Indian Economy - News & Updates - Archive

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Indian carriers can now make Malaysia a hub
18 Jul 2007, 0335 hrs IST,TNN

NEW DELHI: Indian carriers designated to fly abroad now have the opportunity to set up an international hub. The government's recently-signed pact with Malaysia has won India the "beyond right" that allows airlines to use Kuala Lumpur as a hub in the east and connect other destinations like Australia and the west coast.

So far, Jet is the only Indian airline to have a base abroad, in Brussels, and now Air India is also trying to get a base in Europe.

"The beyond right is an important feature of this pact as any designated Indian carrier can fly beyond KL. The best part of the deal, signed by an Indian team led by aviation secretary Ashok Chawla, is that the excellent KL is also among the most economical ones in the southeast. It will be the ideal hub for an airline that's equipped to expand operations to the southeast and Australia," said a senior official.

The importance in terms of growing traffic to the southeast can be gauged from the fact that Jet recently strengthened its code share agreement with Qantas to provide seamless connectivity between India and Australia via Singapore.

Without a base of their own, Indian carriers need such pacts. But with India now tying up with Malaysia, its carriers can set up base in KL to offer onward connections.

Air India chairman and managing director V Thulasidas said: "We will surely look into the potential of using KL as a point for carrying beyond traffic. We are going to expand our operations and add more cities on our map."

AI is currently in the final stages of tying up with a major European hub airport for using it as a base.

 

[Bushroda]

India-Indonesia trade to touch $10 bn
17 Jul 2007, 1301 hrs IST,IANS

JAKARTA: Trade between India and Indonesia is expected to hit a historic high of $10 billion by 2010, says Indonesian President Susilo Bambang Yudhoyono.

"The bilateral trade target of $10 billion for 2010 can be achieved if the two nations seriously develop and enhance the existing cooperation," the President said.

Indian Ambassador to Indonesia Navrekha Sharma said a number of Indian companies had expressed keen interest in investing in Indonesia's information technology, infrastructure, banking and automotive sectors.

Susilo said Indonesia must be able to grab all the opportunities by establishing strategic partnership with India, which is a big country and has many comparative advantages, such as advanced technology.

He also underscored the importance of cooperation in the pharmaceutical industry, considering India was one of the world's largest pharmaceutical product suppliers.

"We have a fast-growing domestic market and abundant natural resources. If the countries' potentials are combined, both Indonesia and India will take the great advantage of their cooperation," he said.

 

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India sees 10 percent economic growth if farm output recovers
FORBES, NY
07.17.07

NEW DELHI (Thomson Financial) - India's economy could touch annual growth of 10 percent in the financial year beginning April 2008, provided its ailing farm sector picks up.

'Achieving a 10 percent growth in 2007-2008 (April-March) is tough, but it is possible in 2008-2009,' Finance Minister Palaniappan Chidambaram told economists at a function in New Delhi on Tuesday.

'That will be a fitting finale for the government's five-year tenure,' Chidambaram said, adding the target could be achieved only if India increased farm output.

'It will be possible to push up the economic growth by improving the performance of agriculture, which has been stagnating,' the minister said.

Agriculture contributes a fifth of India's economic output and is a direct or indirect source of income for two-thirds of its population.

Annual per capita food grain production shrunk from 207 kilograms in 1995 to 186 kilos last year. The rate of agricultural growth fell from five percent in the mid-1980s to less than two percent in the past five years.

India, the world's second-largest wheat producer, exported no wheat last year after shortages forced it to import the commodity for the first time in six years.

The Indian economy grew faster-than-expected at a record 9.4 percent pace in the past year to March, beating New Delhi's forecast of 9.2 percent and raising hopes of greater foreign capital inflows.

In the previous fiscal year, India's economy grew 9.0 percent.

Chidambaram said India's sizzling growth compared well with China's economy.

'India's growth rate compared to China is not bad in view of the fact that India has to follow democratic norms and generate (political) consensus, evolve laws and endure criticism before moving forward,' the finance minister said.

India's growth lagged behind Asian rival China's 10.7 percent in 2006.

 

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Retail needs FDI to reach its potential
18 Jul, 2007, 0346 hrs IST,Gaurav Taneja,

In 2003, India’s economy was projected to overtake the US to become number two soon after 2060. However, given the revised estimates, the chances are that the ‘overtake’ may actually happen even earlier! With such growth prospects, rising incomes with increased per capita spending, changing consumer tastes and high proportion of young working population — no doubt India tops the list of emerging markets for global retailers!

However, the retail sector is presently grappling with certain policy, regulatory and tax issues, which if not quickly addressed, may impact not only the prospects of retail sector but also the long-term India story to a some extent.

At the regulatory front, presently, FDI is completely prohibited in multi-brand Retail. Further even in case of single-brand retail, only 51% FDI is allowed with prior government approval. However, if organised retail in India has to grow as forecasted/estimated, it requires significant capital, technology and application of latest global best practices. In such case, restricted FDI regime may be an impediment. Growth of organised retail is likely to have a positive impact not only on end consumers, but also on employment generation, supply chain efficiency, agricultural practices, sourcing from India, etc.

