Dr. Urjit Patel has been appointed the new RBI Governor. His appointment should be perceived as a continuity of monetary policy approach as Dr. Patel has been the RBI deputy governor under Dr. Rajan and key author of the Urjit Patel Committee report (on which India’s flexible inflation targeting monetary policy framework is based). Dr. Patel, an economist from Yale University, has served at IMF and in various corporate & government roles in his professional life. Over the next few weeks, the government will also constitute the Monetary Policy Committee (MPC) wherein policy decisions will be taken based on the committee’s majority view.

Once the MPC is set up, one needs to monitor 2 things. First, how the MPC reads the CPI mandate of 2-6% range and will there be any change in the glide path to 4% target by January 2018. Second, the committee’s stance on the 1.5-2.0% real rates objective which the central bank has been following over the past 3 years. Both these will be crucial in assessing the future scope of monetary easing. For now, we continue to maintain our expectation of another 50bps easing in balance FY17.

Dr. Urjit Patel: Brief profile
Current position: RBI deputy governor in charge of monetary policy since January 2013.

Educational background: PhD from Yale University and M.Phil from Oxford University.

Key beliefs on economic policy: Author of the Monetary Policy report which recommended flexible inflation targeting policy with headline CPI of 4 +/-2% as target. He has been a strong proponent of continued fiscal consolidation. Monetary policy stance is likely to be a continuation of the current one.

Past professional experience: Worked at IMF from 1990-1995. From 1995-2004, he has worked with RBI and Government of India in various high level committees. From 2004-13, he has served various corporates such as Advisor, Boston Consulting Group, IDFC, Reliance, etc. Deputy Governor since January 2013.

Key things to monitor going ahead
Monetary Policy Committee: A committee of 6 members will be set up to take policy decisions based on majority. The governor will carry the decisive vote in case of a tie.

Change in CPI glide path of 4% target by January 2018: RBI’s current policy targets CPI inflation of 4% by January 2018. One would need to monitor MPC’s stance on the same and how it reads the 2-6% CPI target.

Real interest rates: Over, the past 3 years RBI has tried to maintain 1.5-2% real interest rates. One needs to see if this will be continued or will there be some relaxation.

As many of you would be aware, the Federation of Karnataka Chambers of Commerce & Industry known as FKCCI is the apex body in the State of Karnataka for Industry, Trade and Services. This was founded by none other than Bharat Ratna Sir M V who was a genius engineer and a great visionary. FKCCI has just completed its 100 years of successful journey and I was elected to take over as the 100th President of this iconic organization with effect from 1st July this year. It is now my responsibility to steer this organization to adapt itself to convert the challenges into opportunities. The Federation should continue to act as a spokesperson for Trade, Industry & Commerce and be a trusted partner of the Government and provide timely inputs to policy making by the State as well as at the Centre.

In this direction, I will assure you that me and my team have started well in earnest and in the very first month, we were able to organize a major event on Income Declaration Scheme 2016 which was attended by the Finance Minister of India, Shri.ArunJaitely. We collaborated with the Income Tax Department in organizing the event.

This month we are partnering with the Media Today Group in organizing the AgriTech Exhibition and Congress at BIEC from 26th to 28th August 2016.

Next week, I am visiting United States to participate in the AKKA World Conference. I am delighted to inform you that I have been invited as a Special Dignitary by the President of The Association of Kannada Kootas of America (AKKA) who will be organizing the 9th World Kannada Conference in Atlantic City, USA from 2nd to 4thSeptember 2016. The President of the Association has requested me to lead a Delegation from Karnataka to participate in the Conference.Apart from participating in the Business Forum and speak on various Business and Investment opportunities in Karnataka, the following issues would also be discussed:

1. FKCCI which is the apex Trade and Industry Body in the State of Karnataka would honour an NRI personality from Karnataka who has contributed significantly for the economic development of his mother State.

