The silver lining is just a sliver on the cloud of inflation: the number for the month of July 2011 came down a tad, from 9.44 per cent in May to 9.22 per cent in June. But the cloud also got bigger: the inflation number for May was revised upwards, from 9.06 to 9.56 per cent.But manufacturing inflation — the bigger worry for government just now — remained sticky at 7.7 per cent compared to 7.3 per cent in June. Basic metals and chemicals' prices continued to rise further, increasing input costs for manufacturers and reinforcing expectations that inflation is going to stay ‘elevated' (in the parlance of economists) for the rest of the year.True, global developments — the potential recession in the developed economies in the US and Europe, for one thing — are casting a pall on the prospects for the Indian economy. Analysts are comparing the gloomy news to the circumstances in 2008, when the US sub-prime mortgage market crisis came to a head. At that time too, most people in this country felt we were reasonably insulated from the global crisis. At is turned out, we were not, and we aren't this time either.Then, with low interest rates and inflation, a significant loosening of monetary policy helped mitigate the effects; this time, we don't have that. Credit is nowhere nearly as affordable as it was then. Our fiscal affairs are a bit of a mess: the deficit is upwards of 8 per cent of GDP, and the debt-to-GDP ratio is 67 per cent.The US and Europe account for more than a third of our exports, and a recession there is going to hurt. From the numbers — both from the GDP data of the last quarter of 2010-11 (FY11) and subsequent monthly updates — our exports have performed robustly. But a report from Jeffries, the investment bank, makes a few disquieting observations. A review of port traffic data relative to exports shows that growth is flat. Comparing the import data of the countries that account for the bulk of our merchandise exports to our export data, wide differences emerge, says Jeffries, even after accounting for data lags.Quarterly corporate results for June from the software services firms suggest strength, but the guidance for coming quarters does not inspire great confidence. Most of them expect some sort of moderation. But then, we are largely a domestically driven economy, it is argued, 90 per cent of it in fact, and that could still keep the economy chugging along.Really? A recent analysis by Mumbai-based brokerage firm Prabhudas Liladhar suggests that capital investment — what drives future economic performance — has been falling. New investments in power, for instance, have been falling for the past three quarters; across industry segments, order book growth has been falling by at least 20 per cent for the past two quarters. Estimates suggest that government capital investment (in infrastructure, mainly) has fallen by 35 per cent in January-June 2011.Our import bills are not growing any smaller, and the current account deficit will widen (it is estimated to be close to 3 per cent of GDP; the comfort level is 2 per cent). If you are looking closely, the exchange rate got a little worse too: the rupee has depreciated by about 3 per cent already in the last month, and will probably remain weak. Imagine what that will do to our oil import bill.The monsoon may not be as intense as it should be, but along with the rest of the economic news, it is definitely raining down on our economic parade.(This story was published in Businessworld Issue Dated 29-08-2011)
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There couldn't be better news for home buyers who are short-changed by builders. The Competition Commission of India (CCI), in a first-of-its-kind order has fined India's largest developer DLF Rs 630 crore (7 per cent of its average annual turnover for 3 years) for using its dominant position to build additional floors and delay its Belaire project in Gurgaon. The anti-monopoly watchdog is now considering proceeding against other realtors.Property buyers continue to be at the mercy of slick-talking space sellers. Most of the big developers sell flats on the basis of ‘super built-up' area that has nothing to do with the actual floor area available. Similarly, completion clauses are routinely violated by companies like Unitech have become the norm. In this context, CCI's order against DLF is a wake-up call for both builders and the government. The Centre, which for years has been mulling a regulatory body for the real estate sector to protect hapless consumers, must act before the pressure cooker blows up. STRICTLY BUSINESSBrands such as Canon, Coca Cola and Future Group who had designed ad campaigns around Sachin Tendulkar scoring the 100th century are now back-peddling furiously. Team India's disastrous England tour has given cricket a bad name, and no one wants a share of that, at least for now.(This story was published in Businessworld Issue Dated 29-08-2011)
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In significant changes in the draft Land Acquisition Bill, the proposed legislation will now be in force with retrospective effect and provide for five times higher compensation to those affected in the SC/ST category.The revised draft Bill specifically says that Rehabilitation and Resettlement (R&R) Package will be applicable if a private party purchases 50 acres of land or beyond it in urban areas for the purpose of urbanisation. The draft legislation has been sent for inter-Ministerial consultation and is likely to be introduced in Parliament during the current session.On the retrospective clause, Rural Development Minister Jairam Ramesh said the Bill will be applicable to all cases of land acquisition before the date of commencement of the Act if the award under the 1894 Act has not been made. It will also be applicable if the possession of the land has not been taken regardless of whether the award has been made or not."So we are not specifying a date. The retrospective effect is not on the basis of a date, but it is on the basis of a stage," he said.The new draft Bill also makes it mandatory for an acquirer to give Rs. 5 lakh compensation, instead of the earlier figure of Rs. 2 lakh, if it is unable to provide employment under the package. The government also introduced a couple of changes in the definition of "public purpose" in the new draft following criticism that it was "too wide".Mr. Ramesh said the changes were made after the Ministry received "a large number of comments" from farmers' organisations particularly from Uttar Pradesh, activists' organisations like the National Alliance for Peoples Movements (NAPM), political parties and industry.Referring to a provision in the first draft Bill which makes R&R applicable for private purchase of land beyond 100 acres, the Minister said, "The change we have introduced (in the new draft) is it will be 100 acres in rural areas and 50 acres in urban areas." (PTI)
