Indian Economy - News & Updates - Archive

[alamgir]

INDO-US WHEAT ROW
Weeding out wheat
Claiming highest quality standards in the world when it comes to its own agricultural imports, the United States has no qualms in exporting sub-standard wheat to India. US participation in India's wheat procurement cannot be at the cost of India softening quarantine standards, says Devinder Sharma.

19 June 2007 - It is a queer case of double standards. Claiming highest quality standards in the world when it comes to its own agricultural imports, the United States has no qualms in exporting sub-standard wheat to India. In fact, diplomatic pressure is being built upon India to import weed-infested wheat.

Failing to reach an agreement after recent bilateral discussions on plant health, a statement from the US Embassy in New Delhi said "…Substantial hurdles still remain, as the US cannot agree to import standards that are impossible to certify and are not in line with international norms." At the heart of the row are the quarantine norms that do not allow wheat consignments with dangerous weeds beyond the permissible limit.

The American wheat comes with 21 alien weeds which are not known to exist in India. As per the weed risk analysis done by the Ministry of Agriculture, all these weeds are of quarantine importance and carry high risk. More worrying is the presence of two weeds Bromus rigidus and Bromus scealinus -- better known as foxtail wheat, which is similar in appearance to wheat and therefore difficult to identify.

While the US accepts that its wheat contains 21 weeds, it has expressed its helplessness in cleaning wheat shipments to bring it in tune with the Indian threshold limits.


• Wheat imports: Subverting procurement
• Fungus threat to Indian wheat


Already, surreptitiously imported along with wheat, several weeds and pests have turned into a national menace. India is spending crores of rupees every year in fighting these alien invasive species.

Earlier too, India had in 1996 rejected wheat imports from America on reasons of inferior quality, and had instead imported one million tonne from Australia. In 2006, when India imported 5.5 million tones of wheat from Australia and some other countries, the US was unable to find a foothold into India’s burgeoning wheat market. Aware that India is likely to turn into a major wheat importer in the years to come, the US has stepped up diplomatic and political efforts to exert pressure.

Not that the Australian wheat is much superior. In 2006, bending backwards to allow the highly contaminated wheat shipments from Australia, Indian Food and Agriculture ministry had turned a blind eye to the presence of 14 weeds, two fungal diseases and one insect pest that the import consignments contained. Of the 14 weeds, 11 species are not found in India.

Interestingly, while the US accepts that its wheat contains 21 weeds, it has expressed its helplessness in cleaning wheat shipments to bring it in tune with the Indian threshold limits. At the Portland port from where much of its wheat is exported, the US grain merchants were unable to clean wheat of the menacing weeds. The US is seeking import norms of 0.3 per cent weed infestation. At this level, the total number of weed seeds per 200 kg of wheat comes to a massive 12,000. India, on the other hand, is insisting on not more than 100 weeds in a consignment of 200 kg of wheat.

Although the US is publicly claiming that its "wheat is among the highest quality in the world and is safely shipped to over 110 nations including every importer of significance except India", the fact remains that much of the American wheat imported by rich and developed countries like Japan is actually for milling purposes. In India, wheat imports are used as grain by farmers and therefore the worry that the weeds will take root.

Several of the minor weeds that came along with PL-480 wheat shipments into India in past have turned into biological nuisances, often the weed becoming a national menace. Lantana camera was among such weeds, which entered India three decades ago. Today, it has spread wide and wild, and has withstood all control measures. Being poisonous, not even the cattle feed on it. Phalaris minor too came with the wheat consignments from the United States. This weed, already resistant to chemicals in the US and Australia, has established itself as a strong competitor of wheat in India. The weed has also become resistant to chemicals in India and is responsible for reducing wheat yields by an estimated 25 per cent.

It is not the first time that the US is trying to export sub-standard agricultural products. In September 2000, the United States Department of Agriculture (USDA) sent a delegation to press for opening up the Indian market for what would have turned into the first major import consignment of genetically modified soybeans. If allowed, the soybean imports would have brought along five exotic weeds and at least 11 viral diseases, of which two are economically dangerous. The US did insist that the accompanying pests would not pose any problem for Indian agriculture.

Earlier too, during 1998-99, the National Bureau of Plant Genetic Resources (NBPGR) had received 359 samples of transgenic soybean from the USA for quarantine. Nearly 143 of these were rejected because of the presence of downy mildew fungus (Peronospora manshurica), which is known to cause serious losses and is not known to occur in India. Bulk imports, however, fail to eliminate the threat of import of nematodes, viruses and several fungi.

For reasons unexplained, India appears more eager to allow sub-standard imports. As noted earlier, in 2006, it relaxed most quality norms for Australian wheat by asking the exporting country to provide a certificate saying that the imports are "essentially free from weeds". At the time of tender, the requirement was "free from weeds". Over-ruling all objections raised by the plant quarantine directorate, the Food and Agriculture Ministry has relaxed the provisions of Plant Quarantine Order 2003.

The US regulates weeds under the Plant Protection Act 2000. The PPA defines a noxious weed as a weed that could bring harm to agriculture, the public health, navigation, irrigation, natural resources, or the environment.
Under the PPA, noxious weeds are regulated similarly to plant pests. The PPA lists some 170 weeds that cannot be imported into the US.


• Subverting wheat procurement
• Fungus threat to Indian wheat


After the current din dies down, India might relax quality norms for American wheat. Agriculture Minister Sharad Pawar has already been quoted as saying: "It is true that talks have been held with the US government. We want that the US should also participate in our wheat import process." What is however not being perceived is that the US participation cannot be at the cost of softening the quarantine standards. At a time when international quality parameters are being tightened the world over to ensure that invasive alien species do not use the vehicle of commodity trade to enter into a country, India should not relax the quality norms thereby opening the floodgates to noxious weeds, deadly insect pests and dreaded plant diseases.

