The Economic Times 7 April 2018

Here's what is needed to make Air India the Maharaja of Indian skies

By GR GopinathThe government has finally decided to bite the bullet on Air India. It has put out Air India for sale along with two of its smaller units, Air India Express and Air India SATS — in the latter, it holds 50% stake with Singapore Airlines — and expression of interest has been sought. The decision is heartening but the terms of sale are daunting. The government is harbouring the delusion that the airline will get good money, forgetting that Air India is now a doddering maharaja.In the proposed terms, the government wishes to offer 76% equity for sale and retain 24%, and pass on the burden of around Rs 34,000 crore debt to the successful bidder. The debt is unviable and frightening. The airline is presently losing more than Rs 5,000 crore a year. Even the most intrepid and enterprising bidder may shy away.The government must do more to attract bidders, widen the competition and realise the best value.Though Air India has lost its sheen, it is still a much-loved brand, evoking fond nostalgia, and has huge potential value, which can be unlocked by the right strategic investor. Look at the positives: a vast domestic and global network of key destinations, assured time slots and space in prized airports with air-side access, hangars and engineering backbone and infrastructure, trained engineers and flight crew, benefits of bilateral rights and assurance of continued protection of those rights as was done when airlines like British Airways, Lufthansa and Qantas were privatised. Air India also has huge aircraft orders in place, with delivery timelines, but the prices may have to be renegotiated or converted to sale-andleaseback, which is a knotty issue as a CBI inquiry is on to find out if the aircraft were purchased at higher than market prices. The airline also has a top line revenue of around Rs 25,000 crore, which can be doubled with better management in a short period as occupancies and revenue per seat and aircraft utilisation are very poor compared with well-run, profitable airlines. There is also an inexhaustible customer base — imagine 97% of Indians have never sat on a plane.Air India can have a valuation of around Rs 50,000 crore if it lists in threefour years after a restructuring under an able management – that number is, by the way, its current debt levels. If the government plays its cards right, acts prudently and transparently, changes some of the terms and the bidding process, it can still exploit its immense potential and realise better returns, now and in the future on equity retained.First, the bidding process. It must be a global, open, transparent, electronic tender. The short-listed bidders must first deposit the reserve price in an escrow and the bidding must commence and end within six or eight hours. It must not be a closed, “sealed envelope” bid as is often the government practice, which, apart from being suspect and vulnerable to malpractice, won’t get the best price. It should be an open auction where each bidder can increase the price after viewing the offer of other bidders. That’s how the Tatas won the global Corus bid and beat the rest of steel giants in a nail-biting finish. As Air India is not listed, this is the best way to discover its true value. 63658905 Terms & ConditionsTo get the highest valuation possible for the beleaguered airline, the government will do well to analyse the tender process and terms of sale with potential bidders by holding pre-tender meetings after expression of interest is finalised, to understand their apprehensions and insecurity, before tender documents are finalised. This is key to attract the highest number of bidders and realise maximum value. The best price for Air India can be expected only if conditions of sale and aviation policies are made clear and can inspire confidence. Long-term aviation policy will benefit India’s aviation sector, which is still regulated under the Aircraft Act of 1934, before the first jet engine got running.The government must also absorb the debt — it should offer Air India as a zero debt company and offer 51% instead of 76%. This will leave options with government and likely realise higher returns through sale of retained shares over time, when market cap increases as was done in the case of Maruti-Suzuki. The successful bidder will have to mandatorily list Air India within 36 months of takeover.The engineering facilities of Air India must be bundled together and offered for bid. The airline has enviable engineering infrastructure (though it attracts zero business from other airlines, unlike Lufthansa Technik, Air France or even SriLankan MROs — maintenance, repair & overhaul). Its hangars, major MRO facilities and pilot-training simulators are located across key metros, but the present offer has kept engineering and MRO outside the auction.Engineering infrastructure is integral to the success and growth of an airline since it’s a nightmare to obtain such space because of skewed airport policies and monopoly practices. 63658920 The government must give an undertaking of noninterference by politicians and bureaucrats till it exits, adhere to strict corporate governance and give complete freedom to the successful bidder to run the airline. The new owner must be allowed to retain only the minimum number of employees per aircraft needed as determined by her, matching the global average of number of people per aircraft and a sovereign guarantee that the government will compensate every employee who is laid off. This will be a “no-go” item, to use aviation parlance, as Air India is overstaffed, with indiscriminate recruitment over the decades.Though there is a lot of deadwood and redundant posts, Air India also has excellent trained and skilled manpower — of pilots, engineers and cabin crew, who will be needed by the new management. The government can easily lay off surplus employees through VRS by sale of its realestate assets. This will facilitate a level playing field so that the company that wins the bid can focus on the airline.If the auction is marketed and managed well, Air India can again rule the skies.The writer is the founder of Air Deccan

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Meet the man who created success stories by defying conventional business wisdom