Organised retail, besides benefiting the consumers by way of competitive product pricing and quality service, is introducing the Indian consumer to a shopping experience like never before. The modern shopping complexes are becoming the destination point for shoppers as well as ‘window-shoppers’. There is everything for everyone — shopping, entertainment, and food, all of it under one roof. Further, being largely labour-intensive, organised retail is likely to unleash huge job opportunities.

Further, to the surprise of many, retail also requires application of global best practices in terms of processes, systems, quicker assimilation and implementation of new technologies. The food supply chain in India remains fragmented and unorganised. From farm to fridge, distribution of most food items involves multiple intermediaries and wastage during transportation and storage. Organised Retail is expected to result in significant investments in upgrading the technology and practices in the entire value chain, and, the removal of intermediaries. This will reduce wastage and duplication of efforts resulting in farmers realising both higher productivity and better price.

Opening up the sector to global retailers will only result in further investments to help farmers scale up and modernise farm practices. Direct inclusion of farmers into this process on fair terms would give them the first real opportunity they have had in centuries. The extent of sourcing from India will also grow manifold when global retailers are allowed to operate in the Indian market. Global retailers have invested significantly in the local economies they are present in. In the process, they have improved living standards of consumers, suppliers, farmers and employees and generated greater quantity and quality of employment.

All of the above strongly advocate a case for allowing FDI in retail sector. A gradual approach, similar to telecom sector, may also be explored, such as, opening up the sector for 51% FDI now, with a clear road map for further liberalisation. In a scenario where large Indian business houses/conglomerates like Tatas, Reliance, Birlas and Bhartis have already entered the field with huge investment plans, there does not seem to be any logic in arguing against FDI on the ground of impact on mom-and-pop stores.

Besides allowing FDI in retail, to unleash the growth potential of retail sector, government will also have to give infrastructure development its due attention, so that it keeps pace with the current retail transformation. Further legislative reforms, and rationalisation of fiscal laws, is also required to keep the momentum going.

The rising demand for cornering prime locations has hiked the property lease rentals across the country. The recent levy of service tax on such rentals has further aggravated matters. Further, a typical retailer is subjected to service tax levy also on security, storage and warehousing, commission and collection agents’ services, transport services. This becomes a significant additional cost, given the wafer thin margins in this industry. In most cases, the retailers are not able to utilise the credit of service tax paid on the input services consumed by them. Similarly, the credit regime is also not very friendly in respect of central sales tax / entry taxes.

Retail sector needs a much better set of regime, till an integrated goods and service tax (GST) is introduced. Given the huge benefits of organised retail, and the likely spiralling effect of the sector’s growth on the growth of Indian economy, including the rural economy, it is high time that this sector receives its due attention, and measures are introduced liberalising and rationalising regulatory and tax environment.

 

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An unbound India flourishes, but the job's not yet done
MARCUS GEE
Globe and Mail, Canada

One day in the 1980s, Gurcharan Das found himself arguing with the finance minister of India about the value of face creams for women. Mr. Das, then an executive with Proctor & Gamble, was pleading with the minister to lower India's 120-per-cent excise duty on toiletries, which were making it hard for P&G to sell its Oil of Olay cream to Indian women.

"A face cream won't do anything for an ugly face," said the minister impatiently. "These are luxuries of the rich."

When Mr. Das protested that even a young woman from the village used traditional beauty pastes, the minister said: "No, it's best to leave a face to nature."

"Sir," Mr. Das objected, "how can you decide what she wants? After all, it is her hard-earned money."

"Yes, and I don't want her wasting it. Let her buy food," said the minister, ending the meeting with an imperious wave of his hand.

Those were the bad old days. Like many Indian executives, Mr. Das spent hours in the stale corridors of Delhi's government offices, suffering the disdain of countless time-serving officials as he tried to negotiate a web of taxes, regulations and restrictions.

Under the Licence Raj, as India's stifling business rules were called, "you could actually go to jail for producing more than your approved limit. A farmer could not sell his produce beyond state borders. A young entrepreneur faced up to 37 functionaries and inspectors, each of them wanting his cut. It was a crime to invite your customer to lunch abroad while travelling because it exceeded your foreign exchange allowance."

These were more than just minor annoyances for Indian businessmen. The Licence Raj held India back for decades, curbing its economic growth as first Japan, then South Korea, Taiwan and Hong Kong and then China leapt from poverty to prosperity. "By suppressing economic liberty for 40 years, we destroyed growth and the futures of two generations," he writes in his 2000 book India Unbound.

