Indian Economy - News & Updates - Archive

[Bushroda]

Rs 500 cr for Mumbai Metro
15 Jun, 2007 l 0052 hrs ISTl
Mahendra Kumar Singh/TIMES NEWS NETWORK

NEW DELHI: Urban development ministry has decided to provide viability gap funding of around Rs 500 crore for the first corridor of the Anil Ambani group-led Mumbai Metro rail project of Rs 2,356 crore. This will be the first Metro project in country to be executed under public-private partnership.

The project hit a stumbling block after finance ministry refused to pay 20% of the cost through viability gap funding (VGF) on the ground that the consortium led by Anil Ambani group’s Reliance Energy had applied for VGF after completing the bidding process.

Viability gap funding means a one-time or deferred grant for infrastructure projects that may have long gestation periods and limited financial returns, so that their viability may be improved through government support.

Urban development secretary M Ramachandran said, "The ministry has given in-principle approval to provide funds through VGF for the project. The proposal will soon be sent to Expenditure Finance Committee and then to the Cabinet Committee on Economic Affairs for final approval."

 

[Bushroda]

Mumbai Metro to be first ‘green metropolis’
Rajshri Mehta
Thursday, June 14, 2007 10:29 IST

Though not mandatory for an MRTS project, the Mumbai Metro One will invest in a detailed study to understand the impact of the project.

Mumbai Metro One is geared with a vision is to make the city’s first metro a ‘Green Metro’. To see that the project develops as per the best environment-friendly global practices, the company formed jointly by Anil Ambani-owned Reliance Energy and the Mumbai Metropolitan Region Development Authority (MMRDA) has recently undertaken many initiatives.

Though not mandatory for an mass rapid transport system (MRTS) project, the company has decided to invest in a detailed environmental study to understand the impact of the project during construction and in operational stages, and to adopt measures to make it an environment-friendly metro. The company has hired an experienced and specialist agency to undertake this study.

“As a part of this study, certain environmental parameters like air quality, water quality and noise levels will be monitored and captured at certain key locations like Sarvoday Hospital along the corridor,” said K P Maheshwari, director, Mumbai Metro One Private Limited.

While finalising the design and specifications, construction methodology and construction equipment adequate measures and precautions would be taken to mitigate and minimize the impact on the environment during construction and operation.

“The company is also preparing an environment management plan, which will be embedded in the project itself in order to assess environmental benefits of the project due to reduced vehicular emissions on the route and reduction in the traffic noise levels,” Maheshwari added.

This study is being done based on the guidelines followed by international agencies like the World Bank and other international associations of financial institutions and bodies. This activity was started in May 2007 and will continue till September-end.

 

[Bushroda]

Diversity key to well-managed Indian economy
DALE JACKSON
Globe and Mail, Canada
June 15, 2007

Can India maintain momentum?

There are two words Jayesh Gandhi wants Canadian investors to remember when they think of India: sustainable growth. Those are the words the fund manager from Mumbai-based Birla Sun Life Asset Management uses when addressing concerns that his country's booming economy is growing too quickly.

"We hope to see India continuing its strong earnings growth and economic growth for the next 10 years," he says.

Mr. Gandhi is travelling across the country to promote his Excel India Fund - one of the best performing mutual funds and the only pure-play Indian equity fund in Canada. Over the past five years Excel India has consistently returned well over 30 per cent annually while the average emerging market equity fund has been pulling in an average 20 per cent a year. Even the benchmark MSCI emerging market index has managed to post a still impressive gain of 18.7 per cent each year.

Since the beginning of this year the Bombay Stock Exchange's 30-member Sensex Index has risen 50 per cent to surpass $1-trillion (U.S.). Economic growth in India has averaged 8.6 per cent annually over the past four years, helping to spur earnings growth as high as 35 per cent. The rupee is currently the best performing currency in Asia.

Mr. Gandhi says there's no reason to believe the good fortune will not continue because India's growth is diversified. His $277-million (Canadian) Excel India portfolio reflects that diversification with a mix of infrastructure, industrial and consumer stocks.

Key holdings in the fund also reflect Corporate India's expansion to the global stage. The country's largest private sector bank, ICICI, accounts for nearly 5 per cent of holdings.

Other large positions include Tata Steel, which has been reported to be a serious contender to acquire Stelco Inc. He says Tata has maintained a low cost structure while boosting quality to the global standard. Other members of the giant Tata Group include Tata Motors Ltd. and Tata Consultancy Services.

One infrastructure play in the fund is Bharat Heavy Electricals Ltd., which designs and builds power plants.

