Indian Economy - News & Updates - Archive

[Neo]

i read at least all posts which shows just one side of coin all my post not years old, and how can start a debate when a small portion of other side is not tolerable by mod. of pdf,sorry next time i will start my post with.....“Saare jahan se achha Hindustan hamara

I'm not quite sure what you meant by that, if you have issues with moderation please adress them with us or the Webmaster.
You're free to share your pov, I asked you to do it in propper way and engage a mature debate instead of flooding the thread with negativity.

Thanks!

 

[Bushroda]

Traffic management plan ready for Mumbai Metro
Express News Service

Mumbai, July 15: With construction of the city’s first metro rail corridor set to begin at the end of the monsoon, officials are currently discussing a traffic management plan to ensure that motorists along the 11.4-km Versova-Andheri-Ghatkopar route are not inconvenienced by the digging work and slurry discharge.

MVA, an American consultancy firm contracted by special purpose vehicle Mumbai Metro One Pvt Ltd, has completed the traffic management plan, said officials of the Mumbai Metropolitan Region Development Authority (MMRDA). In congested areas like the Andheri station, where construction will be a huge challenge, the plan entails deploying a squad of traffic wardens to help ease movement of vehicles. A detailed plan for diversions and barricading is also ready. Even slurry from digging is to be disposed off in fully-covered containers, with almost no sign of the activity on the part of the carriageway open for traffic.

Planners at the MMRDA, the traffic police and other city organisations are currently discussing the plan. “Once their suggestions are incorporated in the plan, it will be finalised,” said a spokesperson for the MMRDA. “The idea is that motorists should not be inconvenienced at all.”

Meanwhile, financial bids for the supply of rolling stock have been invited. Among the shortlisted companies are Bombardier (Germany), Kawasaki (Japan), Alstom (France) and Siemens (Germany).

 

[Bushroda]

economic & strategic outlook - india
Al-Bawaba, Jordan
Posted: 16-07-2007 , 14:17 GMT

The Indian stock market grew at a CAGR of 37.5% over the past four years. The long-term view of the market remains bullish.

Global Investment House –Economic & Strategic Outlook-India - Stock Exchange - The Indian stock market continued its positive momentum since the past two years despite domestic and global pressures. The robust macroeconomic outlook coupled with encouraging policy initiatives by the government, buoyant investment climate, strong investments by FIIs, and impressive financial performance of Indian companies were the main factors that boosted the market sentiment in recent years. The buoyancy in stock market continued despite the inflationary pressure and hardening of interest rates.

The Indian stock market grew at a CAGR of 37.5% over the past four years. The market, which witnessed a strong rally in 2005-06, continued its winning streak in 2006-07 as well. The BSE Sensex posted a return of 15.9% in 2006-07 on top of 73.7% in 2005-06. The S&P CNX Nifty also recorded a gain of 12.3% in 2006-07, over and above the gain of 67.1% in 2005-06. Though the market was up in 2006-07 there were some anxious moments which resulted in heavy selling pressure in the market. The market dipped to 9,920 level in Jan 2006 in view of the global concerns such as rising interest rates, high oil prices and likely slowdown in US economy. However, the market bounced back in subsequent months on the strength of buoyant Indian economy. The market recovered impressively by 21.4% to reach at the level of 12,043 in April 2006. However, within a month the market again faltered and dipped by 13.7% in May 2006 to reach at 10,399. Since then the market recovered gradually with benchmark BSE Sensex crossing 14,091 in January 2007. The global concern again forced the market to retraced back to 12,938 in February 2007, representing a decline of 8.17% in a month. However, with the positive news flow of strong industrial numbers, better corporate performance, and rising liquidity pushed the market again on a growth path with the Sensex rising consistently since then. The rally in the stock market during the last one year was spread across mid-cap and small-cap companies as well. The broad-based BSE 500 index increased by 35.8% on a point-to-point basis in May 07. The major sect oral indices registered gains during 2006-07 in line with the generally upbeat sentiment in the stock market.

FIIs flocking to India…

With the unfolding of the India story, Foreign Institutional Investors (FIIs) evinced keen interest in the Indian capital market. FilIs flocked to Indian market not only from the traditional geographies like USA and Europe but also from the Middle East and Far East region. Number of FIIs registered with regulatory authority swelled to 1,047 as of June 22, 2007 as compared to 924 during the same period of the previous year. The cumulative FII investment in Indian stock market ballooned to US$53.6bn as of June 22, 2007 as against US$43.8bn in June 2006.

India eighth largest IPO market…

As per the study conducted by E&Y, Indian companies raised US$7.23bn from the domestic capital markets in 2006, making the country the eighth largest issuer of equity capital in the world. Chinese companies raised a whopping US$56.6bn, which was the highest amount raised in 2006. China was followed by US companies with total proceeds of US$34.1bn, and Russian companies with US$18bn in raising funds. Worldwide IPO activity in 2006 raised total capital of US$246bn.

Market reasonably valued despite sharp run up…

The price-earning (P/E) ratio of BSE stood at 20.78x at the end of June 22, 2007 with a market capitalization of US$1,005bn. Despite an increase in stock prices, the price-earning (P/E) ratio remained generally attractive due to an increase in corporate earnings. We believe that as long as the index PEG is less than one, there is no need to fret over the market. Although the P/E ratio of the BSE Sensex is higher than other emerging markets, historically, the ratio is much lower as compared to its own high in the past. Some amount of premium to the Indian market is justified as compared to other emerging market since India is growing at around 9% p.a. and the growth momentum seems sustainable. The price-book value (P/BV) multiple of BSE stood at 5x at the end of May 2007. The dividend yield of the 30 stocks comprising BSE Index was 1.2% as of May 2007.

