Indian Economy - News & Updates - Archive

[Bushroda]

Will boom in hospitality industry last?
Sunday, 07.29.2007, 09:44pm (GMT-7)

NEW DELHI: Delhi's established players of the Indian hospitality industry last week discussed the current boom being witnessed by the industry and debated how long will this boom really last. The industry gurus were brought together at the Hotelex Conclave II, which was organized by CMP trade exhibition organizers on July 20 at India Habitat Centre. Distinguished speakers at the Conclave were Vipin Luthra- MD Ansal Group, Atul Mehrotra- Director Uppal Orchid Group, Kamal Sharma- Secretary General FHRAI.

The moderator was Anuraag Bhatnagar- GM Le- Meridian, Jaipur.While providing a great opportunity for this generation, there are some challenges that need to be worked to retain the burgeoning sector and this was the highlight of the second edition of Hotelex Conclave."India in its growth and evolution, is witnessing a great change in this sector.

The Indian hospitality market is booming and has become a target for big global names within the industry" stated M. Gandhi Managing Director UBM India Pvt Ltd. He added, "We are overwhelmed with the support and the tremendous response we got out of both the conclaves in Mumbai and Delhi. We look forward to similar response in Bangalore too in August." Commenting on the session, Kamal Sharma, Secretary General FHRAI said, "With the economy growing at a fast pace, the approach and thinking of the people has to grow to keep pace and continue to contribute to the booming industry".

Vipin Luthra, MD Ansal Group said, "There is no doubt boom is there and it will grow. Demand will continue to grow, lots of projects are in pipeline but the boom growth depends on the supplier side, there is uncertainty from supplier side" Hotelex Conclave is a prelude to Hotelex India 2007 - India's leading hospitality industry exhibition.

After successfully completing 16 years of Hotelex Shanghai the largest trade fair for China's travel, hotel & catering Industry; CMP announced Hotelex India 2007 a truly international hospitality exhibition due to take place from December 6 - 8 at MMRDA Ground, Bandra Kurla Complex, Mumbai.

 

[Bushroda]

Activist investors do a world of good to corp governance
30 Jul, 2007, 0817 hrs IST, TNN

Do private equity and hedge funds increase corporate governance in the companies they invest in? This issue, raised by an OECD report released last week, has become highly relevant for Indian markets, with PE and hedge funds now constituting a major source of capital.

The report finds that ‘activist’ hedge funds and PE firms can make significant impact on corporate governance practices by making informed use of their shareholder rights. This may include demands for changes in management, the composition of the board, dividend policies, company strategy, company capital structure and acquisition plans.

PE and hedge funds (a certain variety of them) behave differently from other institutional investors in that they are more activist. In fact, their stated purpose is to increase the market value of their pooled capital through active engagement with individual public companies.

So, while MFs, or traditional FII funds, are larger players in Indian (or global) markets at this point, their impact on invested companies is perhaps less, since both are not activist by design.

While both MFs and FIIs tend to favour companies with good corporate governance, they do not normally take an activist stance towards corporate governance. They tend to use the street phrase ‘vote with their feet’ - they sell out if they don’t like a company. MFs and FIIs normally take stakes of 5% or less, have many such stakes, and have neither time nor intent of directly influencing management. PE funds, on the other hand, take stakes of 10% or more and most often seek a board seat.

They then actively do things like select management and board members, review performance, and approve business plans. These funds thus behave like promoters. All this happens not only in unlisted companies, but even in PE engagements of listed mid-size companies.

The OECD report concludes that in the presence of perfect capital markets there would be little scope for a special category of ‘active’ investors, like PE firms and ‘activist’ hedge funds. However, when markets are not perfect but characterised by information asymmetries, managements might pursue their own goals and interests rather than those in the best interest of the company and its shareholders.

The report says most of world’s investment capital is with funds which are ‘passive’ investors. In such a situation, activist hedge funds that are not constrained in their shareholding levels and that which have strong incentives to exercise their shareholder rights could improve the overall efficiency of capital markets and underpin good corporate governance.

Evidence of the impact of role of PE investors can be seen in many listed companies. As has been pointed repeatedly in ET and Investors Guide, companies where PE funds have invested have shown a tendency to outperform market indices.

All PE invested clearly don’t outperform either. One such company, which could provide a good test of skills of an activist outside investor, could be Sical Logistics, where IDFC PE invested Rs 110 crore in Mar 2007 for a 14.8% stake.

Sical is a diversified logistics company with operations like handling of bulk cargo, offshore and inland logistics. All these areas have tremendous growth potential. All segments of logistics business have been growing strongly over the last three years, with manufacturing and trade booming in India. Other logistics companies outperformed Sical by wide margins. Many of these companies have smaller revenues and operations, yet now have market cap 2-3 times higher than Sical. In other words, Sical was either not exactly capitalising on the opportunities the roaring Indian economy was presenting. While Sical did raise $75 million in Apr 2006 through an FCCB issue (and so FII types entered the stock in a bigger way), its shares continued to languish.

IDFC PE’s entry coincided with a series of changes. Sical announced a target to reach revenues of $1 billion by 2012, or about four times its FY07 number, implying a 5-year growth rate of 32%.

Simultaneously, there have been management changes. IDFC got its representative Luis Miranda on Sical’s board. In April, the promoter family of Sical, MAC group, distanced itself from the firm. All senior family members barring vice chairman of MAC Group - Ashwin Muthiah resigned from the board. The Sical board now has two promoter nominees and three independent directors. There are changes in operating management as well.

The shares reacted favourably to IDFC’s entry. It broke out of its range of last two years or so, reaching a high of nearly Rs 300. It is important to note that the Sical management may have on its own planned many of these new changes, and IDFC may have had little role. A couple of negative developments have caused the stock to retrace. The FY07 results weren’t good, net profit was lower than FY06. Then earlier this month, an offshore supply vessel Sical operated for ONGC sunk.