That made Mr. Das mad, and he wasn't afraid to say so. A government official's son educated at Harvard on a scholarship, he had no patience for the petty tyranny of Indian officialdom. He once even had the nerve to challenge the regal Indira Gandhi. "Does the market always make the right decisions?" she demanded when he questioned the Licence Raj after a speech she gave to a business audience. "Not always, madam, but always better than bureaucrats," Mr. Das replied. "Ah," she said with a condescending smile, "we have a market-wallah, do we?"

He doesn't have to suffer that kind of sneering any more. Since finance minister (now Prime Minister) Manmohan Singh introduced market-oriented reforms in 1991, the Licence Raj has crumbled. India is, indeed, unbound. With its natural entrepreneurial talent liberated, the country has registered steadily accelerating economic growth, which touched 9 per cent last year, close to booming China's.

Unlike China's government-directed, top-down formula, India's miracle has been "a people's success - a success from below," Mr. Das says.

"It has happened in spite of the state, not because of the state," he said in a recent conversation as he walked his dog in Delhi's sprawling Lodhi Garden.

The Italian saying, he says, applies equally to India: "The economy grows at night when the government sleeps."

In every sector where the government has stop meddling, from telecoms to airlines, private industry has grabbed the ball and run with it. But the job isn't done yet. While socialist follies like central planning and import substitution have largely been done away with, India still limits foreign investment, still restricts companies' ability to let unneeded employees go and still operates too many companies itself.

India's government, says Mr. Das, needs to stop doing what it should not be doing: mucking with the market.

Just as important, it needs to start doing what it should be doing.

Government's role in enabling economic development is to make sure that basic health care is provided to its citizens; to direct the building of roads, airports and sea ports to carry the nation's products; and to regulate the market with clear and legally enforceable rules; and, most important, to educate young people so that they can do the work of a modern economy.

As it stands, primary education is a wreck. One-quarter of Indian school teachers don't even show up for work. One in four men and one in two women cannot read or write. "The Indian state's biggest failure has been in building human capabilities," Mr. Das writes in India Unbound.

India's economy may grow while government sleeps, but India won't truly prosper until government wakes up and does its job.

Making India his business

Gurcharan Das grew up in modest circumstances as the son of a public works official for irrigation and canals.

The family moved to Washington in the 1950s when his father was posted there to negotiate with newly created Pakistan over the sharing of rivers. When they returned to India, Mr. Gurcharan stayed on to finish high school and then take a scholarship at Harvard, where he graduated with honours and attended the business school.

Homesick, he returned to India to work as a minor executive for Vicks, travelling around the country promoting its famous Vaporub. He worked his way up to chief executive officer of Procter & Gamble India and then director of strategic planning for P&G Worldwide. Since taking early retirement, he has been a consultant to industry and government. He writes a column for the Times of India and has written several plays and a novel, A Fine Family.

 

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Tectonic Economics
Robyn Meredith, 07.18.07, 6:00 AM ET
FORBES, NY

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

The Elephant and the Dragon is the story of how India and China are changing their destinies, and with that, changing the world's.

Both nations are growing so fast that they make the economies of the United States, Europe and Japan seem as if they are standing still. As a result, doing business in India and China has become the only hope for Western companies determined to quickly add new customers--the only way for Western executives to make stockholders happy. For business executives today, an understanding of India and China is now considered as essential as a grasp of accounting.

China began opening up its economy a generation ago, in 1978. Since then, foreign companies have poured $600 billion in foreign direct investment into China--more than the U.S. spent rebuilding Post-War Europe under the Marshall Plan.

In that time, China has transformed itself from a nation of peasants to an army of factory workers, plus a growing middle class. As a result, the vast majority of Chinese people have prospered, and the average Chinese now earns five times more than when economic reforms began. Streets are lined with shiny office buildings and new factories, and freshly poured highways stretch across the vast country. There are new airports and shopping malls and hundreds of millions of cellphones in a land where there were few telephones a decade ago. China is flying along, fast as a dragon. Nations around the world are in awe of China's lightening-fast rise.

That includes India. After decades of slow growth, India is finally following China's example and modernizing its economy, trying to drag its 1.1 billion people into the modern age. Finally, Indian incomes are rising, foreign investors have come calling, and India's economy is taking off. Slowly but steadily, like an elephant, India is trudging into the future.

Both India and China are moving from the ranks of developing-world countries toward superpower status. Their transformations are as stunning as any the world has seen since America itself emerged on the world stage. And the impact is felt on American shores, where prices have fallen at local Wal-Marts and risen at local gas stations. There are plenty of other contradictions. Middle-class American jobs are threatened even as mortgage payments are kept low thanks to China's powerful financial clout. In short, India and China have become a source of employees, co-workers, customers and competitors.

American companies can now connect with cheap workers half a world away at the click of a computer mouse, and the result for American, European and Japanese workers is the terrifying, dark side of globalization. More than a billion workers have just been thrown into the world's labor pool, and America must cope with the changes. Farmers were displaced by the Industrial Revolution in the 19th century. Sweatshop workers lost their livelihoods to assembly lines in the 20th, and just a generation ago, American factories closed because blue-collar work began moving to Mexico. History is about to repeat itself, sending a spasm through the world's job markets.