It has been a busy year-and-a-half for Ajay Piramal. A period of intense activity, as he puts it. His diversified flagship company, Piramal Enterprises, has raised Rs 7,000 crore of equity capital after a gap of 25 years. The group has also scaled up the real estate business under Piramal Realty and the financial services businesses under PEL, entering segments such as affordable housing and housing loans, started a stressed assets play with Bain, and begun an acquisition hunt in pharmaceuticals — possibly to re-enter a space Piramal had left in 2010. Hectic activity had also gone into an attempt to merge associate Shriram Capital (Piramal owns 20%, chairs the board and controls the management) with IDFC Bank. The merger was called off, though, in November 2017. 63660022 And then there was the matter of his role as director on the board of Tata Sons. Within month of his joining the board, Tata Sons sacked Cyrus Mistry as chairman, in October 2016, and appointed N Chandrasekaran, in February 2017. So crucial was Piramal’s role in the affair that at one point, he was being touted as the next chairman of Tata Sons. 63660056 63660077 Today, Piramal can afford to chuckle about those rumours. With diverse businesses to run, the idea of taking over at Tata Sons did not make sense for Piramal. He, however, has a track record of taking decisions that do not make sense, at least at first.Consider the decision to quit the Indian pharma market in 2010 and selling the business to Abbott, or the acquisition of an 11% stake in Vodafone India in 2011, and then entering the unrelated financial services business between 2012 and 2014. Piramal himself points further back — to the pharma entry back in 1988 by acquiring Nicholas Laboratories, and exiting the textiles business before that. He suggests there was a method in this perceived madness, and a unifying business philosophy guides all his decisions. 63660129 63660156 In a nutshell, Piramal, 62, sees himself as a trustee who must do the best for all stakeholders — and sometimes exiting a business is the best option. Piramal also says the key to his success has been his ability to jump into a crowded segment — be it pharmaceuticals in the 1980s or financial services now — find a way to address the segment’s problems and offer something different. And he has “always taken the path less travelled” to find success. It has not been just horses for courses. 63660180 63660187 63660211 Mind Your Own BusinessSpeaking of horses, the businessman is a regular at Mumbai’s Mahalaxmi Race Course. He can often be seen walking here, with his grandchildren (daughter Nandini’s son and daughter). He owns many horses. And on a rare occasion, he still rides one, especially if egged on by the children. “Horses and dogs were part of my growing up years,” says Piramal, as he settles down for an interview with ET Magazine, at the Amateur Riders Club near the race course in southern Mumbai. For over an hour, Piramal analyses his previous business decisions and discusses some of those that stare at him in the near future. 63660352 He was once the youngest president of the club, which takes care of horses for their owners. He led it for 10 years but has passed on the reins of the club to others. There are too many businesses eyeing his time. And that is precisely why the rumours of Piramal taking on the Tata Sons chairmanship were unfounded.The chairman of the group with a market capitalisation of Rs 45,000 crore is open about this. “I have my own business, why will I do it for someone else?” he asks. He, however, justifies the decision taken by Tata Sons to remove Mistry, and acknowledges that as a director, he was part of it. “In February, Chandra was appointed. If you see the amount of work that has been done in the past 13 months compared with the past five years, you can see the difference. There is a huge change for the better,” he says. He admits that the workings of the Tata Trusts, the philanthropic trusts that own a majority in Tata Sons, have left a big impression on him. He seems to have borrowed from the Tata Trusts playbook to fashion his own philanthropic arm, Piramal Foundation.The foundation has decided to partner with the government and non-government organisations to scale up its projects. It has also decided to work on “ 25 aspirational districts” (read: districts affected by Naxal violence or ranking poorly on human development indices) marked out by the NITI Aayog.He talks about taking schooling to islands in the Brahmaputra and remote places in Uttar Pradesh where children regularly become victims of animal predators.‘Privileged People’The foundation takes about 10-15% of his time. “People like us are privileged, with our education and the jobs we hold . People like me are part of an even smaller fraction. There are very few who have the privileges I have, and, therefore, it is essential that we give back to society.”The work of the foundation fits well into his business philosophy, too. Explaining the philosophy further, Piramal mentions both Mahatma Gandhi and the Gita. He adds that the role of a business promoter like him should be that of a trustee: take care of the interest of all stakeholders who are beneficiaries — shareholders, employees, customers and society at large — but at the same time the trustee should not benefit himself. That is how, Piramal says, he has conducted his businesses all along and his big, counter-intuitive decisions all bear the imprint of the notion.Piramal steers the discussion to his decision to sell the Indian formulations business to Abbott in 2010, noting that many people at the time did not “appreciate it”. “After all, we were known for pharmaceuticals. But after a while you do not do things just for money.” Piramal explains that when the basics of the Indian formulations business were worked out before 2010, it appeared that to make money in the long run, the business would have to grow at 20% for 15 years with operating margins of 35%. That seemed impossible. He explains that for the shareholders, selling was the best option. And with the new owners, Abbott, being a global pharma major, it was a good deal for the employees and customers, too.Explaining the PastTalking about the past, Piramal is easily drawn back into the 1980s, when the family had a textiles business in Mumbai. Crippling and violent strikes that started in 1982 had brought the industry to its knees. Around the same time, Piramal’s elder brother Ashok died, leaving the reins of the company in the hands of a young Ajay. There were 7,000 employees in the textiles business. Piramal recalls how in 1986 he walked out to a meeting with 4,000 workers, with a suggestion that workers accept a separation package, as the business was being wound down. “No one else could do it. But our workers knew we always have tried to do the best for them. I explained how they should accept the deal while the company was in a position to pay up,” says Piramal.He uses the experience of running the pharma business as an illustration of the second tenet of his philosophy. One of finding a different way of doing business in a crowded sector. He points out that when he acquired Nicholas Laboratories in 1988, it was the 48th