So the share price now is back at Rs 240 levels, where roughly IDFC PE had entered. So can an activist PE help a laggard outperform? We will perhaps see in the next few months.

 

[Bushroda]

Innovation to deliver affordability
30 Jul, 2007, 0258 hrs IST,Kiran Mazumdar Shaw,

The Indian pharmaceutical industry has enjoyed the comfort of duplicating patented drugs for nearly four decades under the shelter of a Patents Act that only recognised process- based innovation.

Today, this sector is challenged by a new patent regime that calls for new business strategies devoid of local protection to face global competition.

The World Trade Organisation sounded the alarm bell in 1995, the year when India agreed to pass legislation over a 10-year transition period to align its Patents Act with TRIPS (Trade-Related aspects of Intellectual Property rights). For the Indian pharmaceutical industry 2005 was the pivotal year. The time had arrived for a new innovation-led business model with all its daunting risks and its enormous potential.

The corporate rhetoric has been impressive: India is a knowledge-led economy that has a large and diverse scientific and clinical skill base which provides a strong global competitive edge to Indian pharma. Yet two years on, the pharmaceutical sector in India is unable to demonstrate its acceptance of a product patent system that calls for a shift from a generics mindset to an innovator psyche.

It is India Inc’s diffidence that has extended the legal debate on providing market exclusivity to Novartis for “Gleevec”, an issue which is being argued on the grounds that “ever greening” of patents should be denied. On the contrary, Indian companies should be innovating the next generation Gleevec and commercialise it through indigenous development that will deliver affordability.

However, the apprehension of taking on and managing risk prevents India Inc to move from generics to new molecules. The combination of risk and unpredictability even hinders the investor community and stock markets to invest and value innovation. If India Inc is to attain global leadership in pharmaceuticals, we must recognise and enable the important paradigm shift between manufacturing generics and inventing and commercialising novel drugs.

Today, the Indian pharma sector is ranked fourth in terms of volume and thirteenth in terms of value globally. It is imperative that we leverage our intellectual capital to climb up the value chain and it is important that we do it our way as opposed to replicating the model used by the west which completely forgets the affordability factor.

Affordability is now recognised as a critical factor by national health systems and private insurance companies across the globe in their efforts to build sustainable models for healthcare against a challenging backdrop of ageing populations and scientific progress.

It is also well accepted that developing new therapeutics for Malaria, TB, AIDS and other neglected diseases will have to be done in the developing world if they are to reach the patients that need them. Affordable innovation that delivers affordable drugs to the market is the only way forward. India needs to leverage its affordable cost base to deliver high value innovation to global markets by building excellence across the innovation chain from discovery to product and clinical development.

The Indian market provides many potential value-adds to our native pharma industry. To begin with, India accounts for nearly a fifth of the world population, an appealing potential market size, but with abysmal penetration levels of less than 30%, implying that over 70% of the population have no access to basic healthcare. Looked at differently, this represents an enormous untapped market that can realise large revenues which could be channelled into R&D.

In order to undergo transformational change with respect to R&D, Indian pharma companies have to increase current research expenditure from 1-2% to 7-10% of their sales revenue. A greater concern is that our publicly-funded research labs have failed to deliver high value innovation, which has imposed an additional cost on Indian industry to outsource intellectual property from overseas through in-licensing, outright acquisition, co-development and through other alliances.

At a time when the global drug industry is struggling to deliver new drugs to the market, the regulatory environment is becoming increasingly hostile and insurers and governments are challenged with rising healthcare costs, Indian drug companies have a unique opportunity to cost competitively develop affordable drugs for world markets.

Our talent pool combined with our flourishing capital markets that can fund innovation enable us to address the cost and productivity challenges being faced by the developed world. This is our challenge and our opportunity to create the start of a “Golden era” for the pharma sector in India. Let’s not fail our country and its citizens who all deserve access to affordable medicine!

It is only by building intellectual property that the Indian drug industry can differentiate and attain sustainable growth. Learning to compete with globally-benchmarked patent norms is integral to this effort. India Inc must learn to play the patenting game and beat global competitors without bending the rules. It is only through a concerted strategy of building high value intellectual property through the leveraging of India’s cost and skill base that we can gain market leadership.

We have to pursue a growth path that breaks away from low margin, commoditising generics to stable and high margin new molecules. This is only possible if there is a concerted effort of all the Indian constituencies, the government, the regulators, the investors, the industry, the research centres, patent attorneys and academic researchers to make it happen.

 

[Bushroda]

From the ringside, it’s clear: Stay the course on reforms
Express News Service
Monday, July 30, 2007

NEW DELHI, JULY 29: Economic reforms over the past decade and a half have shown an India that was previously unknown to the rest of the world. In the last two years, India’s growth story has just got that much better with the economy clocking 9 per cent GDP growth in consecutive years.

For N K Singh, who has been in the centre of decision-making right through the years of liberalisation — ranging from the Finance Ministry, Planning Commission and even the Prime Minister’s Office, what he calls is being “in the ring” — “there is still a large unfinished agenda” for this reform-led growth story for it to be more widespread and sustainable.

In his book The Politics of Change: A Ringside View, a collection of articles written by him in The Indian Express and The Financial Express, Singh highlights the task ahead for the country in a rapidly changing economic and social landscape.

Over the years, “much has changed” but “much more needs to change” and it is these changes that are not easy, says Singh, but the important thing to be realized is that the country “must stay the course” and allow “the politics of change to be binding, and not a divisive, influence in realizing our untapped growth potential”.

Unlike the early and mid-90s, it’s no longer marketing the India story. “Everybody has bought that” says Singh. Now is the time to come out with innovative models and ideas and find localised solutions to problems faced in various part of the country that are yet receive the benefits from the trickle-down effect.

While his book touches upon issues as wide-ranging from multilateral relations to energy and infrastructure development and very often pointing out what is lacking in the approach, N K Singh told The Indian Express that at our present stage of development, it is still surprising to find a maze of bureaucracy in the education sector — a key sector where reforms are critical to ensure furthering of the benefits of reforms — that puts the license-permit raj era to shame.