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Force Motors, the Pune based automaker has finally launched its much awaited sports utility vehicle (SUV), Force One, at a price tag of Rs 10.65 lakh (ex showroom Delhi). This is the first time that the company forayed into the SUV segment. Based on a 2.2 litre Mercedes diesel engine, the SUV is built with 70-75 per cent local content. "We plan to sell 4,000 units in the first year and 8,000-9000 units in the second year," says managing director, Prasan Firodia, Force Motors at the conference.Force One will be position between Mahindra Scorpio and Tata Safari and will be available for sale from 1 September in the country. At present the company has 22 dealerships across the country and it will further expand its dealership network to 44 by mid-2012. The automaker also has plans to introduce two more variants of the Force One SUV by end of 2012. The Force One will be produced in the company's Pithampur plant in Madhya Pradesh. The company has so far invested Rs 150 crore to build the manufacturing facility. At present the plant has an annual capacity of 12,000 units, it could be further expanded to 18,000-20,000 units. The automaker plans to spend another Rs 40 crore for developing a sales and backup network and promotional activities. Force Motors has also roped in Bollywood actor Amitabh Bachchan as their brand ambassador. The company is otherwise selling brands such as Traveller, Trump and Trax in the light commercial vehicle segment. It also has a joint venture with Germany's MAN Nutzfahrzeuge AG to make heavy trucks.The company plans to introduce a multi-purpose vehicle in 2012 and a second SUV in 2013. According to the Society of Indian Automobile Manufacturers (SIAM), the number of utility vehicles sales rose to 107,518 units for the period April-July this year from 99,705 units last year - an 8 per cent jump.
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It's 'raining' tablets these days. With the advent of Apple's iPad, a new trend of offering this sleek new device has gained momentum in the global technology market — rivals such as HTC, Research in Motion, Dell, Motorola and many others jumped in the fray, and thus begun a rat race. First, the race was about 'who all can offer a tablet' then began the fever of 'who can offer the most advanced tablet', with 'how many applications or apps.And as this tech-fever caught hold of Indian tech geeks, the race turned into 'who can offer the cheapest tablet or at least 'affordable' ones? A trend similar to that of mobile phone manufacturers popping-up now and then as we see more Indian players getting more and more tech savvy.After Reliance Communications launched its 3G tablet in collaboration with Chinese firm ZTE Technologies at a price tag of Rs 12,999, Bharti Group's company Beetel introduced its version of a tablet PC at Rs 9,999 on Thursday. A day later, a little known Bangalore-based firm Lakshmi Access Communications Systems (LACS) launched a tablet PC for just $99 (about Rs 5,000).The company has intensified the competition by introducing a wide range of Tablet PCs with screen-size varying from 4-10.9 inches. The company, which launched its first tablet PC in January 2010 under the brand name Magnum, said it has revamped its product to better suit the users' needs and has made investments of about Rs. 20 crore in the project so far."The product was designed by LACS, while the manufacturing was outsourced to a Chinese firm," says Managing Director Mahendra Kumar D. Jain. Magnum is available in different screen sizes, with some of the variants doubling up as a phone, and the maximum price tag of the product is about Rs 38,000.Among the unique selling propositions of the product are its pricing, upgrade and damage warranty, and the wide variety. "The devices come with 2 unique types of warranty - an upgrade warranty, wherein the consumer can upgrade to a newer technology device at a small incremental cost, and a damage warranty, wherein a new device is shipped directly to the consumer in the rare event of the device experiencing sub-optimal performance," the company says in a statement.While the company has not yet elaborated on the features of Magnum tablets, these devices will come with Android 2.3 gingerbread operating system, with some of the high-end variants having dual-boot option (Android + MS Windows). Apart from the regular features of a PC, Magnum variants have Bluetooth (DUN) Internet connectivity by pairing with mobile phone, and menu available in 11 languages.The company plans to invest about Rs 100 crore in the venture in the next one year. It will spend about Rs. 60 crore in marketing Magnum and open 10,000 EZs (experience zones), or franchisee retail outlets in the financial year 2011-12. LACS is looking at a sales target of Rs 800 crore in the current fiscal.The company is adopting a franchisee model of retail outlets for which the company plans to open about 10,000 product display galleries or experience zones - what the company calls 'Easy EZs.' "For consumers, the ubiquitous presence of easy EZs means that the fear of online purchase is completely eliminated. They can see and experience what they are going to buy, even before placing their order," says Jain.Easy EZs could be set up in just 100 square feet of area, with an investment of Rs 3.5 lakhs which could also be financed and requires no sales tax registration as the billing is done directly to the company, online.
