Economic crisis in India 2013 | ALL Updates & News

[by78]

Another blow for India: Nokia threatens to move its manufacturing to China – Quartz

Another blow for India: Nokia threatens to move its manufacturing to China

Disconnecting people

CEO Stephen Elop putting the "No" in Nokia. Reuters/Anindito Mukherjee


It’s been a rough week for the Indian economy. The rupee scraped new lows most days this week, stocks sank and bond yields rose. Though there has been some respite towards the close of the week, a gloom has descended over the land. And it’s about to get darker.

The Indian Express newspaper reports today that Nokia, once a great champion of India, is considering shutting down its factory in the southern state of Tamil Nadu. With 8,000 employees, it is one of the largest Nokia operates, and has so far produced some 800 million phones.

According to the paper, Nokia said in an unofficial letter to the Ministry of Commerce and Industry that it would be ”more cost efficient for Nokia to have transferred the manufacture of mobile phones to China and to import them to Indian market rather than manufacture them in Chennai.” The letter was written in June and received by the ministry last month, pre-dating the current rupee crisis. But the timing of its release couldn’t be worse. Already foreign investors are wary of putting money in India and many who can are pulling their cash out.

Nokia’s reasons are twofold. First, the state of Tamil Nadu had agreed to give Nokia back the 4% value-added tax that the company had paid on phones shipped from its factories there. This has not happened, according to Nokia. Second, the central government is seeking Rs 20.8 billion ($329 million) in back taxes on income from downloads on phones made in India. Nokia says a bilateral tax treaty between India and Finland, where it is headquartered, negates the need to pay such taxes. India is embroiled in tax disputes with various other multinational firms, including Vodafone and Shell.

“Taxation should not drive business decisions on locating operations, but current tax claims against Nokia and other multinational companies operating in India have too great an impact on the predictability and certainty of Indian business environment to be ignored,” the company wrote. ”The political risk of operating in India has therefore become suddenly substantially higher and may inevitably influence future decisions to develop one’s operations in India.”

Nokia was for many years the largest-selling mobile phone in India, thanks to its deep roots in and understanding of the market, cheap and hardy phones, and good reputation. But Samsung unseated Nokia in the first quarter of this year despite strong sales of its low-end smartphones and a new, semi-smart $99 model released earlier this year.

 

[Alienware]

Everyone always knew India would fall. There is only enough room in Asia for one Superpower! LOL, now that the Rupee is falling like a stone in water, India will not be able to continue purchasing new weapons from Russia or the West. Even importing raw materials to build weapons will be too costly.

Goodbye India.

 

[by78]

India's economy: How India got its funk | The Economist

How India got its funk

India's economy

India’s economy is in its tightest spot since 1991. Now, as then, the answer is to be bold

Aug 24th 2013 |From the print edition

IN MAY America’s Federal Reserve hinted that it would soon start to reduce its vast purchases of Treasury bonds. As global investors adjusted to a world without ultra-cheap money, there has been a great sucking of funds from emerging markets. Currencies and shares have tumbled, from Brazil to Indonesia, but one country has been particularly badly hit.

Not so long ago India was celebrated as an economic miracle. In 2008 Manmohan Singh, the prime minister, said growth of 8-9% was India’s new cruising speed. He even predicted the end of the “chronic poverty, ignorance and disease, which has been the fate of millions of our countrymen for centuries”. Today he admits the outlook is difficult. The rupee has tumbled by 13% in three months. The stockmarket is down by a quarter in dollar terms. Borrowing rates are at levels last seen after Lehman Brothers’ demise. Bank shares have sunk.

On August 14th jumpy officials tightened capital controls in an attempt to stop locals taking money out of the country (see article). That scared foreign investors, who worry that India may freeze their funds too. The risk now is of a credit crunch and a self-fulfilling panic that pushes the rupee down much further, fuelling inflation. Policymakers recognise that the country is in its tightest spot since the balance-of-payments crisis of 1991.

How to lose friends and alienate people

India’s troubles are caused partly by global forces beyond its control. But they are also the consequence of a deadly complacency that has led the country to miss a great opportunity.

During the 2003-08 boom, when reforms would have been relatively easy to introduce, the government failed to liberalise markets for labour, energy and land. Infrastructure was not improved enough. Graft and red tape got worse.

Private companies have slashed investment. Growth has slowed to 4-5%, half the rate during the boom. Inflation, at 10%, is worse than in any other big economy. Tycoons who used to cheer India’s rise as a superpower now warn of civil unrest.

As well as undermining 1.2 billion people’s hopes of prosperity, failure to reform dragged down the rupee. Restrictive labour laws and weak infrastructure make it hard for Indian firms to export. Inflation has led people to import gold to protect their savings. Both factors have swollen the current-account deficit, which must be financed by foreign capital. Add in the foreign debt that must be rolled over, and India needs to attract $250 billion in the next year, more than any other vulnerable emerging economy.

