Indian Economy - News & Updates - Archive

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Off The Starting Block
19 Jul 2007, 0019 hrs IST

While releasing the prime minister's Economic Advisory Council's Annual Economic Outlook for 2007-08, the council's chairman, C Rangarajan, is reported to have said, "The Indian economy is on an unprecedented strong trajectory of economic growth". Following a growth projection of 9 per cent for 2007-08, that statement succinctly captures the essence of the current economic conjuncture.

Vigorous growth in GDP, with a resurgent industrial sector and continued dynamism in services, has characterised the Indian economy since 2003-04. The economy clocked an annual average growth of 8.6 per cent during the last four years. The fact that there has been a perceptible shift in the growth trajectory and that such a shift is a very virtuous is well accepted.

High growth generates its own momentum. With high growth comes high savings and investment, and these reinforce growth itself. Annual growth of 3.9 per cent leads to a doubling of per capita income in a little more than 18 years. It doubles in a little more than eight years when annual growth is 9 per cent. The magic of compounding coupled with accelerating growth makes dramatic transformation possible. The difference between a per capita income of $583 or Rs 25,825 in 2005-06 and $1,166 in 2013-14 is much more than $583. It is a revolutionary transformation to high savings and high investment, a diversified industrial base, popular demand for better education, health and infrastructure facility.

Some disbelief in the sustainability of this high growth often stems from a simple extra-polation of the lacklustre growth performance of the country during the past until the 1980s and 1990s. What should not be forgotten is that the recent Indian growth experience is novel, but not unique. Other countries, particularly East Asian economies, have been through a similar phase. During the 1970s and 1980s these countries grew rapidly and consequently improved the economic and social well-being of their people. All this while, India remained confined to a slow or a medium growth trajectory.

But India today is different from the India until the 1980s. India's reforms have encompas-sed the real, monetary, financial, fiscal and external sectors. Structural reforms have transformed the industrial sector from a command and control structure to a liberal and competitive one. The fiscal environment has been marked by prudence backed by fiscal responsibility legislations, steep reductions in import duties and other tax rates, introduction of VAT, and a taxpayer-friendly regime. The financial sector has been restructured with independent regulatory mechanisms in place.

The EAC's inflation projection of 4 per cent for 2007-08 is also an encouraging sign. It underlines the abiding commitment that policy-makers have towards macroeconomic stability in general and low inflation in particular. Inflation has come down because of the combined effect of four factors. First, with the high base of the last year with prices of some of the commodities already very high, any rise looks small. Second, there have been improvements in the supply situation of some essential commodities such as wheat and sugar. Third, the monetary and fiscal measures - such as increasing the cash reserve ratio and decreasing the customs duty rates - activated a few months ago have finally taken hold. Fourth, with the rise in the value of the rupee vis-a-vis the US dollar, the prices of some imported goods have come down.

Some questions have been raised about the exchange rate of the rupee vis-a-vis foreign currencies, particularly the US dollar in recent months. Is such an appreciation hurting growth in general and exports in particular? A fixed exchange rate works only if the appropriate level at which the rate has to be fixed is known. But, figuring out the optimum external value of a currency is an extremely arduous task. Under officially fixed rates, a currency runs the risk of being over- or undervalued. Overvaluation leads to recession and/or deflation, and undervaluation leads to overheating and/or inflation.

These difficulties in deciphering the optimum value partly explain why many countries allow their currencies to float and find their levels at market-determined rates. But, even with floating rates, too rapid or too slow a speed of adjustment or undue volatility sometimes necessitates some government or central bank intervention. What will work and what will not depends on the country-specific circumstances.

One such recent example of rapid change in currency value in the Asian neighbourhood is Thailand. The Thai baht has been rapidly strengthening over the last eight months. The abrupt closure of a footwear factory called Thai Slip Southeast Asia Import Export, employing over 5,000 workers near Bangkok, without any prior notice to employees, created a bit of a stir. The owners of Thai Slip reportedly claimed that they had no option because of the unrelenting rise of the baht in the last three to four months.

There were workers' protests; and after talks, the company won a lifeline from the Thai Textile Institute, and many workers were back to work. The measures announced by the government of India on July 12, including on interest rates on pre-shipment and post-shipment credit and on duty drawback rates, clearly demonstrate that it is fully aware of the adjustment costs and is willing to act firmly and promptly to maintain the high-growth momentum.

 

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No to luxuries:Nilesh Shah
19 Jul, 2007, 0020 hrs IST,Nilesh Shah,

With uncertainty on the direction of interest rate, floating or semi-fixed interest arrangement (for home loans) should be preferred, says Nilesh Shah, chief investment officer of ICICI Prudential MF.

THIS is probably the most commonly asked question, which most of the common people are deliberating. Direction of interest rates will determine host of their future decisions, be it pertaining to loan, investments or even day-to-day expenses. With consumer boom erupting in the Indian economy, and with younger population participating in consumerism (thanks to the outsourcing phenomena), coupled with increased entrepreneurial initiatives, credit off take in the Indian economy has increased substantially, contributing to the much-talked about liquidity problem.

This liquidity concern, in turn, gave rise to another economic worry called inflation, which hit these consumers from the consumption perspective. With an overall economic growth getting hurt by the inflationary pressure, RBI, in its monetary policy, announced an increase in reverse repo rates and CRR hikes to control liquidity, and thereby inflation. However, this stance resulted into increase in interest rates, thereby again hitting common consumers, especially those who had already availed loans and are paying pinching EMIs. Inflation numbers seem to come under control with a variety of factors acting in its favour, ranging from base effect to better monsoon.

However, another concern started emerging called rupee appreciation. Since the beginning of this year, the rupee has appreciated by about 9%. Though the rupee appreciation contributed in controlling inflation, it is hurting the export competitiveness of the economy. This is again not a heartily welcome situation for policymakers. In case the rupee appreciates further at the rate experienced since early this year, RBI may have to take some drastic steps such as market sterilisation or CRR hike. However, in my opinion, the rupee is unlikely to demonstrate drastic strengthening from current levels, and hence we may not really see any material intervention by RBI on this count. Thus, coming back to the first question, from hereon, what could be the direction that interest rates may take. I believe that in the short term, i.e. for the next three months, with WPI touching favourable limits, loan growth getting contained, improving asset liability mix of banks, we may not see aggressive policy stance by RBI and rates may remain stable at current levels. However, broadbased reductions in lending rates are unlikely in the short term.