What Sharad Pawar needs to understand is that wheat with foreign weeds would not be accepted for import in the United States for the same reasons -- quality standards -- that we are being asked to do away with. ⊕

Devinder Sharma
19 Jun 2007

Devinder Sharma is a food and trade policy analyst. He also chairs the New Delhi-based Forum for Biotechnology & Food Security. Among his recent works include two books GATT to WTO: Seeds of Despair and In the Famine Trap.

www.indiatogether.org/opinions/dsharma/-36k

 

[alamgir]

India’s exports will fail to reach target
NEW DELHI: With the rupee appreciating by the day, the goal of India’s exports reaching $160 billion in the current fiscal (2007-08) has become a distant dream for exporters, says a leading industry body, according to Internet.
The level of appreciation of the Indian rupee, which strengthened by 8.35 percent during the fist half of this year, is second only to that of the Brazilian currency, which appreciated by 9.28 percent during the same period, according to the Associated Chambers of Commerce and Industry of India (Assocham).
Other currencies have also appreciated against the US dollar, but not to this extent.
The currency of Thailand appreciated by 7.56 percent, of Russia by 2.08 percent, of Malaysia by 1.98 percent, of China 1.82 percent and of Singapore, Bangladesh, Indonesia, Pakistan and South Korea by less than one percent.
The sectors worst hit by this appreciation in the value of the rupee are IT and IT-enabled services, textiles, leather, sugar and pharmaceuticals.
The chamber said if the appreciation of the rupee was not tackled soon India would gradually lose its competitive edge over the buoyant economies of China, Hong Kong, Vietnam and others in the IT and services sectors.
“The small and medium enterprises (SMEs) exporters who operate on thin margins are badly affected on realisations because of high appreciation of the rupee.
In the highly competitive global market, hardening (of the rupee) will dampen the prospects of the exporters,” Assocham said.
In textile and leather exports, India is facing stiff competition from China, Bangladesh and Pakistan and their currencies have appreciated insignificantly, compared to rupee.
“Appreciating rupee would dampen the export competitiveness by at least $15 billion in the current fiscal itself. Exporters may not be able to sustain the currency appreciation as it is high and happening very quickly,” said Assocham president Venugopal Dhoot.
Pakistan and China are performing better than India in the textiles sector because their currencies are not appreciating as much as the Indian rupee and so their prices are lower, the survey said.
“Realisations are also taking a dip because of the appreciation and mostly hitting the SME exporters’ segment as they operate on thin average margins,” Dhoot added.
www.newstoday-bd.com

 

[alamgir]

Reality lagging behind promises
Published: March 6 2007 16:04 | Last updated: March 6 2007 16:04

The Indian economy recorded a scorching growth rate of 9.2 per cent during 2006-07, led by the industrial and services sectors – growing at more than 10 per cent and 12 per cent respectively – while the agricultural sector lagged, with growth slowing from
6 per cent to 2.7 per cent.

With inflation at more than 6 per cent, P. Chidambaram, the finance minister, focused his budget last week on addressing the agricultural sector and supply side constraints that could slow macroeconomic stability and growth.

Substantially enhanced outlays were announced for irrigation, drinking water and sanitation, rural health, HIV/Aids and rural employment schemes.
There was also a focus on education and training.

The announcements of scholarships for school students to arrest the large drop-out numbers and substantive grants for upgrading industrial training institutes in public-private partnerships will go a long way in improving the employability of some 71m youngsters who will enter the work force in the next five years.

However, if India is to provide sufficient employment, government policies need to focus on helping it to become a global manufacturing hub, otherwise the demographic dividend offered by a young population could turn into
a demographic disaster
as millions of youthful would-be workers fail to find jobs. In that respect,
a lot more could have been done to liberalise foreign investment, reduce the size of the public sector and free up the labour market.

Import duties for non-agricultural products have been reduced from 12.5 per cent to 10 per cent, still not at the promised low levels, and duties on wine and alcohol continue to be levied at rates that could cause dispute at the World Trade Organisation.

There was no reduction in manufacturing taxes, but the service tax net has been expanded, even so far as covering letting commercial property. The finance minister also offered a welcome reiteration of plans to introduce a national goods and services tax.

There was some hope for a reduction in surcharges against the backdrop of buoyant tax revenues, but there has been a 1 per cent rise in the education levy, taking the corporate tax burden from 33.66 per cent to 33.99 per cent.

There has also been
an increase in dividend distribution tax from 14.03 per cent to 16.995 per cent. Though there is no tax in the hands of the recipient of the dividend, the overall corporate tax has gone up to 43.58 per cent (assuming full distribution of dividends), which is, for
the first time, higher than foreign company tax in India at 42.02 per cent.

India’s 11th five-year plan has the declared objective of “faster and more inclusive growth”. This was a political budget focused on the second of those objectives. Even so, it could have delivered more than it did to help growth in the manufacturing sector.


Vivek Mehra is an
executive director of PricewaterhouseCoopers

www.ft.com

 

[alamgir]

OPINION : HEALTH INSURANCE
Healthcare as a broad public challenge
The mounting cost of hospital care, increasing out-of-pocket expenditure, and its catastrophic impact on family finances demand an innovative and flexible risk-pooling mechanism to provide a security net for the poor. Merely transfering the costs to the public exchequer will land the nation in a no-win situation, writes Jayaprakash Narayan.

01 January 2007 - The UPA government's National Common Minimum Programme advocates a national health insurance scheme to help the poor tide over the economic crises resulting from the costs of ill health. Is such insurance a viable option? This requires a serious national debate. Several states have been toying with such an idea of health insurance in recent months. Any hasty decisions without careful evaluation of costs and benefits will land the nation in a potentially no-win situation.

Let us look at our health crisis. First, public health expenditure in India is amongst the lowest in the world as a share of GDP, at less than 1 per cent. What is more, as a proportion of the total health expenditure, it accounts for under 20 per cent, making India a member of a small group of nations in extreme distress - like Cambodia and Afghanistan. Private health expenditure accounts for 80 per cent of the total health care costs.

Second, most of the private expenditure is out-of-pocket (nearly 97 per cent), as there is neither health insurance coverage for the bulk of the people, nor a viable risk-pooling mechanism. As a result, the economic consequences of ill health are devastating for most families. Surveys show that a single episode of hospitalisation costs a family about 60 per cent of the annual income, on average. This high average out-of-pocket expenditure applies to all cases of hospitalisation. This is because even in public hospitals, costs are incurred for transport, accommodation and board for the patient and attendants, bribes, and often diagnostic investigations at private facilities and purchase of drugs unavailable in government hospitals. As a result, 40-60 per cent of hospitalised patients borrow heavily at high interest, and up to 30 per cent end up slipping below the poverty line on account of healthcare costs.

Excessive reliance on health insurance may be neither prudent nor cost-effective. Health insurance will only address the symptoms of public health failure.