The fund, which has a management expense ratio of 3.4 per cent, also includes a large weighting in India's growing technology sector, including the country's second largest software manufacturer, Infosys Technologies Ltd.

There are, however, signs the fund may have hit a rut. So far this year Excel India has returned less than 2 per cent. Much of the fund's decline occurred earlier this month when fears of rising global interest rates caused steep selloffs on emerging markets, including India. Mr. Gandhi says he's not concerned because the fundamentals of the Indian market remain strong. "After a spectacular four years, six months is not a time frame one should look at," he says. "India's a much longer-term sustainable story."

Mr. Gandhi isn't alone in his optimism. TD Economics has upgraded its forecast for gross domestic product growth in India by half a percentage point a year to at least 8 per cent. "I think India's growth is sustainable because it's balanced," says international economist Richard Kelly.

That balance includes equally vibrant consumer and industrial bases combined with a cooling effect from a series of interest rate hikes by India's central bank. "Interest rates are starting to get in that biting range," says Mr. Kelly.

To make his point he contrasts India with a closely linked emerging market - China. Much of China's growth is in the industrial sector while an increasingly affluent Indian middle-class has been creating demand for consumer goods and fuelling a robust financial services industry. Average annual wage increases over the past five years in India have been as high as 15 per cent.

As a result India is the only emerging market economy running a current account deficit. That means India imports more goods and services than it exports. "You have to have a domestic consumer base to have a balanced economy," he says.

Mr. Kelly also credits India's central bank with taking the necessary measures to regulate growth and encourage diversification. "The economic management of India is doing much better than China," he says.

While he describes his view of India as "extremely optimistic," Mr. Kelly says like China, runaway inflation is the biggest concern in India. He says the first red flag will wave when inflation continues to climb after the central bank raises the benchmark interest rate.

 

[Bushroda]

'Overheating abating, power still a concern'
Asit Ranjan Mishra & Siddharth Zarabi / New Delhi June 15, 2007

Days after he first warned about signs of cyclical overheating in the Indian economy, C Rangarajan, chairman of the Prime Minister’s Economic Advisory Council, today told Business Standard that previous signs of overheating which were visible through a rise in the wholesale price index-based inflation and merchandise trade deficit “are abating”.

The council has also estimated that the current account deficit for 2006-07 is 1 per cent of GDP, down from 1.1 per cent of GDP in 2005-06.

“To some extent there has been an abatement of overheating. What has been happening now is that the growth has been driven not only by consumption demand but also by investment. With new investments being made and new production coming out, cyclical overheating is abating,” Rangarajan said.

The investment ratio as a proportion of GDP for 2006-07 has been estimated at 35.2 per cent, while the savings rate is pegged at 33.8 per cent, with both ratios being nearly 1.4 percentage points higher each than in 2005-06.

“If growth is only driven by consumption demand, then when full capacity is reached, it leads to further overheating. But in case of India, a greater part of growth is now being driven by investment. Initially, it may create a situation in which the prices will rise, but subsequently as the capacity is being created, it will have an impact on inflation and overheating,” Rangarajan said.

“When an economy operates at full capacity, a situation develops where the prices tend to rise. Overheating is a phenomenon where demand is striking hard on the available supply. This shows up in two ways — in an increase in the prices and the balance of payments. When overall demand exceeds supply, then it spills into the balance of payment,” Rangarajan added.

“This is what we saw last year when prices rose faster than what we considered to be acceptable or desirable. The overall balance of payments continues to remain comfortable. In fact, our recent calculations indicate that the current account deficit for the last year is 1 per cent of GDP. But the merchandise trade deficit, that is import and export of goods alone, constitutes 7 per cent of GDP. However, the remittances and service exports were high enough to keep the overall current account deficit under 1 per cent of GDP,” Rangarajan added.

However, the chairman of the PM’s Economic Advisory Council cautioned that cyclical overheating should not be allowed to turn into structural overheating.

“The point I want to make is that a structural imbalance should not develop in the economy. In many sectors of the economy the investment may be adequate to create additional capacity, one area where probably it is not happening is infrastructure, more particularly in the case of power. That is where the structural imbalance comes in. If this structural imbalance is not taken care of then this overheating may continue. So one area which needs more focus is infrastructure in general and power in particular,” Rangarajan observed.

He added that many power projects where work was under process would come into effect in the third year (2009-10) of the Eleventh Plan period.