In the medium term, depending on sustenance in controlling inflation and capital inflows, the call on interest rates will be taken. Given the outlook on medium term, aggressive hike in interest rates does not seem to be a reality.

From the global market perspective, though other major economies such as the UK, the areas around the euro zone, Australia and New Zealand are hiking interest rate, in the US we expect interest rates to be steady in 2007. This in turn will keep the capital inflows to India in comfortable levels, thereby not influencing the liquidity condition.

Thus, the upside of interest rate seems to be capped and downward movement of interest rate seems to be protected. So overall, we expect a range-bound scenario. Under the given circumstances, my advice to borrowers would be to borrow only if it is a necessity. Time is not right for borrowing for luxuries. For instance, if a common person wants to borrow for his or her first house, one should not wait. But the decision to buy second or third flat from the investment perspective can certainly be stalled or the surplus money can be routed to other investment avenues. Similarly, with uncertainty prevailing on the direction of interest rate, floating or semi-fixed interest arrangement should be preferred.

However, as a word of caution, I would like to mention that the statements and suggestions are based on various assumptions and are more like blanket advice.

Individual borrowers may have specific requirements, individual risk appetite, and background, which may influence their decisions otherwise.

 

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NRIs may rival MNCs as investors in Indian economy
Pramit Pal Chaudhuri, Hindustan Times
New York City, June 08, 2007

The single-largest source of foreign capital into India, non-resident Indians, may one day become the prime source of investment in the domestic economy. A new report on remittances to India says "NRIs now see India as an investment destination" and are already leaving their mark in real estate and the stockmarket.

Muzaffar Chishti of the Migration Policy Institute, author of "The Phenomenal Rise in Remittances to India: A Closer Look," says the most striking evidence of the fact that NRIs are seeing the Indian economy as an opportunity is the rise of so-called "private transfers."

There are two main types of NRI remittances. The most well-known type is "inward remittance" i.e. when an NRI wires or sends money to an individual in India, usually a relative. The other type is "private transfer" i.e. when an NRI deposits foreign exchange into a rupee account and then spends it inside India.

The little-noticed trend, says Chishti, is how fast private transfers have grown. Between 2000-01 and 2005-06 private transfers grew by 88 per cent, more than double the rate of inward remittances. The former exceeded the latter by $ 2.3 billion last year.

The other trend is that North America, by far, is the largest source of remittances – 44 per cent of the total. The Persian Gulf, which once dominated remittances even 10 years ago, is the source for only 24 per cent.

Unlike the traditionally working-class Indian population in the Gulf, the middle-class North American NRIs are more likely to see India as a place for long-term economic investment. Nearly a third of all remittances are over $ 2,200.

In other words, NRIs are bringing in billions of dollars, converting them into rupees and personally spending them inside India. Chishti cites real estate experts as saying 20 per cent of all properties being sold for over $10 million in Delhi are being bought with NRI funds. "In the end, no one knows where or how much NRIs are investing in India," he says.

The amount of money concerned is enormous. Last year remittances to India totalled $ 24.6 billion, more than foreign direct investment or foreign institutional investment. Private transfers, which overtook inward remittances only in 2003-04, alone totalled about $ 13 billion last year. India received $ 15.7 billion in FDI equity flows during the same period.

The amount of money NRIs are transferring is still growing. Western Union, the world’s largest wire transfer company with $ 4 billion in revenues, says it saw a 102 per cent increase in person-to-person remittances to India last year.

In the first quarter of this year, says company spokesperson Erenay Jackson, global transfers to India were "94 per cent higher than the same quarter last year."

The company declines to say how much of its revenue comes from India, only saying 5 per cent of its revenue came from China and India.

NRI investment in India, believes Chishti, is a vote of confidence in the new Indian economy. In the past, India’s rigid foreign exchange controls, the volatility of the rupee and the lack of growth meant NRIs would keep their money in repatriable foreign exchange deposits (counted as debt by the RBI and not included in remittance figures) rather than convert their money into rupees.

Joydeep Mukherji of Standard and Poor’s notes that the recent rise of the rupee would have provided a strong incentive to convert dollars in NRI accounts into rupees.

Another factor was 9/11 which drove some remittances out of the informal hawala market. Western Union, for example, experienced a surge in money transfers to South Asia as anti-terrorism finance laws were introduced across the world.

Chishthi is critical of the government’s lack of imagination on using NRI remittance for development purposes. For a while the surge in personal transfers was explained away as being overseas Indians cashing in various NRI-targeted bond issues.

But the surge continued even in years when no bonds were maturing. "Official policy has long focused on deposits. The real story is remittances," he says.

 

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India can be IT research powerhouse, says Microsoft
July 19, 2007

The story of Microsoft in India is stuff dreams are made of. Having set up India operations in 1990, Mirosoft's current headcount stands at 5,000. The company primarily has six business units in India -- Microsoft Corporation India (Pvt) Ltd (the marketing division), Microsoft Research India, Microsoft India Development Center, Microsoft Global Technical Support Centre, Microsoft IT and Microsoft Global Services India.

As India moves into its next phase of growth in the global knowledge economy, Microsoft continues to work in tandem with government, Indian IT industry and academicians.

In an exclusive e-mail interview with Senior Associate Editor Indrani Roy Mitra, Microsoft India chairman Ravi Venkatesan shares his vision. Read on. . .

We feel the general population is overawed by IT majors like Microsoft, Infosys, Wipro, etc. Could you please explain what Microsoft stands for / does in India?

Ever since we set up India operations in 1990, a strong India focus and commitment for strengthening India's presence in the digital economy has topped our agenda. We are committed to delivering local strategies that are in sync with India's unique environment. Today we have offices in 10 cities, including Bangalore, Chennai, Hyderabad, Kolkata, Mumbai, New Delhi, Pune, Nagpur, Ahmedabad and Chandigarh.

India is significant to Microsoft from, both, a market perspective as well as from a talent perspective. Accordingly we engage with India on a multitude of areas and our long-term commitment is evident from the fact that India is one of the few countries apart from the US where we have an end-to-end presence through our six business units, namely Microsoft Corporation India (Pvt) Ltd (the marketing division), Microsoft Research India, Microsoft India Development Center, Microsoft Global Technical Support Centre, Microsoft IT and Microsoft Global Services India.

Today, we have strength of over 5,000 employees across these six business units.