A year ago the new finance minister, Palaniappan Chidambaram, tried to kick-start the economy. He has attempted to push key reforms, clear bottlenecks and help foreign investors. But he has lukewarm support within his own party and faces obstructionist opposition. Obstacles to growth, such as fuel shortages for power plants, remain. Foreign firms find nothing has changed. Meanwhile, bad debts have risen at state-run banks: 10-12% of their loans are dud. With an election due by May 2014, some fear that the Congress-led government will now take a more populist tack. A costly plan to subsidise food hints at this.

Stopping the rot

To prevent a slide into crisis, the government needs first to stop making things worse. Those capital controls backfired, yet the urge to tinker runs deep: on August 19th officials slapped duties on televisions lugged in through airports. The authorities must accept that 2013 is not 1991. Then the state nearly bankrupted itself trying to defend a pegged exchange rate. Now the rupee floats, and the state has no foreign debt to speak of. A weaker currency will break some firms with foreign loans, but poses no direct threat to the government’s solvency.

And so the Reserve Bank of India must let the rupee find its own level. The currency has not yet wildly overshot estimates of fundamental value. Raghuram Rajan, the central bank’s incoming head, should aim to control inflation, not micromanage one of the world’s most traded currencies.

Second, the government must get its finances in order. The budget deficit has been as high as 10% of GDP in recent years. This year the government must hold down its deficit (including those of individual states) to 7% of GDP. It is already cutting fuel subsidies, and—notwithstanding the pressures in the run-up to an election—should do so faster.

This is not enough to fix the government’s finances, though. Only 3% of Indians pay income tax, so the government’s tax take is puny. A proposed tax on goods and services, known as GST, would drag more of the economy into the net. It is stuck in endless cross-party talks. If the government can rally itself before the election to push for one long-term reform, this is the one it should go for.

Last, the government, with the central bank, should force the zombie public-sector banks to recapitalise. In 2009 America did “stress tests” to repair its banks. India should follow. Injecting funds into banks would widen the deficit, but the surge in confidence would be worth it.

There are glimmers of hope: exports picked up in July, narrowing the trade gap. But India faces a difficult year, with jittery global markets and an election to boot. Even if it scrapes past the election without a full-blown financial crisis, the next government must do much, much more to change India. Over the coming decade tens of millions of young people will have to find jobs where none currently exists. Generating the growth to create them will mean radical deregulation of protected sectors (of which retail is only the most obvious); breaking up state monopolies, from coal to railways; reforming restrictive labour laws; and overhauling India’s infrastructure of roads, ports and power.

The calamity of 1991 led to liberalising reforms that ended decades of stagnation and allowed a spurt of fast growth. This latest brush with disaster could produce a positive legacy, too, but only if it persuades voters and the next government of the importance of a new round of reforms that deal with the economy’s flaws and unleash its mighty potential.

From the print edition: Leaders

 

[Rafi]

hubris thy name is india, feel sorry for the small man, johnny gupta - who is getting shafted by this.

 

[by78]

India in trouble - The Economist

The reckoning

India in trouble

Why India is particularly vulnerable to the turbulence rattling emerging markets

Aug 24th 2013 | MUMBAI |From the print edition

ON THE morning of August 17th most of India’s economic policymakers gathered in the prime minister’s house in Delhi. They were there to launch an official economic history of 1981-97, a period which included the balance-of-payments crisis of 1991. The mood was tense. India, said Manmohan Singh, the prime minister, faced “very difficult circumstances”. “Does history repeat itself?” asked Duvvuri Subbarao, the outgoing head of the Reserve Bank of India (RBI). “As if we learn nothing from one crisis to another?”

The day before Indian financial markets had had their rockiest session for many years. The rupee sank and stockmarkets tumbled. Money-market rates rose. The shares of banks thought to be either full of bad debts or short of deposit funding fell sharply. The sell-off had been made worse by new capital controls introduced on August 14th in response to incipient signs of capital flight. They reduce the amount Indian residents and firms can take out of the country. Foreign investors took fright, fearful that India might freeze their funds too, much as Malaysia did during its crisis in 1998.

India’s authorities have since ruled that out. But markets keep sliding. On August 20th the RBI said it would intervene to try to calm bond yields. The rupee has dropped to over 64 to the dollar, an all-time low and 13% below its level three months ago. It is widely agreed the country is in its worst economic bind since 1991.

India is not being singled out. Since May, when the Federal Reserve first said it might slow the pace of its asset purchases, investors have begun adjusting to a world without ultra-cheap money. There has been a great withdrawal of funds from emerging markets, where most currencies have fallen by 5-15% against the dollar in the past three months. Bond yields have risen from Brazil to Thailand. Some governments have intervened. On July 11th Indonesia raised its benchmark interest rate to bolster its currency. On August 21st its president said he would soon announce further measures to ensure stability.

