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Initial euphoria wanes, India Inc worried about Modi government's 'lack of boldness'

NEW DELHI: Six months after Modi Sarkar assumed power amidst great expectations, many industrialists are concerned about what they see as a lack of boldness in reforms and an absence of radical ideas. As a result, they are largely unwilling to commit fresh investments in the country at a time the infrastructure sector is in a virtual logjam because of high debt.

At a closed door, barred-to-media session of the Confederation of Indian Industry last Saturday, December 6, some of India Inc's most prominent voices asked whether the government is doing enough to jumpstart growth, unlock infrastructure and spur fresh investments. While business leaders conceded the mood was upbeat, they said a lot more needed to be done for fresh investments to kick in.

"This government has moved us from despair to hope... but now I think that hope is waning," said GVK Power & Infrastructure Vice-Chairman Sanjay Reddy, according to people present at the meeting. "The government actually needs to take a bold line and has to say we are going to move away from the past. But we are not seeing that happening at the moment," added SRF Chairman Arun Bharat Ram, referring to labour reforms and the role of the public sector. "One of the biggest opponents to labour reforms is BJP's own trade union and if what we are going to see is every move being weighed politically, we are in the same boat as before," he added.


Arun Bharat Ram's office told ET he wasn't present at the CII meeting, but two attendees confirmed to ET that he was indeed there and had voiced his opinion. GVK also denied that Reddy had made any such comments at the meeting. Biocon founder and Chairperson Kiran Mazumdar-Shaw expressed concern over the BJP government following in the footsteps of its predecessor by floating new welfare schemes in healthcare.

"I am personally very concerned about the government's focus on a universal healthcare programme. As we all know, it should be a sustainable model, it cannot be an overarching free-for-all scheme... there should be some co-pay. Social welfare schemes shouldn't be about doling out freebies and creating an entitlement culture that is detrimental to growth. The government is very pro-growth, but within that, we need to be very sensitive and conscious of the social welfare area," said Shaw, who attended the meeting. She told ET later that "a lot of industry members (at the meeting) talked about how much reforms this government can actually bring in". Shaw also confirmed her comments at the meeting. "What we are seeing right now is reforms that are minor tinkering. There is a lot of interest in Indian stocks, but where is the investment in new projects? Everyone is playing wait and watch," she added.

Columbia University Professor Arvind Panagariya, who is an advisor to Rajasthan's BJP government, is learnt to have said that things which should have happened by now, such as new norms for land acquisition, removing tax uncertainty and recapitalisation of banks, haven't taken place. "India is a little behind on the growth curve... and I am slightly disappointed," he said. Panagariya did not respond to ET's email.

Veteran industrialist Dhruv Sawhney, chairman of the Triveni Group, said the capital goods sector, in the first six months, is still at 60 per cent of where it was in 2011. "This feedback should be given. This sector hasn't taken off even till end of November. It's quite widespread. That shows the actual investment on the ground is not happening," Sawhney is learnt to have said. Sawhney's office said he was out of the country and was unavailable for comment.

Janmejaya Sinha, chairman of The Boston Consulting Group's Asia Pacific unit, expressed concern over the state of the PSU banking sector and suggested the government could consider lowering its stake to 33 per cent. "Credit is not picking up, we cannot get out of this bind," he is learnt to have said. People familiar with the situation told ET that CII President Ajay Shriram started the discussion by inviting participants to air their views in an open and frank manner. Shriram said Finance Minister Arun Jaitley was keen to assess "the pulse and the buzz" in industry circles.

Bharti Group Chairman Sunil Mittal praised the efforts of the new government to turn around the economy and urged fellow CEOs to be patient. "Industry should be patient as reforms would take a few years," Mittal is learnt to have said, adding that the new government was a "welcome change in terms of its approach to industry... and that it has the gumption to say we will go for growth and amend laws".

ET spoke to several other people familiar with the discussions at CII's National Council meeting on Saturday. Many of them described in great detail what transpired in the meeting on the condition that they not be identified. When asked about the meeting, Ajay Shriram, who presided over the discussions, said, "Industry appreciates that changing the system is not possible 'overnight' and is waiting for the next Budget for the government to articulate its vision for the next four years".

GVK's Reddy is also learnt to have said that while the government's "intention is good, industry is yet to see any bold action...global investors are still waiting and watching if the government is really serious". He is also learnt to have listed several financial and structural problems holding back infrastructure. When asked about Reddy's comments at the meeting, a GVK spokesperson told ET: ".... Probably there has been some misunderstanding regarding the same and we would like to reiterate that there is absolutely no truth in it".

Several attendees confirmed that Reddy spoke in detail on problems facing the infrastructure sector. When contacted, Feedback Infra Chairman Vinayak Chatterjee, who attended the meeting, said he had suggested some measures to revive the infrastructure sector. "First, jumpstarting infrastructure through public expenditure as is being done in the highways sector, second, pushing through Rs 18 lakh crore of stalled projects and, third, resetting the public-private partnership or PPP model."