• Will PHF be meaningful?
• Universal care: Miles to go


Adding to all this, advancing technology and rising private investments in expensive equipment have resulted in an ever-increasing temptation to subject every patient to a plethora of largely unnecessary and costly investigations. The mounting cost of hospital care, increasing out-of-pocket expenditure, and its catastrophic impact on family finances do demand an innovative and flexible risk-pooling mechanism to provide a security net for the poor.

What a national health insurance scheme will do is simply transfer these costs to the public exchequer. The experience of many health insurance projects run by civil society initiatives and non-profit foundations indicates that the average actuarial costs even for a modest health insurance coverage will be about Rs 300 per capita per annum. A national scheme would involve coverage of about 300 million poor people with full government subsidy, and another 400 million lower middle-class people with 50 per cent subsidy. The cost to the exchequer will be around Rs 15,000 crores per annum for any credible national insurance programme, even with modest and limited risk coverage. When the current public health expenditure is only Rs 25,000 crores, a 60 per cent escalation only for health insurance is unrealistic and unsustainable. Such shift in expenditure will actually result in subsidising private hospitals.

Worse, such a diversion of expenditure could further diminish resources for preventive and public health. Most of the disease burden is a consequence of primary care failure. The need of the hour is clearly to strengthen preventive and public health systems to obtain best value for the money spent, reduce the disease burden and promote overall health. Excessive reliance on health insurance as a means of healthcare delivery is neither prudent nor cost effective. Health insurance will only address the symptoms of public health failure, without reducing the disease burden. This failure of preventive health will only escalate costs of curative medicine, in the fond hope that more hospitals will ensure better health.

Furthermore, insurance usually involves adverse selection of beneficiaries, as those who are likely to benefit from hospital care are more likely to join it. There is also the moral hazard problem of two kinds—poor hospital care once the population is enrolled in the risk-pooling mechanism, and over-consumption of medical services by the richer and better-informed sections. As a result, in OECD countries, healthcare costs are growing much faster than GDP. The total healthcare costs in rich countries are estimated at an astronomical $3 trillion. Let us not repeat the mistakes of other countries.


The range of diseases is also changing slowly in India with enhanced prosperity, better preventive care and longer life spans. India should therefore move towards risk-pooling options to reduce the burden of hospital costs on individual patients. But our first priority should be improvement of public health delivery systems. That is where the least investment yields the best returns. Meanwhile, the government can encourage the innovative schemes taken up by credible institutions such as SEWA in Ahmedabad or Tribhuvandas Foundation in Gujarat. Subsidies to such schemes may work.

Instead of going for what look like obvious solutions but are actually riddled with problems, India needs to devise risk-pooling schemes primarily involving public sector institutions. In a scheme where money follows the patient and public hospitals are rewarded on the basis of services delivered, the incentives will be dramatically altered, and service will improve. Such risk-pooling will strengthen public sector while providing relief for the poor. ⊕

Jayaprakash Narayan
01 Jan 2007

Dr. Jayaprakash Narayan is the coordinator of Voteindia - a national campaign for political reforms. This article was first published in the Financial Express.

www.indiatogether.com

 

[Neo]

Alamgir,

Whats the point of posting old news when the thread is kept upto date in chronological order by Bushroda, Malay and myself on almost daily base? Please do not spoil it.
If you're really interested in gaining knowledge or engaging debates or having a Q & A sessions you're most welcome to join us.

Sincerity is usually displayed in balanced posting, unfortunately all you've been doing is spreading negativity all around. I truely regret that!

Please take some time to think about it before making your next post.

Thanks,
Neo

 

[Neo]

Indian equities touch reaching new highs​

MUMBAI: Indian share prices may hit a fresh record next week on strong demand for global equities after the benchmark 30-share Sensex index surged past the 15,000 points level on Friday, dealers said.

Indian shares rose 308.6 points or 2.06 percent to close the week at 15,272.72, the first time the index closed above the 15,000 points level. The Sensex has now risen 4.2 percent in the past fortnight.

“The markets saw another week of strong gains at the 15,000 points level. Global and local fund buying is strong and we could see the markets hitting a new high soon,” said Advait Date, a dealer with brokerage BHH Securities.

Dealers said automobile, infrastructure and property stocks could gain further as concerns of a local interest rate hike eased.

Analysts do not expect India’s central bank to hike rates despite higher inflation data recorded for two straight weeks.

Inflation rose to 4.27 percent for the week ended June 30, from 4.13 percent a week earlier, but was lower than its two-year high of 6.73 percent in February this year.

“There is a strong case for rates to remain unchanged with inflation and loan growth slowing down in recent months,” said Rajeev Malik, Asian economist with J P Morgan Chase Bank, based in Singapore.

India’s central bank will review monetary policy on July 31.

Analysts said Infosys earnings data this week were broadly in line with expectations, despite a cut in its full-year earnings forecast.

The rupee trades at a near-decade high against the dollar at 40.47. Software companies bill most clients in dollars and a strong rupee hits earnings.

Capital goods, automobile and metal stocks rose this week.

Earnings data from India’s biggest software exporter TCS on Monday could set the trend for software stocks.

Overseas funds have been net buyers of Indian equities this year to the tune of $7.7 billion, well above the $2.79 billion worth of shares that they purchased during the same period a year ago.

In 2006, the Sensex rose by a record 46.7 percent, led by foreign fund investments in Indian equities totalling $7.99 billion.

http://www.dailytimes.com.pk/default.asp?page=2007\07\15\story_15-7-2007_pg5_24

 

[Bushroda]

Investment growth on a hat-trick
Ruhi Tewari
Monday, July 16, 2007

Outstanding Surge: 2004 marked a turnaround with growth rate going well above 6%, the first time since 1996; by March 2007 it touched 12%

New Delhi, July 15: In what can be seen as a positive development for the Indian economy, the total outstanding investment (government and private) has shown a sharp increase since March 2004. Outstanding investment is the sum of announced, proposed and under-implementation investment projects in the country.

Latest quarterly data on outstanding investments (June 1995 to March 2007) reveals that while such investments have been on the rise for most of the period, the rate of growth increased post-2004. The growth rate of over 5 per cent in December 1996 declined to that of over 4 per cent by June 1997. This decline continued with December 1997, witnessing a mere 1.14 per cent growth in investment.