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The Indian stock markets have been affected by the US market sentiments in the short term, even though the country's economy is robust and its growth story is intact, the finance minister said in a statement released after market hours on Friday.Indian shares fell nearly 2 per cent on Friday to log their fourth straight weekly loss, their longest weekly losing streak since the Lehman collapse, as fears that the US economy was heading towards another recession and that some European lenders were facing a short-term funding crunch triggered risk aversion.The main 30-share BSE index, which is down 21 per cent this year, dropped 5 per cent on the week, extending its losses to 14 per cent in four straight weeks."The effect of the market sentiments in the US and Europe has a bearing on our markets as well in the short term....In comparison to Asian markets, our performance has been better," Pranab Mukherjee said in the statement.The steep selloff in the Indian markets triggered by the economic crises in the United States and the euro zone had prompted a review of the global economic situation by top Indian policymakers including Mukherjee, RBI chief Duvvuri Subbarao and C. Rangarajan, a top adviser to the prime minister."The present crisis can, however, be expected to encourage increase in the equity exposure by foreign pension funds and other long-term institutional investors. India is well positioned to capture this flow," the statement added.Net foreign institutional investor (FII) inflows into local stocks in this calendar year stood at $912.2 million until Thursday."India's economy is robust and its growth story, intact," the statement added.The comments come on the eve of a meeting of India's powerful planning commission, which will be chaired by Prime Minister Manmohan Singh.The plan panel is expected to target an average annual growth rate of 9 percent for the five-year period starting from April 1, 2012.(Reuters)
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A. Chandra Shekhar, the CEO of a small alternative energy solutions firm at the heart of India's much-vaunted boom story, should be rolling in orders and expanding his business on the coat-tails of near double-digit economic growth.But his funding and growth prospects for the immediate future have dried up, thanks to the anti-inflationary crusade of one of the most aggressive central banks in the world."The scenario is that industries require my technology and services, but I do not have the funds to start the projects," said Shekhar, who predicts Solar India Solutions will do well to break even this fiscal year with no chance of order-book growth."While we are trying to raise money, it has become too costly to even think about it. It is impossible for me to approach a big company without financial backing."Reeling from 11 interest rate rises since March 2010, Shekhar is one of a chorus of industrialists and corporates suffering from the single-minded strategy of the Reserve Bank of India (RBI), which is increasingly presenting policymakers with a dilemma.With the government effectively paralysed by corruption scandals and protests, the RBI has been left to fight the inflationary battle without fiscal policy support, and equipped with limited tools. It seems determined to persist with its crusade against inflation for now."At the moment the biggest priority for India is inflation. Of that, there is very little doubt in my mind", said Bimal Jalan, a former governor of the RBI.India's growth rate is slowing - car sales in July contracted for the first time in nearly three years - and consumer goods demand in June slowed substantially from a year earlier. Manufacturing output also slowed substantially in the April to June period.Businessmen like Shekhar are not alone. Many small businesses in India have abandoned expansion plans or closed down units due to a dearth of affordable finance, says Chandrakant Salunkhe, president of the Small and Medium Business Development Chamber of India.In the debt-intensive real estate industry, major players have sold off land parcels to meet soaring repayments, and there are signs of a squeeze in sectors from autos to mining to fast-moving consumer goods - all at the heart of the India growth story."There is a likelihood of closing down many SMEs for want of funds ... It is therefore indispensable that the RBI should not only bring down interest rates but also introduce new lending schemes for the sector at lower interest rates," said Salunkhe.That would be doable if inflation was falling quickly. But headline inflation remains above 9 percent, much above the RBI's comfort level of 4 to 4.5 per cent, forcing the central bank to continue its hawkish monetary policy stance."A formal lowering of its GDP growth forecast of 8 percent may not happen until ... October, but it will probably signal downside risk to its growth forecast," leading brokerage house CLSA said in a note."But RBI will maintain its hawkish stance", the note added.The US ImpactIndia's stubborn inflation is due to supply bottlenecks, food prices and high oil prices, and now it faces worries that a possible new round of quantitative easing by