In sectors such as these, mere lip service will not do — much more needs to be done and that “it’s too early to declare victory” Singh said.

In an era of coalition politics, Singh, in his book says, the “consensus mantra” should not be a device “for leadership to postpone decisions”. Rather “resolving contentious issues cannot be postponed if the lofty aim of 10 per cent growth is to be realised”.

Given Singh’s tenure during the reform era, what is very interesting are some of the anecdotal recounts of why things happen. Or do not happen.

For instance, it was a nostalgic memory of the Indira Gandhi era when banks were nationalised that prevented a legislation diluting government equity in nationalised banks to see the light of the day.

It is these interesting facets of decision making in a reform era which has also drawn people like Lawrence Summers (former US Treasury Secretary) to say that “Singh has a great story to tell”. In fact, T N Srinivasan of Yale University calls Singh’s essays a “penetrating analysis” highlighting the “complex interplay of economics and politics involved in reforming the Indian economy”.

‘Essential reading on economic reforms’

Turning another page in its Books Series venture, The Indian Express Group will formally launch The Politics of Change: A Ringside View by N K Singh on Monday. It will be released in New Delhi by Finance Minister P Chidambaram.

Published by Penguin Books, the book’s release will be followed by a panel discussion which will have Arun Shourie, K V Kamath, Mukesh Ambani, Prannoy Roy and Shekhar Gupta.

Says Shekhar Gupta, Editor-in-Chief, The Indian Express: “This selection of NK’s very fine, very popular and very informative columns from The Indian Express and The Financial Express on subjects ranging from the initiation of reforms in infrastructure, the insurance sector, Centre-state relations, coalition politics, global perspectives on India to the challenges the country continues to face on the reform path, will be essential reading for any student of the history of Indian economic reforms.”

N K Singh has held several key positions in the Commerce and Industry Ministries, at State and Central levels. Presently, he is Deputy Chairman of the Bihar State Planning Commission, guiding his state through a frenetic era of growth and development.

 

[Bushroda]

McKinsey study reveals upbeat mood

New Delhi, July 29 (PTI): A recent McKinsey study showed that Indian executives were the most optimistic in the world in terms of expectations for growth in economy, their industries and improvement in inflation levels.

Most executives in the world, except those in North America, expect economic conditions to improve in the next six months. Indians come on the top with 81 per cent expressing a positive outlook.

There are robust economic growth projections despite a growing threat from inflation all over the world, the study said.

In India, the latest government data showed the rate of inflation rising to 4.41 per cent in the week ended July 14 after remaining unchanged for two weeks.

While fuel prices in the country were steady in the latest reported period, the McKinsey study found that nearly two-third of executives all over the world saw oil and gas costs as the biggest driver of inflation.

Indian executives were the most optimistic about decline in inflation over the next six months. Most Chinese executives expected the rate of inflation to rise from its current level. Thirty-nine per cent of the Indian executives expected inflation to decline, while 36 per cent saw it rising in the next six months.

In comparison, 75 per cent of the Chinese executives saw inflation rising against only 7 per cent expecting a fall. In North America, 59 per cent of the respondents anticipated a rise and 10 per cent saw a decline in the future. In Asia-Pacific, 67 per cent anticipate higher inflation and 50 per cent of the European executives see a rise.

The prospect of higher inflation is prevalent in regions where the overall economic outlook has become more positive in the last quarter, McKinsey said.

Chinese respondents, for instance, were not optimistic about inflation with 75 per cent feeling it would go up in the next couple of months. In India and the Latin American countries, less than 45 per cent expected a higher inflation.

“These findings are particularly surprising — in India because the rupee has been appreciating steadily against the dollar and in Latin America because of the region’s historically high rates of inflation,” the study said.

 

[Bushroda]

Mumbai's local trains get facelift
Ketki Angre
Sunday, July 29, 2007 (Mumbai)

Mumbai's lifeline, the local trains are set to get a facelift. The Maharashtra Chief Minister Vilasrao Deshmukh flagged off the new and improved version that will hopefully make life of Mumbaikars' better.

The new train with a sleek new look, better ventilation and even a public address system will roll out on the tracks by October this year.

Though currently the trains are being tested, the railways assure that in the next two years 157 such rakes will roll in to replace the city's ageing fleet.

Deshmukh may not really occupy the driver's seat nor would he have gone through the troubles of traveling in a over crowded Virar fast but he certainly enjoyed the experience.

''Certainly, it looks so nice and comfortable. I am sure this will go faster than the cars we travel in,'' said Vilasrao Deshmukh, Chief Minister, Maharashtra.

However, don't jump the gun yet. It will take at least three more months before the new trains can make Mumbaikars' journey more comfortable.


http://imageshack.us

http://imageshack.us

http://imageshack.us

 

[Bushroda]

Rs 50,000-cr plan to make Mumbai world-class city
29 Jul 2007, 1611 hrs IST,PTI

MUMBAI: A massive Rs 50,000-crore makeover plan is underway in this financial hub to create world-class infrastructure and set up an integrated urban transport system that will combine the suburban rail network with a metro rail system, hovercrafts and sea links.

For the integrated urban transport system, a unified authority called the Urban Transport Managament Authority will be set up to bring about an integrated fare structure and linkages among different modes of transport.

The integration will attempt to create a coordinated routine and scheduling for the rail, rapid transit system, bus services and water transport. It will also work on unification of fare structure, rationalisation of redundant services and a coordinated public information system.

With this integrated approach, Maharashtra Special Projects Secretary Sanjay G Ubale said, a commuter can buy a single ticket at the starting point and use different modes of transport like suburban rail, metro, waterways and road transport to reach a final destination.

