Indian Economy - News & Updates - Archive

[Contrarian]

IOC plans to buy Turkish petrochem co


NEW DELHI: Flagship refiner-marketer IndianOil Corporation is putting in the pipeline India's presence in a crucial energy corridor between Central and North Asia and the consumption centres in the West. The state-owned entity has submitted an expression of interest for acquiring the Turkish government-run chemicals maker Petkim Petrokimya and back it up with a $6 billion refinery on the Mediterranean coast.

"The Turkish government is disinvesting 53-54% in Petkim. We have put in an EoI (expression of interest). Bids will close on June 15. I would like to believe IndianOil will bid jointly with the Calik group with whom we have a strategic partnership," said B M Bansal, the man incharge of finding new businesses for IndianOil.

A majority stake in Petkim could be worth half a billion dollars, though Bansal declined to put any figure. "We have to do due diligence and take a call." He believes acquiring Petkim will open the gates for other businesses in Turkey. "Petkim is the only petrochem maker in Turkey, which depends on imports for meeting three-quarters of its needs. The proposed refinery will feed raw material to Petkim. Once the synergy is there, we can look at retailing."

Bansal said the plan is to build a refinery with an annual capacity of 15 million tonnes at Ceyhan on the Mediterranean Sea. He expects the plant to be ready by 2012. IndianOil will hold 51% in the refinery and is looking at a partner which has access to oilfields in the Central Asian region or Russia to feed the refinery. Here too, Bansal expects Calik to be a partner "but we will retain majority as we want to control operations".

Petkim and the refinery appears to be a growth strategy flowing out of IndianOil's 12.5% stake in the Trans-Anatolian Pipeline Company (TAPCO) which is laying an oil pipeline from Turkey's Black Sea port of Samsun to Ceyhan. TAPCO is now equally owned by Turkey's Calik Enerji and Italy's Eni which has an oilfield in Kazakhstan and is a partner in the Blue Stream pipeline project. The 550-km Samsun-Ceyhan pipeline will carry 1.5 million barrels of oil a day, or 70 million tonnes a year, when completed by 2009-10.

Ceyhan is emerging as a strategic oil export hub. It is seen as an upcoming energy supermarket with an annual capacity of 160 million tonnes. Three million barrels of oil is estimated to pass through the Turkish Straits by 2013. This will rise to four million barrels together with product export.

The Samsun pipeline provides a way to transport Russian and Kazakh oil to the Black Sea and on to the Mediterranean safely and economically. The project will ease environmental and safety pressures from increasing tanker traffic in the Bosporus and the Dardanelles.

The pipeline, however, has drawn frowns from Russia which is looking at a Burgaz-Dedeagac alternative. But Calik-ENI maintain that though Russian firms are welcome as partners, they will go ahead with the project even without them.

 

[Contrarian]

India to drive Cisco's next-generation growth
Mini Joseph Tejaswi
[ 28 Mar, 2007 0048hrs ISTTIMES NEWS NETWORK ]
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BANGALORE: The next level global growth of $30 billion networking major Cisco Systems will be based out of India.

Cisco started its networking with India a decade ago. Being one of the top 10 revenue contributors — among 110 geographies — of Cisco's global operations, it is the globalisation centre for all Cisco functions.

Currently, the company is busy preparing ground to spearhead an exponential growth from India. "It's clear that the next wave of our growth is going to be controlled by India. India is so crucial for us, that we are moving 20% of our global leadership here by 2010. Growing at a CAGR of 30%, we also have a target to double our revenue in India by that time," said Jangoo Dalal, president & country manager (India, SAARC), Cisco.

Cisco is gearing up to play a vital role in shaping the future of world-wide phenomenon, the internet. "The next big waves of change for internet are video-on-demand, IPTV and downloads. The volume of data on the net is going to grow from mega, giga, to hexabyte in the next three to five years. This will change the fundamentals of technology and networking, which in turn will revolunalise the internet. We are all set to play a crucial role in this shift."