India, Asia’s third-biggest economy, is more vulnerable than most, however. Economic news has disappointed for two years, with growth falling to 4-5%, half the rate seen during the 2003-08 boom. It may fall further. Consumer-price inflation remains stubborn at 10%. A drive by Palaniappan Chidambaram, the finance minister, to push through a package of reforms and free big industrial projects from red tape has not worked. An election is due by May 2014, adding to uncertainty.


India’s dependence on foreign capital is also high and has risen sharply. The current-account deficit soared to almost 7% of GDP at the end of 2012, although it is expected to be 4-5% this year. External borrowing has not risen by much relative to GDP—the ratio stands at 21% today—but debt has become more short-term, and therefore riskier. Total financing needs (defined as the current-account deficit plus debt that needs rolling over) are $250 billion over the next year. India’s reserves are $279 billion, giving a coverage ratio of 1.1 times. That has fallen sharply from over three times in 2007-08 (see chart 1) and leaves India looking weaker than many of its peers (see chart 2).


It is therefore vital that foreign equity investors stay put. They own perhaps $200 billion of shares at current prices. They have sold only about $3 billion since May, but if they head for the exit India would have no defence.

This is not a repeat of 1991. When India last had a crisis Boris Yeltsin was about to stand on a tank in Moscow and Nirvana was hitting the big time. Things have changed in financial terms, too. Back then India had a fixed exchange rate, which the state almost bankrupted itself trying to defend—it had to fly gold to the Bank of England in return for a loan. Today India has a floating exchange rate and a government with almost no foreign-currency debt. A slump in the currency poses no immediate threat to the government’s solvency.

The pain will be felt in other ways. Private firms that owe most of India’s foreign debt will be under intense strain, particularly if the rupee drops further. Some will go bust. Market interest rates will stay high, causing a liquidity squeeze. All this makes life even tougher for India’s state-owned banks, which already have sour loans equivalent to 10-12% of their loan books. Inflation will rise. And the government’s finances will be under strain as the cost of its subsidies on imported fuel gets bigger.

There is probably little the authorities can do to shore up the currency in the short term. The rupee is one of the world’s most actively traded currencies and at least half the turnover is abroad. Privately, officials reckon the rupee’s fair value, taking into account India’s higher inflation and productivity over the past few years, is a little less than 60 per dollar, so the market has yet to overshoot wildly. Raghuram Rajan, the incoming governor of the RBI, is likely to take a hands-off approach.

That doesn’t mean the government will—or should. On August 19th it banned the import through airports of duty-free flat-screen TVs, which Indians can often be seen heaving through check-in at Dubai. It may seek to raise duties further on gold imports, which Indians are addicted to in part because it is seen as a hedge against inflation. Gross gold imports were 3% of GDP last year, blowing a huge hole in the external finances. History suggests the higher taxes on gold imports are, the worse smuggling gets. But India imports 800-odd tonnes of bullion a year. That’s a lot of gold to hide in suitcases.

The government will also try to persuade the Supreme Court to lift its ban on iron-ore exports, imposed after a series of corruption scams. At its peak this industry generated exports worth about 0.4% of GDP, although experts doubt that mothballed mines can be ramped up fast. The government may also cut fuel subsidies. That would reduce demand for imported fuel and help it hit a fiscal-deficit target of about 7% of GDP (including India’s states).

The longer-term solution to the balance-of-payments problem may be to ramp up India’s manufacturing sector, and thus its industrial exports. But that will take a big improvement in the business climate, not just a cheap currency. Despite the rupee’s 27% tumble in the past three years there is scant sign of global manufacturers shifting production to India.

India’s position could still get worse. But assuming things stabilise, when the official histories come to be written about 2013, what might they say? Most likely that the rupee’s slump caused a severe shock to the economy that made a recovery in growth rates even harder. But perhaps, also, that it prompted a more serious debate about the policies that India needs to become less vulnerable to the whims of an unforgiving world.

From the print edition: Finance and economics

 

[Tshering22]

Ordinary Indian seldom visit PDF to know about dollar price. They are more concerned about end meal and will vote for MMS next time as well.

You wish, son. You wish.

PDF is not the only source telling about Indian rupee. And that too in India.

 

[+4vsgorillas-Apebane]

Everyone always knew India would fall. There is only enough room in Asia for one Superpower! LOL, now that the Rupee is falling like a stone in water, India will not be able to continue purchasing new weapons from Russia or the West. Even importing raw materials to build weapons will be too costly.

Goodbye India.

It always makes me feel uneasy when fellow Chinese talk of China as a superpower. Its too close to Indian style bragging.

 

[Al Bhatti]

August 24, 2013

How many TVs NRIs take from UAE to India daily?