 

[Bushroda]

Economy of thought meets economy of words

Chidambaram in Mumbai today, to read from and sign copies of ‘A View from the Outside: Why Good Economics Works for Everyone’

Alaka Sahani

Mumbai, June 14: When Palaniappan Chidambaram launched the compilation of his columns in The Indian Express and The Financial Express, “A View from the Outside: Why Good Economics Works for Everyone”, in January, the Capital’s who’s who trooped in at Prime Minister Manmohan Singh’s residence to be partake. The ensuing discussion on the very popular finance minister’s sharp and insightful writing was a lure by itself.

Tomorrow, the country’s finance capital is set for an encore as Chidambaram reads from his book and signs copies at Crossword, Kemps Corner, at 4.45 pm. The event is part of Book Series, an initiative by The Express Group to launch books authored by eminent columnists of The Indian Express and The Financial Express.

The book, published by Penguin Portfolio, is a collection of columns that assess the promises and performances of the NDA government from 2002 to 2004. The columns reflect the views of Chidambaram, who has served as finance minister between 1996 and 1998, and again from 2004 till present day, on a range of issues that remain important regardless of the government in power.

They cover subjects such as agriculture, foreign investment, monetary policy, budgets, taxation and international relations. “Every column bears a date and that date also sets the context,” Chidambaram says in the book’s introduction.

The columns aren’t mere reactions of the Harvard graduate to the zeitgeist; they give readers an extraordinarily

clear understanding of the problems underlying the country’s economy and its politics, and ways of solving them. Though Chidambaram admits he leaned towards topics that had some connection with the economy, he touched upon other subjects too.

“I have written about children, the Millennium Development Goals, terrorism and our neighbours,” he adds.

Given its content, small wonder the book’s launch in New Delhi witnessed two rounds of intense discussions. Economists Isher Judge Ahluwalia, Raghuram G Rajan and Jagdish N Bhagwati were the panelists for the first round. The second one had Arun Jaitley, Union Minister Kapil Sibal and Airtel head Sunil Mittal. This also held the attention of Rahul Gandhi and vice-chairman of Planning Commission Montek Singh Ahluwalia.

Shekhar Gupta, Editor-in-chief of The Express Group, calls the book a must-read for those interested in the Indian economy, politics and governance. Chidambaram, known for ascetic minimalism in personal life, is equally austere with words, feels Gupta, who will be present at the book reading and signing session. Columnists Shobhaa De and K V Kamath will speak on the occasion.

 

[Bushroda]

Industrial data raise hopes in India
Output rose 11.5% in the last fiscal year, hinting economic vitality is spreading beyond tech.
By Henry Chu, Times Staff Writer
June 15, 2007

NEW DELHI — Old-fashioned industry in India grew 11.5% in the last fiscal year, boosting hopes of broader-based economic growth in a country that has seen rapid expansion of high-tech and back-office services.

Figures released by the Indian government this week showed a rise in productivity in traditional sectors such as manufacturing, mining and electricity, which contributed to the nation's overall annual growth rate of 9%, one of the world's highest.

The 11.5% increase in industrial output was recorded from April 2006 through March 2007, according to the Indian Ministry of Statistics. Preliminary indications point to the trend continuing: In April of this year, industrial output was up 13.6% compared to the same month last year.

India's GDP now stands at about $1 trillion, according to an April report by Credit Suisse, about one-fourteenth that of the United States.

The robust industrial growth is welcome news for Prime Minister Manmohan Singh, whose government has put a premium on spreading more widely the fruits of India's impressive, but uneven, economic boom.

Marquee sectors such as computer software and call centers have built a global profile and grown at a scorching pace, but they account for a relatively minuscule number of jobs. Information technology, for example, employs between 1 million and 2 million workers, well under 1% of a workforce of about 400 million people.

Critics have said that India is trying to vault from an agricultural to an information-based economy without passing through the traditional hoop of industrialization, a stage that usually creates opportunities for mass employment.

The new figures are fueling optimism in some quarters that the Indian economy is developing in a more well-rounded way. Although industry here still lags far behind that of China, where factories have sprouted all over the countryside, rising trade in items such as automobile parts, pharmaceuticals and textiles helped trigger a 12.5% expansion in Indian manufacturing during the last fiscal year. Some economists, however, cautioned against equating such growth with an automatic increase in jobs.

Some of the hike in industrial output is due to more mechanized production and greater efficiencies rather than a swelling of the labor pool.

"India's track record in creating jobs is not that great," said analyst Paranjoy Guha Thakurta. "It's early … to say whether the growth is more broad-based and whether it's more inclusive."

Also, he said, some sectors, such as information technology services, could decelerate because of the rupee's strength against the dollar. The Indian currency has gained more than 7% on the dollar since the beginning of the year.

The strong performance of industry has been accompanied by signs that inflation has slowed after pushing 7% earlier this year.