According to Dalal, most of the internet applications and content, in the future, will be individual-driven rather than enterprise-centric. "Shared movies, pixs, art forms, videos, files, music, other content, blog sites all will soon be huge and happening. Virtually, the content on internet is going to be controlled by individuals, professionals, students, housewives and children."

Cisco will design and develop technology and solutions to support such explosive growth of the internet. "We are investing heavily in R&D to make the network more intelligent. We are focusing on high-definition tele-technology that virtually cuts distances between enterprises, geographies and people." Already everything that moves on the internet somewhere touches a Cisco box. Cisco has increased its focus on R&D in India. Globally, it spends 10% to 15% of its annual turnover on R&D.

Small and medium businesses will be crucial for Cisco's India business. The company is currently in the process of training its eight channel partners and 1,500 resellers across the country in order to expand its non-metro presence. "It's tough for us to grow market share in a country where we already have over 80% of it. So, our focus is to grow the market. We see a great traction in rural India. The target is to grow our non-metro market share from current 15% to 25% in the next couple of years."

Cisco will focus on multiple business domains including banking, finance, insurance, government, SMB, telecom, manufacturing, retail and services. "We are creating an organised real estate vertical as we see great opportunities emerging from special economic zones. We are putting a team together, talking to customers and thought leaders," added Dalal.

 

[Contrarian]

Nippon Steel, Tata in talks for joint production
[ 27 Mar, 2007 2349hrs ISTPTI ]
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NEW DELHI: Fresh with its takeover of Anglo-Dutch giant Corus, Tata Steel has now started talks with world's second-largest steelmaker Nippon of Japan for jointly producing the alloy for automakers and other companies.

"We are in talks with Nippon Steel for joint production of steel to meet rising demand from automotive sector," a Tata Steel spokesperson said. The two firms are in the process of finalising the details of the venture, he added. Nippon also confirmed the discussions in a statement, but gave no details about the venture.

Japanese media reports said the companies are likely to spend about $423 million (about Rs 2,000 crore) to make thin-sheet steel mainly used in automotive bodies at a jointly built plant using Nippon's technology.

The plant would be able to produce about one million metric tons of steel a year, Nikkei English News said. The proposed facility would meet the demand from automakers, including Japanese companies like Suzuki Motor, Toyota and Honda, in India where many of these firms have set up manufacturing units to tap the growing middle class.

Tata-Nippon cooperation follows Tatas' $12 billion acquisition of Corus Group, catapulting the combined entity to the fifth spot in global steel ranking with a total production capacity of 24 million tonnes annually.

In a statement, Nippon Steel said it was considering carrying out studies while monitoring (steel) demand and other situations in the sub-continent.

The Nikkei reported Nippon and Tata are expected to begin a feasibility study soon to decide on a new plant's location, size and construction start date. They are likely to spend around $423 million to kick off supplies of steel sheets to Japanese and other automakers in India by 2010, the paper said.

The company's move signifies the importance of India as a growing steel market and that Japanese steelmakers were keen to gain access to its fast-growing market, using their technological prowess to roll out high-grade steel products.

A media report said Nippon Steel president Akio Mimura and Tata Steel MD B Muthuraman met recently to discuss various issues. Nippon has a sheet steel joint venture with Baoshan Iron & Steel Company in neighbouring China and in Brazil, it has partnered with Usiminas.

 

[Contrarian]

Parryware Roca plans Rs 750 crore investment
[ 27 Mar, 2007 2345hrs ISTAGENCIES ]
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NEW DELHI: Parryware Roca, a JV of Murugappa Group and global leader in sanitary ware Roca, on Tuesday said it plans to invest about 130 million euros (Rs 750 crore) in two years for acquisitions and expansion in India.

"Every year we will invest about 12-15 million euros for both marketing activities and scaling up manufacturing," Parryware Roca chairman A Vellayan said. He said considering the history of the parent companies of the joint venture, acquisitions in the Indian market was very much on the agenda.