Yet the rise of India and China is about much more than jobs moving overseas: It is about a major shift in post-Cold War geopolitics, about quenching a growing thirst for oil, about massive environmental change. This is tectonic economics: the rise of India and China has caused the economic and political landscape to shift before our eyes.

We must make sense of how our world is being shaped by the rise of India and China. Only then can we adjust to, and even thrive, in the age of the Elephant and the Dragon.

 

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Maharashtra in for $3 billion face
Uma Upadhyaya.
Mumbai, July 18, 2007
First Published: 00:48 IST(18/7/2007)

The Mumbai makeover project has spawned bigger dreams.

The state government is now working on an ambitious 15-year plan to build expressways, airports and ports that will provide better connectivity across the state. The estimated initial investment: $3 billion or Rs 12,000 crore.

"We are looking at infrastructure development and modernisation across the state, linking our larger cities like Pune, Nashik, Kolhapur, Nagpur. This means more highways, expressways and airports. We are finalising the details," said Chief Minister Vilasrao Deshmukh.

The projects will be undertaken through four different public-private business models in which government investment will be nominal, said Chief Secretary Johny Joseph.

The government has also identified 21 new locations to be put on the aviation map, to try and accommodate the boom in civil aviation. Seven of these — including Shirdi, Amravati, Kolhapur and Latur — will be developed as full-fledged airports through private investment.

Forty-eight sites have been identified as business ports along the 720 km coastline of the state.

Deshmukh discussed a rough blueprint of this plan with global players in infrastructure while in New York last month.

Though Maharashra has seen steady growth in investment in industry over the last decade, there are signs of stagnancy thanks to the poor infrastructure beyond the Mumbai-Pune-Nashik triangle.

If the state is to compete with neighbours like Gujarat and Andhra Pradesh, which are aggressively marketing their industry-friendly destinations, it has no option but to go in for a major infrastructure makeover.

In addition to transport, the state is also inviting private participation in the power generation, irrigation and urban housing sectors.

The Public-Private-Partnership Facilitation Cell set up four months ago by the government and headed by Secretary (Special Projects) Sanjay Ubale will act as an interface for investors. Deshmukh is also likely to set up an advisory committee of experts to implement the plan.

 

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Relief from a rising rupee
By Raja M

MUMBAI - Lumbering to limit the rupee's growing muscles from damaging India's export business, the government has announced a much-awaited US$345 million relief package for worried exporters. The rupee has been averaging a 9.6% climb against the US currency since January, making Indian exports more expensive and less competitive in global markets.

A record $44.9 billion worth foreign-exchange assets flowed into India this year, up from $23.4 billion in 2006. This contributed to the cheaper dollar fetching fewer rupees and punched big holes in exporters' profits.

As this article was written, the exchange rate was Rs40.41 to US$1, compared with an average of Rs45 this decade. Thailand is another Asian country facing a similar problem, where a strengthening baht is expected to shrink its exports by 12.49% in the second half of this year.

The rising rupee has caught global attention, and Time magazine termed the Indian currency's appreciation "one of this year's biggest business stories".

The Indian government's export-relief package includes increasing drawback rates on most existing export items eligible for this concession, increasing the list of export items eligible for duty drawback, and banks offering shipment credit on easier terms for small and large exporters.

India's most frequently exported items include textiles, food products from snacks to tea, engineering products, garments, marine products, automobiles, leather goods, sports equipment and, of course, the software and outsourcing-service industries.

The textile industry is one of the worst victims of the rising-rupee story, with exporters to the US suffering losses ranging from 23% to more than 70% because of the dollar exchange rate dipping. Indian exports to the US totaled $22 billion last fiscal year, compared with the $288 billion worth of China-US exports. India also fears losing more than a quarter-million jobs because of fewer export orders, mostly in the textile industry.

The $1.5 billion Indian tea industry, the largest tea producer in the world, also took a hammering, with exports already falling behind this year by 5 million tonnes compared with last year.

The relief package hasn't come too soon, as more optimistic analysts expect the dollar to sink deeper against the rupee. Forex assets are expected to rise to $60 billion, taking India's total foreign-currency holdings to a record $260 billion.

Those gleefully cheering the rising rupee are importers and the tourism industry. Indeed, this crisis of plenty could be deeply ironic for those who remember India's desperate foreign-exchange-reserves situation in 1991, when the government ignominiously had to sell 20 tonnes of its gold holdings for $200 million to pay for imports.

When now-Prime Minister Manmohan Singh entered the cabinet as finance minister in 1991 and opened India's economy to the world, its forex holdings were $495 million, barely enough to finance imports for a fortnight. Sixteen years later, India has $218 billion in foreign-exchange holdings and worries what to do with it.