Indian government's decision to impose 35 per cent duty on flat panel TVs evokes strong reaction from NRIs

The Indian government’s decision to impose a 35 per cent duty on Non-Resident Indians bringing flat panel TVs has evoked strong reaction from the Indian community.

Industry players in the UAE claim that around 666 TV sets are carried every day by the Indians flying from the UAE to India.

“On an average, it is estimated that close to 20,000 sets a month are being carried by passengers from the UAE, mainly Dubai, into various Indian cities,” said Niranjan Gidwani, Deputy Chief Executive Officer of Eros Group.

Dubai-based Eros Group is official distributor of Samsung, Hitachi, TCL, Linksys, Candy, BenQ, Thermobreak, Lennox, Aiphone, Sonos, Transcend and Case.

Driven by the declining rupee, the Indian government earlier this week gave in to the long-standing demand of local TV retailers and banned duty-free import of flat-screen television sets by air travellers.

According to Indian government estimates, more than one million TV sets were brought into the country last year, with Dubai, Bangkok and Singapore as the primary sources.

Eros Group Deputy CEO Gidwani said the UAE, particularly Dubai, is a very significant hub for movement of consumer electronics and digital products which are hand carried into India.

“Very competitive pricing, proximity to India, and between 700 to 800 flights a month from various airlines into different Indian cities have added to Dubai’s importance for this business,” he added.

Gidwani said: “With the imposition of such high duties, there is likely to be a very serious impact on this business in the short- to medium-term.

However, Dubai has always been a lucky trading city. When one door shuts, strangely, some other avenues open up rather quickly.

“Also imposition of such high duties is restrictive, but may also lead to opening up more corrupt channels at the India end, which might actually negate to some extent the purpose for which this exercise is being set up by the government of India.”

How many TVs NRIs take from UAE to India daily? Click here - Emirates 24/7

 

[Al Bhatti]

August 22, 2013

Falling rupee: NRIs gain, but this man lost Rs364bn

Billionaire Mukesh Ambani's fortune has dwindled by Rs364 bn in four months

India’s richest person, Mukesh Ambani, has emerged as the biggest loser in the past four months.

A plunging rupee has seen his wealth dwindle by a massive Rs364 billion in four months. In fact, Mukesh Ambani’s one-day loss amounted to $1.3 billion (Rs84.5bn) yesterday alone and the baron has lost almost a fifth of his net worth since the beginning of this year.

The Indian rupee has crashed by more than 22 per cent against the US dollar since May 2, and this decline has recently been accompanied by a massive sell-off in equities, causing Ambani’s losses to increase.

According to the Bloomberg Billionaires Index, Ambani’s net worth is down to $17.5 billion (Dh64.27 billion) as of end-of-day August 21, 2013, from $23.1 billion before the most recent slump in the Indian currency and equities market.

Mukesh’s younger sibling, Anil Ambani has less personal wealth and has therefore suffered less from the recent rout of the rupee and stocks. Ambani Jr has lost just $1.3 billion of his earlier net worth of $7.6 billion and can today boast a fortune of $6.3 billion.

Falling rupee: NRIs gain, but this man lost Rs364bn - Emirates 24/7

 

[by78]

India's economic downturn leaves middle classes fearing the worst

India's economic downturn leaves middle classes fearing the worst


Freelance workers such as the sarangi player Ghulam Ali have been particularly hard-hit by India's economic downturn. Photograph: Maseeh Rahman for the Guardian
In a small house in the Indian capital, a musician was doing the maths. During the good months, when his deft accompaniments to classical or popular vocalists are in demand, sarangi player Ghulam Ali can make as much as R50,000 (£500). The problem for Ali is that he's not sure there will be many good months in the near future.

"Those like us without a regular monthly income are the worst hit," he said, referring to the sudden downturn in the Indian economy that has analysts whispering about a possible full-blown crisis. "For a musician, it means fewer concerts even as everything has become more expensive – food, transport, electricity, cooking gas, even foreign travel. We artists like to eat and dress well, so for my family it means fewer outings, less money for the children's education, fewer acquisitions. No question now, for instance, of buying a computer for my kids."

Ali and his wife, Rozitaskeen, have two daughters and a son, aged 12, 10 and six, and they share a small house with Ali's three younger brothers, their families and his parents. The family is fairly typically middle class, but as a freelance musician Ali also belongs to the overwhelming majority of Indians (estimated at three-quarters of the working-age population) who do not have steady, full-time employment.

These people are the most vulnerable as India flirts with its biggest financial wobble for perhaps 20 years. Not since economic liberalisation unleashed private enterprise in the 1990s has there been such concern.