"For the next two years, our acquisition budget for the Indian market is about 100 million euros. We are on the look out for brands here," Domingo Colomo Prados, Roca Corp Empresarial senior MD of executive board, said. The JV is looking out for both regional and national brands, which can add value to its portfolio.

Parryware Roca launched its first range of products in the premium segment of the bathroom and sanitary ware solutions priced at Rs 1.5 lakh onwards. The company is eyeing 10% market share of the Rs 100 crore organised top-end segment in the next two years. Vellayan said the 50:50 JV expects to have 20 showroom for the Roca products in India this year, which will be scaled up to 30 next year.

"In the next one year we expect to start manufacturing Roca products in India from our facilities in Alwar and Perundurai," he said.

 

[Neo]

Indian bank plans branches in Pakistan

NEW DELHI (March 28 2007): India's second largest public sector lender, Punjab National Bank, said it plans to open branches in Pakistan. "We already have got approval from our board for opening branches in Pakistan and applied to Reserve Bank for regulatory approvals."

Punjab National Bank CMD S C Gupta told reporters after inaugurating an ATM center at Birla Mandir here, says Press Trust of India. Once RBI gives regulatory approvals, the bank would approach Pakistani authorities for the approvals, he said. When asked about the cities where PNB intends to have presence, Gupta said the bank is interested in opening a branch in Karachi and another in Lahore.

Karachi is preferred for business reasons while Lahore for historical reason, he said, adding but so far nothing concrete has happened on this front. Opening up of branches in the neighbouring country would promote goodwill and cement our relationship, he said.

The city-based bank had 23 branches in Pakistan before partition. On dilution of government stake, Gupta said the Board has approved dilution of government's stake in the bank by 6.8 percent to 51 percent. Presently, the government holding in the bank stands at 57.8 percent, he said, adding as and when there would be need for capital the bank would decide about it.

The Capital Adequacy Ratio of the bank as on December 2006 stood at 12.9 percent and there is no immediate need to raise further capital at this point of time, he said. The bank is yet to decide about the means through which government's stake would be reduced, as it can either go in for follow on offer or the QIP route, he added.

http://www.brecorder.com/index.php?id=543925&currPageNo=2&query=&search=&term=&supDate=

 

[Contrarian]

FIPB to take a call on Vodafone today
[ 29 Mar, 2007 0105hrs ISTTIMES NEWS NETWORK ]
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NEW DELHI: A day before the crucial FIPB meeting, which is slated to take up Vodafone's proposal to buy Hutchison Telecom International Ltd's (HTIL) stake in Hutch Essar, the British company's brass made their rounds of ministries to impress upon the government that the shareholding pattern did not breach the mandated 74% FDI cap.

Vodafone's director for external affairs Matthew Kirk met telecom secretary D S Mathur and some of the other members of the FIPB, which is an inter-ministerial panel headed by finance secretary A K Jha. An agency report said that Kirk's meeting with Mathur centred around licensing issues.

Kirk along with representatives from Hutch Essar will make presentations before the FIPB on Thursday evening to provide the panel with the point of view of companies on why the holding structure is as per government stipulations.

RBI, which had been consulted by FIPB, has raised apprehensions about the shareholding pattern and following its report, the inter-ministerial panel last week decided to give the companies a chance to present their case before taking a decision on Vodafone's application which was submitted on February 20.

The controversy revolves around the 15% stake held by Hutch Essar CEO Asim Ghosh, Max India's Analjit Singh and IDFC through a special purpose vehicle. Besides, the Ruias of Essar, who hold a 33% stake in the Indian joint venture, have 22% shareholding through foreign arms.

The remaining 52% stake is held by HTIL, which is being acquired by Vodafone, that has put an enterprise value of $18.1 billion on Hutch Essar. With the 15% shares held through the SPV, Vodafone will acquire 67% economic interest in the Indian company.

