The Reserve Bank of India (RBI) is expected to raise its key policy rate by a further 25 basis points next week after inflation quickened in June and may hike once more by the end of the year, before pausing its long tightening campaign, a new Reuters poll shows.Expectations that the repo rate will peak at 8 percent by end-2011 are largely unchanged from a previous forecast in mid-June, and hinge largely on whether persistently strong price pressures in Asia's third-largest economy will soon begin to abate.India's wholesale price inflation quickened in June to an annual 9.44 per cent from 9.06 per cent in May, driven by higher prices for manufactured goods and fuel, even as the economy showed signs of cooling.Of the 23 analysts polled, 11 respondents expect the repo rate to rise by a total of 50 basis points (bps) by the end of the year, peaking at 8 percent.Nine of the respondents expect the Reserve Bank of India to pause its rate hike cycle after raising the repo rate to 7.75 percent in July. Only 4 expected the RBI to take a break in September and raise rates again by December."We should start seeing signs of inflation stabilising in the next 2-3 months because there will be a lagged impact of the global commodity price correction," said Sonal Verma, a Mumbai-based economist at Nomura who expected the RBI to pause after a 25 bps rise next week."And of course the slowdown we are seeing in India will also have some positive impact," she said.The RBI projects inflation will moderate to 6 per cent by end-March 2012. It said in May that it expected inflation to cool down after September, adding to analysts' expectations that the policy tightening cycle will end this year.The RBI has raised rates 10 times since March 2010 as it battles stubborn price pressures, including a quarter-point increase last month, ranking it among the most aggressive central banks in the world.Still, India's most widely watched inflation reading has remained elevated and well above the RBI's comfort zone of 4.0-4.5 percent since the beginning of the year, cementing the need for more monetary tightening despite signs of a slowdown in the economy.India's industrial output rose at its weakest pace in nine months in May, the latest sign that growth was cooling.While the most likely scenario is for the RBI to raise rates by another 50 bps before hitting the pause button, two analysts expected the RBI to raise rates by another 75 to 100 basis points by June."Local fundamentals - still elevated inflation amidst some signs of growth moderation - validates the case for further rate hike by the RBI," said Anubhuti Sahay, economist at Standard Chartered Bank."However, global uncertainties need to be watched out closely as a significant deterioration therein can force a reassessment of monetary policy response," she said.Another Reuters poll last week showed that analysts have scaled down their growth expectations and raised inflation forecasts for the Indian economy, compared with their outlook just 10 weeks ago.The median estimate of more than 20 economists for 2011/12 growth eased to 7.9 percent from 8.3 percent in the previous poll in May. Their inflation forecast is now at 8.5 percent for 2011/12 from 7.7 percent in the previous poll.Still, they expected rates to peak at 8 percent by end-2011, noting that more than a year of tightening was already crimping investment and consumption.(Reuters)
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Rising inflation and slowing demand would moderate India's economic growth to 8 per cent during 2011-12 from 8.8 per cent in the previous fiscal, said a World Bank report."... (India's) growth is projected to ease to 8 per cent in FY 2011-12 from 8.8 per cent in FY 2010-11", World Bank said in its June edition of Global Economic Prospects.Elaborating on the reasons behind the expected slowdown in the country's economic growth, the multilateral lending agency said it "stems from a moderation in domestic demand, as elevated inflationary pressures have cut into disposable incomes and household spending".The report further said the growth in the developing countries will slow down to 6.3 per cent during 2011 and 2013 from 7.3 per cent in 2010.The World Bank's India growth projection is in line with the Reserve Bank's economic growth forecast of 8 per cent for the current fiscal.However, Indian Finance Minister Pranab Mukherjee has pegged that growth projection at 8.75 per cent (plus/minus 0.25 per cent).GDP growth of the country slowed to a five-quarter low of 7.8 per cent during the January-March quarter, while the six core industries registered meagre 5.2 per cent expansion in April.Experts have blamed inflation and the resultant rate hikes by the RBI, which resulted in slowing down of investment, for the poor economic growth numbers.Inflation has remained at an elevated level despite the Reserve Bank's tight monetary policy stance. RBI has raised its lending (repo) and borrowing (reverse repo) rates nine times since March 2010.Headline inflation in April stood at 8.66 per cent. The government said earlier it expects the recent hike in petrol prices to put upward pressure on the rate of price rise in the coming months."This slowdown partly reflects macroeconomic policy tightening aimed at curbing stubbornly high price pressures and reducing large fiscal deficits", World Bank said.Food inflation stood at 8.06 per cent for the week ended May 21. A rise in prices of food items was the main reason for inflationary pressure during 2010.Food inflation was in double digits for most of last year, before showing signs of moderation from March this year."Tighter financing conditions have contributed to a moderation in private investment growth, while private consumption growth has been hit by high and rising food and fuel inflation", World Bank said.Investment growth decelerated sharply in the first quarter of 2011 to 0.4 per cent from 7.8 per cent in the fourth quarter of 2010 and 14.1 per cent for year 2010.(PTI)