After the 2008 world economic crisis India recorded 9% GDP growth for at least two years but in recent weeks the rupee has tumbled, losing a sixth of its value against the dollar this month alone. Share prices have fallen, commodity prices are rising, investment is stalling, growth is slowing, and the government is staring at a huge balance of payments deficit. A sense of impending doom is building. Compounding the fears are signs that other emerging economies in Asia are also vulnerable, drawing inevitable questions as to whether this could turn into a repeat of the 1997 Asian financial crisis.

"It is a crisis," said economist Jayati Ghosh. "This is the big one. But it has been building up for a while due to many reasons: the growing current account deficit, the industrial slowdown, the lack of infrastructure development, the negative investment in the economy."

She sees the crisis as evidence that "the model of development which focuses only on GDP growth" has run its course. What is needed now is "wage and employment-led growth".

Other experts trace the problem to the failure of Manmohan Singh's government to push through structural reforms that could boost growth. The ruling Congress party's emphasis on huge government subsidy schemes, such as jobs for the rural poor, has added to an already high fiscal deficit.

"Just trying to accelerate growth from the present low level [annual GDP growth is now down to 5%] will help the economy," said economist Surjit Bhalla.

India imports much more than it exports, and so the current account deficit is at an unsustainable 4.8% of GDP. Until it is brought down, there can be very little hope of reviving investor confidence in the economy.

Gold has played an important role in skewing the trade deficit. A century ago, the economist John Maynard Keynes wrote that India's irrational love for gold was "ruinous to her economic development", and the obsession still runs deep. India's annual production of gold is barely 10 tonnes, so last year it imported 860 tonnes, which were made into jewellery or stored as coins and bars in family safes.

The government is now trying to stem the hunger for gold by increasing import duties. This has revived gold smuggling, a menace which in the 1960s led to the creation of the Mumbai underworld.

Jewellers are pushing for a more imaginative solution. It is estimated that households and Hindu temples are hoarding around 25,000 tonnes of gold bars and coins. Jewellers are lobbying government to implement a scheme that could unearth 10% of the treasure.

"It will meet the demand for jewellery for the next three years," said Vikas Chudasama, the secretary general of the All India Gems and Jewellery Association.

Economists and corporate bigwigs hope Singh's government comes up with other such solutions for resolving the economic crisis. The finance minister, Palaniappan Chidambaram, has tried to revive confidence by promising action, but major reforms have yet to be announced.

On the upside, this year's monsoon will lead to bumper agricultural production, and the cheaper rupee also comes with a thick silver lining. There will a surge in exports, especially in sectors such as information technology and pharmaceuticals, where India is a strong performer.

There is growing anxiety about the future, but India's middle class may not have lost faith yet in the possibility of economic regeneration. "I cannot see things improving soon," Ali said. "But I feel good days will come again."

 

[by78]

How India’s growth ended in tears

How India’s growth ended in tears


It's enough to make a poor man cry and a wealthy investor sprint for the exit. From the back of a van in Delhi's chaotic Karol Bagh market, opposition politicians are selling discounted onions to disgruntled voters ahead of next year's general election.

The humble red onion, heart of the vegetable curry most Indians depend on, has more than trebled in price in the last few weeks and opposition leaders hope the increase will take a large bite into the Congress-led government's remaining support.

Peeling back its bashed, husky outer skin to its tear-jerking inner layers reveals not only the story of why its price has risen so sharply in the last month, but why the rupee has bombed in the foreign exchange markets and how India's all-action 'growth story' has become a real weepy.

Last week, as the rupee tumbled below 63 to the US dollar and crashed through the 100 rupees to the pound barrier, onions were an unaffordable 80 rupees per kilo. The government may need to import them to increase supply and push back prices, but that option will become more expensive as rupee rates fall lower every day.

The immediate cause of the increase was the heavy monsoon rains in Maharashtra which left the vegetables rotting in the ground, but the price may not have soared so high had the government been strong and decisive enough to reform its agricultural sector when it first planned to in 2009.

It hoped foreign supermarkets like Tesco and Walmart would come in and revolutionise India's backward agricultural sector. Forty per cent of all Indian produce rots on clunky bullock carts and rough baked roads before reaching the market. When they arrive, farmers get a tiny fraction on the retail price as as they pass through at least five agents, each taking their cut. Of the eighty rupees per kilo they were selling for last week, the farmer's share was just eight.

India needs new smooth roads, cold-chain storage and modern transport logistics to replace sweaty bullock carts, and direct sales from farmer to retailer to stabilise prices, increase farm incomes and reduce food inflation - one of the country's most politically sensitive issues.

The Indian government came close to collapse when it first announced its plan to allow foreign supermarkets to set up shop in late 2011. But it backed down after a key coalition partner threatened to resign and bring down the government with it.

By the time the government decided to push through the reform regardless last year, all the main supermarkets had been frightened off by the instability they had seen, and requirements to source 30pc of their goods from local suppliers.