Most of 1998 saw a negative growth rate (a decline in absolute terms), most of which was caused by a sharp decline in the growth of private outstanding investments. By September 1999, this component had become less than the government component in absolute terms by Rs 29,583 crore. Thus, as individual components displayed similar trends, the overall growth rate of outstanding investments ranged from 1.76 per cent to slightly over 5 per cent.

The year 2004, however, marked a significant turnaround with the growth rate going well above 6 per cent, the first time since 1996. By March 2007, growth in investment had touched 12 per cent. The end of 2006 witnessed a sharp rise in private investment, which after a gap of 10 years, exceeded government investment by a whopping Rs 2,41,581 crore.

This sharp rise in private investments can be attributed to the boom in construction, electricity, mining and services investment, by the private sector, which increased by 335 per cent, 119 per cent, 112 per cent and 78 per cent respectively, over the four quarters ended March 2007. Further, sluggish government investment added to that wide gap.

However, according to CMIE managing director and CEO Mahesh Vyas, this trend is not linked to the changes in individual government and private components of outstanding investments. “The sharp increase since 2004 is mainly because of the revival of the business cycle since the middle of that year,” he said. “It has become like a cycle. The revival led to booming investment, which in turn, became a source of further demand, and hence growth.”

There is no reason for investment slowdown at least in the next one year. The next four quarters are most likely to see robust investment growth. However, it is difficult to predict beyond that, said Vyas. “If we are able to convert such investments into actual production capacity, the economy will witness high growth.”

Abheek Baruah, chief economist, HDFC Bank agrees that this growth will continue. “The revival in investment post-2004 has been largely due to an increased capacity addition by companies. The period from 1998 to 2004 was a fallow period. This changed post 2004. There was a spurt in private investment not just in services but also in manufacturing and infrastructure.”

Rajesh Chadha, senior fellow, NCAER gave the “imbalanced growth” logic to explain this trend. “While government investment kept growing at a relatively stable rate during 1995-2003, private investment grew with hiccups. The average annual growth rate of outstanding investments during June 1995 to March 2004 was 3.2 per cent with the compared corresponding growth rate of only 0.6 per cent in private outstanding investment. It seems that excess capacity had been fully utilised and there was need to create more capacity in the private sector post March 2004.”

 

[Bushroda]

Get on to the local 'IT' train
16 Jul, 2007, 0225 hrs IST,Ranjit Shinde, TNN

The times have become rather tough for IT stocks. Once the cynosure of the market, they no longer lead the broader rallies in the stock market. Of late, they have even started underperforming benchmark indices.

During the first half of ’07, the BSE Sensex gained 5%, while the ET IT index, representing 30 frequently traded IT stocks, managed to crawl up just about 1%.

Investor disinterest stems from worries over the single most important factor, at least for now, which is, strengthening of the rupee against the dollar. As per the latest Nasscom release, the domestic IT sector mops nearly 80% of its revenues from overseas markets (predominantly the US and Europe) and hence, finds itself straight in the line of fire when the home currency starts appreciating.

Interestingly, this time around, the rupee has been gaining against major trade currencies including the dollar, pound and euro. Hence, Indian IT exporters may not avail of any leverage by merely cutting exposure to the US and increasing their presence in Europe. Such a geographical shift can only be beneficial if we focus on India as a market.

Companies which have significant revenues from the domestic market will be at a lesser risk when the rupee appreciates. This makes it imperative to know if there are any Indian IT companies earning all or a major chunk of their revenues from domestic operations.

ETIGtried to find out if there are any such companies and whether they are profitable enough to justify a larger presence in the local market. We identified a handful of companies which are less prone to forex fluctuations and at the same time, demonstrate moderate to robust operating profitability.

These companies are mainly niche market players, unlike many of the IT exporters which provide applications development and maintenance services that attract a lot of competition, given their ubiquitous nature. For instance, Rolta focuses on geospatial information services and engineering solutions.

Since there are not many players in this segment, Rolta’s operating margins exceed even those of top IT companies. Tulip is engaged in corporate data communications and network connectivity solutions, while NIIT is a leading player in IT education.

Spanco offers integration solutions in the telecom space. The margins for other locally oriented companies are not as high as Rolta’s, but they run operations profitably. 3i Infotech and NIIT earn operating margins in the low 20s, which is in tandem with many medium-sized IT exporters.

Scrips of some of these companies are attractively valued at the current price levels. 3i Infotech and Spanco Telesystems are available at a trailing 12-month P/E of about 15 and 17, respectively. 3i Infotech enjoys a prominent presence in the banking, financial services and insurance domain. It is among the few product-oriented IT companies in the country showing good profitability.

Spanco and Tulip are riding high on the increased demand for networking and data communications, following momentum in domestic economic activities. While most IT companies are reeling under the pressure of forex fluctuations, companies which take advantage of the boom in the local economy and cater to the domestic market profitably look attractive.

 

[Bushroda]

Indian auto market reaches top gear
7Days, United Arab Emirates
Last Updated : Monday 16 Jul, 2007 -

Cheap, fuel-efficient and versatile, compact hatchbacks are by far the most popular vehicles in India’s rapidly growing auto market. And as global automakers rush into the country to set up plants to make similar small cars, both established companies and newcomers see a bigger role for India: Asia’s small car export hub.

Already, South Korea’s Hyundai Motor has shifted its entire production of the Atos Prime, its most popular compact, to the southern Indian town of Sriperumbudur, just outside the port of Chennai. It plans to do the same for the Getz, a premium hatchback. A third of the cars produced at this plant are exported to 67 countries, from neighbouring Sri Lanka to faraway Mexico.

By October, Hyundai will complete a second factory nearby, doubling annual production to 600,000 cars, most of them compact hatchbacks that sell for little more than $7,000. “We have a very clear target,” said Heung Soo Lheem, chief executive of Hyundai’s India operations. “India will be our export hub, which means all our small cars will be produced here.”

Suzuki Motor, which owns a controlling stake in Maruti Udyog, India’s largest carmaker, is investing $2 billion in India and plans to export 200,000 cars from the country by 2010, Chairman Osamu Suzuki said during his recent visit. In addition, Tata Motors plans to make a $2,500 car, which could set new standards for the auto industry worldwide. The company is setting up showrooms across Africa and has tied up with Fiat to use its South American sales network.

