and increase efficiency.
In the ABCs of business, “A” stands for “recognizing the needs and expectations of people around you.”
Networking is the first step to recognize the gap between demand and supply. It’s similar to providing electricity to those areas with no light, and the idea and motivation behind it.
So now that you are still reading, let’s go further and discuss the importance of networking in entrepreneurship:
Builds Trust And Respect
You may or may not earn money every day from your business. But once you earn trust and respect in the market, there is no way that people will forget you easily.
It’s a fact.
Earning money is easy.
But earning trust and respect takes more effort.
Networking with your business peers or veterans will get you noticed. Initially, you won’t find them paying heed to you, but once they do, they are never going to leave you.
People believe in aggressive marketing to increase sales and business. But try aggressive networking instead, and there will be no stopping for you in the future.
Remember, making friends in schools and colleges? It’s a similar situation in entrepreneurship, too.
Going social is one way you get confidence in networking with people in the future.
Did you ever come across someone who would go to a restaurant with you and start talking to the waiters and receptionists?
Well, you may feel awkward about it, but that’s their first step to get to know the surrounding market.
Start from a party that you attend, be it a family party or a party with friends. Join a group of your choice and listen to the conversations. Once you get the grip of it, start by putting forth your views and then turn it around to your business idea. This may look boring and slow, but slow and steady will definitely win the race.
Today, there are many millennial-made apps, like Bumble, LinkedIn, etc. that encourage people to build an entrepreneurial network in any industry of their choice. Start posting. Start swiping right to the connections that interest you.
For that matter, you can even join dating apps to build professional connections. Your first conversation about your business will be a good ice-breaker (You’ll thank us later for this pro tip).
Don’t Be Selective In Your Own Circles
A very common mistake that most “choosy” or “picky” people do, is being very selective in deciding who to network with.
Today, almost all industries are interconnected. A top-class hospital will always need catering or food services for their staff and patients. A hotel will always want to have options for good clothes vendors for room and restaurant linen.
So if you limit yourself to one or two industries, and sideline others, chances are that you may lose a lot of opportunities.
Expand yourself. Even if you are not sure about it at first. Take that first call that says “our budget is low”, when you know that you have a different area of expertise to explore.
Your Shyness And Fear Will Only Put You Behind The Race
Entrepreneurship requires you to go “out-of-your-circles” more than going “out-of-the-box”.
You are likely to face uncomfortable situations all the time. You have to become an extrovert if you are a highly introverted person. You can’t hide from people who you dislike. You can’t say goodbye to those people whom you are done working with.
Your fear, your shyness will start putting you behind the race of a successful entrepreneur.
You have to be outspoken. Pave your way and lead it too. Take others along the way and build a huge business “family”.
Remember Abhishek Bachchan in the film “Guru”?
No, you need not be exactly like him, but you are expected to know why to be like him. And take your own decisions from the existing lessons.
It’s A Long Road That Will Definitely Lead You To Your Vision
Networking is a continuous process. You don’t stop after a certain level of achievement.
Starting a business is not enough, you have to keep it running. And for that purpose, you may need to explore your potential networks.
It’s often expected from budding entrepreneurs to network only with business-minded people to start and run a business successfully. What they don’t realize is that business is made by people, for people, and with people.
So start networking – whether virtually, or face-to-face. Get that business idea in place, get started with your plans, and you will surely reach a place where you can write “successful entrepreneur” in your social media bio.
2021’s India Is Atmanirbhar: 10 Desi Unicorn Startups
With 10 startups joining the unicorn club in just 4 months of 2021, is India moving towards Atmanirbhartha?
The Many Firsts of a Fantastic First Quarter of 2021!
The Indian startup ecosystem got an impressive start in the first quarter of 2021. As per Venture Intelligence, Indian startups witnessed the highest investment in two years, and the capital flow was $4.2 billion!
This is not all.
Most of the startups saw a three-fold hike in valuation in their recent funding rounds. And among these, 10 got valued at more than $1 billion.
And hence, the Indian startup ecosystem received its new set of unicorns.
The unicorn story of 2021 is unique.
Because it is the one with many firsts.
The first health tech, social commerce, e-pharmacy, and infrastructure technology that made its way into the unicorn club.