The government reported last week that the wholesale price index had dipped to a 10-month low of 4.85% at the end of May, below the psychological threshold of 5%, the target set by the Reserve Bank of India. Much of the drop was due to lower food prices, but the bank is not expected to roll back the interest-rate hikes it has adopted to curb inflation.

Earlier this year, soaring prices for food staples such as onions and lentils exacted a heavy financial toll on ordinary Indians, up to two-thirds of whom make less than $2 a day.

Analysts are closely watching the coming monsoon season, whose rains determine much of the country's farm output and, therefore, food prices.

The majority of India's 1 billion people still rely on agriculture for their livelihoods, but farming's share of the economy has plummeted by more than a third over the past 20 years.

 

[Bushroda]

India will become 37th destination visited by The European Tour
WorldGolf.com, AZ

India is set to become the 37th destination visited by The European Tour next year when the inaugural Indian Masters is played at a venue to be announced from February 7-10, 2008.

Promoted and organised by ‘golf in DUBAI’, and sanctioned by The European Tour and the Indian Golf Union, the $2.5 million event will be the richest event held in India and represents a new era for professional golf in the country which has produced European Tour champions in Jeev Milkha Singh and Arjun Atwal.

General JJ Singh, President of the Indian Golf Union, said: “It is an historic moment for Indian Golf with a European Tour event being held in India boasting of the richest prize money in the history of Indian golf.

“The event is a result of the growing status of the game of golf in India, augmented by the Indian performances across the golfing globe. Indian golf is surely to get a boost when the best talent from over seven continents will be on display and also will showcase the infrastructural development needed to host an event of this stature. I also take this opportunity to thank ‘golf in DUBAI’ for making this happen.”

Mohamed Juma Buamaim, Vice-Chairman and CEO of ‘golf in DUBAI’, said:

"Golf is fast becoming a big-time sport and the game is growing, no question. And this European Tour event, I am sure, will have the appeal and the profile to further enliven the Indian golf scene.

"Being the promoters and organisers of world-class events like the Dubai Desert Classic and the Dubai Ladies Masters, we are quite certain that the Indian Masters will create an unprecedented buzz on the vibrant Indian golfing scene.

"The tournament is part of ‘golf in DUBAI’s ambitious drive to expose the Emirate's rapidly-growing golfing portfolio of world-class courses on the global stage," added Buamaim.

"It is also one of our objectives to organise tournaments, locally or internationally, on behalf of our partners to try and promote Dubai as one of the leading golf destinations in the world," he said. "And this tournament is a reflection on our team efforts to achieve this common goal."

George O’Grady, Chief Executive of The European Tour, said: “The growth of the Indian economy has coincided with the emergence of golf as a major sport in the country. We are always keen to expand our tournament portfolio into new territories and we believe that the Indian Masters offers huge potential on that front.

“Thanks to Indian pioneers such as Jeev Milkha Singh and Arjun Atwal – both popular Champions on The European Tour International Schedule – along with Jyoti Randhawa and Shiv Kapur, professional golf in India has taken a massive step forward over the past decade.

“We are delighted to extend our close relationship with ‘golf in DUBAI’, who we know well through their tremendous organisation of the Dubai Desert Classic” he added.

‘golf in DUBAI’ is backed by Dubal (Dubai Aluminium) as the main partner and National Bank of Dubai, Emaar, Jumeirah Hotels, Emirates airline, BMW, Jumeirah Golf Estates, Gulf News, Omega and CNN as partners in its drive to promote the city's golfing industry.

 

[Bushroda]

India's Inflation Rate Slows to a Nine-Month Low
By Cherian Thomas

June 15 (Bloomberg) -- India's inflation slowed to a nine- month low as import duty cuts drove down prices of food grains.

Wholesale prices rose 4.80 percent in the week ended June 2 from a year ago, slowing from 4.85 percent in the previous week, the Ministry of Commerce and Industry said in New Delhi today. The inflation rate, in line with the median forecast of 12 analysts, slowed for an eighth straight week.

India, which revises its inflation data after a two-month lag, may revise today's preliminary number upward because consumer demand remains strong. The government's latest industrial output growth was faster than analysts' expectations, indicating the central bank may have to raise borrowing costs further to damp demand for manufactured products.

``The final inflation data will be much higher,'' said N. R. Bhanumurthy, an economist at the Institute of Economic Growth in New Delhi. ``Inflation has slowed because of farm prices. Consumer demand for manufactured products remains strong as evidenced by the industrial production data.''

The government today raised its inflation estimate for the week ended April 7 to 6.44 percent from 6.09 percent, the statement said. That is the seventh straight upward revision.