Now newcomers like France’s Renault, which has rolled out its Logan sedan and hatchback here, are breaking into a market that for years has been dominated by Maruti, Hyundai and Tata. Renault’s alliance partner Nissan Motor has recently announced plans to make cars in India and export them to Europe.

Spurred by Tata’s ambitions for a super-cheap car, Nissan and Renault are also exploring the viability of a below $3,000 car in likely collaboration with Indian partner Mahindra & Mahindra. “This could have a potential bigger than India,” Carlos Ghosn, CEO of both Nissan and Renault, said recently. General Motors has started making small cars here, including the Chevy Spark, a $7,200 compact car that CEO Rick Wagoner said is a “big part of our India strategy.”

Honda Motor has begun building a new plant for premium hatchbacks in western India, and Toyota Motor and Volkswagen AG are expected to announce similar ventures in coming months. For now, most newcomers want simply to gain a foothold in India, where JD Power and Associates predicts annual vehicle sales will nearly double to two million units by 2012.

Manufacturers expect annual production to rise well above three million cars by that time, which is huge considering cars were long considered a luxury in this once-socialist style economy. Until the mid-1980s, India’s roads were dominated by just a couple of models, including the Ambassador, a simple, mid-sized sedan copied from the British Morris Oxford. The Ambassador met the needs of a small elite and its market was protected with high tariffs.

The government has since eased rules and encouraged expansion of the auto industry amid rising demand from the country’s prospering middle class. Compact hatchbacks, which account for three-quarters of current sales, look set to continue to dominate. Analysts say India’s manufacturing could meet the global demand for compacts anticipated as Asia’s middle class grows and consumers worry about higher fuel costs.

India’s proximity to other booming economies in Asia as well as other emerging markets like Africa gives it an advantage, said VG Ramakrishnan, director of automotive practices at the consulting firm Frost & Sullivan. And shipping to Europe from India can be less expensive than from Brazil, Thailand or South Korea. India also offers access to low-cost auto components and cheap labour, Ramakrishnan said. As manufacturing gets increasingly automated, companies can tap the country’s pool of software engineering talent.

Foreign automakers are allowed to set up fully-owned subsidiaries, which could give the country an edge over China, where local partners are mandatory. Perhaps the best proving ground will simply be satisfying India’s demanding, yet frugal, consumers.

 

[Bushroda]

Usher in a second Green Revolution
SHOBHA AHUJA
Posted online: Monday, July 16, 2007 at 0006 hours IST

With our gross domestic product (GDP) touching near double-digit growth rates, our economy is in the best ever phase of growth. Yet, this growth rate has been achieved mainly due to the impressive performance of the manufacturing and services sectors. The performance of agriculture, which has been largely bypassed by the reform process, continues to be lacklustre. Hence, it is important that agriculture is brought within the ambit of reform—an area where foreign investment can make a major contribution.

By facilitating the introduction of new production techniques, which are in line with international best practices, the experience of the foreign investor in the farming sector could prove invaluable. The case in point is that of ITC Ltd, where the introduction of Internet-linked kiosks, or e-choupals, set up in around 20,000 villages across the country, has helped the farmer to gain information on agri-prices and thereby negotiate the sale of his produce at best-prevailing rates. Such success stories would surely gather pace once FDI enters the farming sector in a big way.

Another reason for advocating foreign participation in farming is that Indian agriculture is presently in a time warp, burdened with the problem of low productivity, technological obsolescence and inefficient resource use. The sector, which supports 68% of the population, continues to grow at a relatively modest pace with its share in GDP falling to 19%, thereby badly affecting labour absorption in this sector. Besides, value addition in farming is on the decline while its share in capital formation has dropped from 2.2% of GDP in the late nineties to 1.9% at present. Hence, Indian agriculture faces an acute shortage of investible funds for modernisation and infrastructure development programmes. FDI in farming would unleash a new revolution by enabling the farmer to move from supply-driven to market-driven production that would add more value to their products, help secure high returns on investment and thereby improve the monetary status of the farmer. After all, the country gained considerably from harnessing the new seeds technology of the Green Revolution—through the shared expertise of foreign partnership. Foreign expertise could once again be tapped for exploring more sophisticated versions of technology to produce more from our given land resources and, in the process, flagging off a second Green Revolution in the country.

Besides, by forging effective partnership with the farmer, FDI can facilitate efficient market linkages from the farm to the table, transfer know-how and assist in research. Farmer education and information dissemination is another area where the experience of the foreign investor could be shared.

The involvement of FDI in the export of farm produce is yet another uncharted territory. The expertise of the foreign investor could be utilised, especially in those markets that impose stringent sanitary and photo-sanitary conditions on our farm products. Similarly, there are vast vistas of opportunities for foreign assistance in packaging and quality up-gradation.

Finally, opening up the farm sector to foreign companies can help meet the development aspirations of our country. By facilitating productivity improvement in our farm sector, the foreign investor can help in employment generation, poverty alleviation and ensuring food security—and, in the process, ensure welfare gains for the economy. No wonder, all Asian countries are tending towards opening the sector to FDI.

Yet, there are certain aspects that must be considered before opening up farming to FDI. Firstly, priority should be given to reforms. Various laws and regulations, such as the APMC Act, which continue to stifle the growth of the agriculture sector, need to be reviewed. Free inter-state movement of agricultural commodities should be allowed so that the domestic investor is enthused to enter the farm sector.

Lastly, a regulatory mechanism must be in place so that the move does not lead to uprooting and dispossessing marginal farmers who own less than one hectare of land.

 

[Bushroda]

India's Growing Wealth Belt Spawns A New Breed Of Managers
New wealth creates room for financial planners.

By: Knowledge@Wharton

Five years ago, a cold call from Deutsche Bank changed Nagendra Venkaswamy's life. A director at a Bangalore-based software firm, he was 40 years old and facing financial ruin. "After 20 years of working, I had spent all my money on gambling in the stock market," he recalls. "All I was left with was my house and the equivalent of $200. My wife and child had no idea that I was absolutely broke."

The Deutsche Bank representative who called Venkaswamy helped him work on a plan to recharge his finances. "He held up a financial horoscope for me," he says. "If I needed to survive, I had to change my habits." The planner also offered an array of options that, among other things, helped him ensure his family's financial security and steadily build an asset portfolio. "In six months I had recovered everything I had lost," says Venkaswamy, who today is managing director of Indian operations at Juniper Networks in Sunnyvale, Calif.