As part of the project, Mumbai will have nine metro corridors that will be mostly elevated and connect various suburban points. The project will also upgrade the three railway suburb network and create a Worli-Nariman Point sea link, an East Island Freeway and a waterway between Borivli and Nariman Point.

The plan, to be completed by 2015, will also provide for inter-modal terminals at various points for transfers between different modes of transports.

The unified metropolitan transport authority will also create a sub-system for road, rail, waterways and air transportation, including a network of railways, parking lots and private and public modes of transport.

Elaborating on the plan, Ubale said the western and central suburban railway lines will be upgraded to have six lanes so that four lanes could exclusively be used for suburban traffic and two lines for outbound passenger and freight traffic.

Besides introducing 157 new suburban rail rakes in the next two years, plans are underway to introduce AC suburban rails as in the metro.

The first phase of the metro project will connect the 11-km stretch of Versova-Andheri-Ghatkopar, the 38-km stretch of Colaba-Mahim-Charkop and the 14-km Bandra-Kurla-Mankhurd stretch.

The Anil Dhirubhai Ambani Group has bagged the Versova-Andheri-Ghatkopar corridor and the company can bid for the remaining corridors too, Ubale said.

The World Bank, Indian Railways and the Maharashtra government are funding the first phase worth Rs 2,356-crore. The second phase includes extending the Harbour line up to Goregaon, adding extra tracks in the Kurla-CST, Borivli-Mumbai Central and Thane-Kalyan stretches.

Work is in progress on the six-km sea link between Worli and Bandra, which is expected to cost Rs 1,100 crore. The bridge is expected to be operational by April 2008. Under the Rs 364-crore East Island Freeway project, the government plans to build an elevated bridge between Museum and Anik Panjarpur Road.

 

[Bushroda]

Tremendous scope to increase Indian FDI - official
Mon Jul 30, 2007 10:58AM IST

MUMBAI (Reuters) - India attracted more than $6 billion of foreign direct investment (FDI) in the June quarter and the scope to increase the inflows is enormous, a senior government official said in the Mint newspaper on Monday.

"The scope of increasing (FDI) is tremendous once foreign money starts coming into infrastructure, which even today, is not attracting funds to its potential," Ajay Dua, secretary of the department of industrial policy and promotion, told the paper.

Dua, who retires this week, said the key issues for foreign investors were assured revenue streams and risk mitigation.

Foreign direct investment more than doubled to 19.5 billion in 2006/07 (April/March), and the target for 2007/08 is $30 billion.

Last month, a government-appointed panel said India needed to invest $475 billion in its infrastructure over the next five years if the economy was to sustain a 9 percent growth rate in the medium term.

Dua said at least $10 billion to $15 billion of funds could come from Japan once Indian companies were able to issue Japanese depository receipts (JDR).

Dua said while Japanese law did not permit Indian companies to issue JDRs at present, he said India had been told the amendments should be in place by early September.

 

[Bushroda]

RISE AND SHINE - Urban, industrial and commercial India since 1991
COMMENTARAO
S.L. RAO

A Kumbhakarna waking in India after sleeping since 1991, would have rubbed his eyes in disbelief. In the shops are apples from Fiji and China, Swiss chocolates, almost all the latest models of cars, cell phones, television, hi-fi equipment, and many consumer products including designer clothes, bags and other such luxuries. Most urban middle-class young men and women go to work, earning good salaries. So do the young from lower socio-economic strata with little education, in malls, multiplexes, fast food restaurants, supermarkets and hotels.

Housing loans at 10 per cent interest, the Sensex at 15,000 and rising, over $200 billion of foreign exchange reserves, the rupee rising every day in relation to the dollar and even other currencies, Indians welcomed as immigrants in most developed countries, India labelled as the new superpower of this century and sharply declining poverty levels make India a different country from what it was in 1991.

The rich and the middle classes are very much better off. But the over-fifty-fives of 1991 are now dependent on the generosity of their prosperous children because their savings are too small for the new higher prices of almost everything. The unorganized sector has more employment than before, but incomes remain low while agriculture has become an uncertain occupation for the many small land-owners.

Many industrialists in 1991 did not recognize that India had joined the world and would never again be an insular economy. Our opening the economy coincided with the revolution in telecommunications, information technology, travel and the growing shortage in the developed countries of people and of skills at affordable costs. Those Indian businesses that did not seize the new opportunities died or disappeared. There were many who did change and developed significant businesses. Some of them became the new barons of the Indian and the world economies.

Most knights of the ‘level playing field’ led by Rahul Bajaj later joined the race to take advantage of the new situation. Bajaj, for example, handed over to his sons, who spent some of the large cash reserves on brand building, research and development, new production facilities and new professional managers. Fortunate ones like the Parle soft-drink clan, Balsara, MTR and many others found buyers and sold out. The ‘swadeshi-ites’ led by the physicist-politician, Murli Manohar Joshi, had demanded preference to the indigenous over the foreign and coined the memorable phrase, “Yes to computer chips but no to potato chips”, shorthand for foreign investment only in high-technology areas. He and his supporters were silenced by India’s leadership in the IT revolution, the businesses it spawned and the new global reach of Indian business and human talent. Joshi’s disciples remain in government and outside and oppose foreign investment in, say, telecom and retailing. The sleazy underbelly of government, by innovating shady schemes that are mostly real estate scams like the special economic zones, give the Joshi disciples more ammunition.

The state-owned enterprises are the missing guests at this prosperous table. Their control by government bureaucrats, appointment of CEOs who are government officers, interference in investment decisions and limits on pricing freedom are some ways in which their prosperity has been hindered. An example of control was in the recent ONGC saga, first with the attempt to put the regulator of exploration, the director-general, Hydrocarbons, on the board, and then the humiliating treatment of the succeeding chairman selected by a neutral panel, initially giving him ‘acting’ charge and then confirming him after a year. The appointment of IAS officers to run the newly merged national carriers is a guarantee (from past experience) that this sensible move and its long-awaited investment in new planes will fail. The bold investment plans of BSNL have been stymied by a new minister who overruled his knowledgeable predecessor for unknown reasons. The oil-marketing companies have lost large sums because government does not want to allow higher prices for petroleum products so as to counter inflation, nor to add to its deficits by directly meeting the shortfall.