HTIL shares fell 4.4% to a five-month low of HK$14.76 on the Hong Kong Stock Exchange on concerns that the deal may be delayed.

 

[Contrarian]

Infineon to set up $4b chip plant with HSMC


NEW DELHI: The world's fourth largest chipmaker Infineon Technologies AG has tied up with Hindustan Semiconductor Manufacturing Corporation (HSMC), promoted by a group of non-resident Indians, to set up chip making facilities plant at an investment of over $4 billion.

While the German company will not have any equity interest in the project, with its role limited to providing technology, the promoters are yet to tie up funds. Even the location is yet to be worked out.

The facility will ship chips to be used in mobile phones, SIM cards, automotive products, smart cards, set top boxes and cable TV products in the Indian market.

The fabrication unit, which will come complete with a chip design centre, foundry, testing facility and equipment suppliers, is expected to start production in around two years time.

"The first fab will require an investment of $1 billion and will produce chips on 8 inch wafers. The second one will be far more advanced... 12 inch wafer requiring an investment of $3.2-3.5 billion," HSMC and Infineon said.

Wednesday's announcement was the first since the policy to promote investment in semiconductor facilities was announced recently.

For units in special economic zones (SEZs), the government will give incentives equal to 20% of the capital expenditure during the first 10 years of the project. The incentive will be equal to 25% of capital expenditure for units in other areas.

Even before the policy, SemIndia, another NRI-promoted company, tied up with AMD to set up a fabrication facility in Andhra Pradesh. A host of others, including Intel, have in the past evinced interest in setting up chipmaking or testing units in India but no one else has come forward.

Unlike in the past SEZs being the most recent example everyone is not going to get the benefits with the government deciding to restrict the sops to only three players. And who the three players would be is to be decided by a panel that will scrutinise the proposals.

Rush to set up units comes from projected jump in demand from $3 billion in 2006 to $36 billion by 2015 riding a boom in electronic goods. While India is turning into a hub for chip design centres no manufacturing takes place at present.
http://timesofindia.indiatimes.com/..._chip_plant_with_HSMC/articleshow/1825487.cms

 

[Neo]

India outpaces Pakistan in boosting cotton yield

By Mansoor Ahmad

LAHORE: India, using hi-tech cotton research, has increased its cotton production by more than 200 kg per hectare since 1991 while Pakistan during this period could be able to raise cotton production by 54 kg per hectare.

Cotton is the only crop where Pakistan enjoys huge productivity advantage over India. The International Cotton Advisory Committee, in its data, reveals that in 1991 average per hectare yield of cotton in India was 267 kg compared to 615 kg in Pakistan. In 2006, per hectare production of India shot up to 470 kg while Pakistan boosted the yield to 679 kg. This shows that India is rapidly narrowing the production gap with Pakistan.

Presentations made by various cotton research institutes of Pakistan to the spinners and farmers reveal that the main thrust of these institutes is still on developing normal pest-resistant varieties that after a few sowings become vulnerable to pest attack, which can destroy a sizable chunk of the crop.

The data provided by Pakistani scientists reveals that after India Pakistan has the lowest per hectare yield of cotton. Pakistan obtains 679 kg of cotton lint per hectare compared to 1,864 kg in Australia, 1,571 kg in Syria, 1,312 kg in Mexico and 1,289 kg in Turkey.

Cotton crop in Pakistan is cultivated by using normal seeds and biotech cotton has not yet been introduced in the country. India has an area of 3.8 million hectares cultivated with BT cotton.

Indian farmers, according to Dr Yusuf Zafar of PAEC Faisalabad, have additionally benefited to the tune of $463 million by growing biotech cotton as its yield has increased by 46 per cent in the last five years. He said that Pakistan was still in the process of awarding regulatory approval for sowing BT cotton.

However, most of the cotton-growing countries have shifted 30 to 40 per cent of the crop to BT cotton.