Until recently, wealth management for high net worth individuals was an almost unheard-of concept in India. Rising incomes and the unlocking of wealth from closely held businesses have created a whole new generation of individuals that constitutes a credible market opportunity for asset managers, private bankers, financial advisors and others. Simultaneously, new options for investing are emerging as well, including art, overseas investments and real estate venture funds.

"The wealthy Indian has just recently started waking up to the concept of private banking," says Sutapa Banerjee, senior vice president and head of Indian private banking at ABN AMRO Bank. Previously, most high net worth individuals (HNWIs) invested in a few asset classes, using their local brokers, chartered accountants or tax consultants. For wealth managers, "it is an extremely challenging task to break the traditional mindset" and convince HNWIs to embrace "an asset allocation methodology through a professional wealth manager," she adds.

"Traditionally, the wealth management market in India was served by those that cross-sold mutual funds and broker/banker products to mass affluents," or individuals with liquid assets of between $50,000 and $300,000, says Leo Puri, managing director at private equity firm Warburg Pincus in New York City and a former director at McKinsey & Co. in Mumbai. "A true [wealth management] market is just beginning to develop."

Banerjee attributes the increase in the number of wealthy Indians to a combination of factors. For one, many are invested in the equity markets and have benefited from strong corporate results in recent years. Stock market earnings multiples are also riding high, and so is sentiment in the market for initial public offerings, she says. Promoters of Indian companies have also been able to unlock significant wealth through mergers and acquisitions, she adds.

The 'Wealth Belt' Expands

According to a report titled, "State of the World's Wealth: 2006," published by Merrill Lynch and French consulting firm Capgemini, the number of high net worth individuals in India grew 19.3% between 2004 and 2005 to 83,000, whereas the global average was 6.5%. The report also found that only 0.01% of India's adult population is made up of HNWIs, which is a tenth of the Asia-Pacific average.

By Puri's estimates, India now has roughly 20 million urban households that earn $5,000 to $10,000 annually. Another six or seven million households earn between $10,000 and $100,000. Wealth managers are actively developing products and strategies to tap into those markets, says Puri. India has fewer than 100,000 individuals with a million dollars or more to invest, he says, using the international definition for HNWIs.

But international yardsticks don't lend themselves easily to the Indian market, says Kanwar Vivek, head of private banking at ICICI Bank, India's largest private sector bank. "Inheritance is not a vital wealth forming segment here yet, unlike Europe which has been rich for 250 to 300 years," he says. "In India, the people who are rich are those who own SMEs (small and medium enterprises) or LMEs (large and medium enterprises). It's a booming market. The opportunity lies in increasing their wealth. We want to catch the group of clients who will be in the Rs. 4 to 5 crore ($1 million to $5 million) bracket tomorrow." ICICI assigns a wealth manager to each client with an investment size of at least Rs. 1 crore (about $240,000).

Deep-rooted cultural moorings - such as keeping money matters strictly private - are also giving way. "In India, money does not have sinful connotations anymore," says Pradeep Dokania, managing director and head of the global private clients group at DSP Merrill Lynch. "India has always had a lot of enormously wealthy people such as landlords, royalty, rich farmers and traders," notes Abhay Aima, head of the wealth management practice at HDFC Bank in Mumbai. "However, they traditionally did not discuss their assets with financial institutions."

Emerging Asset Classes

Indian HNWIs are beginning to explore investment opportunities beyond the traditional capital markets, migrating to newer asset classes such as art, real estate and overseas investment opportunities. Wealth management firms are targeting specific niches among them to avoid the clutter of competition. HDFC, for instance, is looking to service mass affluents, high net worth individuals and ultra high net worth individuals, but its focus is mainly on the first two. It is also pitching its services to wealthy non-resident Indian (NRI) investors who have done well overseas and are now looking to invest in a booming home economy. These investors are typically based in Singapore, Hong Kong, the U.K., the Middle East and the U.S.

Smaller shops, too, have made a specialty in servicing overseas clients. Govind Pathak set up Acorn Investments Advisory Services three years ago and has formed a niche among U.S.-based high net worth clients. "All my advice is India centric," he says. "People want alternative or supplementary advice that is not coming from product sellers such as banks and insurance companies." Acorn's minimum requirement for a client's investment check book is Rs. 25 lakh, or about $60,000.

ABN AMRO currently provides consulting services for assets totaling $800 million, and its clients are mostly owners of small and medium enterprises. "We are very strong as a diamond financing bank, and diamond [industry] clients are automatically our target clientele and constitute a substantial portion of our business," says Banerjee.

Vallabh Bhansali, director of Enam Financial Consultants, a financial services firm based in Mumbai, believes the concept of wealth management is often misunderstood in an emerging market like India. "Income and wealth are different as far as our understanding is concerned," he says. "Many banks offer transaction-driven services. That is not wealth management. We tell our clients to give us all their worries, and think wealth. Serious wealth management requires that the wealthy should really think wealth seriously." Enam accepts clients with a minimum of $1 million in assets and employs three wealth managers to service them.

Dokania of DSP Merrill Lynch is working out hybrid models to attract the right clients. "Create a product proposition that is all pervasive - equity, fixed income, debt, advisory - and you have a relationship that is not just transactional," he says. His firm's threshold for taking on asset management clients is $500,000 in financial assets, excluding the value of home equity or jewelry. He says his firm's clients average a portfolio size of $1.5 million.

As the wealth management market evolves, wealth managers are preparing to offer more and more sophisticated financial products. "Real estate venture funds are the new fad in the market, given the superlative returns real estate investments have been offering in the last few years," Banerjee says. "Soon we can expect the introduction of REITs (real estate investment trusts) and real estate mutual funds." Puri feels alternative markets for assets like art will become much bigger, especially with the presence of a dedicated fund, both in India and overseas.

Regulatory Constraints

While the wealth management market is expanding, regulatory constraints prevent banks from offering a wide range of services. "There is a host of products which a bank can't sell and provide to its clients," Banerjee says. "Until recently, banks were not allowed to sell real estate venture funds. Similarly, banks are not allowed to run a portfolio management scheme for clients." Banks can offer such services only by setting up separate non-banking finance companies, "licenses for which are also very hard to come by."