Our chairman Bill Gates, on his last India visit in 2005, committed $1.7 billion India investment which is a testimony to the increasing confidence of the company in India. Today, India is among the fastest growing subsidiaries for Microsoft in Asia and is poised to be among the top 3 over the next 5 years.

Our focus is on becoming a key IT partner to Indian businesses, the Indian government and the IT industry. We will support and fuel the growth of the local IT industry with a thrust on driving Innovations for, from and with India and under our commitment of 'Unlimited Potential,' create a more inclusive growth for the billion Indians by relevant and affordable access to computing.

A lot is being said these days about corporate social responsibility. What responsibility, according to you, should corporates have to improve the state of living?

All of us -- individuals, families, and organisations -- have a responsibility to contribute to the society in whichever way we are able to. Corporates, of course, have the means to effect change on a larger scale, and it is an opportunity they should take seriously. Having said that, I would just like to add that being responsible is not just about, say, spending money on a cause. It means being conscious of the impact -- both good and bad -- your business could have on the world you inhabit.

As part of the IT sector, for instance, we at Microsoft are constantly looking for ways in which technology can benefit the less fortunate majority of humans. Our global effort, Unlimited Potential, expands and accelerates Microsoft's commitment to facilitate sustained social and economic opportunity for the more than five billion people living in every country around the world who do not today benefit from technology. And this is not about charity but more about responsible growth.

Thousands of children are educated, orphans are cared for, destitute are looked after and the poor are fed under your social project -- Indian Giving Campaign. Could you please tell us its modus operandi? How will you rate it against its parental charity initiative Giving Campaign?

This is an extension of Microsoft's efforts at creating social and economic opportunities that change people's lives and transform communities. Through its matching contributions programme, Microsoft allows its employees to direct corporate contributions to nonprofit organisations working to improve lives in the country. Donations that India based employees make to eligible nonprofits are matched Rupee for Rupee by the company, up to Rs 50,000 per employee per year.

We do believe it is not enough to just give money but giving your time and effort is as important. Under our employee volunteer programme, we set aside three working days per employee per year to enable them to volunteer their time and and donate other resources such as their knowledge and expertise towards the betterment of communities.

A recent report stated that Microsoft is to hawk PCs to school kids. What is your plan for education?

It is the investment made by India in human capital that has led to its success. If India has to maintain and rise further in the emerging global knowledge economy, it has to ensure that it is able to create an enabling environment for education and jobs and opportunities. It has to innovate to be able to do this.

Keeping this in mind, transforming education is one of the three key initiatives Microsoft Unlimited Potential has committed itself to. Over the past several years Microsoft has been using a combination of quality content, partnerships, training, and broad access to transform education In India.

Under its programme, Project Shiksha (the global partners in learning programme) Microsoft has worked with state governments, and other key stakeholders to offer a spectrum of education resources including tools, programmes, and practices. Going forward, Microsoft will both scale up the existing initiatives and broaden the opportunity beyond institutions to enable access for individuals under a 'Connected Learning framework' called IQ. IQ is essentially a combination of an online and offline content tied into all aspects of a student's learning process and growth.

The IQ PC includes Windows, Office/Works, Encarta, Student 2007 and specialised education solutions from a host of key partners. The content focuses on the key concerns of families, be it the learning of English as a language, tutorials for competitive examinations, or ensuring a seamless transition from class work to homework.

Where do you see Microsoft in five years, vis-�-vis its competitors?

If you see Microsoft over the last few years, we have grown considerably and now have a multi core strategy of growth. And over the years we have been able to consistently create a leadership position in every business area we operate in be it gaming, software or mobile computing.

We see ourselves doing equally well over the next five years. A lot of businesses that we are now getting into are areas that are emerging and developing themselves, so more than competing with other players, the challenge in these areas will be the evolving customer needs and business models themselves. For instance, with customers moving increasingly online the delivery of software over the net as a service is starting to gain popularity.

However, most players are trying to attune themselves to how to make this efficient, user friendly and scalable and are grappling with the question of whether customers will adapt this consumption model permanently. Microsoft believes it will be a combination of online and offline usage that will spur adoption. We call it the software plus service approach, and our focus will be on getting this model right and enabling customer adoption.

There are other new areas that we have successfully forayed into recently, such as search-based advertising, gaming and entertainment devices and so on. While we face intense competition in these against a set of very capable competitors, the market growth itself in these areas will be so high in the coming years that we will be able to gain considerable ground.

In October, you launched live.com mainly, it is said, to counter Google's search engine. Please tell us more about it.

Windows Live is a new set of Internet services and software designed to put the individual in control by offering complete choice and customization.. The goal with live services is to create a seamless experience between offline and online technology experiences, and help customers push into the next phase of computing by giving them access to what they want -- how and when they want it, regardless of connectivity or device.

Overall, this is part of Microsoft's software+services strategy. Geared towards enabling customers to optimize full capabilities of the networked environment, and to seamlessly bring together the information, relationships and interests they care about. We believe that no other company has the assets, audience and aspirations to deliver experiences and solutions that span our work styles and lifestyles in this age of Internet services.

Could you please share with us your vision of Microsoft India?

Globally, with Unlimited Potential, we are determined to reach IT to the next billion people by 2015. India is one of the most exciting and important markets for Microsoft right now�both the challenges and opportunities are huge. In addition to being a growth sector of the Indian economy, information technology is also a key enabler of social development. In India especially, the progress on many fronts is already well underway and will continue to mature.

The task that we have today is to make technology pervasive and useful in the everyday lives of more and more people. The growth of IT penetration in India, currently, might be rapid, but it is not rapid enough. And while affordability is critical, it is imperative for technology to be relevant and accessible too. Only when we meet these criteria will the adoption of technology grow exponentially. At Microsoft India, this is what we seek to deliver through Unlimited Potential.

Please throw some light on the research initiatives undertaken by Microsoft India. What impact are they going to have on India's IT growth?

In India, Microsoft conducts research primarily through Microsoft Research India which, like its other sibling labs, conducts basic and applied research in computer science and allied areas.

MSR India currently focuses on six areas of research: Cryptography, Security and Algorithms, Digital Geographics, Mobility, Networks, and Systems, Multilingual Systems, Rigorous Software Engineering, and Technologies for Emerging Markets.

An important objective for MSR, in addition to contributing to Microsoft's products and businesses, is to advance the state-of-the-art in computer science. In fact, a majority of the results of our research are published in leading conferences and journals, and are therefore available for researchers and technologists across the world, including India, to use to advance their technologies.