In the longer term, the market seems to be in a secular growth trend. However, in the short-term, concerns remain on higher interest rates, firm rupee and less liquidity. The liquidity is drying up in the secondary market in India on big issues, and bond investments, etc. On interest rate front, we believe that RBI is likely to keep interest rate rise on hold for some time. Currently, the Indian market is at fair levels and we see support at the 14,000 level. The major risk is that the higher interest rate environment could hit corporate earnings growth.

We are rather neutral on India right now. India has witnessed a very good run in recent months. But we are a little worried about it in the short-term, probably up until the end-July. There has been a huge surge of new issuance, which means the liquidity is likely to dry up. We have got interest rates that have moved higher and there are some questions about earnings.

Currently, the Indian market is trading at a one year forward P/E of around 17x. The long-term view of the market remains bullish buoyed by the strong economy, rising income levels, huge investments in infrastructure, encouraging policy initiatives by the government, etc. If India can make a successful beginning with the proposed modernization of its pension industry, that will provide big boost to the Indian stock market.

 

[Bushroda]

India tops consumer confidence index
Meenakshi Radhakrishnan-Swami / Mumbai July 17, 2007

Consumer confidence is softening across the world but Indians remain the most upbeat.

That is the finding of the ACNielsen Consumer Confidence and Opinions Survey for the first half of 2007, the results of which have been made available exclusively to Business Standard and published in The Strategist, the weekly management and marketing section, today.

While all three indices (India’s, Asia Pacific’s and the global index) have dropped two points, with 135 points, India is in the lead of both the 47-nation global survey (97 points) and the 14-country Asia Pacific study (96). The country’s 137 score in the October 2006 round of the survey was an all-time high.

Conducted in April 2007, the survey covered over 26,000 people, including more than 500 people from India. Indians remain confident of the job market and personal finance: 94 per cent are optimistic about employment prospects, compared with the regional and global averages of 50 and 52 per cent, respectively.

Indian consumers’ perceptions of the state of their personal finances is also encouraging: 90 per cent rate it as excellent or good (region: 54 per cent).

The survey also polled consumers on their major concerns. Compared with the last round, there is a sharp rise in Indians’ concern over the economy, with 46 per cent citing it as a major worry.

But fears of terrorism appear to have abated: in the last round, India was the most worried in the world about terrorism, with 31 per cent mentioning it as a major concern.

There is a 15 percentage point drop this time and India is not on the top 10 list of worriers anymore. Across Asia, 41 per cent are concerned about the economy, compared with 37 per cent worried about health and 30 per cent about job security, lower than the global averages.

The survey also studies how spare cash is used after covering necessary living expenses.

Significantly, India moved down two places to become No 3 among those who invest in stocks and mutual funds even though more respondents (53 per cent) chose this option compared with the last round. Other popular choices remain savings accounts, holidays and new clothes.

 

[Bushroda]

Obstacles Abound for Auto Builders in India
By NICK BUNKLEY
New York Times
Published: July 17, 2007

Automakers already struggling with intense competition in the United States and many other regions of the world have long worried about their prospects after China and India begin building large numbers of ultra-cheap cars.

But Chinese carmakers have experienced numerous setbacks to their global ambitions, and a new study of the Indian auto industry reveals more obstacles than many outsiders expected.

The study, being released today by I.B.M. and the Transportation Research Institute of the University of Michigan, notes that Indian automakers are plagued by a shortage of skilled workers, inferior product quality and deficient highway infrastructure, among other challenges.

Its authors, who interviewed 30 high-level executives and automotive experts in India, are confident that the industry will surmount the impediments to make India one of the world’s top 10 vehicle-producing countries by 2015. But they suggest that the Indian car market remains in a fairly primitive stage of development.

“Roads are the big problem,” said Allan Henderson, senior managing consultant at I.B.M. Institute for Business Value. “The infrastructure needs to be improved more than you might think. There’s a number of problems, but they’re aware of them and they know what it takes to overcome them.”

Sales of passenger cars in India have more than doubled since 2002, to 1.4 million from 675,116, according to the Society of Indian Automobile Manufacturers, which represents 38 vehicle and engine makers in the country. Passenger car exports have nearly quadrupled in the same period but still were less than 200,000 in the last 12 months.

Future growth could be limited, however, by too few engineers and skilled trades workers. Although India is known as a home of plentiful low-cost labor, many workers do not have the qualifications that automakers there desire.

“It was almost unanimous amongst the interviewees that this is a challenge they need to work on,” said Bruce M. Belzowski, senior research associate in the Transportation Research Institute’s automotive analysis division. “We were under the impression, as most Westerners are, that India is an almost unlimited source of labor.”

Even if carmakers are able to increase production, the study found that many consumers do not want to buy them because roads are in poor shape and congested. Motorcycles and other two-wheelers are the most popular form of transportation, outselling four-wheeled vehicles by a four-to-one margin.

Exporting is troublesome as well. Indian automakers have difficulty understanding foreign consumers, developing a range of models, managing global supply chain logistics and incorporating advanced technology, the study concluded. Additionally, Indian ports would need significant upgrades to handle high volumes of vehicles.

“They’re not ready for full-scale exporting,” Mr. Belzowski said.

The problems that Indian automakers are facing will not halt the industry’s growth, but they will take time and considerable resources to resolve, Mr. Henderson said.