company in the pecking order. But it went on to become the third largest by the time the business was sold. “We have always tried to read below the headlines,” Piramal adds , “looking for a way to play the business differently.”A system of values unifies the credo of the group and defines its brands, he insists. Piramal has been the only major pharmaceuticals player in India who has escaped action by the US Food and Drug Administration (FDA). The company has seen more than 30 USFDA audits so far. The group still runs 14 manufacturing plants making complex generic products and is operating as contract manufacturing units for global pharma majors, and there has never been even an hour of stoppage of work due to regulatory scrutiny — something that has plagued the rest of the industry. “Quality control reports to my daughter Nandini, who sits on the board. It has the right to been like that,” Piramal says.Piramal then takes on the big questions. In 2010, the Abbott-Piramal deal was a $3.7 billion (`17,500 crore at the time) one and it left Ajay Piramal and the company with a lot of money. One of the first decisions was to invest in Vodafone by buying 11% in two tranches. The first, 5.5%, was bought in 2011 for Rs 2,856 crore and the second the next year for Rs 3,007 crore. The 11% stake was sold in 2014 for `8,900 crore, bringing in a neat upside for the company. “Many did not understand, but this was not just an investment. It was the beginning of our structured finance business,” Piramal says. The business, he says, now has a book value of Rs 40,000 crore.Importantly, Piramal has the numbers to back himself today. The market capitalisation of Piramal Enterprises has grown by four-fold in the last seven years, from an average of around Rs 10,000 crore in 2010-11, it has been moving around Rs 45,000 crore in April 2018. The company’s net profits have also stabilised (there were losses in some quarters in 2013 and 2014). Piramal Enterprises recorded a net profit of Rs 490 crore for the September-December 2017 quarter.In the course of the journey of the last four decades, Ajay Piramal has witnessed failures, too. While the falling apart of the Shriram-IDFC Bank merger was a recent one, another in the nottoo-distant past was an attempt at new drug discovery, using traditional Indian knowledge. The business had to be closed down. “So it did not work out. It failed.” He adds: “I have always said that you have to fail. If you do not fail, it means you have never taken enough risks.” Then he goes on to explain how accepting failure is also part of the philosophy. “I may believe in something, but if it is not working and is not giving returns, we have to close it down, because that is the right thing to do for the shareholders.”Value for ShareholdersThe group is gearing up to give shareholders more value. Flagship Piramal Enterprises is preparing for one more set of restructuring that will separate the pharmaceuticals and finance businesses. A possible re-entry into pharma in India after the non-compete agreement with Abbott ends in the second half of 2018 is not a foregone conclusion, Piramal insists. However, with Rs 7,000 crore of fresh capital in the bag, it might just be a question of time. While the Shriram-IDFC Bank deal did not work out, Piramal points out that there will be opportunities to enter banking. Public sector banks, he says, are facing a problem that will have to be sorted out. If privatisation happens, he hints, it would present another opportunity for either Piramal Enterprises or its associate Shriram Capital to get in. When the group had decided on a major financial sector play, especially after selling the Vodafone stake, there were two good examples to follow: Shriram Capital on the retail side and HDFC on the wholesale side. Piramal bought 10% in Shriram Transport in 2013 and then a 20% stake in its parent Shriram Capital in 2014. In 2015, Ajay Piramal’s son Anand, who had incubated the realty business in 2012, raised $284 million from private equity firm Warburg Pincus. Moving into home finance was the next logical step, and Piramal Enterprises took that in 2017.Next GenerationApart from Piramal’s son Anand and daughter Nandini, his son-in-law Peter DeYoung is also part of the business. DeYoung heads the critical care business of the company. He says that while both his son and daughter were groomed to take up positions in the business, there is more to it. “Ours is a business family. I work, my wife (Dr Swati Piramal) works. My children too have imbibed the same values.”There are also big plans for the family investment vehicle, called Montane Ventures, to invest in the new-economy businesses. Piramal is not keen to talk about it. Investments made so far are too small. But Piramal does not rule out entering new sectors and businesses. As the interview winds down, Suresh Tapuriah, the current president of Amateur Riders Club, walks up to Piramal and ribs him about how long the interview has been and why Piramal has not eaten anything while talking. The camaraderie between the two men who have bonded over their love for horses over decades is palpable. Piramal laughs at the jokes but quickly returns to business. He indicates that future investments will also have to pass through a sieve of values. “We are a values-driven organisation and we stick to our values. After the Abbott deal, we had to say no to many offers in infrastructure and power. We felt the processes were not transparent enough.”All the talk about a re-entry into the Indian pharma business as well as the growth in the financial services business indicates that the biggest bet that Piramal seems to be taking is on India. “Our annual GDP (gross domestic product) growth of 7.5% means if you count inflation, there is a nominal growth of 12-13%. Now, if you leave out agriculture, then industrial growth is at 15%. That is the average, so I tell my companies that if 15% is the average growth we can have in India, we should look at least 20% growth in our companies.” He points out that India is a large, $2.5 trillion economy now and with this rate of growth, which is not possible in developed markets, India is the place to be.On Firm Ground:FinanceStrong growth in the loan book, with structured finance touching Rs 40,000 crore, and the company entering newer areas Group companies to consolidate parts of the financing business and look at a larger retail play With a loan book of around Rs 68,000 crore, the stressed assets play in partnership with Bain is a big bet.PharmaThe business has shown strong growth. The company has 13 manufacturing units across the world but has not got any sanctions from the USFDA It is also evaluating a re-entry into the Indian market as its non-compete agreement with Abbott runs out later this year The FMCG play in pharma continues to grow in India.Healthcare Insights and AnalyticsThis business has found traction with an acquisition and an investment in a startup earlier this year.Loaded with FundsPiramal Enterprises has raised both equity and debt in the last six months. It raised Rs 2,000 crore through a rights issue in February and around Rs 5,000 crore through compulsorily convertible debentures in the second half of 2017.