The speed of India's sudden decline has taken many, including hopeful 'partners' like Britain, by surprise. Barely three years ago, as Britain and the United States were staring at the worst recession in eight decades, India's economy was growing at 8.5pc, a pound could buy only 65 rupees and ministers casually talked of double digit growth by 2011.

They planned to spend a trillion dollars on upgrading roads, building new airports, ports, and faster trains. The spoke of opening up their pension, banking, legal, defence and education sectors, and creating new low-tax special economic zones where firms could set up base without going through the dense undergrowth of Indian bureaucracy.

Since then, very few of those trillion dollars have been spent, major power projects have been halted, and bills to lift other barriers to foreign investment are gathering dust as India's opposition regularly walks out of parliament in protest. Special Economic Zones have been abandoned and GDP has plunged to 5pc - not enough to maintain living standards when India's population becomes the world's largest within the next 15 years.

So, like Tesco and other supermarket chains, potential investors are holding back and watching.

Subodh Agarwal, co-founder of Mergers and Acquisition specialists Euromax Capital, made his fortune as an early champion of the Indian growth story. He began from Mumbai, India's financial capital, and eventually set up shop in London, Singapore and Dubai, playing a role in the great Indian take-away which saw some of its biggest firms buy British business icons like Corus Steel, Jaguar Land Rover and Whyte and Mackay distillers.

Today, he thinks he may have to close his loss-making Mumbai office, and blames the government for frittering away a golden opportunity. "Even Indians are not investing in India. Indians have lost faith in their own economy because of non-governance," he said.

It has failed to encourage longer term investment in essential infrastructure and instead made it easier for speculators to dip in and out. He believes the government should have introduced bonds for investors in infrastructure development but instead penalised major investors like the British mobile phone giant Vodafone, which was hit with an unexpected $2 billion tax bill after it acquired Indian rival Hutch in 2007.

It was just one of a series of decisions which made investors fear their money may not be safe in India.

That fear has frightened away investors when it has never needed them more to reduce a current account deficit which has "ballooned" to 4.8pc. Inflation is just under 9pc but will now rise steadily as the rupee continues to fall. Mr Agarwal believes the rupee will continue its slump to 77 to the dollar and beyond, pushing inflation to above 13pc within a few weeks. He believes India's hopes of recovery depend on a strong, decisive government emerging from the next election.

"We need a stable government to develop a long term financial plan and policies to encourage long term money, say dollar infrastructure bonds," he said. Investors will wait until the market has bottomed out, and the country's leadership offers strong governance. The crisis is "entirely political" he said. Most political analysts however expect the next government to be another fragile coalition.

G.P Hinduja, whose family group owns Ashok Leyland, one of India's largest truck and car manufacturers, said the fundamentals of the Indian economy remained sound, but negative perceptions of the government had thrown India into a negative cycle.

It appears that the government failed to see the warning signs of problems ahead when investment by Indian firms started to slow and taken continued growth for granted.

"Reforms got slowed down as a result, retrogressive steps such as retrospective application of tax laws were taken, large investment projects were held up for environmental and other reasons, with the government unable to take tough decisions because of coalition compulsions. Along with this, scams in various areas were exposed," he said.

The government needs to breakout of the vicious circle it's now in by clearing a number if major infrastructure projects, reassure international firms it will not apply laws retroactively, and resist pressure to reject environmental clearances for mining and industrial projects.

India's Current Account Deficit could be reduced by issuing sovereign bonds and a "voluntary disclosure scheme to incentivise money held abroad to return," he said.

With the election expected early next year, however, few decision makers are thinking of the long term, and neither are the voters who crowded around the Bharatiya Janata

Party's vegetable van in Karol Bagh last week to buy onions at a bargain 35 rupees a kilo. Like their political rulers, they're getting what they can while it's going.

 

[by78]

The ironies of India’s economic crisis

The ironies of India’s economic crisis

©EPA
Anot so funny thing happened while the world was watching for an emerging markets crisis to erupt in China. The crisis erupted in India instead.

Contagion typically attacks weak links first, often exposing vulnerabilities hidden in plain sight. The fall of the rupee exposes India as having the emerging world’s worst fiscal deficit and largest current account deficit in absolute terms.

What went wrong? For much of the past decade, India was celebrated as one of the emerging nations destined to rise indefinitely. Even after the global crisis of 2008, like China and others, it kept growth alive by spending heavily, helped by the easy money flowing out of the US. Behind the scenes, though, the picture was deteriorating, with crony capitalism, government subsidies and inflation rising rapidly.

As early as 2011, money started to flow out of emerging nations as the post-crisis stimulus began to wear off. Economic growth slowed and the flawed structures on which it was built became apparent. The tipping point came in May, when signals that the US Federal Reserve was serious about tapering off its quantitative easing programme triggered a sharp rise in long-term interest rates in the US, drawing dollars home. The trickle of money out of emerging markets turned into a flood. In India, more dependent than ever on foreign capital, the rupee has fallen 20 per cent since May – the largest decline of all emerging market currencies.