Ultimately, he said, “it doesn’t look like there’s really anything that should stop the Indians from being major global players. They fully expect to be a powerhouse on the world stage.”

The country’s automakers do have several important factors working in their favor: The Indian government is solidly behind their efforts, even drafting an aggressive mission plan for the industry, and Indian consumers generally want to buy vehicles made in their own country to support the economy. (In contrast, Detroit’s automakers often complain that they get little support from the United States government or from American consumers.)

As a result, executives interviewed for the study projected domestic sales to double to 2.8 million by 2010 and reach 4.2 million by 2015. Even then, just a small fraction of the nation’s more than 1.1 billion people will own cars.

India can assert some advantages over China, which has about 200 million more people and a fairly extensive road network. Auto loans are more widely available in India, making it easier for less affluent consumers to buy a car, and intellectual property is more respected in India than in China, where vehicle designs are often copied freely.

 

[Bushroda]

India likely for surplus current a/c
16 Jul, 2007, 2102 hrs IST, PTI

NEW DELHI: India would take some more time before it registers current account surplus on annual basis, though the country showed current account surplus in the last quarter of the previous fiscal, says a PHDCCI study.

Simply put, current account surplus means that a country's exports of goods and services are more than its imports.

"Though the current account surplus registered in the fourth quarter of 2006-07 helped in bridging the annual current account deficit to $ 9.6 billion, there is no conclusive proof that trend may set a new path," a statement from the chamber said.

It said with appreciating rupee, the economy still has a high degree of pent-up demand for non-oil imports, particularly for the capital goods, which can widen the trade deficit.

The imports for fourth quarter of last fiscal increased to $ 49.28 billion from $ 42.3 billion in the corresponding period last year. It is also reported that for May 2007 import growth was 26.36 per cent, vaulting the trade account deficit to 45.7 per cent.

"The possibility of hardeni oil prices can create further take up the import bill, making achievement of current account surplus in the coming quarters a distant possibility," the statement added.

 

[Bushroda]

600,000 Toyota Units in India by 2015
Bangalore, India 7/16/2007 11:03 AM GMT
TransWorldNews

India is Asia's fourth largest auto market and Toyota plans to increase its capacity in the nation by a factor of 10 by 2015. Toyota released their plans at a presentation by Atsushi Toyoshima.

Toyota produces the Corolla sedan and the Innova near Bangalore and imports the Camry and Land Cruiser prado SUV. Toyota only has about 4% of the car market in India at this time.

Toyota is not alone in trying to tap the populous country. Honda and General Motors also have similar plans. India's economy is growing and has led to a boost in vehicle sales. It is expected that India's car sales could rise to about 3 million by 2015.

 

[Bushroda]

Giving investors picture perfect feel of goings-on
Bibhu Ranjan Mishra / Bangalore July 17, 2007

Domestic firms are increasingly using audio- and video-conferencing solutions for investor relations calls.

With increasing pressure from regulators to reach out to all investors, analysts and institutional buyers — both in India and abroad—domestic firms are now increasingly using integrated audio- and video-conferencing solutions for their investor relations (IR) calls.

Video-conferencing technology helps people located in multiple places to see and listen to each other simultaneously via two-way video- and audio-transmission. Based on interactive telecommunication technology, it can also be used to share documents and whiteboards.

The most important element in audio- and video-conferencing is that the entire proceeding is moderated, with absolutely no interruption during the meeting and presentation. This gives every participant a chance to ask questions and the benefit of that reply goes to everybody.

A company can get the natural transcript of the proceedings, which reduces the chances of their presentations or quotes being misrepresented.

Besides, most of the listed companies announce their results in a span of 15-20 days, which makes it difficult for the stakeholders, institutional buyers, analysts and funding agencies to attend the meetings physically.

Diptarup Chakraborthy, Principal Analyst, Gartner India, says: “Investor relation calls create more opportunities to meet companies more often. It helps us in closely monitoring the companies and also in reviewing their performance on a regular basis. As an analyst, IR calls help me in giving more authentic and genuine information to the market.”

While exact figures are hard to come by, industry observers say every year they have been noticing at least a 20 per cent increase in the use of audio and web platforms for IR calls.

“The quality of investors has seen a major change — from a standalone brokers’ market to a more institutional-based one which is dominated by mutual funds, venture capital funds and pension funds that feel comfortable in serious business discussions via audio- and video-conferencing,” says Kiran Datar, MD of WebEx Communications India.

Infosys Technologies was the first customer of WebEx in India for IR calls in 2000, after the company introduced its communication software in the Indian market. The last two years, however, have seen many old-world companies too starting to use the collaborative communication software for corporate governance.

WebEx sources say they have seen at least an 80 per cent increase in many of these old-world companies using technology for IR calls. It handles at least 150 IR calls every quarter now.

Some old-economy companies include Cairn Energy, DRL, Ashok Leyland, Apollo Tyres, ACC, Sterlite Industries, Patel Engineering, Ballarpur Industries, Dabur India, ABG Shipyard, Kohinoor Foods and Sri Renuka Sugar.

“It’s absolutely a way to go forward. Instead of conventional methods of gathering analysts at one place, it allow the global audience to participate in the proceedings,” says Swaminathan Krishnan, senior VP (Marketing), Sasken Communication Technologies.

Yugal Sharma, country manager, India & SAARC, Polycom, says: “In India, a number of organisations across the telecom & IT sectors are large users of conferencing. We see large deployment of voice and, more importantly, video solutions in industries like manufacturing and steel.”