The condition of soil in Pakistan is far from satisfactory as it has an adverse impact on all crops including cotton. Director Cotton Research Institute Multan Muhammad Arshad said most of the soil in the country was affected by saline. Shortage of irrigation water leads to more sowing on saline soils while 70 per cent of underground water is marginally fit for irrigation purpose. To tackle the situation, he called for immediate corrective steps to improve the quality of soil.

Cotton scientists and researchers have given a detailed analysis of the current cotton crop situation and its future prospects, saying the local industry would need 20 million bales of cotton by 2020.

There are 10 cotton research institutes and sub-stations operating in Punjab. Except for one or two, most are still conducting research to develop normal seed varieties for cotton.

Comparing cotton yields of different provinces, it becomes evident that cotton yield in Punjab is lower than that of Sindh. In 2006-07, Sindh increased its yield to 895 kg per hectare while Punjab could obtain 689 kg.

As far as research is concerned, the activity to develop normal disease-resistant cotton varieties seems to be very slow as since the year 2000 only three new seed varieties have been released by researchers for cultivation.

In 2006-07, cotton has been sown over 2.951 million acres against the target of 3.25 million acres. Total production is estimated at 12.41 million bales against earlier projection of over 13 million bales.

Despite current gloomy situation, the researchers expect Punjab will produce 16 million bales of cotton by 2014 and its yield will increase from 22 maunds per acre to 33 maunds.

Pakistan made rapid gains in cotton production from 1947 to 1991 during which output increased four times from 160 kg per hectare to 615 kg. After that, the increase in production has been painfully slow.

http://www.thenews.com.pk/daily_detail.asp?id=48781

 

[Neo]

Satyam Computer wins contract from Applied Materials

NEW DELHI: India’s Satyam Computer Services said on Wednesday it has won a $200 million outsourcing contract from US semiconductor equipment maker Applied Materials Inc.

Under the five-year contract, Satyam will provide services to develop software and maintain the information technology infrastructure of Santa Clara, California-based Applied Materials, the Indian company said in a statement.

Hyderabad-based Satyam Computer Services is India’s fourth-largest software company.

A dedicated development center has been set up in Bangalore, India’s technology hub, to execute the contract with Applied Materials, the statement said

The statement quoted Ron Kifer, chief information officer of Applied Materials, as saying that the deal is expected to ìprovide us with a very cost-effective solution for managing IT and business infrastructure processes and activities, as well as measurable service level and quality enhancements.î

US and European companies are increasingly shrinking or closing down their information technology departments to get these jobs done at a lower cost in countries like India a trend that is expected to drive the next boom in outsourcing. Earlier, companies outsourced mostly call center services and back-office work like accounting and billing.

http://www.thenews.com.pk/daily_detail.asp?id=48798

 

[Contrarian]

BT cotton has a WHOLE LOT of problems associated with it. There is problem wrt it in India.

 

[Neo]

Please elaborate.
Thanks!

 

[Neo]

Thursday, 29 March 2007

BMW unveils India assembly plant
By Jorn Madslien
Business reporter, BBC News, Chennai, India

BMW has invested 20m euros in India.

German carmaker BMW has unveiled its first assembly plant in Chennai, India's fourth largest city.

Local assembly of the 3-series and 5-series should help BMW avoid a 60% import duty and other taxes that make cars shipped from abroad prohibitively expensive.

Even so, BMW expects to remain a niche high-end player in a market dominated by small cars produced by local companies such as Maruti, Tata and Mahindra & Mahindra.

"When it comes to firm orders with down-payments, we have a couple of hundred," said Peter Kronschnabel, president of BMW India.

Mercedes, BMW's main rival in India and the absolute leader in the luxury segment, has been assembling cars in India since 1993 and currently sells about 2,000 cars per year.

Massive potential

If we have the customers, we can produce 10,000 cars at this plant, no problem

Frank-Peter Arndt, BMW

The luxury segment is puny in India, accounting for no more than 0.03% of the market.