India's industrial production grew 13.6 percent in April, the government said on June 12. India's economy has averaged an 8.6 percent growth since 2003, the second-fastest after China among the major economies, causing demand for manufactured and farm goods to outstrip supply and stoking prices higher.

Manufactured Products

For the week ended June 2, the inflation index of manufactured product prices rose 0.2 percent, today's report showed, while the index of food grains, including cereals and pulses fell 0.1 percent.

To check prices of food grains, which have risen at almost twice the pace of manufactured product costs over the past year, the government removed the import duty on lentils in June 2006, and on wheat in September.

The yield on India's 10-year government bond remained unchanged at 8.34 percent after the release of the inflation report.

The Reserve Bank of India, which has raised its key interest rates nine times since October 2004, will announce its next monetary policy on July 31. The central bank can announce rate changes before the scheduled monetary policy review, as it has done three times since December.

To combat inflation, the Reserve Bank has also allowed the rupee to gain to near a nine-year high to make imports cheaper. It has slowed dollar purchases on concern rupee funds injected from the exercise will stoke inflation.

 

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China and India a double-edged sword for Africa
Business Report, South Africa, June 15, 2007
By Clare Nullis

Cape Town - Friend or foe? Comrade or coloniser?

Business and political leaders attending an annual conference meant to focus entrepreneurial attention on Africa hailed China' and India' huge appetite for raw materials as a powerful driving force to move the African economy up a gear.

But the discussion at the World Economic Forum's annual conference on Africa, which ended Friday, was tinged with a now familiar note of anxiety that the two giants would exploit Africa's resources and leave the continent empty handed.

"It's an opportunity of a lifetime for a continent such as Africa to have such great attention and increasing demand for its resources from two countries both having populations of more than 1 billion," said Tokyo Sexwale, a South African business tycoon who is a potential candidate to be the country's next president.

But he said that the big challenge for China would be to prove to Western critics that it was not motivated by the same financial imperialism of which the West stood accused in the past.

China has found a seemingly limitless market in Africa for its cheap goods. And oil-rich countries such as Nigeria and Angola provide the natural resources China needs to sustain its rapid growth.

The Chinese economy is growing by about 10 percent. Much of Africa's estimated 5.5 percent economic growth last year - well ahead of the global average - was attributed to China's near-insatiable demand for the continent's oil, gas, timber, copper and other natural resources.

"China is growing. China has a voracious appetite for many things. They are buying anything under the sun to support a growth that has taken off," said South African trade and industry minister Mandisi Mpahlwa. "Should we stop them? Should we say they should not buy from us because it's only raw materials they are buying?"

He said China's goal of doubling its rate of growth by 2020 offered boundless opportunities for Africa to benefit from the boom.

Africa has become a crucial part of China's growth strategy. Two-way trade soared 40 percent to $55.5 billion last year, and Beijing says it believes that figure will rise to $100 billion by 2020. At a Sino-African summit in Beijing late last year, Chinese entrepreneurs signed deals worth $1.9 billion with African governments and firms.

China's former foreign minister, Li Zhaoxing illustrated the extent of the ties: China had 900 projects in Africa; more than 800 Chinese companies are operating in Africa; it has sent 16,000 medical personnel to the continent; offered scholarships to 20,000 African students and trained 17,000 African professionals. And so the list went on.

 

[Adux]

FM confident of GDP growth touching 10 per cent this fiscal

Saturday, June 16, 2007
15:36 IST

Blog this story



Coimbatore: Union Finance Minister P Chidambaram today expressed confidence of the GDP growth touching 10 per cent during the current fiscal.


With efforts put in by entrepreneuers, industrialists and all sections of the society, the country achieved 7.5 per cent growth in the first year of the Dr Manmohan Singh-led UPA rule followed by nine per cent next year and 9.4 per cent in the just concluded financial year, Chidambaram said.


Speaking after inaugurating a plant, manufacturing defence-oriented products, on the city outskirts, Chidambaram said the Government's confidence in the reforms, was the main reason for the economic growth being achieved and taking the Nation economically forward.


Lauding the efforts of Saarc Tech Tool for taking up the manufacture of packaging system for defence and war equipment, Chidambaram said it was really regrettable that the country had to import coffins at a cost of Rs 1.10 lakh each to bring back the body of jawans who died in the Kargil war.


The Rs 9 crore plant would manufacture defence-oriented products like roto moulded transit cases (boxes) which could be used by defence forces for carrying sophisticated defence equipment. The plant has a capacity to manufacture 60,000 boxes annually, its Managing director, P Murugesh said. The company was ambitious of achieving a turnover of Rs 100 crore in the next five years, he added.