Meanwhile, most of the telecom services operators in India including Tata Indicom, Reliance and Airtel have started focusing on providing conferencing solutions. Airtel recently introduced video-conferencing solutions for its enterprise customers.

“These days, there is a lot of demand for audio-video conferencing for investor calls and meetings. In fact, it is slowly occupying the top slot in our service. It constitutes the bulk of the scheduled meetings,” claims Prakash Bajpai, CEO of Reliance Communications.

 

[Bushroda]

More reforms needed for an upgrade
17 Jul, 2007, 0336 hrs IST, TNN

MUMBAI: India still has a long distance to travel before it can hope to see a further upgrade in sovereign rating, although there has been a considerable improvement in the fiscal position, according to global ratings firm Fitch Ratings.

Paul Rawkins, senior director, sovereign and international public finance, Fitch Ratings told ET that although both the Centre and state governments have managed to improve their fiscal positions marked by a reduction in the combined fiscal deficit from 10.1% in 2001-02 to 6.1% in 2006-07, yet the level of public debt is too high compared to other sovereigns, which the ratings agency tracks. “

We acknowledge that government finances have improved. But there needs to be a further improvement for a further upgrade,” he said. Fitch upgraded India’s rating from speculative grade to investment grade last year. Senior officials from the global ratings firm are in India for their annual ratings review and will meet RBI and finance ministry officials.

According to Mr Rawkins, India’s growth story would be sustained since it is not just a matter of cyclical upturn. There have been certain structural changes. The high growth rate of the economy should be an opportunity for the government to undertake more fiscal reforms, he feels. One notable feature is that there is awareness among the policy makers on the need for fiscal consolidation. There is a realisation within the establishment that the fiscal needs to be handled well and achievements on the fiscal front ought not to be frittered away.

But there are limitations on slashing current expenditure because nearly 86% of it is accounted for by interest payments, he pointed out. Given the rigidities on the expenditure side, the government will be heavily dependent on buoyant revenues to deliver smaller deficits, he said. “One has to make sure that revenues continue to grow. The way out is to spread out and generate more revenues,” he said. Mr Rawkins like some other fiscal experts has made a strong case for widening the tax base.

He also wants subsidies to be curtailed and for the government to spend more on infrastructure and social sectors. Mr Rawkins has also sounded out a warning. The mistakes made in implementing the recommendations of the Fifth Pay Commission should not be repeated by the Sixth Pay Commission since the huge pay hikes by the Centre had to be implemented by states which bloated their pension bills, resulting in further deterioration of state finances. In its recent report, Fitch had said that the combined — states and Centre — tax to GDP

ratio has to be improved to 17.6% by FY10 from 15.8% in FY05. And the combined debt to GDP ratio has to be brought down to 75% from 82.5% during the same period.

 

[Bushroda]

India Shining II? PM aide says jobs for all by 2010
CNN-IBN
July 16, 2007

New Delhi: Worried over the spate of electoral reverses in various state Assembly elections, the Congress is going on what seems a hasty damage control.

After its slogan of 2004 - Congress ka haath gareeb ke saath (Congress' hand is for the poor) - the party has now unveiled another trump card.

As the countdown to General Elections of 2009 begins, Economic Adviser to Prime Minister Manmohan Singh, C Rangarajan says there will be employment for all by 2010.

“A study that I have done shows that by 2010, the labour force and the work force will almost be equal in the sense that there will be no unemployment even assuming a growth rate of 8 per cent. In fact the economy will grow at a higher rate than this. Therefore the question that remains is not so much of quantity employment as the quality and this will depend on improving the total factory productivity both in agriculture and unorganised sector,” says Rangarajan.

But there is a rider.

“They may still have an employment which gives them a level of income which is not equal to the level at which they can be taken out of poverty,” he says.

But as is the case most of the times, the Left allies have been quick to dismiss the claim and think the government is living in an illusionary world.

“The growth pattern so far has suggested that the employment generation has always been much more than growth rate,” says CPI-M politburo member Sitaram Yechury.

Opposition BJP – whose India Shining campaign spelled doom for the alliance at the Centre in the last Lok Sabha polls - has also been quick to raise a voice of dissent.

“This is not inclusive growth, this is not equitable growth,” says BJP leader Prakash Javadekar.

However, despite all the statements and claims, Government does admit employment would not be enough to lift the worker above the poverty line or improve his quality of life.

This is because that requires skilled jobs in factories but over 60 per cent of the country still survives on agriculture.

Whether the party’s desperate attempt at its version of the India Shining will work or not is for time to tell.

 

[Bushroda]

India: Greenfield Airports In India – A Case Study Of The Bangalore International Airport
16 July 2007
Article by Sumeet Kachwaha

*Transcript of talk delivered by Sumeet Kachwaha at the Inter Pacific Bar Association Annual Conference; Beijing, 2007.

Introduction and background:

When one looks at the current huzzle and buzzle around privatization of infrastructure in India, it is difficult to imagine that just about six years back, privatization was virtually unknown in India. The story started with the Road sector in the late 1990’s but that too initially was not under the BOT Model. The project was funded by the Government through a 1% cess on diesel. Infrastructure bonds were floated where the Public Sector Corporations invested. It was only in this millennium that privatization, as properly understood was adopted as a Government policy.

Why privatize?

Look at the Airport sector alone. This sector has witnessed a growth of 35% on an average year upon year for the last six years (global growth is only about 9% per annum). The growth is fuelled by the robust economy and indeed infrastructure leads to economic growth thus completing the cycle. It is estimated that had the infrastructural gap not been there, India’s GDP would have been 2% higher per annum - and indeed would have been at about par with the phenomenal growth China has achieved.