Export trade associations have cautiously welcomed the new governmental relief package, but most have appreciated the good intentions more than the actual content. Ganesh Kumar Gupta, president of the Federation of Indian Export Organizations, said the duty drawback rates should have been increased by an additional 5%. The hard-hit members of the Synthetic and Rayon Textiles Export Promotion Council agreed.

Exporters also sought more sales-tax concessions. The prevailing sentiment was that the government's move was a stopgap measure, and that the regulatory Reserve Bank of India would have to be more adroit in managing the increasing forex inflows. The RBI has already purchased $24 billion in US currency this year to keep the rupee in check.

Finance Secretary D Subbarao said he hopes the new sops will ease the way to reach the $160 billion export target for the current fiscal year, and added that the drop in exports cannot be fully blamed on the rising rupee.

A recent report by the Federation of Indian Chambers of Commerce and Industry agreed with him. It said inadequate port and shipping facilities are among the biggest roadblocks to India achieving the current export target and the $200 billion export target for next year.

Local analysts say another long-term solution is to usher in capital account convertibility (CAC, or freedom to convert local financial assets into foreign financial assets, and vice versa, at market rates). Finance Minister P Chidambaram told the India-Europe Investment Forum in London this month - the European Union is India's biggest investor, contributing 25% of foreign direct investment in the country - that India is gradually moving toward CAC.

"There is de facto full capital account convertibility for non-residents: they can bring in their money and they can take out their money," Chidambaram said, and pointed out that foreign investors too can bring in capital and take home their profits, dividends, capital, capital gains and royalties.

For now, more foreign investors largely mean bad news for India's exporters.

 

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London mayor opens India festival, blames Britain for past woes
by Katherine Haddon
France24, France

London Mayor Ken Livingstone blamed India's past economic problems on the "long, dark night of imperialism" Tuesday as he launched a major festival to strengthen ties with the now booming country.

Livingstone was joined by Bollywood actress Shilpa Shetty as he kicked off "India Now," a three-month extravaganza of 1,500 events spanning theatre, dance, music, film and food.

The capital's Indian summer aims to spotlight economic and cultural ties with India at a time when Livingstone is trying to attract business from thriving economies across Asia.

The man nicknamed "Red Ken" because of his hard-left past told reporters that part of the reason for India's current prodigious economic success was because it was catching up after years of colonialist oppression.

"If you go back 600 years, someone coming here from another planet would have looked at where was the place to land and meet the inhabitants, they would have gone to India or China, two great civilisations," the mayor said.

"They wouldn't have gone to Europe -- backward, people living in appalling conditions.

"Imperialism damaged massively the economies of Asia and Africa. That world's gone.

"People are now surprised, why is India growing so fast? -- it is just catching up with the ground it was not allowed to occupy during that long, dark night of imperialism."

This year -- the 60th anniversary of independence from British rule -- India's economy is set to grow by 8.1 percent, according to the United Nations.

This places it behind only China, which Livingstone tried to court with a similar festival during Lunar New Year in February, among the world's fastest-growing major economies.

Events planned during "India Now" include a three-week mini-festival in Trafalgar Square in August, featuring Bollywood dance displays, and Regent Street, a busy shopping area, getting an Indian make-over on September 2.

Launching the event, Livingstone and Shetty posed on a boat on the River Thames near Tower Bridge with a replica of the Taj Mahal, one of India's most-visited tourist attractions.

Shetty is the most recognisable Indian star in Britain after winning the reality television show "Celebrity Big Brother" earlier this year despite a racist bullying row.

She said she thought the festival would boost relations between London and India.

"I just absolutely love the fact that the whole perception of India has changed, I think more so over the last three years, and people are very intrigued about India," she said.

Britain and India already enjoy significant links -- some six percent, or 437,000, of Londoners are of Indian origin, making it the largest national minority community in the British capital, the mayor's office said.

But Livingstone said that one of the main goals of the festival was to help Londoners who "know no more about India than the fact that great curries come from there" to understand the value of Indian culture and business.

He is travelling to Mumbai and New Delhi in November to open two offices promoting the British capital there and says he has been working with Prime Minister Gordon Brown for easier access to Britain for Indian business people.

Livingstone also expressed hostility to trade barriers, adding: "It is better that we grow with these emerging economies, so we will do all we can to clear any bureaucratic or regulatory mechanisms out the way."

Among the other celebrities helping to promote the event at its launch were Indian cricket captain Rahul Dravid and fashion designer Manish Arora.

 

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Analysis: India to reinforce power market
Published: July 18, 2007
By KUSHAL JEENA

NEW DELHI, July 18 (UPI) -- India is contemplating reinforcing its electricity market to create adequate capacity so the government can use the feedback mechanism to make investments in the country's ailing power sector.

"Over the next decade, as we hopefully resolve the situation of chronic power shortage and inadequacy, it is preferable to err on the side of caution and create adequate capacity while reinforcing the market for electricity so that feedback mechanisms are able to inform investment decision," said the Economic Outlook for 2007-08, a broad outline report that was prepared by the Economic Advisory Council of Indian Prime Minister Manmohan Singh. The report was released by C. Rangarajan, chairman of the council.