2. FKCCI would be the main facilitator of investments into Karnataka by the NRIs from Karnataka. FKCCI would particularly provide a platform for promoting Cross-Border entrepreneurship. The Start-Ups from Karnataka to be incubated in the US would be an objective.

3. AKKA in collaboration with TiE would explore the possibility of setting up an Invest Karnataka Fund and FKCCI would facilitate in identifying suitable opportunities for investments.

As I mentioned, Sir M Visvesvaraya, our founder was born on 15th September. To express our gratitude, we celebrate his Birthday as the Founder’s Day and we confer a Sir M V Memorial Award on a great personality who has contributed to the economic development of Karnataka and who has also excelled in philanthropy. Our Awardees include Shri.N.R.Narayana Murthy, Ms.KiranMazumdar Shah, Shri.AzimPremji, Shri.NandanNilakeni and others. This year the award is being conferred upon Dr.M.K.PandurangaSetty who is a well-known industrialist, more importantly an educationist, Rotarian and an intense philanthropist who has believed in giving back to the Society.

Let me share with you yet another great event we are preparing for. Shri.NarendraModiJi, our dynamic Prime Minister who made us remember that we are proud Indians has agreed in principle to inaugurate our Federation’s Sir M V National Economic Conference. The convenient dates are awaited from the PMO and we are hopeful that it will be at the end of October or the beginning of November this year. It will be a large event where we would have decision makers as speakers who would deliberate on topics such as Re-Designing the financial infrastructure of India to meet global challenges, Policy measures to make India a ten trillion dollar economy. We would keep you informed of further details.

As I mentioned, we have just completed our first century of existence. Traversing one hundred years successfully is a great thing for any organization. To commemorate the success, we are building a Centenary Auditorium Complex, just behind this Heritage Building. It would have a large auditorium with a seating capacity of around 300 and 8 different Halls / Conference Rooms that would facilitate capacity building programs, workshops, Seminars, Skill Development Programs and more importantly, house the Sir M V Economic Research Centre that would take up issues of practical importance in the field of Industry, Commerce and Economy.

I would like to mention here that Shri.SiddaramaiahJi, our beloved Chief Minister is appreciative of the significant role played by the Federation in promoting the economic development of the State by various programs including creating Tax Awareness, Tax compliance, Skill Development, Policy inputs etc., and has granted Rupees ten crores for the Centenary Auditorium Project. Apart from, training, Capacity Building and Research, the Auditorium complex provides facilities for business development at the Centre of Bengaluru.

We would also be organizing a Green Summit sometime around February – March next year. Green Summit is now a brand of FKCCI and the event will showcase energy related products, technologies and important issues will be discussed at Seminars during the event.

Many of you would be aware, that the PravasiBharatiya Divas is being organized by the Central Government in Bengaluru from 7th to 9th January 2017 in collaboration with the State Government of Karnataka. This is a major event wherein 5000 to 6000 NRIs are expected to participate. Around that time, FKCCI is planning to organize a Tourism related event that would showcase various products from Karnataka, diverse culinary delicacies, so that the whole of Bengaluru could turn itself to welcome the visitors and create a festive ambience making it a shopper’s paradise. We want to promote Tourism and for every visitor we want to make it an enjoyable experience.

We are also interested in organizing a major event centering around education. Karnataka is the hub of higher educational facilities. We would like to gather all the stake holders not only from within the State but, from outside the State and from abroad so that the opportunities available could be projected in an optimal manner to promote further collaborative efforts in this field.

Similarly, Karnataka has been an important Centre for the manufacture of parts and sub-assemblies for the aerospace industry. However, defence industry is also interested in developing innovation and also to procure products from MSMEs in Karnataka. Boeing and Airbus are also interested to source their products from Karnataka. Accordingly, we would like to organize a Vendor Development Program that would be of mutual benefit.