The reversal of global money flows has hit particularly hard those emerging markets with a high current account deficit, and leadership that has clung to power too long and lost the will to reform. Along with India, high on this list are countries recently struck by political unrest, including Turkey, Brazil and South Africa. In these nations, the stock market is this year down 10 to 20 per cent, and currencies another 8 to 20 per cent.

Economic growth has now fallen to an average of 4 per cent in emerging nations. In India, it is barely 5 per cent, disappointing for a country with an income of only $1,500 a head, compared with the emerging market average of nearly $10,000.

This is a familiar pickle for India, which has faced a crisis early in each decade since the 1980s. Like leaders in many emerging nations, India’s tend to grow complacent in good times, triggering a crisis, which forces reform, leading to a revival. What is unexpected today is that the crisis phase is unfolding under a leader credited for leading reforms after the 1991 crisis. Prime minister Manmohan Singh, an economist, has been consistently wrong on the economy. He has assumed strong investment and savings rates would keep growth above 8 per cent, and dismissed inflation as the natural price of prosperity and crony capitalism as a normal symptom of early-stage growth, rather than recognising it as the cancer it is.

India’s fundamentals have deteriorated steadily under Mr Singh’s government. Since 2007, the current account deficit has exploded from $8bn to $90bn; it now equals 5 per cent of gross domestic product, twice the level academic studies suggest is sustainable. Meanwhile, many corporations have been on a borrowing binge. Since 2007, borrowing by the 10 most indebted companies has risen sixfold to $120bn, with much of it denominated in foreign currencies. One in four companies does not have the cash flow to cover its interest payments adequately. Total short-term external debt has risen from $80bn to $170bn. There is talk in New Delhi that, for the third time since the crisis of 1981, India may have to appeal to the International Monetary Fund.

The situation is not yet that critical. The last time India turned to the IMF, in 1991, it had enough foreign exchange reserves to pay for less than a month’s worth of imports, compared with more than five months today. It also had much heavier short-term external debts. Nonetheless, the situation is now in the hands of global forces beyond India’s control.

The weak coalition government has been unable to muster a coherent response. Some tentative steps, such as recent openings to foreign direct investment, make sense but will affect the national accounts only after the crisis is decided by larger forces, such as the extent to which the Fed cuts back on quantitative easing.

The irony is profound. Indian leaders were quick to credit the boom to the country’s natural strengths, rather than the incoming tide of easy money. But now they are quick to blame their troubles on the receding global tide. Voters are wondering aloud how their “breakout nation” became a “breakdown nation”, seemingly overnight.

This crisis, too, shall pass, but a meaningful turnround is not likely until a new government is in place. With general elections due next year, it will be difficult to push tough reform in the coming months. India has always wanted to be the next China in economic terms – but beating China to the next crisis is not what Indians had in mind.

The writer, head of emerging markets and global macro at Morgan Stanley Investment Management, is the author of ‘Breakout Nations’




Walmart puts India expansion plans on hold

Walmart puts India expansion plans on hold

Walmart, the world’s largest retailer by sales, has put its India expansion plans on hold as it deals with two compliance investigations and unease over the government’s rules for foreign investment in retail businesses.

The US group, which operates 20 business-to-business wholesale stores in India in a joint venture with New Delhi-based conglomerate ****** Enterprises, has not opened a new cash-and-carry outlet since late October. Walmart debuted in India with its first wholesale store in 2009.

****** Retail, a ****** Enterprises subsidiary that runs the Easy Day chain of neighbourhood convenience stores with technical and managerial support from Walmart, has not opened any new outlets since early November. According to Indian media ****** also has terminated leases on more than a dozen properties that were to have been new stores in the last few months.

Walmart and its joint venture partner “have stopped expanding,” said a retail analyst who closely tracks developments in the market. “Business was doing okay – they had started to do reasonably well. All the issues they are facing are more at an internal audit level.”

Walmart stopped opening new stores in India after the government said it was investigating whether the US retailer violated a previous ban on foreign ownership of grocery stores by providing a $100m loan, through a compulsorily convertible debenture, to a ****** holding company for the EasyDay business. Under that deal, Walmart could convert the debt into equity once India allowed foreign ownership of front-end retail businesses. Critics called the transaction clandestine and illegal direct investment in the retail company.

Walmart is also investigating whether company executives in India violated the US Foreign Corrupt Practices Act by paying local government officials to secure permission to open stores, part of a widening internal audit of bribery allegations that first surfaced in Mexico.

Walmart declined to comment on its plans for India. In a written statement to the Financial Times it said it was “in compliance” with India’s rules on foreign direct investment and was co-operating with the government investigation.