"Efficiency of electricity is a consequence of the interplay between technology, prices and competitive forces," he said. "The danger in anticipating an outcome such as increased efficiency may result in the under-provisioning of productive capacity and thus bear on the ability of the entire economy to sustain a high rate of growth."

He said the government should allow private investors in the power sector to take those decisions and arrive at solutions that are more adaptive than long-range planning.

Unlike telecommunications and manufacturing, private investment has not been forthcoming in India's power sector. This has led to a situation where it has been mostly the public sector that is engaged in investing in new power-generation capacity.

The government has worked over time to attract private investment in the sector with several new initiatives. None has yielded the desired results, however.

The Economic Outlook says not only does public-sector investment diminish the potential investment the economy could make in capacity augmentation, but it also imbues it with the kind of special difficulties that arise from the idiosyncrasies of the government agencies and systems.

It says the consequence has been that domestic manufacturing units have higher operating costs than they would have had in the presence of adequate grid power, bringing about an adverse effect on their global competitiveness.

It is also probable that had adequate power been available, much more manufacturing capacity might have come up. There has thus been both a real and opportunity cost resulting from the inadequacy of generation.

"The capacity build-up that the government has planned has been in respect of an attenuated demand, and then even that capacity has failed to materialize in time," said G.K. Chadha, member of the council.

India during the 10th five-year plan (2002-07) period set a target of capacity addition of 41,110 megawatt. It succeeded in implementing 18,000.

The gap holds serious implications. The initial thinking in formulating the current 11th-plan period (2007-12) would be about 50,000 MW. It was revised upward to 60,000 MW in the approach paper for the 11th-plan period.

India's planning panel recently again raised this to 68,869 MW with a best-effort commitment to bring another 11,545 MW forward -- leading to a total capacity addition of 80,414 MW.

"Given the record of slippages in implementation, the panel should be guided by the past and accordingly ought to lower its sights and adopt a realistic target, which is not in excess of 40,000-50,000 MW," said Syed Azeez Pasha, an energy expert and member of the parliamentary standing committee attached to the Ministry Of Power.

The Economic Outlook asked the government to take urgent measures to complete the reform of the power-distribution network, work to bring in greater private-sector participation and encourage the large-scale import of power-generating plant and equipment to augment domestic production. It also pointed out that success on these fronts would dramatically change the conditions and relax the constraints that brought about slippage in the past.

Rangarajan was of the view the reform of the distribution sector must be accelerated so that commercial viability is restored.

"Simultaneously, it is necessary to realize that the single most important constraint facing the Indian economy is infrastructure, and power sector is within that," he said.

 

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France's Velcan eyes Islamic bonds for India dam
Tue Jul 17, 2007 3:48 PM IST

MANAMA (Reuters) - French renewable energy company Velcan Energy plans to raise about 200 million euros ($275.8 million) through convertible Islamic bonds to finance a hydroelectric dam in India, the company said on Tuesday.

Velcan is targeting Muslim investors because the dam project would provide the kind of stable, long-term returns that would allow bondholders comply with Islam's ban on receiving interest, Managing Director Antoine Decitre told Reuters.

Islamic bonds, or sukuk, are typically backed by physical assets that pay a profit instead of interest.

"Dams are exactly this kind of asset. This fits very well with Islamic finance," he said.

Velcan is picking an arranger for the sukuk which will be convertible into stock, Decitre said.

The firm is likely to target exclusively Middle Eastern investors for the sale, due by the end of the first quarter, he said.

More Islamic lenders are considering investments in India, home to the world's third largest population of Muslims.

About 650 million people live without electricity in India, Asia's third last economy, which will need investments of 100 billion euros in hydroelectric power, Velcan said.

 

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Bangalore International Airport right on schedule, but what about infrastructure?
18 July 2007

India's silicon city Bangalore will have a brand new international airport by April next year, the Swiss CEO of Bangalore International Airport Ltd (BIAL) Albert Brunner has announced, saying that the project is already '77 per cent complete' and should be able to throw open its doors on the projected date of opening.

The roof, front and back glass façade and walls of the terminal building are complete, while seven of the eight fixed link bridges connecting the terminal to the apron are in place. Fourteen escalators have been installed.

The four-km runway is nearing completion and the taxiway is '98 per cent complete', Brunner says. Still in progress is the fabrication of the top dome of the control tower. The airport will have a rainwater harvesting system covering 1,680 acres, a sewage treatment plant and a tertiary treatment plant to reuse the water. It is designed to handle eight million passengers in its first year of operations starting 2 April 2008, a date the chief executive officer is determined to keep.