Initial euphoria wanes, India Inc worried about Modi government's 'lack of boldness' - The Times of India
 
India's October industrial output down 4.2 percent
Industrial activity, measured in terms of the Index of Industrial Production (IIP), registered a negative 4.2 percent growth during October as compared to a 1.2 percent decline in growth during the corresponding month of the previous year.

According to data furnished by Central Statistics Office (CSO) Friday, the IIP had increased by 2.5 percent in September 2014. In August 2014, the industrial growth stood at 0.4 percent.

The cumulative growth for April-October 2014-15 stood at 1.9 percent while the figure for the corresponding period of the previous year stood at 0.2 percent.
India's October industrial output down 4.2 percent | Business Standard News

 
World Bank signs $1100 million loan agreement with Dedicated Freight Corridor Corp
NEW DELHI: The Dedicated Freight Corridor Corporation (DFCC) and the World Bank today signed a loan agreement of USD 1100 million for construction of the second phase of a 393-km long electrified double line between Mughalsarai-Bhaupur section of Eastern DFC.

The agreement was signed by DFCC Director (Finance) MK Mittal and World Bank Country Director Onno Ruhl in the presence of senior officials from Railway Ministry and the DFCC.

Milk output jumps over eight-fold to 137.7mn ton since 1950-51
NEW DELHI: Milk production increased to 137.7 million tonnes in the last fiscal from 17 million tonnes in 1950-51, Parliament was informed today.

Per capita availability of milk has increased to 307 grams from 130 grams during the period under review.

Indian companies ink pact to buy $2.1 billion diamonds from Russia
NEW DELHI: Twelve Indian companies will buy diamonds worth USD 2.1 billion in the next three years directly from Russian diamond mining giant ALROSA.

These companies have signed three-year contracts with ALROSA during the ongoing World Diamond Conference being inaugurated by Prime Minister Narendra Modi and Russian President Vladimir Putin.

"We have signed 12 contracts with ALROSA today to source diamonds worth USD 2.1 billion in the next three years,"
Jewellery Export Promotion Council Chairman Vipul Shah said here.

 
Make for India better approach than Make in India: Raghuram Rajan

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RBI governor Raghuram Rajan said an export-led growth strategy will not pay for India as it did for Asian economies including China due to the tepid global economic recovery, especially in the industrial countries. Photo: Bloomberg


New Delhi: Providing the strongest critique to the government’s Make in India strategy, Reserve Bank of India (RBI) governor Raghuram Rajan on Friday said India rather needs to make for India, adding that either an incentive-driven, export-led growth or import-substitution strategy may not work for the country in the current global economic scenario.

Speaking at an event organized by industry lobby Federation of Indian Chambers of Commerce and Industry, Rajan said an export-led growth strategy will not pay for India as it did for Asian economies, including China, due to the tepid global economic recovery, especially in the industrial countries. “Other emerging markets certainly could absorb more, and a regional focus for exports will pay off. But the world as a whole is unlikely to be able to accommodate another export-led China,” he said.

The Narendra Modi government, after coming to power six months ago, has launched its ambitious programme to make India a manufacturing powerhouse and has advocated for boosting exports and incentivizing import substitution. Rajan, however, clarified that he is not advocating “export pessimism”. “Instead, I am counselling against an export-led strategy that involves subsidizing exporters with cheap inputs as well as an undervalued exchange rate simply because it is unlikely to be as effective at this juncture. I am also cautioning against picking a particular sector such as manufacturing for encouragement simply because it has worked well for China,” he said. “India is different, and developing at a different time, and we should be agnostic about what will work.”

Rajan said the government should rather focus on creating an environment where all sorts of enterprise can flourish, and then leaving entrepreneurs to choose what they want to do. “Instead of subsidizing inputs to specific industries because they are deemed important or labour-intensive, a strategy that has not really paid off for us over the years, let us figure out the public goods each sector needs, and strive to provide them,” he added. Giving instances, Rajan said small and medium enterprises might benefit much more from an agency that can certify product quality, or a platform to help them sell receivables, or a state portal that will create marketing websites for them, than from subsidized credit.

On government’s strategy for import substitution or trying to manufacture items domestically rather than importing them, Rajan said such strategy, by creating tariff barriers, has been tried and it has not worked because it ended up reducing domestic competition, making producers inefficient and increasing costs to consumers. “Instead, Make in India will typically mean more openness, as we create an environment that makes our firms able to compete with the rest of the world, and encourages foreign producers to come and take advantage of our environment to create jobs in India,” he said.

Rajan said with external demand growth likely to be muted for at least the next five years, India has to produce for the internal market. “This means we have to work on creating the strongest sustainable unified market we can, which requires a reduction in the transaction costs of buying and selling throughout the country, improvements in the physical transportation network, more efficient and competitive intermediaries in the supply chain from producer to the consumer. A well-designed GST (goods and services tax) Bill, by reducing state border taxes, will have the important consequence of creating a truly national market for goods and services, which will be critical for our growth in years to come,” he said.

Speaking at the same event, former prime minister Manmohan Singh said India can achieve a growth rate of 8-9% provided there is a “national consensus” on methods to take advantage of globalized world. “I think that even though many other emerging economies are not doing too well, India has an opportunity to move towards a growth rate of 6-7% and thereafter to 8%,” Singh said.
 