We firmly believe that research leads to innovation, which is critical to technological leadership. MSR India is committed to enhancing India's research pipeline and have a number of initiatives to help achieve this. MSR India's External Programs and Research Group conducts a number of programmes, including collaborating with Indian academia, granting PhD Fellowships, research grants, research funding and travel grants for researchers.

In addition, some of the MSR researchers also hold adjunct faculty positions in leading technological institutions. MSR India holds an annual research symposium- TechVista- which brings together some of the world's leading researchers and technologists who talk about the cutting edge of research in different domains. TechVista aims to inspire the young, potential Indian research talent to take up advanced studies and adopt research as a career.

We think India has the potential to become a research powerhouse that can drive technology across the world as well as in India, and are confident that our efforts will contribute towards fulfilling this potential.

 

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The Indian Tiger’s African Safari
By J. Peter Pham

While the African travels of Chinese leaders and their troubling arms sales to regimes on the continent, have caused increasing concern in Washington and other Western capitals, India’s growing interests in Africa has gone largely unnoticed. Hence, most media ignored Indian External Affairs Minister Pranab Makherjee’s visit to Ethiopia at the beginning of the month, a trip during which he not only met with African Union Commission Chairperson Alpha Oumar Konaré, but also signed a series of wide-ranging bilateral economic and political agreements with his Ethiopian hosts. As the United States continues to go about building its own framework for broad long-term engagement with an Africa that is increasing important strategically, diplomatically and economically—last week President George W. Bush appointed Army General William E. “Kip” Ward as the first head of the new unified combatant command for Africa (AFRICOM)—the significance of India’s political and commercial ties across the continent needs to be examined.

To a certain extent, India’s approach to Africa can be analyzed under the same categories which I suggested last year might be helpful to understanding the African strategy of the People’s Republic of China: “quests for resources, business opportunities, diplomatic initiatives, and strategic partnerships.”

The quest for resources. With its economy projected to grow by somewhere between 8 and 10 percent annually over the next two decades and its population of 1.1 billion accounting for one-sixth of humanity even as its proven petroleum reserves remains stagnant at less than 0.5 percent of the world’s total, India faces a serious energy crisis. According to data from the International Energy Agency, India currently imports about 75 percent of its oil, a foreign dependence projected to rise to over 90 percent by 2020. Given that most of these imports are coming from the volatile Middle East, it is more than understandable that India would seek an alternative supply of energy in the burgeoning African oil sector. Thus, for example, the overseas division of India’s state-owned Oil and Natural Gas Corporation (ONGC), ONGC Videsh (OVL), has aggressive sought stakes in exploration and development across the continent. In 2005, teaming up with the world’s largest steel maker, Mittal (now Arcelor Mittal), owned by London-based Indian billionaire Lakshmi Mittal, ONGC Videsh formed a new entity, ONGC Mittal Energy Ltd. (OMEL), which agreed to $6 billion infrastructure deal with Nigeria in exchange for extensive access to some of the best production blocks in the West African country. Another state entity, the India Oil Corporation (IOC), has invested $1 billion in an offshore block in Côte d’Ivoire. Other African countries being courted by Indian concerns include Burkina Faso, Equatorial Guinea, Ghana, Guinea-Bissau, and Senegal.

Hydrocarbons are not the only natural resources being sought by the growing Indian economy. Vedanta Resources, a publicly traded metals conglomerate founded in Mumbai in 1976, has invested over $750 million in Zambian copper mines, while just two months ago the Liberian parliament ratified a 25-year deal allowing Arcelor Mittal to launch a $1 billion iron ore mining project that will eventually employ 20,000. In Senegal, a joint public-private Indian group has invested $250 million in exchange for a stake in colonial era enterprise, Industries Chimiques du Senegal, with rock phosphate mines and plants to produce phosphoric acid used in agriculture.

Business opportunities. A report published in April by Chatham House (formerly the Royal Institute of International Affairs), noting that African countries are proving to be very attractive to Indian investors, observes that “India has sought to gain a foothold in these countries by writing off debts owed under the Heavily Indebted Poor Countries Initiative and restructuring commercial debts. At the same time, the Export-Import (EXIM) Bank has extended lines of credit to governments, commercial banks, financial institutions and regional development banks.” Within the framework of the Techno-Economic Approach for Africa-India Movement (TEAM-9) it launched in 2004, India has extended over $500 million in highly favorable credit to eight African countries (with six others lined up to join) linked to the purchase of Indian goods and services. Leading exports from India to Africa include machinery, transport equipment, paper and other wood products, textiles, plastics, and chemical and pharmaceutical products. Major Indian conglomerates like the Tata Group and the Mahindra have made considerable headway in Africa as have infrastructure-building concerns like KEC International, the overseas arm of Kamani Engineering Corporation, which has projects in Algeria, Ethiopia, Ghana, Kenya, Libya, Mozambique, South Africa, Tunisia, and Zambia. With HIV/AIDS and other diseases ravaging the continent and driving up demand for lower-cost generic anti-retrovirals and other drugs, Indian pharmaceutical firms like Cipla and Ranbaxy have opened entirely new markets. According to the Confederation of Indian Industry (CII), trade between the subcontinent and Africa has been growing at the annual rate of 25 percent in recent years. Last October, a CII-sponsored “Conclave on India-Africa Project Partnership” in New Delhi attracted over 750 delegates and produced business deals worth $17 billion.

Diplomatic initiatives. Over the last decade India foreign policy establishment has endeavored to overcome the institutional neglect to which it had consigned Africa after the promising start of the post-colonial Non-Aligned Movement. Until 2003, the Ministry of External Affairs had only one joint secretary with responsibility for the singular Africa division; nowadays, three joint secretaries manage three regional divisions covering the continent. In the 1990s, India was closing down diplomatic missions in Africa as an economy measure; today it has twenty-five embassies or high commissions on the continent with four others scheduled to open over the next two years. The attention has already paid off. Last year the chair of the Council of Ministers of the Economic Community of West African States (ECOWAS), Foreign Minister Aïchatou Mindaoudou of Niger, threw the weight of the 15-member sub regional group behind India’s bid for a seat on the United Nations Security Council.