“We continue to review the guidelines and work with the government to understand the rules that exist for foreign direct investment,” the company said. “We think India’s best days are ahead.”

Walmart this month transferred Mitchell Slape, who was serving as chief operating officer of ****** Retail, back to a job in the US, just over a year after he was dispatched to India to oversee the local business. His unexpected repatriation followed the abrupt departure two months earlier of Raj Jain, who had been chief executive of Walmart’s India operations since 2007.

Walmart is not the only western retailer going slow in India despite New Delhi’s long-awaited decision last September to finally permit foreign ownership of supermarkets and department stores.

Hypermarket chains including Tesco and Carrefour are tantalised by the Indian market’s potential, but have been put off by stringent conditions including capital investment requirements, mandatory sourcing from small businesses, and restrictions on store location.

With Parliamentary elections due in just eight months – and opposition parties threatening to reverse the Congress party decision to permit foreign ownership of grocery stores entirely if they win – most large global retailers are staying on the sidelines.

“Nobody is seriously evaluating India right now,” said Raghav Gupta, a principal at Booz & Company, the consultancy. “People are going to wait until after the elections.”

Walmart’s woes are a big setback for a company that had been aggressively positioning itself for the opening of India’s retail sector to foreign ownership. “They will lose a lot of the momentum and capabilities they had created in the market,” said Mr Gupta.

 

[WAR-rior]

We talking bout life of Indian Economic Glory here. I am actually thinking bout the Life of this thread.

Matter of months guyz. All the posters in here are up for a backlash by the Indians here.

 

[xyxmt]

India should have waited 20 more years before spending billions and billions on weapons and Mars mission, should have spent that money on infrastructure, education and health of her people.

 

[Edevelop]

Airfares from India to UAE marginally increase

Inbound airfares from India to the UAE are set to increase 5 to 7 per cent over the next month due to rising costs associated with the depreciating Indian currency.

The increase will hit taxes and surcharges only on inbound flights to the UAE and not on the return fare.

Kulwant Singh, Managing Director of Lama Tours, said in an email, the declining Indian rupee will increase operation costs and the price of fuel in India raising taxes and surcharges.

Singh said a 5 to 7 per cent increase in taxes and surchages would ultimately be passed on by the airlines onto passengers.

When the economy depreciates airline operating costs increase, Manju Manchanda, an independent travel consultant and UAE representative of India based-Swagatam Tours and Travel, said.

Wency Rodrigues, Sales and Marketing Manager at Abu Dhabi Bureau, said the increase in fuel surcharges would be as much as 5 per cent in taxes and surcharges. Rodrigriues said the increase would be marginal.



“It’s unlikely there will be a significant increase in the near future because it is now the low season,” he said.

The next big holiday period for Indian tourists is December.

Tarique Khatri, Senior Vice President at ClearTrip.ae, said in an email that short-term changes to fuel prices would be passed onto the customer but that outbound airfares were holding for the time being.

“There is plenty of inventory available between India and Middle East, which will keep the price rise in control,” he said.

A spokesperson for flydubai said via email the airline didn’t expect demand to hit by changes to pricing.

“flydubai has made a slight change to its fares to reflect the exchange rate variation and we do not expect the recent fall in the Indian Rupee to affect the demand for our flights,” the spokesperson said.

An Oman Air spokesperson said via email that the airline was monitoring the market.

Rodrigues said airlines in the UAE were considering increases to fuel surcharges for flights out of India but a formal decision was yet to be made.

Khatri said ClearTrip.ae was not aware of any immediate changes in rate schedules but that some airlines were discussing changes to baggage allowance, which would impact the overall ticket price.

Manchanda said restrictions to luggage allowance were just one way an airline was able to manage costs.

Luggage allowance has become a big factor for passengers flying from the UAE to India, she said, with airlines putting restrictions on baggage allowance to improve fuel efficiency and increase charges.

Singh said the weakened rupee meant airlines could explore different options in mitigating operational costs.

“There might be an increase in additional charges in luggage allowance or there may be an increase in in-flight meals for low fare carriers,” he said.

Singh also said constraints in the Indian currency meant airlines and travel agencies would need to need to rethink travel packages to the UAE.

He said package offers would need to be more exciting and feature more affordable options to make staying in the region more appealing.
Whilst airlines are yet to increase their rate structure, Singh said, the airlines rate had automatically gone up with the decline in rupee.

With the conversion of the currency, and the inclusion of hotel and air components, the package cost have gone up by nearly 20-25 per cent in the last few months, he added.

Singh said travel to the UAE would remain lucrative despite the increase in costs.
“Most of the Indian entrepreneurs are looking to venture out their business operations in the UAE as they see a tremendous potential growth in the region.”

Airfares from India to UAE to marginally increase | GulfNews.com