As a result, ABN AMRO offers its clients investments in debt, equity, mutual funds and insurance through the mutual fund route and a variant of portfolio management services, she says. It has also put in place third party arrangements to help its clients invest in newer asset classes such as real estate and art. ABN AMRO currently has about 700 client groups with assets totaling some $800 million. Banerjee hopes to increase that figure to between $2 billion and $3 billion in the next few years.

Banerjee predicts that the regulatory establishment will eventually loosen up, with India moving towards full convertibility of the rupee on the capital account, which essentially will allow its unhindered flow to foreign markets. By 2009, "the regulatory regime in India will be more conducive for foreign banks to do business in the country."

Dokania and Puri point to recent moves in that direction by India's central bank, the Reserve Bank of India. Indians can now remit up to $50,000 overseas in a single year, and that cap will be raised to $200,000 by 2009. Banerjee notes that these measures will open more opportunities for banks like hers to offer clients international investment products.

 

[Bushroda]

CEO racing to complete India's showpiece airport
Taipei Times, Taiwan
Monday, Jul 16, 2007

Swiss chief executive Albert Brunner, whose nation takes pride in its clocks and watches, is racing against time to get a showpiece airport up and running in the high-tech Indian city of Bangalore.

April 2 next year is Brunner's deadline for Bangalore International Airport to receive and send off the first of the 8 million passengers it expects to handle in its first year.

That is a date the chief executive officer of Bangalore International Airport Ltd, is determined to keep.

If he succeeds, it will be a remarkable victory for a project conceived in 1991 but construction of which began only 14 years later after it was awarded in July 2005 to a consortium including Unique Zurich Airport, Siemens of Germany and Larsen and Toubro of India.

The airport, expected to cost US$500 million, has been designed for 11 million passengers a year, up from the 5 million first planned, as traffic growth accelerated with an expanding economy.

"The deadline is tight," said Brunner, who spent almost as long on negotiating the project as the three years he undertook to build the airport in. "But we want to show it can be done so we didn't shift the date."

Brunner, chosen to head the 1,640 hectare project because of a reputation for patience, may just pull it off.

Six thousand workers are working day and night seven days a week, he said, to ensure the deadline is kept in a nation where large projects routinely overrun by years, even decades.

By Thursday, 77 percent of the work on the airport being built in Devanahalli, 35km from Bangalore, was complete, Brunner said.

A fuel depot and cargo handling complex are being built at an additional cost of US$173 million for which concessionaires have to pay.

All concessionaires have been selected, said Brunner, who has been living away from his wife and 14-year-old son while he executes the project.

The concessionaires include Indian Oil and Skytanking to provide aviation fuel, and GlobeGround India and Air India plus Singapore Airport Terminal Services to cater to ground handling and LSG Sky Chefs and Taj SATS to compete for the food and beverage business.

"We want to make sure there's competition," Brunner said. "We want a clean, efficient, passenger-friendly and professional airport."

The airport will apply for a license by the end of September and start trials of systems the following month, said Brunner.

"We try hard to keep our reputation as timekeepers of the world," he said.

 

[Bushroda]

Nokia Converts Margin-Sapping India, China Into Profit Machines
By Juho Erkheikki

The Nokia 6300 phone July 16 (Bloomberg) -- Nokia Oyj, the world's largest cell- phone maker, disappointed shareholders twice in the past three years by failing to keep up with consumer trends. This time, the company may have it right.

Models such as the 550 euro ($759) N95 are paying off as customers trade up from starter phones in India and China. The shift is restoring profit margins that Chief Executive Officer Olli-Pekka Kallasvuo sacrificed last year when he focused on cheaper phones to win sales in those countries, where Nokia is the dominant brand.

The shares have climbed 41 percent this year to 21.76 euros. Investors who bought at previous peaks, in early 2004 and again in 2005, were disappointed when competitors took away sales with new designs Espoo, Finland-based Nokia ignored. The shares remain at one-third their peak of 65 euros in June 2000.

``The miss in clamshells in 2004 and then in slim phones have been the main disappointments,'' said Marko Alaraatikka, a fund manager at Evli Investment Management in Helsinki, which oversees about 6 billion euros including Nokia shares. ``I haven't heard anybody saying the stock will rise to 65 euros again, but I think it could up to 24 to 25.''

Nokia is touting the N95, with a dual-sliding cover, GPS navigation and a 5 megapixel camera, and the 250 euro 6300 slim phone to affluent users in Mumbai and Beijing, as well as the U.K. and Europe. The popularity of these handsets will help prop up Nokia's average selling prices, said analysts including Kulbinder Garcha at Credit Suisse in London.

Profit Gains

In China, Nokia's biggest market, the company's unit share was about 42 percent in the first quarter, according to Framingham, Massachusetts-based researcher IDC. In India, Nokia has about two thirds of the market, the Times of India reported in May, citing a company executive. The company doesn't break out India figures from the Asia-Pacific region.

Investors underestimate the impact the new phones will have on Nokia's profit, said Garcha, who has a ``trading buy'' rating on the shares.

Amid a global slump in handset prices, Nokia exploited its size to lower production costs more than rivals, and eked out an expansion of its gross profit margin to 33.1 percent of sales in the first quarter from 32.4 percent in the fourth. Motorola Inc., the second-largest phone maker, had a gross margin of 26 percent and its mobile-phone unit posted an operating loss.

Motorola Woes

As prices stabilize, at least four analysts have boosted second-quarter profit estimates for Nokia in the past month. The company, which booked a ``significant'' one-time cost in the second quarter from job cuts at its network equipment venture, is expected to report profit of 1.06 billion euros, or 28 cents a share, based on the average of 36 estimates compiled by Bloomberg.

Nokia had a profit of 1.14 billion euros, or 28 cents, a year earlier, including a gain from an asset sale. Sales jumped 31 percent to 12.9 billion euros from a year earlier, according to the average estimate. The company reports second-quarter results Aug. 2.

``Nokia is by far the most efficient in logistics and distribution,'' said Mika Heikkilae, chief investment strategist at Arvo Omaisuudenhoito in Helsinki, which oversees about 370 million euros.

Nokia has also capitalized on missteps at Motorola, which said last week that second-quarter sales will miss its forecast, the third time the company has fallen short of its own predictions this year.

The Schaumburg, Illinois-based company failed to bring out devices with more features to replace the best-selling Razr, and is losing sales to Nokia, Samsung Electronics Co. and newcomer Apple Inc. Motorola reports results on July 19.