 

[Bushroda]

Thanx Adux, I was about to post it before I checked on your post. Great news anyway.

 

[Bushroda]

India Property 2007 under way in Dubai
BY A STAFF REPORTER
Khaleej Times Online
16 June 2007

DUBAI — The three-day India Property 2007 opened on Thursday at Renaissance Dubai Hotel.

Organised by the official body of the Indian real Estate industry, the Confederation of Real Estate Developers Association of India (CREDAI), and Maharashtra Chamber of Housing Industry (MCHI), the exhibition aims at attracting foreign investments from NRIs and other investors.

The show will also be held in London, at Olympia Conference Centre from July 20 –22, 2007. This is the eighth Property Show to be held in Dubai since 2002.

Rajni S. Ajmera, President, CREDAI, said: "With the boom in the economy, Indian Real Estate has emerged as a Global destination for world's top construction companies, architectural firms and allied industries seeing the huge growth potential that it offers. In line with the growing interest in Indian reality, these property shows facilitate an interaction between NRIs, reality investors and developers, all under one roof, wherein they get to know firsthand the types of properties available, loan options and other formalities required, in finally procuring their property back home."

Nainesh Shah, Chairman, International Exhibitions, MCHI , said: "Indians settled abroad are one of the most influential and prosperous communities in the global economic development and we are glad to provide them an opportunity of being part of a success story, by investing in Indian Real Estate, which is today, the growth driver of the Indian economy." According to J.S. Augustine, Co-Chairman, International Exhibitions, MCHI said, "The interest levels amongst NRIs have increased many fold in the last 7 years. NRIs have benefited immensely through our exhibitions and have bought peace of mind by making the right choice. We are proud that we have played a key role in facilitating such a process for the NRI community at large and we strive for bettering this year on year."

"Today, with the real estate in India booming and the government's open door policy for inviting foreign direct investments into the country, there has been a spurt of Indian property fairs held abroad targeting NRIs there, to invest in properties back home. In this scenario, it becomes important to differentiate between Industry organised property exhibitions and the other property exhibitions held by fly by night operators, event companies, dot.com companies, organisers of trade shows, consumer shows and lifestyle shows." He said industry organised property fairs offer NRIs a wide range of properties, from leading and established developers who have a more organised feedback mechanism and maintain a high standard in quality of construction and delivery.

 

[Bushroda]

Indian wholesale price inflation eases to its lowest
Daily Times, Pakistan

NEW DELHI: Indian wholesale price inflation eased to its lowest in 10 months, holding within the central bank’s comfort zone, but analysts said strong industrial growth meant the central bank would remain vigilant.

The widely tracked wholesale price index rose 4.80 percent in the 12 months to June 2, slowing from 4.85 percent a week earlier and well below a two-year high of 6.69 percent in January.

The central bank has raised interest rates five times in the past year, the last time at the end of March, and may still have to tighten further despite the better inflation news.

“Inflation may come down even further in the coming weeks but I don’t think the central bank is comforted by the decline in the headline numbers,” said Indranil Pan, chief economist at Kotak Mahindra Bank.

“Far too many factors point to rapid economic growth which may raise inflationary pressures in the coming months.”

The inflation rate published on Friday matched a forecast of 4.80 percent in a Reuters poll of analysts. Wholesale price inflation is now at its lowest since the week of July 29 last year.

The yield on the 10-year federal bond was unchanged at 8.34 percent after the data, while the partially convertible rupee initially eased to 40.9650/9750 per dollar before recovering to 40.9350/9500.

The wholesale price index is more closely watched than the consumer price index because it has a higher number of products in its basket and is published weekly.

The Indian economy, Asia’s third-largest, grew 9.4 percent in the fiscal year that ended in March, its highest rate in 18 years and second only to China among major economies.

April industrial output, released this week, clocked 13.6 percent annually, making the market nervous the central bank might tighten policy again at its next review on July 31 or even before.

Fuel price rise?: As well as raising rates, the central bank has increased banks’ reserve requirements three times since December to rein in inflation and credit growth. It held rates steady at its last review in April but said it would act swiftly if needed.

It aims to keep inflation close to five percent in the fiscal year to March 31, 2008, and bring it down to 4.0-4.5 percent over the medium term. In an effort to make imports cheaper, it allowed the rupee to appreciate to a nine-year high against the dollar in late May and the government has cut duties on cement and steel to soften prices.

But India has grown at an annual average of 8.6 percent in the past four years, leaving factory and port capacity stretched and demand for manufactured goods outstripping supply.

