CAO Daily Editorial analysis for UPSC IAS 03-October, 2017

Current Affairs Only Daily Editorial Analysis for Competitive Exams


3rd October, 2107

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Powerful challenge (Indian Express)


Context

This article discusses the challenges faced by government in supplying power to electrified villages

In his Independence Day speech in 2015, the PM promised that 18,500 villages would receive electricity in the next 1,000 days. Two years later, nearly 14,500 of these villages have been “electrified”. The speed with which the grid has reached these villages is impressive

IssueRelated image

More than a fourth of the households in the “electrified villages” do not have a power connection.

Pradhan Mantri Sahaj Bijli Har Ghar Yojana, or the “Saubhagya” scheme

  • The scheme changes the metric for measuring progress in electrification from the village to the household-level.
  • Beneficiaries for free electricity connections under the Saubhagya scheme would be identified using the Socio Economic and Caste Census (SECC) 2011 data.
  • The scheme’s document also notes that “Unelectrified households not covered under the SECC 2011 would also be provided electricity connections under the scheme on a payment of Rs 500.

Possible Solution

  • More renewable energy sources can be used such as solar energy and wind energy.
  • Sharing urban electricity with rural could also be an option

IPOs worth Rs5,000 crore filed with Sebi in last week of September (Livemint)


In news

CMS Info Systems, Amber Enterprises India, Seven Islands Shipping, Prince Pipes and Fittings, Newgen Software Technologies, HG Infra Engineering, Lemon Tree Hotels and Apollo Micro Systems filed IPO papers with Sebi in last week of September.

What is an ‘Initial Public Offering – IPO’?Image result for Initial Public Offering - IPO'

An IPO is also referred to as a public offering. When a company initiates the IPO process, a very specific set of events occurs. The chosen underwriters facilitate all of these steps.

  • An external IPO team is formed, consisting of an underwriter, lawyers, certified public accountants (CPAs) and Securities and Exchange Commission (SEC) experts.
  • Information regarding the company is compiled, including financial performance and expected future operations. This becomes part of the company prospectus, which is circulated for review.
  • The financial statements are submitted for official audit.
  • The company files its prospectus with the SEC and sets a date for the offering.

Advantages

  • Enlarging and diversifying equity base
  • Enabling cheaper access to capital
  • Increasing exposure, prestige, and public image
  • Attracting and retaining better management and employees through liquid equity participation
  • Facilitating acquisitions (potentially in return for shares of stock)
  • Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.

The Risk of Investing in an IPO

IPOs can be a risky investment. For the individual investor, it is tough to predict what the stock will do on its initial day of trading and in the near future because there is often little historical data to use to analyze the company. Also, most IPOs are for companies that are going through a transitory growth period, which means that they are subject to additional uncertainty regarding their future values.

  • Significant legal, accounting and marketing costs, many of which are ongoing
  • Requirement to disclose financial and business information
  • Meaningful time, effort and attention required of management
  • Risk that required funding will not be raised
  • Public dissemination of information which may be useful to competitors, suppliers and customers.

Public Offering Price – POP

Investors and analysts sometimes use the initial public offering price as a benchmark against which a stock’s current price can be compared. If a company’s share price rises significantly above its initial public offering price, the company is considered to be performing well. However, if the share price later dips below its initial public offering price, this is considered a sign that investors have lost confidence in the company’s ability to create value.

Indian IPO market

It has been a busy one this year, with several large share sales such as the Rs8,400 crore one by SBI Life Insurance Co. Ltd and the Rs5,700 crore ICICI Lombard General Insurance Co. Ltd issue hitting the markets in September.

So far this year, 24 companies have raised around Rs30,682.40 crore through IPOs, data from primary market tracker Prime Database shows. In 2015 and 2016, 47 companies had tapped the IPO route to raise around Rs40,107 crore, data shows.

Several other major IPOs are expected to hit the market in the coming months. The IPO pipeline is being led by the insurance sector, which across three issuances—HDFC Life Insurance Co. Ltd, General Insurance Co. of India Ltd and New India Assurance Ltd—is expected to see share sales of close to Rs30,000 crore.


Just 800 start-ups launched in 2017 so far, compared to 6000 in 2016 (Livemint)


Context

The number of new internet and technology start-ups launched in the first nine months of this year has slumped to 800 from more than 6,000 in all of last year, as start-up closures, the struggles of large internet companies such as Snapdeal and a slowdown in the growth of the e-commerce market took their toll on entrepreneurial activity.

Reasons for declining startups in IndiaThe number of new start-ups has now dropped steeply for two years in a row, a worrying trend for Indian start-up ecosystem.

  • The fundamental problem that enterprise technology companies are facing is that there are no early customers in India.
  • Many entrepreneurs who had to move to the US feel that there is no concept of win-win approach among large enterprise customers in India. Their focus is more on the profit margin of the startup.
  • unprofessional approach towards startups,
  • Poor infrastructure, bureaucracy, red tapism are other major challenges.
  • There is also not enough funding for young technology ventures in India, while in US many funds are focused on this sector.
  • For many young companies hiring the right talent is also a challenge in India.

Possible Solutions

  • Self-funding, also known as bootstrapping, is an effective way of startup financing, specially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success.
  • Crowdfunding is one of the newer ways of funding a startup that has been gaining lot of popularity lately. It’s like taking a loan, pre-order, contribution or investments from more than one person at the same time.
  • Angel investors are individuals with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can also offer mentoring or advice alongside capital.
  • Angel investors have helped to start up many prominent companies, including Google, Yahoo and Alibaba.
  • An increase in the number of contests has tremendously helped to maximize the opportunities for fund raising. It encourages entrepreneurs with business ideas to set up their own businesses. In such competitions, you either have to build a product or prepare a business plan.

 

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