Dream come true

If he succeeds, it will be a fairytale ending for a project conceived in 1991, on which construction began only 14 years later after it was awarded in July 2005 to a consortium including Unique Zurich Airport of Switzerland, Siemens of Germany, and Larsen and Toubro of India. Expected to cost $500 million, it has been designed for 11 million passengers a year, up from the 5 million first planned, as traffic growth to the hi-tech city has skyrocketed with its flourishing economy. Union civil aviation minister Praful Patel, after his recent visit to Devanahalli, was satisfied with the airport's aesthetics and progress, Brunner says.

Six thousand employees are working round the clock seven days a week to ensure the deadline is met in a country where large projects routinely go into time overruns by years, sometimes even decades. A fuel depot and cargo-handling complex are being built at an additional cost of $173 million. The concessionaires — Indian Oil and Skytanking for aviation fuel, and GlobeGround India and Air India plus Singapore Airport Terminal Services for ground handling — will pay for this.

Other major concessionaires include LSG Sky Chefs and Taj SATS, which will compete for the food and beverage business. All concessionaires have been selected, and "we want to make sure there's competition", says Brunner, who has been living away from his wife and 14-year-old son, who have stayed back in Switzerland while he executes the project. He expects to apply for a license by the end of September and start trials of systems the following month.

Expansion plans

Business prospects are so good that the new airport at Devanahalli, 35 km from Bangalore city, will have to build a second runway as early as 2014, to boost its capacity. This will enhance BIAL's capacity to about 40 million passengers a year. The present runway could easily meet the requirements for the first two years, handling about 17 million passengers a year.

But what could throw the proverbial spanner into the rapidly ongoing work is Bangalore's appalling infrastructure. A six-lane highway is being constructed, which will pass close to the airport, but both the state government and the National Highways Authority of India (NHAI) are unwilling to build the trumpet flyover connecting it to the airport approach road.

Speed bumps ahead

BIAL has assigned L&T to complete the project at a cost of Rs117 crore, but acquisition of the land for one road over bridge has run into trouble, with the landowner going to court. Only two road over bridge loops would be ready by April 2008, Brunner said. So, when the airport opens, people will have to travel an extra five to six kilometers in Bangalore's bumper-to-bumper, world-class traffic jams.

Brunner says that what the airport really needs is a rail-link and a second highway. However, the closest railhead is seven kilometres from the airport exit. So, BIAL is negotiating with bus companies to run shuttle services to the city, and is close to signing a deal for taxi services.

Even if the infrastructure problems are overcome, there is a growing lobby for retaining the present HAL airport at Bangalore, especially from the low cost airlines. The question is whether BIAL will allow the second airport to function. Brunner does not see any need for two airports in a city like Bangalore. Campaigning to retain the HAL airport was expected, he says: "It is a worldwide phenomenon whenever a new airport comes up." he told journalists.

At present, though, the man from a nation that takes pride in its clocks and watches is racing against time to get his showpiece airport up and running. "We try hard to keep our reputation as timekeepers of the world," he says.

 

[Bushroda]

Great Leap Forward
19 Jul 2007, 0017 hrs IST

Euphoria is in the air. Finance minister P Chidambaram believes that the economy can grow at 10 per cent in 2008-09. Does that seem ambitious? Not if one looks at China's record in the 80s and 90s. While China and India had comparable growth rates between 1950 and 1980, China grew at an average annual rate of 10.3 per cent in the 80s, against India's 5.7 per cent. It was the same story in the 90s: China grew at an average annual rate of 10.6 per cent against India's 6 per cent. It is only after the turn of the century that India made a great leap forward, its average annual growth in the last four years being well above 8 per cent. Considering China's record, there is no reason why India cannot grow at 10 per cent per annum for two decades.

What do we do to achieve this? The impact of a rising rupee on exports and employment is perhaps overstated. In fact, it is infrastructure constraints such as poor roads, ports and electricity supply that could scupper the growth story. Whether it is agriculture or industry, linkages to domestic and international markets must improve. Agriculture should grow at 4 per cent for the economy to grow at 10 per cent. While manufacturing and services are growing at 10-11 per cent, more foreign direct investment could improve connectivity with overseas markets and provide access to improved technology. China has been able to leverage FDI on both counts.

According to the prime minister, India needs to invest $300 billion in infrastructure. One way of moving on this count is to guide foreign institutional investment into long-term debt by relaxing some of the present restrictions. With foreign exchange reserves of $200 billion, this is the right time to deepen the debt market. FII inflows in 2007, at $8.4 billion, have already surpassed their level for all of 2006. Rather than raise an alarm over India's capital inflows, which are about a fifth of China's, RBI needs to check on their quality by keeping a watch on short-term flows.

A growing economy will inevitably attract foreign capital and give rise to a dearer currency. Developed economies like Japan went through the same process in the post-War years. Rather than try to arrest the rise of the rupee through strong measures, the government should address endemic supply side and governance bottlenecks. If India is looking at two decades of 10 per cent growth, its policies should be long-term rather than reactive. A gentler approach to currency management can be accompanied by fiscal incentives for exporters and domestic producers.