Currently the airport infrastructure is totally inadequate. It is fairly common for flights to hover around airports due to congestion, waiting to get landing permission or waiting at the ground in the queue to take off. To give an idea of infrastructure gap, the Delhi Airport as of now has a capacity to handle 12 million passengers per annum but it is actually carrying 16.5 million passengers per annum, which is expected to grow to 20 million passengers by next year.

Airport modernization is therefore some thing which we could have done with as of yesterday. The Government cannot cope up with the demand - and hence privatization is necessary.

Snap shot of the future:

We have two "green field" airport projects where the concession agreements have already been signed. These are for the international airports at Bangalore and Hyderabad, expected to be completed next year. We have two "brown field" airport projects for Delhi and Mumbai to be completed by 2010. We are in the process of inviting bids for 6 more green field airports in metro cities and 35 brown field airports in the non-metro cities. So one can see what a happening sector this is currently in India.

The Bangalore International Airport:

In this talk, I propose to take up the Bangalore green field airport which was signed off by India in July 2004 as the model for our discussion. In fact the next concession agreement for Hyderabad which was entered into six months later was virtually on the same lines and these two are the only green field concession agreements signed so far. There is no "Model Concession Agreement" announced by the Government for future projects (though it is proposed to come out with one some time in the future).

Structuring:

Though the concessionaire for the Bangalore airport is a private limited company, the Government through its agencies and instrumentalities holds 26% shareholding – (the break up being 13% by the Central Government and 13% by the State Government). This 26% shareholding ensures that the Government is able to veto certain "fundamental resolutions" which as per the Indian Companies Act require a minimum of 75% shareholders vote. For instance, issuance of new shares; change of directors; change of auditors etc. all require at least 75% shareholders vote. Hence the Government does retain some sort of control in the venture. Amongst the private players in Bangalore airport, Siemens of Germany have the majority 40%. Zurich airport holds 17%.

Description of the project:

Let me begin by briefly sketching salient features of the Bangalore Airport. The site is situated about 29 k.m. from Bangalore and covers about 4300 acres. The airport design allows a second runway to come up in the near future with a separation distance of about 2 k.m. between the two run ways. The run way would be approximately 4000 mtrs. in length with a width of 60 mtrs. The airport would be at par with a world class international airport.

A significant part of the project is permissible for "Non-Airport" activities. The concessionaire can develop up to 300 acres land commercially for any activity not connected with the airport. In this 300 acres the concessionaire is free to set up not only hotels or malls - it can even go for Special Economic Zones, manufacturing factories, country clubs, golf courses, power plant etc. Considering that this huge chunk of prime land comes to the concessionaire on a long term lease, virtually free of cost, it is easy to imagine that this would be the commercial backbone of the project.

Nature of the concession:

Basically the concession is for Development, Construction, Operation & Maintenance of the airport. The agreement allows the concessionaire to develop, construct, operate and maintain the Bangalore International Airport for a period of 30 years, extendable at its sole option for another 30 years (i.e. total 60 years). The land for the same is leased by the State Government.

The concessionaire has the burden to independently evaluate the scope of the project and be responsible for all risks which may exist in relation thereto. It is obliged to follow good industry practices and all applicable laws.

The Government on the other hand, undertakes to support the project. Article 5.4 of the concession agreement states that in so many words: ("GOI acknowledges and supports the implementation of the project"). It further states that the Government of India will not take any steps or action in contradiction with the Concession Agreement which results in or would results in its shareholders or the lenders being deprived or substantially deprived of their investment or economic interest in the project. Further all statutory and non-statutory bodies under the control of the Central Government will act in compliance with the concession agreement as if they are a party thereto and the Government of India shall ensure that all statutory compliances as may be required in relation to the project are granted promptly. This is a unique feature of the Airport concession agreements In fact the concession agreements in the Port sector or Road sector do not have similar obligations on the Government. The Concession Agreement also insulates the concessionaire against competition by stating that no new airport would be allowed to be set up within 150 k.m. radius for a period of 25 years from the date of airport opening and further the Government of India will ensure that no other airport in India gets any unfair competitive advantage as compared to the Bangalore airport. Again a unique feature to be found in the airport concession agreements alone.

Monitoring of the project:

It is provided that the Government shall not intervene in or interrupt in the design, construction, completion, commissioning, maintenance, monitoring or developing of the airport unless it is on account of national emergency or as per any existing law or for public safety. If intervention is on account of public safety, it shall be limited in time and for a period to be mutually agreed between the parties. The parties agree to set up a joint Co-ordination Committee comprising of representatives of the State and private parties to monitor the implementation of the project at all stages including post-completion.

The airport performance shall be monitored through passenger survey and as per the IATA Global Airport Monitoring survey standards.

Charges which can be levied:

As mentioned earlier the concessionaire is free to develop approximately 300 acres for non- airport activities (which indeed is to fund and finance the project). The charges here are not subject to Government control and will be free market driven. However Airport Charges i.e. which ultimately fall on the passengers shall be fixed with the approval of the Ministry of Civil Aviation. This would include passengers fees, landing charges, user development fees etc. These charges would be fixed on the basis of the current charges in place for other airports in India and shall be consistent with the International Civil Aviation Organisation’s policies on charges for airports.