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As India scales up solar power ambition, this city shows the way for others

It’s a hot afternoon in Diu. The sleepy island, with just over 50,000 people, is among the top 10 least populated districts in India. And it shows. The beaches are clean and quiet. Waterfront promenades are deserted — so are the markets. Even booze shops, which get droves of weekend visitors from dry Gujarat next-door, are desolate on a Wednesday. But Diu is much more than that — it is India’s first solar-powered island.The secret lies in Fudam where a barren stretch of land soon gives way to a silvery expanse. It is not the sea. It is layer upon layer of solar panels glinting in the sunlight. This is Diu’s 9 MW solar park, spread over 50 acres. The solar park, built in two phases since 2016 and at a cost of Rs 62.48 crore, is helping the district of Diu, part of the Daman & Diu Union territory, get on the green map of the country. From importing all the electricity it needed from Gujarat, Diu now generates power to meet all its day-time needs. Solar now meets close to 30% of its daily electricity requirements. 63660115 Along with solar, Diu is also exploring wind energy. By 2019, it prepares to set up windmills that generate 6.8 MW. When that happens, not only will Diu be energy self-sufficient but it will also be entirely from renewable sources.Hemant Kumar, district collector, Diu, says: “Early this year, we were picked as part of India’s Smart City mission. Renewable energy is one of the many steps we are taking to get there.” 63660157 It was in 2012 that Diu first thought of solar power. “We had certain obligations to install solar energy. Also, we had barren land available,” says Milind Ingle, executive engineer, electricity department, Daman & Diu. Further, Diu was spending Rs 80 lakh a month to get power from Gujarat. Since electricity had to be transported through 25-30 km of transmission lines, supply voltage was affected. “Instead of 66 KV we only got 59-60 KV. So, dim light at homes was routine,” says Ingle. The T&D losses, too, were relatively high at 12%.The solar park has changed all that. T&D losses have come down to 7%. Not only do consumers now get 66 KV but they also pay less as the tariff has been revised downwards for all categories of consumers. For domestic consumers (consuming 51-100 units) rates have come down from Rs 1.80 per unit in 2016-17 to Rs 1.17 in 2017-18.Solar Parks: Total generation - 9 MW, was built in two phases 63660197 The leap in solar technology has seen cost efficiencies improving in a matter of years. The foundation stone of the first phase of the solar park, spread over 30 acres, was laid in 2014 with a capacity to generate 3MW at a cost of Rs 25.5 crore. The project was awarded to the PSU BHEL. When Diu put out the tender for the second phase in 2015, efficiencies had dramatically improved. While the capacity, at 6 MW, was double the earlier one, the second phase cost just Rs 36.98 crore and was spread over a smaller land parcel of 20 acres. The foundation stone was laid in 2016 and the contract was awarded to Indore-based Ujaas Energy Ltd.Even the five-year operation and maintenance (O&M) contract was cheaper — while it cost Rs 1.57 crore in the the first phase, it was Rs 1.5 crore for the much larger second phase. “Technology and efficiency in the solar sector are improving rapidly. While in the second phase we did get the benefits of economies of scale. The efficiency of solar panels too had improved dramatically even as costs and the land required were much lower,” says district collector Kumar.Energy from solar parks is supplemented by rooftop solar. Of the 119 government buildings in Diu, 79 have already installed solar panels, generating 1.27 MW annually. The government is now encouraging Diu residents to go for solar. They are given a subsidy of Rs 10,000-50,000 to install 1-5 KW of rooftop solar panels.It is also planning to set up a 6.8 MW windpower project — costing Rs 51.6 crore and consisting of four windmills — by 2019. “Solar energy takes care of our day needs. For night, we still have to import from Gujarat. With windmill projects, we will be self-sufficient in our energy needs. All of it will be green, renewable energy,” says Kumar.The Green ShineA green energy wave is sweeping the world. Amid concerns about climate change, rising pollution and a surging oil bill, the world is embracing solar and wind energy and moving away from fossil fuels. The world renewable energy (solar and wind) capacity is 9,41,581 MW — up from 5,45,005 MW in 2013 — and is expected to touch 17,17,000 MW by 2022. Developing world, led by China and India, has been investing heavily in renewables.Since 2014, when the NDA government came to power, India has substantially scaled up its renewable energy ambitions. The renewable capacity of India is 51,731 MW (solar and wind) more than double the capacity of 22,498 MW in 2013. India’s ambitious target is 1,10,791 MW by 2022.Diu is a model for India’s renewable journey. But not every place has the advantages that it enjoys. “With a small population and enough land, Diu is a perfect place to go for solar and wind energy for its needs. This is fantastic progress,” says Vinay Rustagi, managing director of renewable energy consultancy firm Bridge to India. 63660229 Diu’s solar journey is part of a global trend. Islands, cut off from the mainland, often struggle to meet their energy needs. They have to ship in fuel and depend on polluting dieselpowered gensets. Now, Tesla is helping Kauai island in Hawaii build a 52 MW-hour solar battery and a 13 MW SolarCity farm. Similarly, Kodiak Island in Alaska fully runs its grid on wind and hydropower. Cape Verde, an archipelago off Africa’s northwest coast, has pledged to get all its electricity from renewable resources by 2025. In the wake of Fukushima disaster in 2011, Japan — constrained by landmass and dotted with islands — is building floating solar park islands. In Indonesia, Abu Dhabi’s Masdar is helping build a 200 MW floating solar plant. Dubai wants to meet 75% of its energy needs from clean power by 2050.Diu’s energy bet aligns well with India’s focus on renewables. The country’s crude import bill is surging — from $70 billion in 2016-17 to $88 billion in 2017-18. The International Energy Agency says India will see the fastest growth in energy demand by 2040 — which gives a growing urgency to tapping renewables. An ambitious clean energy programme will also help the country take a leadership role in discussions around climate change.Solar race is on in the country. Jamia Millia University in Delhi is going all solar by June. Villages in the interiors of Arunachal Pradesh are being brought under solar grid. Last year, Piyush Goyal announced that the prime minister’s constituency, Varanasi, will go 100% solar before 2025. Already, Andaman & Nicobar Islands, running mostly on diesel gensets, has aspirations to go all-green in near future. Its plan has run into trouble, though, as the solar tender awarded to Mahindra Susten last year has just been scrapped. “Power generated by diesel gensets is not only the dirtiest source of power but it is also the costliest. There are huge opportunities for India to go for green power,” says Rustagi.Quality MattersMeanwhile, experts suggest caution: quality of solar modules is important. “In India, there is lack of awareness of quality components and some are skimping on quality, which may lead to lower efficiency levels,” says Rustagi. Diu, small and connected to the Gujarat grid, is unique because both energy excess and deficit can be managed easily. “Diu is small but is demonstrating the potential of renewables in meeting electricity demand. However, this model has limitations for other regions,” says Shantanu Jaiswal, head of research, Bloomberg New Energy Finance. For example, Andaman & Nicobar Islands does not have grid linkages to the mainland and will have to figure out how to manage energy variability (for example, solar can only be produced during the day) and build some electricity storage systems or back-up generation systems.Today, 90% of solar modules are imported — mostly from China, apart from countries like Malaysia and Taiwan. “The price gap between Indian and imported modules has been high but narrowing of late. If India decides to impose anti-dumping duties or raise customs, then imported and domestic modules will reach price parity,” says Jaiswal.The government must build strong linkages between its green energy thrust and Make in India mission to incentivise domestic manufacturing. Diu is just a start.

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How a clutch of investors are helping Indian startups