Nevertheless, high-end carmakers see it as crucial to build a presence here due to the market's anticipated growth.

In 2000, only five in every 1,000 Indians owned a car; by 2010, the number is expected to have risen to 11 per 1,000. By 2010 there could be 13 million cars on India's already crowded roads, up from just 5 million in 2000.

"We want to benefit from this growth potential, but we also want to make an active contribution to this growth," said Norbert Reithofer, chairman of BMW's board of management.

"Our plant here in Chennai is a clear commitment to India as a business location," said Mr Reithofer.

"Chennai has a developed infrastructure and it benefits from having parts suppliers nearby," added Frank-Peter Arndt, BMW board member in charge of production.

Cautious start

Most of the parts will be shipped in.

Initially, BMW has invested 20m euros in its Chennai plant and BMW India's headquarters in Gurgaon outside Delhi, creating 600 jobs directly and a further 600 indirectly through its service and dealer network.

Almost all the parts will be shipped in, including the engine and body, although seats for the 3-series and door panels for the 5-series will be produced locally.

It aims to assemble 1,700 cars per year at the plant in the medium term, though this could rise if demand grows, said Mr Arndt.

"If we have the customers, we can produce 10,000 cars at this plant, no problem," he said.

http://news.bbc.co.uk/2/hi/business/6505987.stm

 

[Neo]

Sunday, April 01, 2007

India’s Tata Power Company in $1.3 billion Bumi coal deal

MUMBAI/JAKARTA: India’s Tata Power Co on Saturday came closer to securing long-term fuel supplies to produce cheap power by signing a $1.3 billion deal to buy stakes in Indonesian PT Bumi Resources Tbk’s two coal mines.

Tata Power and Bumi Resources said the Indian firm had agreed to buy 30 percent stakes in Bumi’s PT Kaltim Prima Coal and PT Arutmin Indonesia, two of Indonesia’s largest coal mines, and a related trading company.

“These particular assets were truly world-class ... not just for the coal mines themselves, but because of the infrastructure they have for shipping,” Prasad Menon, Tata Power’s managing director told Reuters.

“Coal is still by far the cheapest option and India has to depend on coal, both Indian and imported,” he said.

The two coal mines produced 53.5 million tonnes of coal per year in 2006.

Tata Power said it will also buy 10 million tonnes of coal from Kaltim Prima Coal for two proposed power projects with a capacity to generate a total of 7,000 megawatts (MW). The plants will be built on the west coast of India over next five years.

“We know that coal production at these mines can and will be jacked up considerably in the near future to anything by 20-25 million tonnes, frankly that’s what attracted us as such assets are very, very difficult to come by,” Menon said.

Tata Power part of India’s salt-to-software Tata Group generates 2,300 MW and has been eyeing coal reserves in Australia, Indonesia and South Africa to tie up supplies for its proposed 15,000-MW capacity expansion plan.

Tata Power needs about 21 million tonnes of imported coal, 50 percent of which will be addressed through this deal, S Ramakrishnan, the company’s executive director for finance, said. Coal dominates Indian energy needs with a nearly 41 percent share.

Indian firms from steel to energy are looking overseas to tap new markets and buy brands, production and technology, spurred by strong earnings in an economy growing at 9 percent a year, easy credit and fewer regulatory hurdles. In January, Tata Power’s associate firm Tata Steel paid a record-breaking $12 billion to acquire Anglo-Dutch producer Corus Group.

Chequered record: Last year Bumi failed to sell stakes in the two mines to a local investment bank Renaissance Capital for $3.2 billion after heavy rain affected performance of one of the mines up for sale. But Ramakrishnan said: “Our due diligence has not revealed any such concerns.” Tata Power has three months to complete the transaction.

Tata Power, which owns hydro-electric stations, prefers coal over natural gas as it helps to produce cheaper electricity. Ramakrishnan said the deal would be funded through a combination of debt and internal accruals.