An oil ministry official said this week the government might review retail prices of petrol and diesel in mid-July to bring them in line with higher oil prices. India, which imports 70 percent of its oil, sets a ceiling on retail fuel prices.

Analysts said this could also pose a threat to inflation.

“Decline in food prices is a major relief but manufacturing inflation still continues to be relatively high. And petroleum prices have yet to be revised,” said Saumitra Chaudhuri, an economic adviser at domestic rating agency ICRA. “So we have to see the inflation data in this context.”

Global edible oil prices, mainly soy and palm which India imports in large volumes, have risen sharply in recent months and food price pressures at the start of the year posed a political headache for the ruling coalition. reuters

 

[Bushroda]

Indian strike - privatisation is the answer
Updated: 06-16-2007

The civil aviation industry remains in a turmoil with the latest short term strike of the public sector carrier Indian creating chaos for consumers. Though the strike was thankfully resolved within a day or two, it created headaches and heartburns for the flying public who still regard Indian as the most 'reliable' airline in the country. This reputation has been badly battered as people of all walks of life who had to reach destinations on urgent work had to suffer undue hardship.

The strike came just as the public sector company was in the process of merging with Air India with the aim of becoming one of the biggest players in the civil aviation sector. At this critical stage, its public image as the slow but steady carrier has been badly bruised. Normally Indian is the airline of choice for those who put a premium on safety and reliability as well as punctuality. It is well known that Indian has considerable infrastructure to maintain and operate its aircraft efficiently. It also has the reputation of being a safe airline. Besides, whenever there is a traffic jam in the skies or in airports, the civil aviation authorities give priority to Indian flights, enabling them to be more punctual than the other private airlines in such situation.

In contrast, these two days of the strike by the domestic carrier have given the impression that the stodgy but solid player can no longer claim that it is the most dependable airline.

This comes as a blow to the newly created entity that is already aware of the tough competition in the field. The spate of mergers and acquisitions that began with Jet Airways taking over Sahara and followed with Kingfisher's tie-up with Air Deccan is still not over. Kingfisher is making it clear that it is eyeing other acquisitions like the smaller Spicejet or GoAir, depending of course on their availability. Ultimately, it is clear that there will be about three or four large entities in the civil aviation industry within the next few years.

In this scenario, the Indian and Air India combine will have to show a lot more pizzaz than they have recently to beat the competition. Jet is slowly taking over the space of the most reliable and ontime carrier while Kingfisher has got the tag of providing the most comfort and luxe experience. It has yet to be seen whether Indian-Air India will try to launch a low cost carrier like the other two biggies. Jet is swiftly changing Sahara to Jetlite and Kingfisher has made Air Deccan its low cost brand. In any case, the merged public sector entity seems to be lagging far behind the others.

The fact is that it is time to think - yet again - about privatising Indian and Air India. Globally, the era of the public sector airline seems to be over. Once upon a time, every country had its own national airline which was often government owned, like British Airway, Air France and Lufthansa. But declining profits took their toll as more efficient private airlines forged ahead and most countries have now privatized their national carriers. India will also have to think in terms of privatising though this proposal has always met with stiff resistance from politicians. The real reason for maintaining a government owned national carrier is the patronage and power that goes along with operating such an entity. It is well known that becoming the minister for civil aviation is a plum post and these cabinet ministers have virtually ruled the skies.

One has only to compare the Air India launched by J.R.D. Tata to the Air India currently operated by the government to see the difference between private and public sector management. When JRD ran the show, Air India was a boutique airline that was renowned globally for its service and class aboard flights. In contrast, Air India is now considered a lame duck. Even Indians shun this international airline which has become a byword for inefficiency in the aviation world. Umpteen stories have appeared in the media about the mishaps that take place owing to overbooking, prolonged delays and discomfort to passengers in this airline. The simple fact is that bureaucrats are not equipped to run airlines and the job needs to be handed over to professionals in the aviation industry.

Any whiff of privatisation, however, elicits strong protests from politicians of all hues. There is a feeling that selling Indian and Air India would be like selling the crown jewels of the economy. In fact, the government could keep a minority stake in the airline while making a strategic sale to a private operator. This would enable it to reap the benefits of revenues from dividends in case the airline improves profitability and yet retain a nominal stake in the company. Maruti Udyog, the Indo-Japanese carmaker for instance, is a case in point where the government has gradually eased out of the company which has in turn become more dynamic as it has been freed from bureaucratic controls.

The latest flash strike in the domestic carrier has thus come as a warning signal to the government. If it really wants the public sector carriers to become effective players in the aviation sector, it will have to take a comprehensive review of civil aviation policies and ultimately take some hard decisions.