Building strategic partnerships. The specter of Mahatma Gandhi—who, it should be recalled, began his career as an activist in South Africa—notwithstanding, India’s leadership has recognized that a rising power also needs the ability to project “hard power” in proportion to its economic and other elements of its “soft power.” Since the end of the Cold War, India has participated in UN peacekeeping operations in Mozambique, Somalia, Angola, Sierra Leone, Ethiopia, Eritrea, the Democratic Republic of Congo (DRC), and Liberia. The Indian contingents with the missions between Ethiopia and Eritrea (UNMEE) and in the DRC (MONUC) represent the largest national contributions to both forces, while the contingent deployed since January to the Liberian mission (UNMIL) under Commander Seema Dhundia enjoys the distinction of being the first all-female UN peacekeeping unit ever deployed. India has also invested in future African military leaders, training officers from a number of African countries in the academies of its three service branches as well as the postgraduate National Defence College in New Delhi and Defence Services Staff College in Wellington.

Earlier this year, Vice-Admiral J. Mudimu, chief of the South African Navy, paid an extended visit to his Indian counterpart, Admiral Sureesh Mehta, chief of the Naval Staff of the Indian Navy, to work out the mechanisms for cooperation between the two countries for regional security in the Indian Ocean, particularly for dealing with terrorism and piracy. The two officers also explored the possibility of creating a naval component to the loose trilateral political alliance of India, Brazil, and South Africa (IBSA) that was launched in 2004 achieve common positions at the UN, the Doha Rounds, and other multilateral settings for the three major “southern” nations.

Last year, the National Security Strategy of the United States of America declared that “Africa holds growing geo-strategic importance and is a high priority of this Administration”—as it should be for a region which not only currently supplies the U.S. with more hydrocarbons than the Middle East, but also presents significant political, security, and humanitarian challenges. However, while the growing influence of any other major actor on the continent bears very careful watching, there are a number of reasons why New Delhi’s increased engagement in Africa, unlike that Beijing, ought to be cautiously welcomed in Washington.

First, India’s modus operandi not only benefits Indians, it also benefits Africans. As Karen Monaghan, the National Intelligence Fellow at the Council on Foreign Relations, observed in an audio podcast last month, India can teach Africa a few things about the “importance of entrepreneurship” for “driving and generating jobs, and generating income, and generating growth,” noting that “Indian companies are much more integrated into African society and the African economy,” hiring locally and emphasize training Africans on how to maintain and repair the plants they build. In short, the lessons which India learned while freeing itself from the oppressive “Hindu rate of growth” with the economic liberalization begun in the 1990s under then-Finance Minister (now Prime Minister) Manmohan Singh are precisely those African states need to study for their own development, rather than the “no strings attached” blandishments which are offered to them by China’s mercantilist mandarins. Moreover, for African states, many of which are plagued by instability, autocracy, and ethnic and religious strife, India offers the example of a successfully developing country where speakers of twenty-two different official languages (in addition to English) as well as an estimated 1,652 mother tongues have co-existed largely peacefully for six decades, acquiring ever greater national consciousness while building the world’s largest democracy. Despite its difficult birth as an independent nation in the midst of the religious partition which created Pakistan, India is home to what, by most measures, is the second largest Muslim population of any nation in the world and, until the election today of his successor, had a widely popular Muslim, A.P.J. Abdul Kalam, as its president (the prime minister, who continues in office, is, as his name indicates, a Sikh, while the chair of the ruling coalition, Sonia Gandhi, is the Italian-born Roman Catholic widow of assassinated former Prime Minister Rajiv Gandhi).

Second, the burgeoning Indian-African relationship is good for the United States overall. Earlier this year in an essay for The National Interest, former U.S. Ambassador to India Robert D. Blackwill argued: “It is safe to say that the alignment between India and the United States is now an enduring part of the international landscape of the 21st century. The vital interests of both Washington and New Delhi are now so congruent that the two countries can and will find many ways in which to cooperate in the decades ahead. Over time, the U.S.-India relationship will come more and more to resemble the intimate U.S. interaction with Japan and our European treaty allies.” That type of strategic partnership, however, requires nurturing, and thus America will have to take into account the interests of friends like India in places like Africa.

For its part, among other things, the U.S. can benefit in many of its security preoccupations in Africa from the tacit—and occasionally explicit—support of India, which has enormous political capital from its longtime leadership of the Non-Aligned Movement as well as its support of anti-colonial and anti-apartheid movements on the continent. On the other hand, no country has lost more of its citizens to Islamist terrorism than India, which - even today - remains one of the states most targeted by jihadis. Hence New Delhi is the potentially ideal complement to Washington’s counterterrorism agenda for Africa, able to articulate the anti-extremism message credibly in places where, quite frankly, our credibility is very limited. Furthermore, while America cannot expect a proud and democratic nation like India to be its lackey, neither will the latter country likely to present a direct challenge to core U.S. interests in what is now the geostrategically vital region of Sub-Saharan African. On the other hand, as it play commercial catch-up (India’s exports amount to just 10 percent of China’s), the subcontinental country’s economic interests are more likely than not to clash with those of the Middle Kingdom.

Thus there are two Indian proverbs which should kept in mind: “Do not blame God for having created the tiger, but thank him for not having given it wings” and “Two swords do not fit into one scabbard.” These are precisely the prudent counsels for U.S. policymakers now that India has entered the African arena. Eagle and tiger can both coexist as long as both are cognizant of the other and both avoid impinging on each other’s space—that is to say, so long as each country respects the vital interests of the other in the African theatre. The dragon, on the other hand, being a winged serpent, potentially intrudes on both the aquiline aerie and the tigrish lair.

 

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IT firms to set up more overseas centres: Premji
19 Jul, 2007, 1745 hrs IST, PTI

BANGALORE: Information technology czar Azim Premji on Thursday said with the sharp appreciation of the rupee, the trend of Indian IT firms setting up overseas centres in new low-cost destinations will accelerate.

The chairman of the country's third biggest software exporter Wipro Ltd said the Indian software and BPO industry was evaluating or had already effected setting up centres outside the country.

"I think that trend will accelerate," Premji said.

"Centres (set up by Indian companies) have already come up in China...new centres are coming up in the Philippines," he said in response to a query at a press conference.

Going forward, such units would come up in eastern Europe, parts of Latin America, Vietnam and even in India's neighbourhood if political stability returned there, he said.

Premji said it was important to see the Indian software industry not only added value to its European, American and Japanese customers but also remain competitive with rest of the world in terms of value for money proposition.