According to the NASSCOM report, India will have 50 unicorns by the end of 2021.
But many industry experts and research firms believe that, if the current rate continues, India would easily surpass this number.
Here is the list of 10 Indian startups that gave 2021 a pleasant start.
- Digit Insurance
- Five Star Business Finance
The Beginning of Unicorn
If you know any entrepreneur personally, you may have an idea how difficult it is to raise the funds for a startup. It is definitely not a cakewalk.
The fundraising usually begins with family and friends. And as the company expands, it approaches angel investors, and then goes for the venture capitalists for the fund acquisition.
Even though it is a tough task for any startup to gain the investors’ confidence, some horses pass this race and achieve the unicorn tag.
For those who are new to the concept of unicorn, it is a startup that has a valuation of $1 billion or more in the venture capital industry. And Aileen Lee, the founder of Cowboy Ventures, coined the term ‘unicorn’ in 2013.
And since then, startups are continuously striving to attain this prestigious status.
India Didn’t Have a Great Start
When Aileen Lee coined the term ‘unicorn’ in 2013, the United States had 39 unicorns.
You may ask, what about India?
There was only one company called InMobi, the mobile-advertising services provider, that could make it to the unicorn club.
India was nowhere closer to the US in the matter of unicorns. The reasons were many:
- Limited funding
- Inadequate infrastructure
- A plethora of social and cultural challenges
- Lack of talent
- College students found entrepreneurship unappealing compared to the management jobs in large IT firms.
- The aspiring entrepreneurs often got rejected by the prospective brides and their families.
India Slowly Picked Up the Pace
Even though India’s unicorn story had a not-so-brilliant start, the current scenario looks promising.
As per Venture Intelligence data, there were only 10 unicorns until 2018, and since then, there has been the addition of 28 unicorns.
For an Indian startup, on average, it would take up to 8 years to turn into a unicorn.
India’s oldest startups, like Naukri.com, MakeMyTrip, and Justdial, which began its operation prior to 2005, took 15 years to achieve the unicorn title.
But this period has shrunk in recent times.
A recent report by Orios Venture Partners shows that the newer technology firms are hitting the billion-dollar mark in less time than their older counterparts.
The younger enterprises such as Swiggy, Rivigo, Razorpay, and Unacademy joined the unicorn club in 5 years on average. Whereas, Udaan, Ola, Electric, and Glance took just 2.4 years!
What could be the reason for this transition?
As per the Orios Venture Partners report, the reason behind the younger startups turning unicorn sooner could be:
- The prior entrepreneurship experience of the founders of these companies
- These founders know how to secure the funds more efficiently
- The growth mindset
There are two other reasons the investors from India, and all over the world, are backing the Indian startups with their funds:
- Indian startups leveraged the changing consumer behavior and quickly tweaked themselves to satisfy the needs of the customers
- These companies started functioning on the fact that “Focus on the market and the customers will ensure your growth”
Will ‘Atmanirbhar Bharat’ Soon Be a Reality?
India’s honorable Prime Minister, Narendra Modi, raised a clarion call to the country to be self-reliant, aka Atmanirbhar in all senses.
He also outlined the five pillars of Atmanirbhar Bharat:
- Demography, and
You may ask, how startups can help in making India self-reliant?
The Indian startup ecosystem had a slow and steady evolution from one sector to the other, ranging from IT/ITES to e-commerce, deep technology to hyper delivery networks.
Today, startups also have the most favorable conditions to survive and flourish, starting from the funding, development of regulatory infrastructure, global mergers and acquisitions, the influx of global investors to internationalization.
Do you know what brought this revolution to the world’s third-largest startup ecosystem?
It is the government’s mission to get as many entrepreneurial stories as possible through its programs like Startup India, Stand up India, Digital India, and Vocal for Local.
And the unicorn forms one-tenth of new industries coming into existence every year.
The increase in the number of tech unicorns is driving the investors’ interest in India’s startup ecosystem.
According to a report by NASSCOM, the startups in the technology field alone have created 60,000 direct jobs in 2019.
These data show that, if more startups come into existence, and get support from the investors and from the government, India could see a greater spike in job opportunities.
Atmanirbhar citizens make Atmanirbhar Bharat, don’t you agree?