Located just outside the verdant 370-acre Indian Institute of Science, Bengaluru, the Society for Innovation and Development (SID) has over the past three decades tried to act as a bridge between companies of all sizes and the academic heft of its parent. A key missing link for the startups it has sought to seed has been a paucity of funds, especially for fledgling ventures focused on deep science and technology.Few investors have the patience or understanding to back companies in such areas, where ideas require a decade or longer to gestate and plenty of handholding is required before commercialisation. A veteran technology outsourcing advisor, Siddarth Pai, and the former managing director and chief executive officer of IL&FS private equity, Archana Hingorani, hope to plug this gap.Their new fund, Siana Capital Management, wants to raise up to $100 million to help academic ventures find funding and a firm footing. “The chance to back scalable opportunities in science is vastly underserved in India,” says Pai. “We want to build a fund that sharply focuses on the needs of this market, rather than take a spray-and-pray approach with our investors’ money.” This means working with units such as SID — and potentially other innovation centres at other academic institutes — to identify ideas with strong, scalable business models.Siana, early-stage funds such as Stellaris, later-stage ones such as IAN Fund, and specialists such as Epiq are all jostling to get noticed. This is welcome news for startups, especially after a recent funding crunch. 63660471 If 2016 and a chunk of 2017 were notorious for a biting funding winter, when many startups failed to net funding and were shut, the past 18 months have seen an improvement in sentiment. Many of these funds have expanded their reach so that more startups can blossom. Besides, top names heading India operations of marquee funds or in senior management roles at such entities have struck out on their own, making the talent pool deeper.Capital deployed across Series-A, -B and -C funding into startups surged 73% year-onyear to $850 million in the quarter ended March 31, and the number of deals rose 30% to 76, according to Tracxn, which tracks deal flow. However, with fewer companies being set up, angel and seed funding for startups has declined at the idea stage and in the subsequent period of fine-tuning the product to the market. Funding for these dropped 45% to 112 deals in the quarter. 63660479 Game ChangerThis is where the new funds come in handy. These hope to tackle challenges in both sides of the market. The funds want to target startups that have gone beyond the early stage and need funding (often the first or second serious or institutional tranche) to keep the entities going. In later stages, the number of funds providing larger rounds of funding are limited.Industry observers, including fellow venture capitalists (VCs), serial entrepreneurs, and analysts are not gung-ho about the survival of many of these private investment funds. Returns of existing funds have been poor — over $114.5 billion was invested between 2008 and 2017 in all stages, according to Venture Intelligence, but the returns were only $62.5 billion. And limited partners (LPs), who give VCs money, are also chary of backing more players in such a challenging market. “This is a tough market for a new fund to survive,” says Sudhir Sethi, managing director of Inventus Capital. “They are dealing with sceptical LPs and incumbent investors protecting their turf.” 63660494 But that problem might be taken care of by global funds and a recent government initiative. In 2015, under the government’s Startup India Action Plan, the Reserve Bank of India allocated Rs 10,000 crore to set up a fund of funds as a domestic source of capital for seed and early-stage companies.“We are seeing the availability of institutional capital in India for the first time, with the government’s fund of funds being a big catalyst,” says Ritesh Banglani of Stellaris Capital.This money is being disbursed by the Small Industries Development Bank of India (Sidbi), which has committed 15% of the corpus. Fund managers raise the rest from private sources. In the first year alone, Sidbi put in a substantial Rs 600 crore, says Saurabh Srivastava, cofounder of IAN and IAN Fund. 63660500 “The biggest push has come from the government, which is helping build an entrepreneurial ecosystem. While the ecosystem is maturing and the economy is growing, entrepreneurs are acquiring critical mass.”Beside this, the largest funds in the world are raising or have raised billions of dollars for India, despite a market trough. After backing a wave of consumer-centric businesses, these investors aren’t just focusing on the next big thing, they are also spreading their investment across time frames — from early-stage to growth-stage deals. Then there are the mammoths, notably SoftBank (whose $100 billion Vision Fund has forced marquee names such as Sequoia Capital to raise fresh capital) and Uber founder Travis Kalanick’s 10100 fund, focused on India and China.Another game changer promises to be on the talent front. Executives who have been in the India offices of marquee funds have floated their own outfits. Their plan is to take control of their money, rather than let the mandarins abroad pull the strings. Apart from operation knowledge, these executives claim they can deploy funds better than a global operator. 63660514 “There are now individual investors who have been in the market for over a decade, have built relationships and brands,” says Rahul Chandra, founder of Unitary Helion.Such investors are in many ways running startups of their own. Raising a fund gives one a better perspective of the responsibilities towards investors and empathy towards entrepreneurs. This is also a natural expansion of the VC ecosystem. India has a surprisingly low number of VC fund managers. These executives are also focused on specific opportunities, and are keen to improve the record of spotty returns in early-stage investment.“Among limited partners (the source of money for such funds), we see a clear fondness for smaller funds,” says Chandra, who is sewing together a $100 million fund focused on tech innovation. “For a, say, $300 million fund, you need a far larger scale of outcomes and many more unicorns to give your LPs good returns.” 63660528 Investment & ReturnsKanwaljit Singh of Fireside says his fund’s focus is to write smaller cheques, rope in entrepreneurs early and then follow up with multiple rounds, totalling Rs 15 crore, when the firm zeroes in on a Series-A round. “We are a focused fund and we know the space we are in very well. We build a network of partners and vendors who can support these entrepreneurs,” he adds. “That’s a big plus we bring to the table. We are not just a provider of capital but also a provider of support.”But investors like Singh will be entering a market that saw early-stage venture capital investing fall to a three-year low in 2017, according to VCCEdge. Some 435 angel investors and seed transactions put in about $244.6 million (Rs 1,627.26 crore) in 2017, down almost 35% in the year-ago period. Compared with 2015, angel investment and seed deals this year have dropped by more than 46% in value. Series-A investments have dropped about 30% to $492.6 million, across 133 deals, against 2016. According to data from Inc42, a provider of analysis on startups, some 34 funds planned to raise over $2 billion in 2017. In the past quarter, several more, including Pai’s Siana, have joined this line. 63660535 Optimism in the AirFor the chiefs of new funds, however, the glass is half full. “For the first time, there is capital available in India,” says Ritesh Banglani, cofounder of Stellaris Venture Partners. “The country has many seasoned entrepreneurs who are now active investors. Family offices are also showing more interest in this asset class (startups).” This means that newbie investors like him can now look beyond traditional sources of finance (US pension funds, for example) and look closer home. Family offices have deployed up to $400 million over the past five years, he says. Five years ago, these entities had zero investment in this space.To try to differentiate itself in the market, Banglani’s company has put together a network of associates called the Stellaris Founder Network. The focus is to increase deal flow and deal generation as well as connect with high-quality startups. A quarter of priority deals today comes through this route.This group serves as advisors, co-investors and even does due diligence on potential investment. 