More overseas centres by Indian firms notwithstanding, Premji said, India still continued to be the best bet without question for scalability, quality and leadership talent.

Asked about his outlook on the US market, he said despite weakness of the dollar, the US economy was fundamentally, reasonably strong. "So, one would expect demand from the US in the current year is as strong as we have seen last year".

He said with European economy stronger than last year and the Japanese economy strong, the global economy was strong.

"Demand is not a limitation; it's our ability to win orders and execute and operational efficiency," he said. "With all the attention that global sourcing has got, the Indian story is very strong".

 

[Bushroda]

India Eyes 10% Economic Growth
By . Agence France-Presse

Higher than expected

July 18, 2007 -- India on July 17 said its resurgent economy could touch an annual growth of 10% in the financial year beginning April 2008, provided its ailing farm sector picks up.

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

Finance Minister Palaniappan 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% in 2006.

 

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Wipro: Strong Rupee Slowed Profit Growth
By RAJESH MAHAPATRA 07.19.07, 3:59 AM ET
FORBES, NY

NEW DELHI - India's third-largest software company, Wipro Ltd., said Thursday a sharp appreciation of the rupee caused its profit growth in the April-June quarter to slow to 16 percent.

Bangalore-based Wipro (nyse: WIT - news - people ) reported a net profit of 7.1 billion rupees (US$175 million; euro127 million) in its fiscal first quarter compared with profit of 6.14 billion rupees in the same period a year ago. The growth was sharply lower than the 44-percent profit increases of the previous quarter and the same quarter a year ago.

Profit for the January-March quarter was 8.61 billion rupees (US$200 million; euro145 million).

The rupee's strength hurts India's technology firms, which do outsourcing work for Western companies, because a significant chunk of their income is denominated in dollars.

Wipro's sales totaled 41.83 billion rupees (US$1.03 billion) during the April-June period, up 34 percent from a year ago.

"The results for the quarter are satisfying considering the strong headwinds faced by us in the form of an appreciating rupee," Chairman Azim Premji said.

The earning numbers, which conform to U.S. accounting standards, fell short of analysts' expectations. Wipro shares dropped 1.3 percent to 499.85 rupees as trading opened shortly after the results were announced.

"Overall, the first-quarter numbers are disappointing, and we expect the shares to remain weak in the near term," Trideep Bhattacharya at UBS (nyse: UBS - news - people ) Securities told Dow Jones Newswires.

Wipro, which writes software for companies such as General Motors (nyse: GM - news - people ) and Cisco (nasdaq: CSCO - news - people ), said it won 39 new clients during the April-June quarter, including a US$130 million outsourcing deal from a European firm. It didn't name any of its new customers.

Outsourcing orders made up 70 percent of total sales. The company also has interests in desktop manufacturing, lighting and personal care products.

The rupee rose nearly 7 percent against the U.S. dollar during the three months through June.

"There is nothing that has happened in the US economy or the Indian economy that the rupee should have appreciated so much," said Suresh Senapaty, Wipro's Chief Financial Officer.

Last week, it bigger rival Infosys Technologies (nasdaq: INFY - news - people ) cut revenue and profit forecast for the full year citing the rupee's unexpected strength.

Senapaty said Wipro was trying to offset the currency impact by charging new clients 4 percent to 5 percent higher.

"We are also renewing our existing deals at 2.5 percent to 4 percent above the average billing rate," he told reporters. The company previously billed its customers an average hourly fee of US$28 (euro20) per worker employed at it low-cost centers in India.

The higher fees are likely to be offset by a wage hike at the company that goes into effect next month.

Wipro, which is also listed on the New York Stock Exchange, hired 4,319 new employees in the latest quarter, increasing its total staff strength 6 percent to 72,137.

 

[Bushroda]

No policy to build new towns
19 Jul, 2007, 0110 hrs IST,T K Arun, TNN

The rupee, it’s now settled, can only strengthen against the dollar. What can the government do to help industry in this situation? One thing that is entirely in the government’s hand to do is to bring down the cost of one vital factor of production — land. It will call for a major policy change, to remove the present artificial scarcity of urban land that is driving up real estate prices to ridiculous levels.

Productivity gains in Europe and Japan stand to reduce the current premium on the US as a global investment destination, according to Citibank economist Don Hanna. This would add to the pressure on the US to cut down its current account and fiscal deficits. A weaker dollar would be a natural corollary.

The flip side is that the dollar would, in such a scenario, weaken against most currencies, including the currencies of India’s trade rivals. This would mitigate the impact to a certain extent. However, the Indian economy would need to adjust and several structural rigidities that stand in the way of flexible adjustment would need to be removed.

Land is one constraint that has received the least policy attention, specifically urban real estate. According to the 2001 Census, only 28% of Indians live in towns. No economy can grow at a sustained 9% without the share of the urban population rising rapidly.

The Central Statistical Organisation estimates India’s present population to be 112.2 crore. Assume, rather conservatively, that this number would be 14% larger in 2020. That would make it 128 crore. Assume the share of urban population goes up to half — some 64 crore people would live in towns. Let us assume that some progress in urbanisation has already taken place since the 2001 Census and that the present level of urbanisation is 31%; that is, around 35 crore people live in towns already. That would still leave the additional number of town-dwellers by 2020 at 29 crore.

Assume that population density in a decent town is 12,000 per sq km (as per the 2001 Census, just 10 districts out of the country’s 593 had a population density higher than 12,000 per sq km.) At that level of population density, India would need additional urban space of 24,166 sq km to accommodate those additional 29 crore people. To put it differently, India would need 16 more cities, each the size of Delhi.

Do we have any policy in place to build new towns on this scale? Absolutely not. What we do have by way of policy to augment urban infrastructure are two things: one, a policy to create Special Economic Zones and two, a central urban renewal mission named after Jawaharlal Nehru. The area of an SEZ has been capped at 5,000 hectares or 50 sq km. And urban renewal doesn’t quite yield new towns.

Right now, acquisition of land is seen as the biggest problem even in getting these small chunks of urban infrastructure called SEZs going. How will we ever release land on a scale large enough to build 16 new Delhis, without the country witnessing extreme turmoil, say 500 Nandigrams?

The problem is with land acquisition. Why should land be forcibly be taken away from peasants, big and small? Why can’t we create conditions in which peasants happily and voluntarily make land available for building towns, factories, etc?