India to reap $12 billion-plus budget windfall from oil slide

NEW DELHI: A plunge of nearly half in oil prices could help Finance Minister Arun Jaitley reap a fiscal windfall of at least $12 billion when he presents his 2015/16 budget in February, two government sources told Reuters.

The savings would come in the form of reduced fuel subsidy costs and higher petrol and diesel levies, the sources said. In addition, finance ministry officials have proposed restoring a crude oil import duty that was scrapped in 2011.

As a result, the government would claw back most of the money that India saves on oil imports. That would help Jaitley hit borrowing targets but dilute any boost to consumption in Asia's third-largest economy

Energy-hungry India imports around 4 million barrels of oil per day and the net cost of the country's oil imports is expected to total $88 billion in the fiscal year to next March, based on a budgeted oil price of $105 per barrel.
Officials drawing up Jaitley's first full-year budget are pencilling in a view that oil prices will average $65-$70 in 2015/16. That would cut the national import bill by $18 billion - or 0.9 per cent of GDP, they reckon.

"Benefits from the fall in oil prices would reflect in the budget through lower oil subsidies and higher tax projections next year," one senior finance ministry official told Reuters.
The sources estimate that the overall fiscal boost can total 750 billion rupees ($12 billion). More than half, 400 billion rupees, would come from savings on oil subsidies.
Prime Minister Narendra Modi, in power since May, has freed prices for diesel, which account for 40 per cent of consumption of refined fuels.
Taking advantage of the resulting fall in pump prices, his government has raised factory gate duties on petrol and diesel twice in the last month. That means state coffers, and not drivers, will benefit to the tune of $1.6 billion this fiscal year and nearly $5 billion next year.
A revival in the profitability of state-owned oil refiners like Hindustan Petroleum Corporation (HPCL.NS: Quote, Profile, Research) and Indian Oil Corporation (IOC.NS: Quote, Profile, Research) could generate another $1 billion in extra revenues.
Further, ministry officials recommend restoring the old 5 per cent crude oil import duty in full. This would require Modi's approval, and if implemented could raise up to $4 billion more, lifting total potential fiscal gains to over $16 billion.
"A proposal to impose import duty on crude oil is under consideration," said another finance ministry source. "The final decision could be announced in the budget." Both sources requested anonymity, because they were not authorised to speak to the press on the record.
Jaitley is struggling to hit his fiscal deficit target of 4.1 per cent of gross domestic product this fiscal year. He wants to cut it to 3.6 per cent in 2015/16, and 3 per cent in 2016/17.

BUDGET BAILOUT Fiscal constraints leave little over for the wider economy, with consumers still cautious about their prospects and concerned that recent falls in inflation will be only temporary.

Although the price of diesel, used by truckers and farmers, has fallen by 6 per cent in the past five months, drivers in India are now paying more to fill up than in the United States.

"The boost to household consumption is likely to be small," said Shilan Shah, India Economist at Capital Economics in London. "The government has been able to take advantage of the windfall."

By Shah's reckoning, the oil windfall could help cut the budget deficit by 0.5 per cent of GDP, as well as narrowing the current account gap and easing price pressures.

"This could lead to the RBI beginning to cut interest rates early next year, which on its own should have impact on economic growth," said Shah.
 
India’s Rupee Slides to 13-Month Low After Trade Deficit Widens

India’s rupee slumped to a 13-month low as concern over global growth led to a selloff in emerging-market currencies and after data showed the nation’s trade deficit widened.

The Indian currency weakened 0.9 percent to 63.4950 a dollar as of 11:09 a.m. in Mumbai, according to prices from local banks compiled by Bloomberg. It touched 63.4975 earlier, the lowest level since November 2013. The yield on local sovereign bonds due July 2024 climbed eight basis points to 7.92 percent, poised for its biggest advance since August, prices from the central bank’s trading system show.

“The nervousness in the currency market spilled over into other Indian asset classes,” said Debendra Kumar Dash, a fixed-income trader at DCB Bank Ltd. in Mumbai. “That’s being reflected in bonds.”

The unexpected contraction in industrial output in October


A slew of negative data points have hit domestic sentiments, analysts say. Trade deficit widened to $16.9 billion in November - an 18 month high. A year ago, trade deficit was under $10 billion. The unexpected contraction in industrial output in October has sparked concerns about economic growth.
 
Cabinet approves ordinance on coal and insurance
Cabinet approves ordinance on coal and insurance - The Economic Times

Frustrated with constant disruptions in Rajya Sabha, Central Government has taken Ordinance route to clear two of important bills pertaining to Increase in FDI limit in Insurance sector and Auctioning of coal mines.
Both bills were cleared by Lok Sabha, but constant disruption by opposition on issues like conversion and TMC members led disruptions on Chit Fund Scam meant little work in upper house of parliament.
the government intents to show is willingness to get economy back in shape.
Next in line is GST bill proposed to be implemented from April 2016, which is slated as one f the biggest reform step in recent times.
 
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