63660551 These investors look beyond financial incentives; it is their way of giving back to a community that nurtured them.Fundamentum, for example, will invest a significant chunk of the founders’ own money in the fund but will not take a fee. “Our earnings will be the appreciation of valuation that our investment undergoes. Other investors will be investing pari passu with us. We will be LPs performing the role of GP (general partner) and will not take any fee,” says cofounder Sanjeev Aggarwal, founder of Daksh BPO. With Aggarwal in this venture is Infosys cofounder Nandan Nilekani.But all these do not necessarily mean the days of fat cheques are here. New early-stage investors aren’t risking piecing together generic funds. “A $150 million fund does not usually write too many million-dollar cheques as such funds don’t like to be distracted by multiple deals,” says Sateesh Andra, founder of Endiya Partners. Instead, the $50 million he has started with will be deployed in 18-20 deals, with each partner looking at no more than four or five. Andra is betting on two aspects to differentiate his fund from the competition. One, it will focus on talent (especially returning tech executives and geeks at local R&D centres) to devise breakout ideas in deep tech and, two, it will deal with a narrow band of five institutions and 10 senior entrepreneurs as LPs. 63660556 Banglani of Stellaris will focus on Series-B deals (around $20 million in size) focused on firms in logistics and retail, while looking at ventures building software as a service offerings, too. Unlike Banglani, Singh’s Fireside is backing companies in consumer goods, apparel and home products. The same verticals draw Fundamentum, too. 63660562 Meanwhile, Ajay Hattangadi and Vinod Murali of Alteria Capital are tackling another challenge. They have been trying to convince entrepreneurs to eschew paring their equity for funding and instead opt for venture debt.“Venture debt fills an important funding niche in the market for things like new offices, working capital and acquisition finance — for which ventures have traditionally and wastefully used equity,” says Hattangadi, cofounder of Alteria Capital.In January 2016, India-based alternative investment funds were allowed to raise funds from foreign sources, catalysing the establishment of investors such as Alteria. Unlike traditional debt providers, venture debt funds have more liberal exit options and don’t have fewer limitations on the equity component of a deal. In the 12 months Alteria has been in business, several firms — including edutech startup Byju’s, groceries venture Bigbasket and ready-to-cook business Fingerlix — have signed up for debt funds. 63660580 For all these companies, the attraction is keeping the equity structure unchanged, even as they find a way to finance their growth. Until recently, restrictive regulation prevented the establishment of debt funds in India. According to Hattangadi, venture debt as a form of finance has come to occupy an important part of funding conversations. However, rather than targeting all startups, venture debt may be more suited for ventures with a relatively stable business and some ability to withstand short-term slowdown or stagnation.The startup landscape has come a long way in a decade, when many investors first tried their luck in India. “Five years ago, entrepreneurs had no choice but to go directly to VCs, who were often not ready to fund early-stage businesses,” says Banglani. “Today, a new entrepreneur first goes to angel investors or successful entrepreneurs, who offer him validation, mentorship and the initial capital to get started.” Besides money, these entrepreneurs offer capital, connections, network and mentoring. 63660583 Valuable LessonsEntrepreneurs and investors have learnt some valuable lessons over the past few years, says Aggarwal of Fundamentum. The most important is that there is no substitute for the fundamental activities that go into building a company.“The question that startups must answer is, are you building a sustainable and scalable business?” he says. “That’s the big difference between Amazon and Snapdeal.”Amazon, for example, has worked hard to get sticky customers with its Prime membership, while diversifying its revenue streams by building verticals like Amazon Web Services that contributed $17.46 billion to its revenues in 2017. But etailers like Snapdeal have for a long time largely chased metrics like gross merchandise volume or GMV (used in online retailing to indicate sales through a marketplace over a certain period). 63660591 “It is important to back entrepreneurs to create value, not valuation. That means not chasing vanity metrics like GMV,” adds Agarwal.Entrepreneurs say the influx of new thinking and the focus of these funds are helping. Kamal Karanath, a veteran HR consultant who set up Xpheno 12 months ago, says access to early-stage investors has become easier, even if it is only to examine a business proposal.“Earlier, meeting some of these storied investors meant you had to know people in closed networks or you had to mass mail them and hope they reply,” he adds. “Now, I’m being approached by many of these new funds, because they are open to new segments and approaches from startups.”Younger entrepreneurs are positive these new funds will give them more options to gain an early foothold and also exposure to investors with deeper knowledge of the local market. 63660596 “When we started off, everyone wanted to just fund the next ecommerce idea,” says Ujwal Sutaria, founder of Athletto, a sports venture. “It becomes easier to have a conversation with a deeper pool of investors if they deploy their own money to back local enterprises.” As he scales his business, Sutaria knows he can look beyond “the walled-off garden of a dozen global funds” for his next tranche of funding.Take the case of Rohit Chokhani, who went from builder to venture capitalist, with White Unicorn Ventures. He has steered his fund in new directions in the past quarter. The Rs 250 crore fund, which invested in Drivezy and Routofy, has turned away from chasing opportunities in segments such as ecommerce. Instead, it is looking at segments such as deep tech, logistics and firms that focus on devising financial inclusion solutions for India’s unbanked population. “Entrepreneurs in many of these segments are more open to advice from investors and the market is far less crowded,” he says.Singh of Fireside sees shifting trends as a key driver in the establishment of his fund. “The whole motivation to have a fund like ours was triggered from some of the trends we saw playing in the market — like the emergence of millennials, digital infrastructure growth with the rising use of smartphones and internet connections and the emergence of digital etailers. Also, the emergence of high-quality entrepreneurs who are getting into the startup space.” 63660610 Other long-time investors are putting their experience to use in other ways. Over the past decade, Saurabh Srivastava has seen the evolution of the Indian entrepreneur first hand, as the cofounder of the Indian Angel Network, a collection of some 470 backers of fledgling ventures. Now, he is set to put some of these learnings to test with IAN Fund.“In the next 10 years, we expect IAN and IAN Fund to co-invest Rs 5,000 crore in 50 companies. We see ourselves as the largest platform for seed-funding and early-stage investment. We have raised Rs 250 crore and have set a target of Rs 350 crore. We have done eight investments so far.”Having grown roots across the ecosystem, IAN is looking to use its alliances with top VCs such as Sequoia and Accel to bag deals in the angel round, before big investors roll in.“So, if and when a startup is raising the second round with us as angels, we invite investors like Sequoia to invest and we invest alongside them,” Srivastava adds. These deals help IAN because they get a longer runway for companies in its portfolio. 63660615 Mobile OpportunityIf all these were not enough, there’s a big change in the offing, says Banglani of Stellaris. Venture capital investing in tech startups took off in 2006. But the industry saw a surge in opportunity in 2012, with the advent of mobile internet. Around 2015, when valuations were sky-high, companies went directly from early-round funding to big tranches typically associated with Series-D and –E. Now, this area is seeing a more stable environment, and there’s an opportunity in the Indian technology market.“Some funds are being established to tap this opportunity. But their success or failure will be dictated by the fund managers involved and their investment track record,” says Rishi Navani, who set up Epiq Capital in 2016.Banglani adds: “Of India’s 400 million internet users, barely 100 million speak English. Fewer than that number have ever used a desktop. Internet services for the remaining 300 million users will need to be built from the ground up — in terms of language, user experience and access channels. Indian languages will get more traction. And user experience of this group will be very different. As a result, our strategy will be more India-oriented business models. VCs flying in from overseas to make a bet on India will find it difficult.”These new VCs feel that entrepreneurs have matured and are willing to wait and make businesses meatier. After the funding winter, it remains to be seen if this is the start of an Indian summer.