the US Federal Reserve could see a flood of capital into emerging markets."Obviously, Ben Bernanke's upcoming speech in Jackson Hole, Wyoming, will be the joker in the pack," said a note by leading brokerage house CLSA. "Any hint of further strong quantitative easing by Bernanke could favourably affect risk appetite and commodity prices, and hence will be bad for India's inflation and interest rate outlook."With New Delhi only recently showing fiscal discipline with a long delayed 9 per cent increase in diesel prices in June, and capacity bottlenecks slow to clear as big projects and reforms stall, fighting inflation has been left to the central bank.Despite the series of policy rate increases, real interest rates in India are still in negative territory with the repo rate (the RBI's main lending rate) still lower than the headline inflation rate by about 120 basis points.Even at an 8 percent pace, India will be the second-fastest economy in Asia, but it needs to grow quickly in order to raise living standards and create jobs for a surging working-age population.There is no sign at all of a possible plunge in growth to a "hard landing", which is technically difficult to define but conceptually would mean India couldn't generate the number of new jobs needed for its young population or the revenue gains the government requires to contain its fiscal deficit.Quarterly ReviewThe anti-inflationary consensus is expected to broadly shape the contours of the September 16 mid-quarterly review of monetary policy, at which the central bank is expected to raise rates by 25 basis points and continue its hawkish tone.Despite a sign of slowing growth, the government appears on board with the RBI - for now."I think we understand and fully support RBI's stance on inflation, that is the priority," a senior finance ministry official told Reuters, indicating that the battle against inflation has been left with the central bank.But there is not such consensus among analysts. And even the central bank's policy advisory team had leaned in favour of a pause on July 26, when the RBI surprisingly raised them by half a percentage point."The sequential and year-on-year reduction in inflation numbers ... may help in soothing some concerns that the rate hiking cycle will continue", said Goldman Sachs in a report after India's inflation numbers were released on Tuesday.Citigroup say that inflation has peaked, but "persistently high inflation and RBI's hawkish tone raises the risk of a last 25 bp hike in September"The government, reeling under allegations of graft and criticism for failure to tackle rising prices, cannot afford to let growth dip and affect its long-touted approach to pulling millions out of poverty every year.Car sales in India fell almost 16 percent in July, the first drop in two and a half years. Production of consumer goods grew less than 2 percent in June, reinforcing fears that consumer demand is on the wane in the country.Growth in the January to March quarter was the slowest in 5 quarters and, barring the capital goods segment, industrial output numbers were on the slower side in June.Market participants might believe growth risks from the global economy could see the central bank loosen policy, at least going by pricing in interest rate swaps. The one-year rate is currently at 7.80 percent, below the central bank's main lending rate of 8 percent.Yet, much depends on how the situation in the United States and the eurozone plays out.Another senior official in the finance ministry said that if there is a meltdown in the United States and the eurozone, that may seriously cloud India's prospects and the central bank may then have to turn its policy around to preserving growth.That could come sooner than later. Private economists have increasingly pared growth forecasts for the fiscal year ending in March 2012 to below 8 percent, while policymakers have also scaled down projections to between 8 and 8.5 percent.Even then, the RBI will most likely pause for some time before it actually cuts rates to prop up growth."We maintain our stance of a pause in interest rate hikes by the Reserve Bank of India in FY 12 and 100 bp rate cuts in FY 13," said Goldman Sachs.(Reuters)
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Proposals to sell some of government stakes in state-run firms Bharat Heavy Electricals, and National Aluminium Co Ltd (Nalco) are at "various stages" of consideration before the government approves them, the finance minister said on Friday.There are proposals to divest a 5 per cent stake in Bhel and to sell a 10 per cent government stake in Nalco, Pranab Mukherjee told parliament in a written reply.Bhel is India's top power gear maker, while Nalco is the country's third largest producer of aluminum.The government is in the midst of a programme to raise about $8.9 billion through share sales in public sector firms including ONGC and SAIL this fiscal year (April-March) to cut its fiscal deficit and generate funds for schemes for the poor.Mukherjee also said the government has approved selling the entire stakes in loss-making state-run firms Central Water Transport Corp, Scooters India Ltd and Tyre Corp of India to a strategic partner.BHEL shares fell more than 4 per cent to Rs 1,687.80 on the National Stock Exchange, while those of NALCO dropped about 3 percent to Rs 59 by 1.15 PM. The broader market was down 2.5 per cent.(Reuters)