Heads of risks:

Before we get into an evaluation and allocation of risks let’s just pause and see what is the nature of the contract. We are not looking at an ordinary construction contract. Airports are not mere place for aero-planes to land or take off. They involve public interest, convenience and safety. Besides construction of airport building, ATC tower, administrative buildings etc. they can encompasses mini-townships, commercial areas, Special Economic Zones (modeled on China’s experience) and indeed manufacturing factories, golf course, country clubs etc. Therefore the project is both mammoth and diverse. Then we are not only looking at a mammoth and diverse project - we are looking at it over a period of 60 years!

How large is a period of 60 years in the life of a nation can perhaps be best illustrated if we consider that India was not even an independent nation 60 years back and indeed the history of civil aviation is probably not much more than 60 years. Unimaginable changes can and will take place in 60 years. So the public element; complexity and diversity of the project and the length of the concession agreement are all so vast, that it would be some what naïve to try and enumerate all risks associated with the project or indeed to try and address them through a contractual process of allocation of risks.

With this note of self – caution, I propose to briefly deal with allocation of risks in green-field airport privatization under the following 5 heads:

delays and consequences of delay in the airport opening;

change in law and the risks involved therein;

termination of agreement due to default of either party;

The role of the regulatory authority; and

dispute resolution.

i. Delays:

The target date for airport opening is stipulated as 33 months from the date of financial closure and from this date (i.e. date of airport opening) the concession period is to start running. In other infrastructure sectors like Roads or Ports, the concession period starts to run from the date of signing of the concession agreement. This is the greatest incentive and at the same time coercive measure to ensure timely completion of the project. For example, if the concessionaire is able to complete the project even before the target date of opening, it gets its reward automatically in the form of the extra concession period it "earns" for itself and if he delays it, he eats into the concession period and therefore the profits. One would have thought this to be a fairly sensible approach of reward and punishment. However in the airport sector one finds the provision for delays to be rather soft on the concessionaire. Firstly the 33 months period for completion can be extended by as much as six months if it can be shown that the delay was on account of failure by Government of its obligations under the agreement (surely a very vague ground for extension, which if invoked would probably end up in dispute). After the six months extension liquidated damages kick in which are around US$ 2250 per day (once again a fairly nominal amount one would think considering the public interest involved in expediting the opening). Further, if for another six months the airport does not open then it becoming an "event of default", which has its own cure period etc. Finally – it will lead to termination of the contract. This gives easily up to 2 years or so to a defaulting concessionaire to extend the deadline without having the project cancelled on account of delay.

One would think that where the total time for opening is 33 months, to allow such a large period before termination is perhaps not justified.

ii. Change in law:

It is obvious that a concession agreement over a long period of time cannot guarantee against change of law. The concession agreement divides and treats the subject of change of law in two categories – the first is where a change in law entitles the concessionaire to some compensation and the second is where it does not entitle the concessionaire to any compensation.

The "no compensation" cases or case where the concessionaire is not entitled to any benefit on account of change in law are those which relate to any of the following 4 types of statutes.

any non – Federal (or State) law

any environmental law

any labour law, or

any tax law

Hence change of law under any of these statutes would not entail any compensation to the concessionaire for any loss which may be occasioned to it. In tax laws however there is a further refinement. If there is any tax benefit which is currently allowed to the concessionaire, it cannot be taken away by change of law without corresponding compensation. For instance, one benefit the infrastructure sector (including private airports) enjoy is a 10 year income tax holiday which can be availed of at any time during a 15 year period. Save for such current tax benefits, the Legislature is free to amend its tax laws to the detriment of the concessionaire and the concessionaire has no relief against the same.

As regards the second category laws i.e. other than the above four, it is envisaged that if there is any change of law, which results in a financial loss or burden in connection with the development or operation of the airport and the affect to which exceeds over US$ 200000 in any given year, then the concessionaire may notify the Government and propose amendments to the contract so as it is put in the same financial position it would have been, had there been no such change in law. If the parties do not agree to the amendments necessary, the matter would be settled through the Dispute Resolution Mechanism.

It would be noticed that this some what limited insulation against change in law is only in relation to "airport activities" and does not cover the "non-airport activities". More significantly it leaves it to the parties to hammer out an agreement as would suffice restitution. This is not very satisfactory, as typically Government bureaucrats are ill-suited and may be naturally reluctant to take upon themselves the delicate balancing act. There would be delays in decision making or decision making would not be free from controversy or it may be ad hoc and lack transparency and invariably it would be short of expectations. All this would lead to dispute. Perhaps a more efficient mechanism to deal with this may have been to set up Dispute Review Boards (DRBs) till such time as the Independent Regulator is in place.

iii. Termination of the agreement due to default:

The Agreement enumerates the "events" which would tantamount to "events of default" for either party. Once an event of default (as defined) takes place, a 120 days cure, period is stipulated in the first instance. If there is no cure a notice of termination may follow. Once notice of termination is issued, two consequences would follow: (i) Government would acquire the airport and all rights, interest and titles of the concessionaire relating thereto, and (ii) have the option to acquire and take over the non – airport activities. It is to be noted that the airport would be taken over even though the termination may be due to the Government’s own default.

After take over of airport comes the issue of compensation. If it is the concessionaire’s default then the only compensation allowed to it is: (i) 100% of the outstanding debt and (ii) value of investment of the concessionaire in the non-airport activities taken over by the Government consequent upon take over.