Analysts surveyed by Reuters Estimates expect Tata Power’s net profit for the full year to March 31, 2007 to drop nearly 6 percent to 5.76 billion rupees from a year ago.

Ramakrishnan declined to comment on the forecast but said the deal would not be a drain on the company’s balance sheet. “It minimizes our risk as far as coal procurement for the big projects goes,” he said.

http://www.dailytimes.com.pk/default.asp?page=2007\04\01\story_1-4-2007_pg5_26

 

[Janbaz]

Delay for Vodafone's India deal

Indian regulators have delayed their decision on whether to clear Vodafone's $11.1bn (£5.7bn) deal to take a controlling stake in Hutchison Essar.
They have asked for more time to ensure the move will not put too much of Hutchison into foreign hands, contravening Indian investment rules.

However, Vodafone said it was confident it would satisfy the requirements and could complete the deal.

Chief executive Arun Sarin said that approval was only weeks away.

Vodafone is buying a 67% stake in the firm.

India's Foreign Investment Promotion Board was examining if the shareholding structure broke regulations allowing foreign ownership of up to 74% in a domestic telecoms firm.

BBC News.
http://news.bbc.co.uk/2/hi/business/6509699.stm

 

[Janbaz]

What next for Indian interest rates?

Indian stocks ended over 600 points down, nearly 5%, on Monday following fears that Asia's fourth largest economy may begin to slow down.

This comes after the country's central bank, the Reserve Bank of India, raised key interest rates in an effort to lower inflation which is at a two-year high.

Monday's stock market fall was one of the sharpest in recent months.


Investors are nervous about the future earnings of Indian corporates in an environment where rising interest rates means the money supply will be tight and credit will be more expensive.

The biggest losers were bank stocks as investors felt that interest rate increases would impact credit growth and the banks' profitability.

Automobile, housing and property company stocks also fell.

While the central bank's decision to raise interest rates is aimed at reining in the 6.5% inflation rate and prevent the economy, which grew at a scorching 9.2 % last year, from overheating, analysts fear that the move could eventually result in the economy slowing down.

Government calm

According to Sushil Choksey , a Mumbai-based stock broker, the unexpected rate hike nearly a month before a scheduled review was due on 24 April, has come as a "negative surprise to the markets which are likely to decline further before finding stability at lower levels".

What is further worrying market analysts is that nobody seems to be sure whether interest rates have topped out for the moment or the central bank might announce another increase after a few weeks if inflation is not showing signs of coming under control.

While stock market analysts may be nervous, the government is not too perturbed.

After being a supporter of benign interest rates for the last couple of years, Finance Minister P Chidambaram, is now supporting the central bank's interest rates decision.

Until now he had strongly advocated a lower interest rate to help accelerate economic growth which would, so the argument goes, have a trickle down effect and reduce poverty.


Election factor

Some analysts believe that the governing Congress party and the finance minister are under pressure after the victory of opposition parties in two northern Indian states last month.

Inflation and rising prices of essential goods had become a major poll issue in the current round of state elections. The finance minister is now keen to tame inflation at the earliest opportunity to ward off criticism that his monetary policies are responsible for the Congress party's election losses.

The party is facing state elections again this month in Uttar Pradesh - the country's most populous and politically significant state.

But some analysts see a silver lining in the interest rates going up at this juncture.

A senior economist with ABN Amro bank, Gaurav Kapur, told the BBC that the central bank's move will "lead to a segregation between real and speculative demand for funds".

This would prevent the economy from overheating and bring back a semblance of realism in the Indian markets.

Many analysts think that, from a medium to long-term perspective, what would be more healthy for the Indian economy is a growth rate slightly lower than the current nine per cent - perhaps even down to 7.5-8% - with inflation down to about 5%, rather than the present 6.5 % inflation rate with an economy which is showing signs of overheating.

BBC News.
http://news.bbc.co.uk/2/hi/south_asia/6518869.stm