However, the nationalized banks have so improved that they now pose real competition to foreign and private banks. So have the insurance companies. BSNL has retained its No. 1 position despite intense competition. BHEL has shown good profits, but government ownership has induced a timidity that is now leading to shortages of power plants. Single-product companies like NTPC or Power Grid cannot, because of government ownership, get into related diversification.

There have been many surprising revivals. In the late Eighties, the UB group was a conglomerate with control over its original and successful liquor business, Best & Crompton, a dying engineering company, an unprofitable Hindustan Polymer, a polyester-maker, poorly run Mangalore Refinery, Berger Paints, and a pharmaceutical company. Today it is highly focused; the second largest liquor company in the world with foreign brands owned by it, and No. 2 in the airline business in India. The rest were divested. So has Parry developed a narrow focus and become very successful in fertilizers and houseware. Sanmar, a Madras group, has similarly focused its business much more on its core chemicals and plastics. TATA has become a global company, as have the Aditya Birla group, Bharat Forge and many others. Even a small company like RAIN Calcining is now the largest in the world in calcined petroleum coke through organic growth and overseas acquisition. Indian companies have displaced multinationals in India in the pharmaceutical industry.

Stories in foreign business magazines and books about strategies, buyouts, compensation and so on are no longer merely interesting reading. They are also about our companies as they grow, globalize and become more competitive. Where the maximum salary allowed by the registrar of companies for a CEO was Rs 90,000 a year, now the same company pays in crores apart from stock options and commissions, not only to the MD but also to the other top executives. But not in public sector enterprises.

Before 1991, the circumstances and challenges were different. The economy was protected and licensing ruled all management decisions. Foreign partners, imported technology and legal consumer-goods imports were all ruled by government. Smuggled products were therefore common. A departing embassy official in Delhi could sell all his belongings, even used garments, for good prices, such was the craze for foreign goods. This craze is not there now because everything is made or imported into India. Management was about small markets, small production capacities, premium prices, poor quality and relative neglect of the consumer. Most successful enterprises of past years had bought into the political system— like the Goenkas, Apollo under Raunaq Singh, the Modis, Birlas and others.

Dhirubhai Ambani also ably played the system. But he was a great visionary, a tremendous manager who was good at spotting and rewarding talented people and a genius at innovative ways of raising finance. His visions in deciding to integrate vertically, from oil well to wall socket, planning for long-distance phone calls in India to cost as much as a postcard, for fantastic volumes in a variety of products and then creating markets for them, would have assured his success in any environment.

Hindustan Lever used government policies to keep its business growing under majority foreign shareholding. After 1991, though first off the mark in acquiring new businesses, it could not integrate them successfully. The world is different today for urban, industrial and commercial India. We need the government to be more fixated on improving it for all.

 

[Bushroda]

Growth rate set to blaze soon
30 Jul, 2007, 0355 hrs IST,MK Venu & Shaji Vikraman, TNN

NEW DELHI: Double-digit growth is no longer the preserve of China or some small oil economies. India’s growth rate for 2006-07 is likely to be revised upwards from the current estimate of 9.4% to almost 10%. This is because growth has been more robust than estimated in both agriculture and manufacturing, according to highly-placed government sources.

What would this mean for this year’s GDP growth? Since the base for comparison has become larger, one could argue that this year’s growth would be lower. But that is an arithmetic view of growth. The economic factors that drove growth to the touching distance of 10% last fiscal could sustain the momentum this year, too, to keep the growth rate above 9%, according to senior economists in the government.

That’s not all. The economy’s managers can take heart. If containing inflation at a yearly average of 5.4% was a creditable achievement when growth was estimated at 9.4%, the same task seems even more creditable when it turns out that growth was 10%. Looking forward, the central bank could consider relaxing its tight grip on monetary expansion a bit, considering that real expansion could be larger than what it has been bargaining for.

The 2006-07 growth rate in the agricultural sector is turning out to be higher than 2.7%, as estimated by the Central Statistical Organisation earlier. The revised growth rate in the sector could be 4% or more.

Similarly, the manufacturing growth rate will be higher than the estimated 12.3%. The combined effect of these two factors could take GDP growth up in the range of 9.8-9.9%, sources said. The higher agriculture output will result mainly from an upward revision in the kharif output by about 4 million tonnes during the fiscal. The rabi output, too, has been estimated to be higher than anticipated.

The GDP had expanded by 9% in 2005-06 and 7.5% in 2004-05. Per capita income has grown by 8.4% during the period under review as against 7.4% growth in the previous year, as per the CSO data.

While releasing the growth figures for 2006-07, the finance minister had remarked, “The time has come to shed lingering doubts about the sustainability of high growth and scepticism about the shift to a higher growth trajectory.”

If indeed the growth rate is revised to about 9.8-9.9%, the base effect could be somewhat daunting for fiscal 2007-08. The question is if a near-10% growth can be sustained on the back of a similar rate of growth the previous year. Economists say growth in 2007-08 will reflect recent attempts by the RBI and government to tighten money supply by hiking interest rates.

A deliberate policy to somewhat cool down the economy may marginally decelerate the growth rate, even though we are in the middle of a new investment cycle. The chairman of prime minister’s economic advisory council C Rangarajan is fairly confident India is now experiencing an investment-driven rather than consumption-driven growth. This is the one critical factor that might deliver a consistent GDP growth of 9%-plus for another few years, officials believe.

 

[Bushroda]

Ensuring the multiplier effect in growth
30 Jul, 2007, 0311 hrs IST,Jaideep Mishra, TNN

"There is occasions and causes, why and wherefore in all things"— memorably and incisively composed the Bard.