China, India

The shares, at their highest in five years, may reach 25 euros, said Ehud Gelblum, an analyst with JPMorgan Securities Inc. in New York. Motorola shares fell 19 cents to $17.89 July 13 in New York Stock Exchange composite trading and have dropped 13 percent this year.

Nokia lowered its prices last year in emerging markets to keep Motorola's share from rising and ensure scale advantages, Evli's Alaraatikka said. Motorola's decision to drop aggressive pricing this year should boost Nokia's profits, said Gelblum, who rates the shares ``overweight''.

Nokia controlled 36.2 percent of the global market in the first quarter, up from 33.2 percent a year earlier, according to researcher Strategy Analytics Ltd. The company said in May that its share would rise in the second quarter.

Motorola's share fell to 18 percent from 20.4 percent and Suwon, South Korea-based Samsung, the third-largest handset maker, increased to 13.8 percent from 12.6 percent. Samsung overtook Motorola in the second quarter in terms of shipments, according to reports from the companies.

New Models

Nokia's sales in China and the Asia-Pacific region each jumped 39 percent last year, after Kallasvuo focused on selling entry-level phones. India, the world's fastest-growing cell- phone market, is Nokia's third-largest territory. Revenue in China has risen 75 percent since 2002.

With Nokia now entrenched, Kallasvuo's bet on India and China may pay off. The company's gross margin, the percentage of sales left after production costs, will increase to more than 35 percent in the fourth quarter, mainly because of phones such as the N95 and 6300, Garcha said. India's economy grew at the fastest pace in almost 20 years in the 12 months ended March 31, and China's retail sales jumped 15.9 percent in May, the fastest pace in three years.

The 6300 model, aimed at mid-tier customers, started shipping in the first quarter and was the second most sold cell phone in China in April in its price range.

Replacement Phones

That's helped bolster average prices for phones Nokia sold in China. They rose 3.8 percent to 81 euros in the second quarter from the first, Garcha estimated in a June 6 note. In the Asia Pacific region including India, prices he predicted prices increased 4.1 percent to 77 euros.

As customers move up in price range, Nokia is benefiting from the users' tendency to stick with a brand whose products they have already learned how to use, analysts and investors including Heikkilae said.

Replacement phones will make up 60 percent of emerging- market sales this year, up from 50 percent in 2006, according to Nokia. Globally, the replacement market is expected to climb to 80 percent by 2010 from current 65 percent.

``Replacements will give the basis for the future and the market leader should benefit the most from it,'' said Mika Heikkinen, fund manager at FIM Asset Management in Helsinki, which manages 8.5 billion euros including Nokia shares.

Investors including Alaraatikka are aware that Nokia has disappointed investors before. After rising more than 650-fold from 1992 to mid-2000, the shares fell to as low as 10.55 euros in March 2003.

Momentum Shift

The shares recovered to reach 19.09 euros a year later, then dropped by more than half in four months to 8.83 euros as the company was slow to introduce phones that flip open like clamshells. They dropped again in July 2005 when Motorola gained share with slim models such as the Razr.

Now the momentum has swung back to Nokia, which charged into emerging markets early and so far has maintained its lead.

Nokia started to address the ``slim issue'' in late 2006, when it unveiled the 6300 model and discussed its ``Barracuda'' model, a 9.9-millmeter thick phone that will go on sale in the third quarter. In May, Nokia introduced its slimmest device yet, the 6500 Classic that also allows faster Internet access. It will be also available in the third quarter.

The N95, which started shipping at the end of the first quarter, is the best-selling device in the U.K. and No. 4 in Western Europe, Nokia says. Apple's iPhone, released in the U.S. June 29, hasn't yet gone on sale in Europe or Asia.

``Nokia has managed to lift its market share and its product portfolio is being improved,'' Alaraatikka said. ``The situation is very good and this could go on.

 

[Bushroda]

Linking economy to bank's growth
15 Jul, 2007, 0502 hrs IST, TNN

MANGALORE: The upsurge in the economy is creating a potential for business growth of the bank, said Vijaya Bank chairman and managing director Prakash P Mallya here on Friday.

He was speaking after inaugurating the branch managers’ conference of Vijaya Bank. The objective of the bank was to achieve a business level of Rs 76,000 crore and it aims at Rs one lakh crore business by March 2009, he said.

Observing that the financial system was pursuing the best international practises, Mallya said few banking entities here were rated within the top 100 banks in the world.

Commenting on the growth, Mallya said India’s economic growth was taking rapid strides.

The GDP growth of over 9% will commensurate the growth in the national income, he said, adding that the sustained growth in foreign reserves, increased investment by Financial Institutions and increasing foreign direct investment (FDI) were fuelling this growth.

He observed that tremendous growth witnessed in the service sector and industrial growth of over 13% should augur well for the bank. Mallya also spoke at length in the historical perspective of five major banks in the DK district.

Referring to the performance of Vijaya Bank, he said the bank has achieved a record growth under deposit, advances and profitability fronts. He intended to set a direction for quality banking along with quantity.

 

[Bushroda]

Etihad to expand India operations
Gulf News Daily, Bahrain

Abu Dhabi: Etihad Airways plans to start services to Indian cities of Bangalore, Chennai and Hyderabad.

This follows the successful launch of its Kochi and Thiruvananthapuram services.

Services to Kochi and Thiruvananthapuram started at the beginning of June and since then passenger figures on both routes have averaged more than 90 per cent across economy and business class.

Etihad also operates daily flights to Delhi and Mumbai and it will look to boost its network further during the next 12 months as bilateral talks with the Indian government continue.

"India is one of Etihad's key global markets and the phenomenal success achieved so quickly by the Kochi and Thiruvananthapuram flights demonstrates the growing demand for our services," said Etihad Airways' chief executive James Hogan.

"Currently Etihad flies to four Indian destinations and ideally we would like to double this in the next few years in order to satisfy the huge demand from Indian customers across Etihad's flight network, which includes the UK, Canada and South Africa as well as the UAE," he added.

To celebrate the launch of the new Kochi flights a delegation of senior Etihad officials, lead by James Hogan, has visited the city.

During the two-day visit the delegation hosted a reception as well as conducted several media activities.

Etihad Airways is the national airline of the UAE based in the UAE's capital, Abu Dhabi.

Currently Etihad offers flights to 44 destinations in the Middle East, Europe, North America, Africa and Asia.