In the field of ITBT, Karnataka has been a pioneer. The eco-system that has been created has served the sector well so far. We need to get geared up for the Internet of Things (IoT) and for further development in this sector to ensure investments, innovation and job creation. We are going to organize an event to give fillip to our objectives.

We are also coordinating efforts for Skill Development programs which will be taken across to all Districts in Karnataka. Health facilities to reach out to the nooks and corners of the States would be possible through telemedicine. Bricks and mortar facilities need a lot of funding and a large number of trained personnel. We are collaborating with a large telemedicine company to create the necessary infrastructure so that the delivery of healthcare could be built on this platform.

The Federation, over the decades has been organizing several of our flagship events that include MANTHAN, a talent nourishing event where college students are encouraged to come up with viable business models. We have Export Excellence Awards event, Innovation Awards Event and many such. All these would continue but, with greater vigor.

My ambition is to make FKCCI an internationally known credible organization. We would like to make the Federation known for its intellectual inputs including research on practical economic issues affecting the State. More importantly, it should be an effective spokesman and a bridge between the Government and Trade, Services & Industry. We would like the Federation to have a significant digital presence, active through the social media and leverage technology to identify and deliver programs and facilities for the benefit of the members.

Friends, this is only the beginning. I would be keen to meet and interact with you at regular intervals. I would be available for you at any time you want. If you have any queries, seek any comments or want to suggest anything to me, you are most welcome.

The Edelweiss consumer pack’s (excluding Nestle and United Spirits) revenue growth, as per IND-AS, tapered to 6.4% YoY (7.8% YoY in Q4FY16 as per I-GAAP). Price cuts by Dabur, Marico, Pidilite and impact of seasonality on Godrej Consumer’s household insecticides (HI) dented growth. Gross margins tapered QoQ, but YoY expansion sustained for 17 of 21 companies (expanded for 16 of 21 in Q4FY16). EBITDA grew 11% YoY (15% in Q4FY16) despite HUL, Dabur and GCPL pruning ad spends on absolute basis. We anticipate price growth to return in H2FY17 following increase in raw material prices (milk, wheat, copra, palm oil etc., prices are up; food inflation at 11% plus a near-term concern for lower end of urban). Good monsoon, 7th Pay Commission payout and GST are key positives.

Monsoon to ease rural distress ; urban growth perking up
Rural growth tapered further in Q1FY17, however, likely to improve in H2FY17 led by strong monsoon. Urban growth, especially in general trade, remains soft, but modern trade is growing at a faster clip—a green shoot. While paint companies—Asian Paints, Berger Paints—sustained double digit volume growth at ~11% YoY each, Pidilite’s volumes jumped 9% YoY. ITC’s cigarette business clocked 3% YoY volume growth (positive after 12 quarters). In staples, while Marico and Emami posted strong domestic volume growth of 8% and 6.4% YoY, respectively, the same was soft for HUL and Dabur at ~4% YoY each. With demand likely to improve gradually, step up in innovations will be the key differentiator (Nestle stands out with ~25 innovations in past few quarters).

Softer ad spends boost margins; price hikes anticipated
Though gross margin growth tapered QoQ, it expanded YoY. However, rise in prices of palm oil, crude & crude-linked raw materials, sugar, flour etc., and likely bottoming out of copra led to some price hikes. While Britannia hiked prices ~5% YoY in the later part of Q1FY17, Marico raised prices of Parachute 5% in July 2016. PFAD prices have risen , which will trigger reversal of promotion/price cuts in soaps. Ad spends as a percentage of sales for HUL, Dabur, GCPL and Jyothy Labs dipped and hence aided some margin expansion—ad spends of Marico, Emami and Colgate remain robust which was validated by better volumes. Intense competition from Patanjali is prompting players like Dabur to step-up promotions, Anniversarisation of phasing off of excise benefit impact for most players will lead to pricing-led growth in FY17. GST rates will be a key monitorable for most consumer companies especially ITC.