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How these companies are using tech to solve Bengaluru’s deep water crisis

Over the past few years, Bengaluru’s water crisis has been manifesting itself in multiple forms, from lakes spewing froth and bursting into flames to residential complexes almost entirely dependent on tanker trucks for water supply. Then came a recent report by the Centre for Science and Environment that the city was facing the same grim prospects as Cape Town in South Africa, which is counting down to the day it will have to turn off its taps to conserve water. There are many reasons why a city once renowned for its 280-odd interconnected lakes now faces a water crisis. This includes an explosion in its population, increase in built-up areas, wastage of water and pollution of its water resources. 63660480 In its 2016 report, Water Situation in Bengaluru, the Centre for Ecological Sciences at the Indian Institute of Science pointed out that the city had sufficient water but achieving sustainability would depend on political will, a willingness to adopt decentralised models and citizens asserting their right to water. That may well be a work in progress. 63660608 But true to its identity as a tech and startup hub, Bengaluru has seen a few companies, from startups to multinationals, come up with technology-led innovations to tackle the various aspects of the water crisis. 63660613 Some of these are being supported by the Karnataka government, as part of its policy to help startups working to solve the water crisis, in the form of a competition titled Grand Challenge Call 6. While it would be specious to argue that any or all of these would be a magic bullet to the city’s growing water woes, these might point the way forward for a city fast running out of alternatives.SmarterHomes: Tracking Every DropThis is how much my sevenyear-old’s long bath has cost me this morning,” Vivek Shukla, says with a smile, pointing to the data displayed on his startup’s app, WaterOn, on his mobile phone. The app is one part of the startup, SmarterHomes, which uses internet of things to help users track exactly how much water each household is consuming, using a smart water meter.This solution was a response to one aspect of Bengaluru’s worsening water crisis: apartment complexes buying water through tankers, but not being able to track its use. Shukla and Kasturi Rangan, the cofounder, were colleagues at Wipro EcoEnergy and neighbours. They realised their apartment society was struggling with uneven water supply. “Everyone had to pay a flat fee of Rs 2,100 a month and people were complaining about that,” says Shukla. 63660499 The solution, they realised, was metering. But conventional apartment designs made it difficult to track. The duo then came up with wireless meters that would be attached to each water inlet in a home, to monitor flow in real-time and send the data to the cloud, which can be accessed by users via the app. This meant users could track how much water they were using and if there were any leaks at the residences. Using the app, one can track daily and monthly consumption patterns as well as cut supply to individual inlets remotely. “With a smart meter, every single use is logged, including the length and quantity of consumption,” says Shukla. When people began to be charged for what they were consuming, they also changed their usage pattern. But the idea, he clarifies, is to curb wasting water. After the meters were installed, the company says customers have been able to reduce consumption by 35 per cent or more. The product was launched in July 2015 and the company has sold 14,000 units, each priced at Rs 9,500.But it has now pivoted to a model where it offers metering as a service, for which users can choose from monthly slabs ranging from Rs 45 to Rs 120. The startup, which got funding from Macquarie Bank, UK, is currently expanding to Oman and Kuwait.It is in talks with p a r tners in South Africa, Australia and New Zealand to launch in those geographies as well.OpenWater.In: Power Up, ReuseWith a population of around 10 million, the city of Bengaluru consumes approximately 1.4 billion litres of water a day. However, the installed capacity to treat its sewage is estimated at 58 per cent , with much of that wastewater being pumped into the city’s many lakes. A team of scientists at the Indian Institute of Science in Bengaluru have now come up a solution to tackle this issue, which they say is low-cost and has zero wastage.Led by Sanjiv Sambandan, an associate professor at IISc who is also cross-appointed at the University of Cambridge, Openwater.in converts wastewater (grey water) to potable water that conform to the specifications of the International Organization for Standardization.“In Bengaluru, it would certainly help if wastewater treatment is done at the community level. But currently, this practice is not widespread because many existing technologies pose logistical difficulties,” says Sambandan. 63660548 Openwater’s device applies an electric field to particles in water, which clusters particles to form big enough entities that can be arrested in a sieve. “You don’t need a fine membrane for this, thus removing that cost. And unlike in reverse osmosis, there is zero wastage of water,” says Karthik Raghunandan, the startup’s chief operating officer.It uses a plug-and-play model and capacity can be scaled up by increasing the number of devices or modules used, similar to solar panel cells. “Which means that in case one of the stages fail, it will only affect a small fraction of the output,” says Raghunandan. The device can treat 250 litres a day. The team estimates that the low-cost solution should be in the market by next year. 63660526 Last year, Openwater got a grant of Rs 10 lakh from the Karnataka government, which would be used to make the device solar-powered, so that it can also be used in places where power supply is erratic. “We have received several enquiries from industries, which have to compulsorily treat their water,” adds Raghunandan.IBM: Eagle Eye on SupplyAccording to a World Bank Study, 32 billion cubic meters of water is lost every year in the form of leaks and thefts, half of this in developing countries.The water thus lost is referred to as non-revenue water (which cannot be billed or accounted for) and it is a challenge for every government to reduce this. The Bangalore Water Supply and Sewerage Board (BWSSB), with its network of aging pipelines, is no exception to this problem. But over the past few years, it has been able to bring down its non-revenue water by 12 per cent , to 37 per cent , says executive engineer PN Ravindra. This is partly due to its adoption of technology in the form of a water information hub, designed by IBM and launched in 2015. Called the Intelligent Operations Centre, it provides a digital dashboard that enables the department to track the various parts of its water supply network and generate data using analytics. 63660570 IBM: says it began working on the project some years ago with the idea of helping governments preserve natural resources, as well as monitor the quality of water. “There are several ‘assets’ involved in a government water supply system, such as a pipeline network, meters, service engineers, etc. We wanted to create an information hub that would monitor and connect all these and become a single point for data, so that there is a good visibility of the resource,” says Shalini Kapoor, director and distinguished engineer (IoT), IBM Watson. The pilot was launched in 2014 and the final rollout took place the following year.The system uses automated water meter readers to track use, flow meters to measure the flow and pressure. It also monitors complaints raised by users and service engineers. Billing and revenue have been integrated into the system as well, and revenue projections are also monitored. Dashboards are created using this integration, and analytics reports generated from the data. Kapoor says compared to the earlier system of manual monitoring, there is now clarity on how much water is being used in each region, for instance. “Today, the BWSSB knows exactly how many working meters are there, the status of complaints, the number of work orders created to address complaints and its status.”AquaSafi Purification Systems: Low-cost Thirst KillerWhile governments in developing countries are conscious about the lack of access to affordable clean water faced by many and has invested money for solutions, these systems are often hobbled by its dependence on human intervention.“In villages, for instance, the person in charge of maintaining a purifying system might not be easily available when something goes wrong — he might have gone elsewhere after putting his acquaintance in charge who would not know what to do,” says Pavin Pankajan, executive director of AquaSafi. To overcome this, the Deshpande Foundation-incubated startup has come up with an automated water purifying kiosk, which uses a proprietary RO technology, and sells 20 litres of water for Rs 2.“We have reduced human dependency using IoT (internet of things), and the kiosks do not require an operator. People can come and collect water anytime,” says Pankajan. 63660592 AquaSafi was set up by Chicago-based Kevin Cluff in March 2011, with the aim of building a sustainable business that would provide clean drinking water at a low cost and is thus accessible to the underprivileged.Pankajan, who has a master’s in water resource engineering from IIT-Bombay, came on board as executive director after meeting Cluff at a conference, where they realised they shared a passion for providing low-cost drinking water.AquaSafi has set up over 300 kiosks in Karnataka, including in Bengluru.Automation has also brought down the operating expense. The IoT-based system sends messages in case of any issues, and is capable of shutting it down automatically to prevent further damage.“When it gets corrected, it will restart automatically.” Thanks to using internet of things, the startup has been able to break-even, with an annual turnover of Rs 2 crore, though margins remain slim.The company has also received a grant from the state government for its next project, which is looking to automate sending a message to households “when the mechanic turns the valve on for water supply.” The long-term goal is to work on solutions to scientifically help recharge groundwater and surface water sources. “We need to look at sustainability. We are working with villages to help them be completely sustainable over the next 10 years.”What is Day Zero? Introduced by Cape Town in South Africa, which is facing a severe water crisis, Day Zero is when the city plans to turn off most of its taps to conserve water and citizens would have to line up at collection sites to collect a specific daily quota of water. It is supposed to be triggered when the city’s six major dams reach a storage level that is enough only for critical services.When is it?It is not a fixed target. For Cape Town, it has been moved from August this year to 2019, thanks to an improvement in its water situation. However, residents continue to live with a strict consumption ceiling of 50 litres per person per day.How does it affect Bengaluru?A study by Centre for Science and Environment’s Down to Earth magazine reported that Bengaluru was one of the 10 metropolitan cities that are “moving quickly towards Day Zero”. The analysis showed at least 200 cities across the world are fast running out of water