If on the other hand, it is a Government’s default (and yet the airport is taken over) then the compensation is more liberal. It includes: (i) the outstanding debt or "Settlement Amount" (as defined) whichever is higher. Settlement Amount would include the net current asset; gross fixed asset; intangible asset etc. (ii) value of investment in the non - airport activities which the Government decides to take over and (iii) damages.

iv. Role of Regulatory Authorities:

In infrastructure projects involving the public an independent regulatory authority has become necessary. Accordingly the Concession Agreement envisages that an Independent Regulatory Authority would be set up to regulate any aspect of the airport activity. Very vast powers are envisaged to be cast upon the Regulator. The Regulator would not only lay down or regulate standards, approve charges, impose penalties etc. – it would also settle disputes - not only between public and the Government and / or concessionaire in relation to the airport but also between the concessionaire and the Government.

Two points are noteworthy here – the first is that extremely vast powers have been cast upon the Regulator, to the extent which would ultimately lead to fading away of the parties contract. Ultimately the Regulator will be the bed rock on which would depend the fate of the project. The second point is that the Regulator is not yet in place. The draft for enacting the law in this regard is still at the discussion level with the Government. Once the Cabinet approves it, a Bill will be drafted and placed before Parliament, which will then be debated. It will go through several sub-committees of Parliament. So we are at perhaps 3 years or so away from the stage when an Independent Regulator is constituted. Further, the history of an Independent Regulator in India is not very encouraging. Roads were the earliest to go for privatization and it was envisaged that they would have a Regulator – but there is not even a draft Act in place here. Same is the story for Ports and Oil and Gas. The radio broadcasting sector has been privatized for about 15 years now but there is no Regulator there as well. In the power sector Regulators are there in the State as well as the Centre level but the track record is not very encouraging. In short, we are years away from setting up an Independent Regulator (ensuring foremost his independence) then providing for transparency, accountability etc. in its working. The nuances of airport governance through Regulators is yet to be worked out. What will be the regulatory philosophy has yet to be developed. There is yet to be consolidation and standardization in the field. The Government is still debating preliminary issues as to the constitution and composition of the Regulators. One set of thinking is that instead of multiple regulators for multiple sectors, we should have only 2 or 3 Regulators. One would for instance deal with all types of carriage e.g. roads, airports, ports and even transmission lines – the other would deal with electricity, voice data etc. Another theory is that energy, communication and transportation should be under one Regulator. It would seem that we are years away from having an independent Regulator as can fulfill the enormous and all compassing role visualized for it is under the Concession Agreement and till that happens there will be ad hoc decision making lacking transparency and leading to disputes which may hamper the growth and privatization in the sector.

v. Dispute resolution:

Normally one would not except to hear about Dispute Resolution on the subject of risk allocation but here we have a some what unusual situation. The Concession Agreement envisages that Dispute Resolution shall be through ad hoc arbitration, under the UNCITRAL Rules and under the Indian Arbitration Act with the venue at New Delhi. This is of course not unusual by itself – as ad hoc arbitration is more common in India, compared to Institution arbitration. The peculiar feature in dispute resolution is that once an independent Regulator is put in place, the arbitration agreement shall stand overridden and disputes shall be referred to the Regulator. In other words, parties would no longer be able to go for arbitration. The only exception envisaged (to resort to the Regulator) is where sums are payable under an indemnity guarantee by the Government of India, to the concessionaire relating to Airport Charges (as defined). Here resort to arbitration is permissible (but not otherwise). There are two types of problems I envisage. First, international parties committing huge funds in a foreign jurisdiction will have far greater confidence in arbitration in a neutral country under the Rules of a neutral Arbitral Institute. This basic expectation is taken away under the airport Concession Agreement. The second issue is that once the Regulator is put in place (even if it is assumed that it would be independent and would efficiently deal with the disputes) it would naturally be subject to the hierarchy of the Indian legal system - which would mean that it would be subordinate to and amenable to the Writ jurisdiction of the High Court. Besides, writs by High Court, any decision of his can be appealed to the appellate authority. In short, one is therefore looking at three or four stages in dispute resolution. First, the decision by the regulatory authority, followed by decision of the appellate authority, followed by a Writ to the High Court followed by a discretionary appeal to the Supreme Court. Given the delays under the legal system, dispute resolution would become inefficient and expensive. Perhaps the Government should have segregated pure contractual disputes between the concessionaire and the Government and reserved these for international arbitration (which would have been as per the expectations of the international investing community also). The Regulator should step in only where public interest is involved. Dispute Review Boards should have also been envisaged in the Concession Agreement in a project of this type.

Conclusion:

To briefly conclude, India is firmly on the path of privatization in the airport sector. However the Concession Agreements do need a further in-depth look. Hopefully there would be a Model Concession agreement in the near future which would bring uniformity and address some of the issues which need a second look.

 

[Bushroda]

Credit Suisse eyes 15pct in India Park Hotels - report
Mon Jul 16, 2007 11:06 AM IST

MUMBAI (Reuters) - Credit Suisse is buying up to 15 percent in Park Hotels for $50-$55 million, two newspapers reported on Monday.

Credit Suisse's real estate fund will acquire 10-15 percent in the hotel chain in a structured deal, the Business Standard said, citing sources close to the development.

The deal is expected to be announced on Monday, the Hindustan Times paper said, also citing sources close to the development.

A spokeswoman for Park said she had no information at this point. A spokeswoman for Credit Suisse declined comment.

The Park chain of luxury boutique hotels, part of the diversified Apeejay Surrendra group, has six properties in India.

Credit Suisse, one of the world's top investment banks, launched its domestic brokerage operations in India earlier this year and recently obtained its Indian merchant banking licence.

A booming economy and an expansion in tourism are boosting demand for hotels in India, where a shortage of rooms has resulted in some of the highest tariffs in the region.

 

[Bushroda]

Monsoon tourism making a splash
Kalpana Pathak / Mumbai July 17, 2007

The monsoon, which is traditionally seen as an off-season in the tourism industry, has taken off very well this year.