Consider, for instance, fast-paced currency appreciation. Foreign institutional investors seem very bullish on India. Never mind the lull in the monsoons, it’s simply pouring dollars here.

As a consequence, the value of the rupee has risen at breakneck speed vis-à-vis the dollar, over 14% since last July. It’s the fastest in decades, and surely calls for an appropriate monetary policy stance. The sudden hardening of the rupee ought not to wreak havoc on export performance, and overtly affect the ‘real’ economy.

But in tandem, what is needed is a proactive technology policy design to shore up efficiency, productiveness and innovation right across the board in the domestic economy. For, as India sustains the economic growth momentum, the rupee is bound to be on a strong wicket.

In the short term though, it does make sense for the Reserve Bank of India to intervene in the foreign exchange market buying dollars, so as to prevent unwarranted appreciation of the rupee.

Given the umpteen distortions and rigidities in the markets for goods and services, not allowing for one more anomaly — namely policy induced undervaluation of the rupee — would almost certainly stem exports and decelerate the growth momentum.

Note that our merchandise exports now constitute 20% of GDP, with the SME segment accounting for about 65% of the trade. Given that profit margins in the long chain of small and medium enterprises are generally in the single digits, a policy of preventing excessive rupee appreciation would clearly have beneficial, economy-wide effects. There would be fiscal costs, no doubt, in the RBI mopping up dollars.

The resultant release of rupee funds would require the issue of bonds under the Market Stabilisation Scheme to absorb liquidity and tame inflation, stepped-up recourse to the Liquidity Adjustment Facility through the reverse repo window (surplus liquidity in the system is now placed with the RBI at a rate of interest of 6%), and increase in the cash reserve ratio for the banking sector. The overall economic benefits ought to be far greater, certainly in the short-term.

However, the monetary measures would tend to increase interest rates and egg on even larger capital flows. Which is all the more reason for a cutting-edge technology policy for long-term competitive advantage. It has been shown since the mid-1950s, on the basis of disaggregated growth accounting data, that in the mature economies by far the biggest factor contributing to growth is productivity improvement and know-how, read technology. It is a demonstrated fact that sensible R&D investments have a multiplier effect, revving up efficiencies and opening up new, emerging vistas for growth.

The way ahead is a clear-cut policy for better allocation of resources for technology upgradation and increased spend on R&D. The latest estimates suggest that our R&D funding, as a percentage of GDP, has just about touched 1%, thanks to improved sectoral allocations in pharma, autos and I-T. But the figure is far lower than that in competitor economies, and overwhelmingly concentrated in a few prestige public sector projects.

The prime minister has been thinking aloud about the need to boost R&D funding to 2% of GDP by 2012. A detailed gameplan would make eminent sense. Technology textiles, for example, are a $120-plus billion export opportunity waiting to be tapped. The 2003 technology policy statement says, “it is important to draw on the many unique civilisational qualities that define the inner strength of India.” A more concrete strategy would make a world of difference.

 

[Bushroda]

Indian railways chug into the future
By Sanjoy Majumder
BBC News, Delhi

There is a saying that the only way to discover the real India is by taking a train journey.

For decades, many adventurous tourists have used this option - travelling on crowded, non-air conditioned carriages often with wooden seats, at a steady pace through the Indian countryside.

It brought them face-to-face with millions of ordinary Indians who make up the six billion people transported by this vast network every year - middle-class families on vacation, farm or factory workers heading home to their villages, soldiers off to join their colleagues on the frontier.

For years the state-owned system was the ultimate symbol of socialist India - a service subsidised by the state so that the vast lengths of the country could be linked.

While impressive, it was also characterised by poor services, slow trains, fil-thy stations and archaic signalling systems.

It also never made any money.

Now, remarkably, all that has changed.

Over the past year Indian Railways has generated profits of $4.5bn - double that of India's largest private company, Reliance Industries.

Turnaround

It is also attracting more passengers and improving its services with better trains and improved comforts.

So how has Indian Railways - which is government-owned and operated by a vast bureaucracy - turned things around in a highly competitive market?

I decided to start at the very beginning - at the magnificent and enormous Victoria Terminus in Mumbai (Bombay) - a Gothic architectural masterpiece with lofty domes, carved stone friezes and stained glass windows.

It is a ready reminder that the railways were started when India was a part of the British empire.

This is where, in 1853, 400 people boarded the first ever passenger service in India, from Mumbai to neighbouring Thane - a distance of 34km (about 20 miles).

Now, of course, the railways in India span 60,000km and bridge the enormous diversity of this continent-sized country - from the high Himalayan mountains in the north to the western desert, the western and eastern coasts, the deep south and the distant north-eastern state of Assam.

It is, in effect, India's lifeline.

The vast terminal is teeming with people, as they wait patiently for the first of many of the long-distance expresses to pull in.

Travelling by rail in India has always been relatively inexpensive - a trip from Mumbai to the capital, Delhi, costs between 425 and 3,000 rupees ($10-$73) depending on the class of travel.

But the deregulation of the Indian aviation market has led to a huge increase in budget airlines offering cheaper fares.

So the railways have decided to hit back.

On platform four, a huge crowd is waiting for the fully-air conditioned Garib Rath [Poor-Man's Chariot] to pull in.

Among those waiting are the Ansari family.

Comfortable

Every year, Mumbai shop worker Zahir Ansari takes his family to his village in north India.

But for the first time in their lives, they will be travelling in air-conditioned comfort.

"My wife read about this train in the papers and insisted I try and get us tickets," he says.

"It will be so much more comfortable for the boys in the summer heat," he adds, looking at his two little sons.

The Garib Rath is just one of many initiatives taken by Indian Railways in its effort to attract more passengers.

At the other end of the scale is the Shatabdi Express.

This high-speed inter-city train caters to business travellers making the point-to-point journey between Indian cities which are located fairly close to each other - and can be covered in about eight hours or less.