 

[Bushroda]

India HDFC Bank raises $698 mln with NYSE share sale
Wed Jul 18, 2007 9:41am ET
By Himangshu Watts

MUMBAI, July 18 (Reuters) - India's HDFC Bank Ltd. (HDBK.BO: Quote, Profile , Research) (HDB.N: Quote, Profile , Research) has raised $698 million by selling American Depositary Shares (ADS), the latest in a run of capital raisings by Indian firms looking to fund their growth in the rapidly growing economy.

HDFC Bank said in a statement to the Bombay Stock Exchange on Wednesday it had raised $607 million through the sale of 6.59 million New York Stock Exchange-listed ADS at $92.10 each.

People with knowledge of the deal said the underwriters had also exercised an overallotment option worth $91 million.

"International investors have confidence in India's growing economy and developing banking sector, driven by positive demographics and increasing consumption," said Hemendra Kothari, chairman DSP Merrill Lynch.

One banker said the sale had generated demand of $2 billion, including orders from several funds with a long-term investment horizon.

HDFC Bank, which has a market value of $10 billion, said the funds would be used to strengthen its capital base and to support future growth. Indian banks have been raising money to fund booming loan growth in an economy that is growing 9 percent a year.

Top private lender ICICI Bank (ICBK.BO: Quote, Profile , Research) (IBN.N: Quote, Profile , Research) raised a record $4.9 billion last month, partly through an ADS offering, and real estate firm DLF Ltd. (DLF.BO: Quote, Profile , Research) raised $2.25 billion in India's largest-ever initial public offering.

HDFC Bank said each ADS represented three equity shares of the bank. It said the offer price was equivalent to a price of 1,235.06 rupees per equity share, 3 percent above Tuesday's closing price of HDFC Bank's shares on the Mumbai exchange.

 

[Bushroda]

Japan's Honda announces output expansion plans for India, Thailand
FORBES, NY
07.18.07, 3:37 AM ET

TOKYO (Thomson Financial) - Honda Motor Co Ltd, Japan's second-largest automaker, unveiled Wednesday a fresh growth strategy that will see it boost its production capacity around the world to 4.7 million vehicles by 2010 from 3.9 million at present.

To take advantage of demand expansion in the emerging markets of Asia and South America, Honda (nyse: HMC - news - people ) said it will build second car assembly plants in Thailand and India, and a first car factory in Argentina.

Honda president Takeo Fukui told reporters Wednesday that Honda will spend an estimated 23 billion yen to build a new assembly plant in Thailand, which will go into operation in the latter half of 2008 with annual capacity of 120,000 vehicles.

Upon completion of the plant, Honda will have the capacity to make 240,000 cars a year in Thailand. Some of those vehicles will be sold in the greater Asia-Pacific region, Fukui said.

In India, Honda will spend 230 million US dollars to build a second assembly plant by the end of 2009. The new plant will double its existing output capacity to 150,000 vehicles annually by 2010.

In South America, where Honda currently has a car plant in Brazil, the company will spend 100 million US dollars to build a new assembly facility in Buenos Aires, Argentina which is set to start , production in the latter half of 2009 with annual capacity of 300,000 vehicles. The plant will export the automobiles to markets across South America.

Fukui also said the company's joint venture in China, Guangzhou Honda Automobile Co, will build a research and development center there at the cost of 30 billion yen, which will introduce a car specifically-designed for the Chinese market. It is set for launch in 2010.

Asked about the size and price of the car targeted at the China market, Fukui hinted that it will be cheaper than other models in Honda's existing vehicle lineup.

'It will be a low-priced car unlike anything Honda would sell on its own. A decision has not been made on its size either, but it will probably be not big for pricing purposes. We currently only plan to sell the car in China, but I would not rule out the possibility of it being exported to Southeast Asia in future,' the Honda president said.

As for North America, Honda plans to open its second car assembly factory in Indiana and an engine plant in Canada in the autumn of 2008. Fukui said the car production capacity of Honda in the region will reach 1.62 million units by autumn 2008.

In Europe, Honda will have the capacity to roll out 300,000 vehicles a year by early 2008 when the annual capacity of its assembly plant in Turkey increases to 50,000 units from 30,000, Fukui said.

For the Japanese market, he said demand has been slightly weaker than Honda expected previously and as a result the company has postponed its schedule for importing its Acura luxury brand, currently only available in offshore markets, by two years to 2010.

'We expect conditions to remain severe in the domestic market,' he said, noting generally thin demand conditions in the local economy as a whole.

To cope with this Honda plans to improve the cost competitiveness of its minicars, or vehicles with engine displacement of 660 cc or less, Fukui said.

This will see Honda transfer the production of engines and parts for minicars from its own plant to the minicar assembly plant of its subsidiary Yachiyo Industry Co, he said.

By making this move, Honda aims to save on distribution costs and control inventory more effectively while improving production efficiency, a Honda spokesman said.