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Cyber threat to government websites: A look at the data

By Ravi SethThe shutdown of nearly 10 government websites for a good part of Friday led to an immediate fear of mass cyberattack though it later turned out to be a storage system crash. Hacking is the Damocles’ sword that hangs over the cyberworld. ET Magazine takes a look at the scourge: 63659805 * On January 1, 2017, NSG website was partially defaced and abusive message was posted by unknown hackers* Out of 8,348 persons arrested under different sections of cybercrime, 315 were convicted in 2014-15* 50 cyberattacks on 19 financial organisations reported between November 2016 and June 2017 63659809 63661331 To-Do ListWhat the government says it is doing to prevent cyberattacks and secure websites* Cyber security audit of new govt websites and applications before hosting and regular audits post hosting; 67 security auditing organisations roped in for these checks* CERT-In keeps tabs on website hacking, issues alerts/advisories on latest cyber threats and countermeasures* Cyber Crisis Management Plan formulated for countering cyberattacks and cyber terrorism in all Central/state ministries/departments and critical sectors* 25 cyber security exercises conducted by CERT-In so far in organisations in finance, defence, power, telecom, transport, energy, space, IT/ITeS sectors to check preparedness* CERT-In conducts training programmes for network/ system administrators. 22 training programmes, covering 610 participants, were conducted last year* National Cyber Coordination Centre set up to generate necessary situational awareness of existing and potential cyber security threats. Phase-I of NCCC has been made operational* National Informatics Centre (NIC), which provides IT/e-governance-related services to departments, protects cyber resources from possible compromises through a layered security approach in the form of practices, procedures and technologies

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Cyber threat to government websites: A look at the data

By Ravi SethThe shutdown of nearly 10 government websites for a good part of Friday led to an immediate fear of mass cyberattack though it later turned out to be a storage system crash. Hacking is the Damocles’ sword that hangs over the cyberworld. ET Magazine takes a look at the scourge: 63659805 * On January 1, 2017, NSG website was partially defaced and abusive message was posted by unknown hackers* Out of 8,348 persons arrested under different sections of cybercrime, 315 were convicted in 2014-15* 50 cyberattacks on 19 financial organisations reported between November 2016 and June 2017 63659809 63661331 To-Do ListWhat the government says it is doing to prevent cyberattacks and secure websites* Cyber security audit of new govt websites and applications before hosting and regular audits post hosting; 67 security auditing organisations roped in for these checks* CERT-In keeps tabs on website hacking, issues alerts/advisories on latest cyber threats and countermeasures* Cyber Crisis Management Plan formulated for countering cyberattacks and cyber terrorism in all Central/state ministries/departments and critical sectors* 25 cyber security exercises conducted by CERT-In so far in organisations in finance, defence, power, telecom, transport, energy, space, IT/ITeS sectors to check preparedness* CERT-In conducts training programmes for network/ system administrators. 22 training programmes, covering 610 participants, were conducted last year* National Cyber Coordination Centre set up to generate necessary situational awareness of existing and potential cyber security threats. Phase-I of NCCC has been made operational* National Informatics Centre (NIC), which provides IT/e-governance-related services to departments, protects cyber resources from possible compromises through a layered security approach in the form of practices, procedures and technologies

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