This is not all that difficult. The farmers who sold land to builders who built Delhi’s suburb of Gurgaon are fabulously rich, compared to their brethren who continue to till the land. The main thing is to make sure that farmers get a price that rids them of anxiety and uncertainty about future incomes.

It is not easy to replicate Gurgaon everywhere, for the simple reason that every new town cannot be near Delhi or Mumbai. We need policy slightly more evolved than allowing farmers to sell land to builders at mutually agreed prices.

Two things need to be done. Entire zones, measuring tens of thousands of sq km, need to be earmarked for free, automatic conversion from farm land to urban land, on the owner’s request. Right now, such conversion is an arbitrarily granted form of patronage, which can be purchased from politicians and bureaucrats at a very high price. This must change. This will immediately fetch the farmer a much higher price than at present for his land — he would sell it after converting it to commercial land.

Further, farmers need to be organised into builders of towns. This is not some idle dream but what a group of farmers have accomplished in a town called Magarpatta, near Pune.

Farmers can form limited liability companies, pooling their land as capital. They can lease out the land, or better still, create built-up area of the kind required for offices and factories and lease out this built-up area. If private builders can access credit on the strength of their notional land banks, why shouldn’t farmers’ companies get the requisite credit for their projects on the strength of their real land bank? They can then sell a variety of services to those who come and occupy their built-up spaces. Of course, these are just some of the many possible policy options. The point is that we need to think of those options. Now.

 

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Bessemer to Lift India Investment
By REBECCA BUCKMAN
Wall Street Journal
July 19, 2007

Another big U.S. venture-capital firm, Bessemer Venture Partners, is expanding its presence in India, earmarking $350 million of a new $1 billion fund to tap the country's fast-growing economy.

Bessemer has made 12 investments in Indian companies from its current investing fund, raised in 2004. They include a hotel chain, a financial-services firm and a company that makes components for air conditioners, says Rob Chandra, the Bessemer managing partner heading up the firm's Indian efforts. The new fund is expected to be announced today.

Bessemer's move to devote a portion of the firm's main fund for Indian investments -- instead of raising a separate, dedicated fund -- runs counter to the trend in Silicon Valley, where firms have set up distinct funds to invest in countries like India and China.

Mr. Chandra says investing globally out of a single fund would create a "good alignment of interests" between the fund's investors and Bessemer's partners, who would make money only if the fund as a whole turned a profit for its investors. Investors in venture firms with multiple funds often make money in some funds but lose money in others, he said.

Bessemer will likely collect a traditional "management fee," generally at least 2% of assets, of the $1 billion fund.

 

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India's Larsen & Toubro Q1 net up 140 pct at 3.77 bln rupees
FORBES, NY
07.19.07, 8:50 AM ET

MUMBAI (Thomson Financial) - India's Larsen & Toubro said it posted a 140 pct rise in first-quarter net profit due to a fast-growing capital goods sector, a booming economy, a robust order book and quick turnaround in order execution.

The engineering and construction major said its capacity expansion programs are 'on stream' and that it is confident it will maintain momentum in revenue growth and profitability in the near to medium term.

Net profit for the quarter to end-June rose to 3.77 bln rupees from 1.57 bln a year ago while gross sales and service revenue from operations rose 30 pct to 45.74 bln rupees.

Operating margins improved by 1.1 pct over the year. Chief financial officer YM Deosthalee said he expects the current trend in margins to remain steady for the year.

He added the company's order book was around 420 bln rupees as at June 30, up 45 pct from last year.

Of the order book, 36 pct of the orders were from manufacturing sector, 22 pct from the hydrocarbon sector, 12 pct from processing industries and 11 pct servicing the power sector.

In the first quarter, the company's order inflow was 98.81 bln rupees, of which 14.00 bln rupees were booked by international players.

L&T said it currently has 30 bln rupees in orders from the defence sector and expects around 50 bln rupees worth of business from the sector over the next two years.

Other income for the period rose sharply to 2.10 bln rupees from 650 mln rupees a year ago, due to a translation gain on the appreciation of the rupee against currencies like the US dollar and the yen.

Deosthalee said the company has increased its portfolio of international borrowings in the last few years, with the holdings mostly in yen or US dollars. He expects rupee to trade in the range of 40.00-40.50 against the greenback in the short-term but expects the Indian unit to appreciate further over next 2-3 years.

The company said it is yet to finalise a site for its new shipbuilding yard, but expects to make an an announcement on the matter soon.

 

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Re eases as oil cos step up dlr buying
19 Jul, 2007, 1015 hrs IST, REUTERS

MUMBAI: Rupee slipped on Thursday as rising oil prices spurred oil companies to buy dollars, though dealers expected capital flows into the fast-growing economy to bolster the local unit.

At 9:45 am, the rupee was at 40.43/44 per dollar, easing from Wednesday's 40.4150/4250, and drifting further from a nine-year peak of 40.28 hit in late May.

"Oil companies have called the shots in the morning, but trading has been subdued, and most of the market is looking for direction," said a senior dealer with a private bank.

A fall in US gasoline stocks pushed up oil prices to above $76 a barrel. Oil is India's largest import. Still, the prospect of strong foreign fund flows, specifically into local equities, limited the rupee's losses, with a section of the market building fresh positions in the local unit on expectations of a renewed burst of capital inflows.

The spectre of central bank intervention weighed over the market, though the Reserve Bank of India was not seen buying dollars in early trade, dealers said.

The central bank is widely believed to have bought dollars recently to keep a lid on the rupee, which has gained about 9.5 per cent against the dollar in 2007 to be Asia's best performing currency this year.

The rupee's rise has dented the profits of Indian exporters, and India's third-largest software services exporter, Wipro, said on Thursday that the rupee's rise had an impact of 3.4 per cent on April-June margins.

 

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India climbs up the income ladder
Siddharth Zarabi & Asit Ranjan Mishra / New Delhi July 20, 2007

Economic growth and an appreciating rupee will see India break into the ranks of lower middle-income countries this fiscal year, a few years earlier than expected.

At $1,021, the Prime Minister’s Economic Advisory Council has projected that per capita income would increase over 25.58 per cent this fiscal, against $831 in 2006-07.

This would put India in the same category as China, though the latter’s per capita income was estimated at $2,165 in 2006.

This year’s projected increase in per capita (in dollar terms) is nearly double the average 13 per cent growth between 2003-04 and 2006-07. In the same four-year period, GDP grew an average 8.6 per cent.