 

[Bushroda]

India’s $1 bn club expands by 245%
Livemint.com, WallStreet Journal

71 listed companies now generate $1 bn in annual sales, up from 29 five years ago; China sees 500% increase

India’s heady economic growth in the past five years has seen the number of listed companies with annual sales of at least $1 billion grow more than two-fold to a record 71.

The not-so-great news is that in the same period, neighbouring and sometimes rival China’s billion-dollar corporate club has increased 500% to 90 from just 18.

There is nothing particularly significant about crossing the $1 billion, or Rs4,100 crore, annual revenue mark. But $1 billion is often a psychological benchmark that tends to separate the big boys from the rest of the corporate pack.

Economists are not surprised at the jump in the number of such companies in India, up from 29 five years ago and through the fiscal year ended March.

It is the “rising tide effect”, notes Subir Gokarn, executive director and chief economist at credit rating agency Crisil Ltd. “With the economy on the high growth track, the environment is conducive to significant growth for businesses as well,” he says.

A Mint analysis of traded companies in Brazil, Russia, India and China, the so-called BRIC countries, shows that on this score at least, India and China have pulled far ahead of the pack.

Data from Bloomberg suggests that Brazil has 17 companies with annual revenues of more than $1 billion, compared with 11 in 2001. Russia has actually seen a drop in the number of $1 billion companies into single digits, from seven in 2001 to three in 2006.

The notion of BRICs as global powerhouses has taken root since a 2003 report by investment bank Goldman Sachs Group Inc. suggested that Brazil, Russia, India and China could be among the most dominant economies by 2050. These countries are forecast to hold a combined gross domestic product (GDP) of $14.951 trillion.

“We think the number of such opportunities over the years would be much larger,” says Mark Mobius, managing director of Franklin Templeton Investments. “China and India are unique in this respect. The internal market is so big that companies can continue to grow for many years without the market being saturated or glutted.”

According to Mobius, one prime example is the use of mobile telephony where China even now has only 45% penetration and India only 15%, and still growing. Many more sectors, according to him, would see such opportunities.

“Many people are dismissive of such mega trends as being too shallow or simplistic,” says Mobius. “However, over a period of time, one realizes that it is these trends which manifest themselves in growth of companies and even the economy,” he adds.

To be sure, the sudden and sustained appreciation of the rupee versus the US dollar has also a bearing on the swelling number of billion-dollar companies in India. The rupee has appreciated about 10% since January 2007 against the greenback. With the erosion of the value of the dollar against the rupee, Indian companies’ sales have grown faster in dollar terms than they otherwise would have.

Indeed, of the 71 firms, three companies clearly made it into the list because of the currency effect: Indian Bank, ABB Ltd and National Mineral Development Corp. Ltd. In the case of commercial banks, the net interest income is considered as revenue.

The list of Indian companies doesn’t include unlisted organizations such as the Gujarat Cooperative Milk Marketing Federation, which markets Amul dairy products. The federation said on Friday that its revenues have touched Rs4,277.84 crore in 2006-07, thus becoming the first $1 billion cooperative in India.

Clearly, India’s growth of billion-dollar businesses pales in comparison to China’s performance on this front. China also has an edge over India in the sheer size of its top business houses.
For instance, Indian Oil Corp. Ltd, the largest Indian company with revenues of $52.53 billion, is still less than half the size of its Chinese counterpart, China Petroleum and Chemical Corp., which is the largest Chinese company with revenues of $133.84 billion.

In fact, the latest Global Fortune 500, published by Fortune magazine, has only six Indian companies. In comparison, 20 Chinese firms are featured on the list. Still, Siddhartha Roy, economic advisor to Tata Sons, says that the two countries cannot be compared.

“The growth rates for the two countries are quite different,” says Roy. “We also have to take into account the fact that businesses in China have got much more support from their government. Look at China’s currency, for instance. It continues to be kept at an artificially low level.”

Irrespective of what China does, economists remain sanguine about about India’s corporate houses. “The GDP will continue to grow and, with the growth, demand will also increase,” says Roy. “On the export front too, Indian businesses will continue to do well as they are competitive and cost-effective in the global markets.”

“I see this growth gaining momentum and a lot of it will be triggered by the need for businesses to stay in a position of competitiveness,” adds Crisil’s Gokarn. “This will result in consolidation giving birth to more billion-dollar companies in India.”

Indeed, the Mint analysis suggests some 13 listed Indian companies are likely to cross the $1 billion annual sales figure within the next 12 months.