Monsoon tourism, as it is known, has performed beyond the expectations of tour operators, garnering a 50 per cent increase in both in-bound and out-bound traffic. Last year, the industry saw an increase of only 15-20 per cent in monsoon tourism.

While Goa and Kerala remain the top domestic destinations, West Asia is still a favourite with travellers heading for international destinations. Over the years, the number of international tourists visiting India during the monsoon, especially from the Gulf countries, has almost doubled.

The Indian monsoon during June-September coincides with the summer vacations in the Gulf countries. Thus one can witness a steep increase in tourist inflow this monsoon,” a Thomas Cook official said.

Besides, there has been an increase in travel by the double-income-no-kids (Dink) group. These people believe in beating the rush and getting a truly relaxing holiday. “As they do not have kids, they are not bound by the school holiday cycle and during this time they get quality holidays,” adds the Thomas Cook official.

Another trend visible this monsoon is the charters coming from Spain to Jaipur. SOTC Holidays has witnessed an increase of 30 per cent in initial bookings of its monsoon packages. While the season is still on, the travel major expects the bookings to go up further. “The bookings might go up to what we call a high season, where people are ready to pay extra to go on a holiday,” said Frederick Divecha, senior vice-president, marketing, SOTC.

While Kerala, Goa, Madhya Pradesh, Sikkim and Meghalaya have already started cashing in on monsoon tourism by starting special monsoon packages, Mahrashtra Tourism Development Corporation, too, has had its cash registers ringing with tourists making a beeline for Lonavla, Khandala, Malshej Ghat and Karla.

Tour operators see a surge in the number of bookings, with the marriage season also on in many parts of the country.

“With the marriage season on, a lot of travellers have done their holiday bookings for the second week of August. The destinations these newly-weds are looking at are South Africa and Mauritius for the affluent category and the Far East for the economy category,” said the Thomas Cook official.

On an average, based on the destination, the mode of travel and the accommodation chosen, a domestic holiday package would cost anywhere between Rs 12,000 and Rs 20,000 per head and an international holiday package would cost anywhere between Rs 20,000 and Rs 35,000 per head.
--------------------------------------------------------------------------------

MONSOON MAGIC

* Goa and Kerala remain the top domestic destinations

* The Gulf countries are the favourite international destination

* International tourists visiting India have almost doubled

* There are charters coming from Spain to Jaipur

 

[Bushroda]

Move to spur dollar outflows
JAYANTA ROY CHOWDHURY

New Delhi, July 16: Faced with a problem of too many dollars and euros in the country’s kitty, the Congress-led government may work out a package to encourage outflow of foreign exchange through investments abroad.

Rules allowing funds to invest abroad may be relaxed further and a limited number of treasuries and brokers may also be allowed into the field.

It is also likely to place checks to see most of external commercial borrowings or foreign currency loans that companies raise abroad are spent on purchase of assets such as firms or mines abroad or on import of capital goods or raw material.

India’s forex reserves have already swollen to $215 billion, and is being forecast to increase by another $40 billion by the end of this year. Net FDI inflows may top to $15 billion, almost double of last year's $8.4 billion.

A top official said the North Block would work out fresh relaxations for mutual funds who are already allowed to invest a portion of their funds abroad.

In May, the aggregate ceiling for overseas investment by mutual funds registered with capital market regulator Sebi was increased from $3 billion to $4 billion.

Former RBI governor and head of the Prime Minister's panel on economy, C. Rangarajan, also said the government would work to limit the conversion of external commercial loans into rupee funds by companies that use this money for a variety of reasons within the country.

“ECBs should be used up abroad to buy assets there or in procuring capital goods.”

India Inc, however, isn’t much enthused by the new thinking on ECB utilisation and pointed out that with interest rates at a high in India, many would naturally tap foreign markets for cheaper loans, part of which would be used as working capital.

 

[Bushroda]

India Now festival kicks off in London
Katie Allen, Guardian Unlimited
Monday July 16, 2007

It has banks, energy companies and car makers listed on the London Stock Exchange, is second only to the US for inward investment projects into London and its filmmakers shot 40 major productions in the capital city last year.

These are three facts about Indian business that Ken Livingstone wants Londoners to take away from a festival starting today. The London mayor's office kicks off the three-month India Now season by sailing a replica of the Taj Mahal on the Thames. The festival aims to cement London's strong ties with a booming Indian economy.

"This year India is our target," says John Ross, the mayor's economic advisor. "In 10 years' time the Indian influence in London will be twice as big as it is now, at a minimum."

According to statistics the city has put together for India Now, London alone accounts for a third of India's rapidly rising overseas investment in Europe. There are far more Indian companies listed on the London Stock Exchange than in New York and there are more than 10,000 Indian-owned businesses in London employing almost 50,000 people.

"The perception of the average Londoner might be of curry houses and call centres but coming down the line are global IT players, pharmaceutical firms, steel producers and car makers," says Mr Ross. London has sought to become the global base of choice for Indian companies by highlighting a common legal framework and a useful time zone.

Such advantages combined with the city's status as a media hub were behind a move to London by India's largest post-production company Prime Focus. The visual effects specialist bought a controlling stake in UK post-production group VTR last year and now employs 250 people. "Our whole plan is to use VTR as our vehicle for global growth, " says Prime Focus boss Parvinder Bhatia.

Prime Focus post-produced Bollywood film Chak de India, starring Shahrukh Khan as a girl's hockey team coach, which forms part of the India Now season.