On the Mumbai-Ahmedabad Shatabdi, it is all about living in the fast lane.

As our blue and gold train pulls away, I am seated in an airline-style seat with a footrest, personal reading lamp, a laptop and mobile phone point and a personal LCD television screen to watch the latest stock market trends.

A uniformed attendant pushes a cart through the narrow aisle offering passengers beverages followed by soup and dinner.

Changes

The seven-hour journey costs 1,295 rupees ($32).

There are other changes too.

Eating on board has always been a major part of the Indian railway experience.

From piping hot tea served in little ceramic cups to spicy curries and omelette on toast - the railways have always catered to a variety of tastes.

But now, at the modern Mumbai Central station there is a huge sign towering over the concourse - twin golden arches of the world's most famous fast-food brand, McDonalds.

There is also a pizzeria, Starbucks-style coffee shops and Indian fast-food restaurants serving their takeaways in cardboard boxes.

And on board, tea is now made with teabags and served in a little plastic cup.

Indian Railways own vast spaces across the country - mostly around their stations.

These will now be rented or leased out to big retail giants - Walmart, local retail brands and hotels.

Considering that the railways have about 7,000 stations across the country, there is plenty of space. It is estimated that 40,000 hectares of railway land is at the moment under-utilised or completely unused.

But to get a real sense of where their ambitions lie, I head out to Mulund - a suburb of Mumbai and home to one of the system's many inland container depots.

This is where huge containers are brought in from Mumbai port to be transported along the railway network to various parts of the country.

"Every half-hour, a container train is setting off somewhere in the country," says Manish Kumar, general manager of the depot.

Business sense

Recognising that freight can be a major source of revenue in an economy that is one of the fastest growing in the world, the railways have now decided to build dedicated lines for freight trains connecting Delhi with Mumbai and Calcutta.

A senior official at the Railway Ministry, Sudhir Kumar, says the system has been able to turn things around simply by working on their strengths - by improving the infrastructure so that they can carry more loads, people and cargo.

"We are still a public utility and are fully conscious of our social obligations," he says.

"But I feel that there is no inherent conflict between commercial opportunities and social obligation."

So as India continues to transform under its growing economy - some of its oldest and most venerated institutions are beginning to change with clear results.

Even if some of the romance has gone out of one of the world's oldest and largest railway systems.

 

[Bushroda]

Geopolitics, Oil And Water
Robyn Meredith
FORBES, NY
07.30.07

Before our eyes, two giant nations--India and China--are simultaneously embracing both capitalism and globalization. The world economy is being transformed as a result, as Forbes Senior Editor Robyn Meredith explains in her new book, The Elephant and the Dragon: The Rise of India and China and What It Means to All of Us ($26, W.W. Norton, 2007). Each weekday through July 31, Forbes.com will post a new excerpt from the book.

Until 1600, India and China combined accounted for more than half the globe's economic output, sending everything from silk, porcelain, tea, furniture, spices and wallpaper--a Chinese invention--overland via the Silk Road or via ship on the Spice Route. Until the late 19th century, India and China remained the world's two largest economies.

But protectionism and world wars intervened, then India and China shut themselves off from the world. By 2003, India and China together accounted for just 20% of the global economy, despite their vast populations.

After a century-long hiatus, India and China are moving back toward their historic equilibrium in the global economy, and that is producing tectonic shifts in economics as well as geopolitics.

As India and China rejoin the global economy, three big issues--besides jobs--are coming to the forefront. First, as the two giant nations go through industrial revolutions, their appetites for natural resources are skyrocketing. The new demand is leading to higher world prices. Their growing thirst for petroleum, along with newfound economic strength, is causing shifts in political alliances around the world.

In addition, now that both nations are richer and have new technology, both are quickly modernizing their militaries, causing powerful shifts in geopolitics not seen since the end of the Cold War. Finally, as India and China industrialize, their already dire pollution is worsening. The result is blackened air and water for them, along with danger for the world's environment.

The most troubling element of the latter-day industrial revolutions in India and China may lie in their soaring energy demands. The rise in the consumption of natural resources is significant because of the sheer number of people involved: There are a combined 600 million Americans and Europeans, but more than a billion Chinese and a billion Indians. India's oil consumption has doubled since 1992, and China's has doubled since 1994. Today, India and China have low per-capita petroleum consumption, but if the two nations used as much oil as the U.S., there wouldn't be enough oil for the world.

The race for resources like oil can put countries at loggerheads, and the foreign policies of both India and China are increasingly dictated by their energy needs. They have made up with historical enemies and, more alarmingly, have cozied up to nations led by despots or in otherwise unsavory states of affairs. Before our eyes, post-Cold War political alliances are shifting.

For now, as the Indian and Chinese economies grow and reclaim a larger slice of the global economic pie, both are growing more connected to the rest of the world, not more estranged from it. Disagreements between nations are no longer disputes about economic models--communism vs. capitalism. Capitalism decisively won the Cold War debate, and that has helped hundreds of millions of Indians and Chinese prosper by ushering in the globalization era that has created so many jobs and bettered so many lives in developing countries.

So far, the increased trade has drawn nations closer together--even to the point of answering each other's e-mails and phone calls. The whole world has a stake in keeping vibrant worldwide trade going, rather than giving in to the temptation to try to protect jobs at home instead of letting them flow freely around the world.

The challenge for all nations is to negotiate the new terrain of a globe that again contains a powerful India and China. The geopolitical shifts are enormous, but the economic developments may force even bigger adjustments--for India and China, as well as for the West.

 

[Bushroda]

The Internet's Spice Route
Robyn Meredith 07.24.07, 6:00 AM ET
FORBES, NY

Before our eyes, two giant nations--India and China--are simultaneously embracing both capitalism and globalization. The world economy is being transformed as a result, as Forbes Senior Editor Robyn Meredith explains in her new book, The Elephant and the Dragon: The Rise of India and China and What it Means to All of Us ($26, W.W. Norton, 2007) . Each weekday through July 27, Forbes.com will post a new excerpt from the book.