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Finance Minister Pranab Mukherjee said on Friday the agreement signed with Switzerland for sharing banking information on demand is likely to come into force by September.He said during Question Hour in the Lok Sabha that he had signed the agreement with Switzerland for sharing banking information of Indians having accounts there during his earlier tenure as Finance Minister in UPA-I government.He said the Swiss Parliament had ratified the agreement but as per rules of direct democracy prevalent in that country all cantons (states) have to ratify it."This process will be completed by September. Information will be shared from April 1, 2011, prospectively not retrospectively. No country has agreed to share information retrospectively," Mukherjee said, adding once it comes into force, banking information will be exchanged between the two countries on demand.Mukherjee said India's Tax Information Exchange Agreement (TIEA) with four sovereign entities, namely Bahamas, Bermuda, British Virgin Islands and Isle of Man was already in force.These are famous tax havens where blackmoney of individuals from several countries has been parked.India has also signed TIEA with Cayman Islands but it is yet to come into force.The Finance Minister said India's Double Taxation Avoidance Agreement (DTAA) with 80 countries was already in force while DTAA with Columbia, Ethiopia, Lithuania, Taiwan and Tanzania has been signed but is yet to come into force.India has re-negotiated DTAA with Italy, Norway, Singapore and Switzerland."In last two years, India has negotiated 16 TIEAs, 18 new DTAAs and has also renegotiated 21 existing DTAAs. TIEA with Bahamas has been signed and has also entered into force. TIEA with Monaco has been negotiated. DTAAs with Republic of Columbia and Taiwan have been signed and are waiting to be entered into force," Mukherjee said.The Finance Minister claimed DTAAs help in the flow of investment and technology as it seeks to avoid double taxation."DTAAs and TIEAs help in countering the menace of tax evasion and black money stashed in foreign banks by helping in collection of information regarding tax evasion and foreign bank accounts. DTAAs also sometimes help in collection of taxes from assets located abroad. 27 out of 80 DTAAs contain such a provision for assistance in collection of taxes," he said.Mukherjee said TIEA is a concept created to deal with tax havens where banks are established which do not share information and act as "sovereign entities".He informed the House that after 2008, and during the London and Pittsburgh summits, all countries - including Switzerland - which were not cooperating earlier in sharing banking information were asked to cooperate.Mukherjee said every country had its own detailed and elaborate procedure of entering into and ratifying international agreements.(PTI)
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Finance Minister Pranab Mukherjee said on Friday he would not seek proceeds from disinvestment to meet capital expenditure needs beyond March 2012, despite facing difficulties due to the global economic situation."I would not like to seek a further extension even though I am in a difficult situation," Mukherjee said replying to supplementaries during Question Hour.In November 2009, the government had granted one-time exemption to utilise the proceeds from disinvestment of Central Public Sector Enterprises (CPSEs) for meeting capital expenditure requirements of selected social sector programmes.The proceeds from disinvestment are channelised to a National Investment Fund (NIF), set up in 2005. 75 per cent of the interest generated from the Fund would be used to finance selected social sector schemes, which promote education, health and employment.The remaining 25 per cent would be used to meet capital investment requirements of profitable and revivable CPSEs.Mukherjee said no deposits were made to NIF from 2009-10 to 2011-12. During this period nearly Rs 48,000 crore have been realised through disinvestment of CPSEs.He made it clear that the government would not let its equity below 51 per cent in any of the CPSEs. Mukherjee said government has already approved disinvestment of five per cent paid up equity capital of Oil and Natural Gas Corporation Limited and Steel Authority of India Limited.He said approval has been granted for disinvestment of 10 per cent paid up equity capital of Hindustan Copper Limited and National Building and Construction Corporation Limited.The disinvestment of HCL and SAIL is in conjunction with the issue of fresh equity of 10 per cent and five per cent respectively.Proposals for disinvestment of five per cent paid up equity capital of Bharat Heavy Electricals Limited and 10 per cent of National Aluminium Company Limited are at various stages before seeking government approval, Mukherjee said.The Minister said the budget estimates for disinvestment proceeds are Rs 40,000 crore for 2011-12.(PTI)
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