Council member and ICRA chief economist Saumitra Chaudhuri said that using Central Statistical Organisation data, the council arrived at 2006-07’s per capita income in dollar terms assuming an exchange rate of Rs 45 per dollar.

For the current year’s projection, the exchange rate assumed is Rs 41 to the dollar. “It is a commendable achievement, but there is so much to do. $1,000 is not a big amount these days,” he said.

However, World Bank lead economist in India Dipak Dasgupta described it as a “huge thing” in the broader scheme of things. “It really is the effect of higher GDP growth. The exchange rate does not have that big a role,” he said.

India is currently classified as a low income country by the World Bank, which categorises its 185-member countries on the basis of their 2006 gross per capita into four groups: Low income countries (per capita income of $905 or less), lower middle-income countries (per capita income between $906 and $3,595), upper income countries (between $3,596 and $11,115) and high income countries ($11,116 or more).

The bank’s income classifications are key to deciding the lending category of the country concerned.

“This signals that India is no more a poor country — an impression that was anyway fading away. The International Development Association may reduce aid as India is up a step on the ladder,” said Arvind Panagariya, professor of economics, Columbia University.

 

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Billionaire Chandra Plans Homes for India's Masses
By Subramaniam Sharma and Haslinda Amin

July 19 (Bloomberg) -- Billionaire Ramesh Chandra's Unitech Ltd., marketing apartments for as much as $1.5 million, is considering building homes that could sell for 1 million rupees ($24,746), as economic growth lifts more Indians out of poverty.

``As people come above the poverty line, there will be a requirement for mass housing,'' Chandra, 68, said in an interview in Gurgaon, near New Delhi, yesterday. ``They will not be able to afford 4 million rupee houses, their demand will be mainly for 1 million rupee or 1.5 million rupee houses. And for that the demand will be phenomenal.''

At least 291 million Indians will increase their annual household income to at least 90,000 rupees, or $5.40 a day, by 2025, McKinsey & Co. estimated in May. That's almost equal to all the people in the U.S., the world's third-most populous nation.

DLF Ltd. and Unitech, India's biggest developers by market value, are benefiting as Asia's fourth-biggest economy expands at an average 8.6 percent a year. They may need to turn to the mass market if a glut develops in the luxury market now favored by many builders, said Suhas Naik, who manages the equivalent of $100 million at IL&FS Ltd. in Mumbai.

``Real estate companies don't have a choice, with millions of square feet proposed to be developed,'' Naik said today. ``How much can the luxury segment absorb?''

Land Reserves

Unitech has land reserves of 14,500 acres (5,868 hectares), it said in its annual report for the year ended March 31. Shares of Unitech fell 5.5 rupees, or 1 percent, to 543.65 rupees on the Bombay Stock Exchange today.

``We want to start mass housing, we are doing some research,'' Chandra said.

The country will need as many as 10 million new housing units a year by 2030, according to the Asian Development Bank.

The proportion of India's population surviving on an annual household income of less than 90,000 rupees will drop to 22 percent by 2025, down from 54 percent in 2005 and 93 percent in 1985, New York-based McKinsey said in May. India will be the world's fifth-biggest consumer market by then, surpassing Germany, as incomes almost triple, McKinsey said.

Unitech's plans to build homes to tap larger numbers of people come amid concerns the supply of residential apartments for the middle and luxury segments may exceed demand.

200,000 Homes

In the next three years, 200,000 homes will be built in India's seven biggest cities for middle- and high-income groups, property adviser Knight Frank LLC said in a report this week.

Homes for the middle-income group would typically cost 2.5 million rupees to 5 million rupees, Malvika Chandra, national head of research at Knight Frank's India unit, said in a phone interview from Mumbai.

``The demand just about meets supply,'' the Knight Frank report said. ``Residential values across the country will remain under pressure and going forward some markets may even witness a correction to the tune of 15 to 20 percent.''

Unitech this month started selling 670 luxury apartments at Noida, near the capital New Delhi, in the first phase of plans to build 5,300 units.

The developer has buyers for a fourth of the initial group of residences, Managing Director Sanjay Chandra said July 5. The apartments cost an average $600,000 and the most expensive costs $1.5 million, Ramesh Chandra said yesterday.

Profit Margins

Profit margins from the sale of ``mass housing'' will be smaller than from other residences, Chandra said.

``Our major concentration will be on the mid-level and on the middle class, their growth is faster, their aspirations are higher and margins will be reasonable,'' Chandra said. ``In mass housing, margins will be much lower. In luxury housing, the margins are higher, but demand will not be as high.''

Profit margins at Unitech more than quadrupled to 39.7 percent in the year ended March 31, from a year earlier, according to data compiled by Bloomberg. Parsvnath Developers Ltd.'s profit margin widened to 19.4 percent from 16.6 percent.

Developers can build cheaper homes in locations on the outskirts of cities and shorn of luxuries such as swimming pools and jogging tracks to avoid sacrificing profit margins, said Naik at IL&FS.

``They may not compromise on margins,'' he said.

Unitech may consider building homes for the masses on the outskirts of cities such as Bangalore, Chennai, the capital New Delhi and its suburbs and smaller centers such as Indore and Bhopal, both in the central state of Madhya Pradesh, Ahmedabad, in the western state of Gujarat, and Nagpur, in the western state of Maharashtra, Chandra said.

``Most of these projects will be near major growth sectors,'' he said.

Competitor DLF, which today reported a first-quarter profit of 15.15 billion rupees on sales of 30.74 billion rupees, said the company doesn't plan to pursue low-price homes.

``We make homes for the weaker section, but it's not a business proposition,'' DLF Vice Chairman Rajiv Singh told reporters in New Delhi today.

 

[Bushroda]

Ferrari selects Tata Motors to roll out cars in India: Report

New Delhi, July 18: Italian sports car maker Ferrari plans to roll out its cars in India in a tie-up with domestic conglomerate Tata group, a media report said.

"The world's favourite sports car has chosen Tata Motors as partner to zoom into India's exclusive market," reports said.

When contacted, a Tata Motors official declined to comment. An e-mail sent to Ferrari remained unanswered.

The report said Ferrari would launch two cars in India - 612 Grand Tourer, a big four seater and F430. Tata motors will market and set up engineering centres for after- sale services, the report said.

Tatas were the logical choice for Ferrari as the Italian firm already gets lot of its software from Tata Consultancy Services. Besides, Ferrari's parent company fiat has a joint venture with Tata Motors.