Middle-class Americans and Britons are growing increasingly worried that their jobs will be moved from Boston to Bangalore, from Manchester to Mumbai, from Dallas to Delhi. The fears of these Western workers are justified. India has more than 100 million English speakers--about twice as many as the U.K itself--and that is helping India attract millions of new jobs, propelling its once-crumbling economy into the 21st century.

Hundreds of thousands of white-collar, service industry jobs have already moved to India, and more are on the way--as many as 300,000 American jobs each year will move overseas for the next 30 years--9 million jobs in all, estimates McKinsey Global Institute, McKinsey & Co.'s economics think tank.

On behalf of foreign companies, Indians answer phone calls, write computer code and increasingly perform far more sophisticated tasks--from accounting to investment banking--that previously were performed strictly in corporate offices across America and Europe.

Just as China has famously become the factory to the world, India is becoming the world's back office. The birth of the remote back office has turbocharged the Indian economy, reorganized the way business is done in India and around the world, and spread India Fever among foreign companies.

Stunningly significant changes are coming. "I don't think most people appreciate the magnitude of the change in the world’s workforce; this is a tsunami coming our way," said Intel's (nasdaq: INTC - news - people ) Chairman, Craig Barrett. "Over the next 10 years you are going to see major, major dislocation." Intel has already hired 2,900 Indian workers. Of the world’s 500 largest companies, 400 send middle class work to India, up from 150 in 2000.

The new practice of moving white-collar work overseas is called offshoring, and it put long-ignored India on the map as a market for foreign companies. In 2005, Microsoft (nasdaq: MSFT - news - people ), Intel and Cisco (nasdaq: CSCO - news - people ) each announced they would invest more than $1 billion in India. IBM (nyse: IBM - news - people ) said it would invest $4 billion.

"IBM is not going to miss this opportunity," said Samuel J. Palmisano, chief executive of IBM, which already has 43,000 employees in 14 Indian cities. IBM already runs information technology systems for 225 of its client companies entirely from India.

For Western workers, there are three big problems caused by offshoring--the movement of white-collar work overseas. First, certain industries, like computer programming, are being hit very hard by job losses. Second, for those industries where there is less job movement, wages can still be held down by the fact that the jobs could be moved overseas, even if they are not. Third, with the labor market globalized, workers should expect their jobs and careers will be less stable over decades as businesses continually evaluate where they can most efficiently have work done.

Not all the news is bad for American workers--some of the job movement will even create jobs in the U.S. at higher wages. But Americans in many fields will need to get used to changing jobs, or even careers, more often.

However worrying for Westerners, the success of the offshoring movement has been a catalyst for economic growth in India. Hearing that economic powerhouses like America are worrying about competing with India has instilled pride in business and government leaders as well as workers. The creation of just a few hundred thousand jobs for college graduates in a land with a billion people has had a disproportionate effect.

As we'll see in the next installment, the ability to connect cheap workers in India and China with the modern technology and infrastructure of the global economy is not just changing the lives of workers worldwide. It is not merely changing companies' fortunes. It is also changing the very way business is done--a revolution that has not been equaled since Henry Ford unleashed the assembly line.

 

[Bushroda]

Advantage of appreciating rupee
By Ashwani Mahajan

Appreciation of rupee would make imports cheaper and as such it would be cheaper to buy goods from abroad. Petrol should be cheap and so would be gold. Food items which are scarce in the country like pulses, edible oil etc. would get cheaper. All this may send a negative impact on agriculture and industry in the country, for which we may have to make fiscal adjustments.

How to take the benefit of appreciating rupee

First of all those who feel appreciating rupee is a curse should change their opinion. Our commerce minister says that strengthening rupee would send a negative impact on exports. When he says so, he seems to be echoing the historical argument in favour of devaluation of rupee. Exporter had always argued that more and more of devaluation of rupee is the only way to increase exports. Accepting such arguments, rupee was devalued in 1966 and later in 1983-84. Since then rupee has depreciated from rupees 7.80 in 1983 to rupees 49 by mid 2002. But despite depreciating rupee the rate of growth of our exports has always been less than the rate of growth of our imports. If we think in terms of economic principles, under such circumstances appreciation of rupee rather than depreciation of rupee is the only way to reduce our trade deficit. More important is the fact that recent appreciation of rupee is not due to government’s intervention but due to forces of the market. Supporters of globalisation have always been in favour of free market forces. Why are they arguing for restricting this tendency though RBI’s intervention is beyond comprehension?

Government can take advantage of appreciating rupee

Due to appreciating rupee, people all over the globe, are getting attracted to this currency. It is obvious that now since dollar is depreciating vis-à-vis rupee, people would prefer to keep rupees, instead of dollars. Under such circumstances government, is working fast on a scheme to issue rupee dominated international debt. In the past, official debt as well as commercial borrowings both were repayable in terms of dollars. Not only government can take the benefit of borrowing at cheap rate of interest, but Indian companies can also borrow internationally at cheap rate of interest by issuing rupee dominated debt. The proposal has been mooted by the Department of Economic Affairs, Ministry of Finance and is being discussed by policy makers at a higher level. There are many other advantages of issuing rupee dominated debt. One, there would not be any unwarranted expansion of money supply despite borrowings from abroad. Two, there would not be any currency related risk because loan would be repayable in rupees. Three, there would not be any risk of large scale flight of capital in the event of fast upheavals in exchange rates. Infact now the risk of upheavals in the exchange rates would be borne by foreign investors. Four, government companies and private companies may now have the facility to borrow at a lower rate of interest and as such this would help us in keeping the rate of interest low in the economy. Global rating agency-Standard and Poors have increased India’s sovereign credit rating to investment grade (BBB) from speculative rate (BB+). Experts feel that due to this improved rating the country has become attractive to a range of global investors. This would help the government to raise debt at highly competitive rates.