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The verdict is finally in, and it is not too good: India's economic growth in the fourth quarter of 2010-11 (FY11), as measured by GDP (gross domestic product), was somewhat lower than hoped for, and definitely less than what official estimates pegged it at. Of course, government officials had started talking down expectations before the final numbers came out: 7.8 per cent over the fourth quarter of FY10, rather than over 8 per cent.It seems that finally, the slowdown is here, and the weak data shows it too. Industrial growth was lower because mining stalled, and on the expenditure side of the balance sheet, investment or gross capital formation was an extremely anaemic 0.4 per cent in the fourth quarter of FY11. Consumption also slowed, if one looks at the personal consumption expenditure (PCE) data.Though the overall numbers suggest some small buoyancy — the GDP growth for the year as a whole was 8.5 per cent, just a tad below the 8.6 per cent estimate, but a review of the performance over four quarters shows a definite slowdown in economic growth for the year.But that is not the scary part; it is the prospects for FY12 that look gloomy. Think of it this way. On the global level, most look at India's favourability as an investment destination as a risk on/risk off proposition, meaning when risk appetite is good, investment in India looks attractive to both domestic and foreign players. When investors become risk averse — as it is now — interest in the India story falters. Given the concerns over European economies' debt problems, and lower than expected growth in the US, there is a heightened chance of capital flowing out of the country. Even Indian companies may choose to look at foreign acquisitions rather than invest at home; anecdotal evidence appears to suggest that many are.A slew of corruption scandals, policy uncertainty and overzealous regulators have combined to lower capital investment; since investment played a large part in India's rapid growth in the past five years, any slowing down in investment has a ripple effect that lowers growth beyond the contribution of investment. Worse, restoring an increasing growth rate tends to be slower than its decline.Exports have played a big role in buffering the slowdown in other areas of the economy such as manufacturing; the data about the current global environment suggest that export growth is also likely to slow, taking away that buffer. Lower global activity has one positive: lower commodity prices, and by extension, a dampening effect on inflation, which many see as a welcome sign.But growth would put commodity prices back up, and mess up the inflation dynamic, leading the Reserve Bank of India (RBI) to continue its hawkish position, and even perhaps tighten monetary policy further. As many analysts have noted, inflation has not been a monetary phenomenon, but a supply-driven one, where the dynamics are less manageable through monetary policy.Agriculture has been a positive surprise in FY11; thanks in part to a very good monsoon (though in some instances, excessive rainfall damaged a few crops), it grew at over 5 per cent. But both officialdom and private sector economists agreed that in FY12, agricultural growth would return to its historical trend of 2 per cent. That does not bode very well for food inflation in FY12.Besides, the monsoon, while important, is no longer the critical factor in agricultural performance it was, thanks to better irrigation and technology. Official forecasts of the monsoon both in spread and intensity have often been wrong; the forecast is currently neutral, but expect the El Nina and El Nino effects to play a part this year.So, what does it all mean? By themselves, all these factors may not have a great impact. Under current global conditions, they could exaggerate the downside more than they should. The troubled European economies may be more intransigent and could well drive Europe into a bigger recession. Sometimes, globalisation does not work for you.(This story was published in Businessworld Issue Dated 13-06-2011)
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In yet another setback to Mayawati government, the Allahabad High Court on Tuesday quashed acquisition of nearly 600 hectares of land in two villages in Greater Noida, giving a big jolt to builders and prospective home owners.Giving relief to the farmers while dealing with a batch of their petitions, a division bench comprising Justice Sunil Ambawani and Justice S S Tiwari ordered that acquisition of 589.13 hectares of land in Patwari and Dewla villages, falling under Dadri tehsil of Gautambuddh Nagar district by the Greater Noida Authority be cancelled.The order, which follows the one in the neighbouring Shahberi village, could affect several housing projects in the area.Several builders have launched their housing projects in Patwari village and hundreds of people have made bookings in the upcoming dwelling units, some of which are either in various phases of construction or in the drawing board stage.In 2008, the Greater Noida Authority acquired nearly 589 hectares in the Patwari village and sold it to builders for constructing residential units.The High Court was of the view that since the land was acquired for residential purposes, there was "no urgency involved" and hence "acquisition should not have taken place without giving the affected parties an opportunity for hearing, which would have facilitated payment of adequate compensation".The order came barely a fortnight after the Supreme Court had struck down acquisition of 156 hectares of land by the state government in village Shahberi in the area, saying the authorities were "subserving" private builders in the name of public interest.The apex court had on July 6 upheld the Allahabad High Court order which had quashed the land acquisition by the Greater Noida Authority under the urgency clause of the Land Acquisition Act and directed that the property be returned to the farmers.It had also said that the builders should return back the money collected towards the sale of flats in the village.The Authority and builders had moved the apex court challenging the High Court decision. Today's order was passed on petitions filed by more than 100 people from the two villages who had moved the court challenging acquisition of their land by the state government without them being given an opportunity to raise their objections and without being offered adequate compensation.The order comes as a major embarrassment to the Mayawati government. The High Court had set aside the acquisition of 150 hectares of land in Sahberi village in Greater Noida area on May 12 this year and that of another 73 acres in Surajpur Pargana village on May 13.The UP government's appeal against the High Court order in the Sahberi village case was recently struck down by the Supreme Court which also pulled up the state administration over its land acquisition policy.(PTI)
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Saudi Arabia faced resistance on Wednesday from OPEC producers opposed to an increase in oil supplies that may help ease crude prices.Under pressure from consumer countries to contain fuel inflation, Riyadh hopes to convince the Organization of Petroleum Exporting Countries to lift its production target by 1.5 million barrels a day at the meeting today, Gulf delegates said.Riyadh has support from its Gulf Arab allies Kuwait and the United Arab Emirates to meet rising demand in the second half of the year.But five countries -- long-time price hawks Iran and Venezuela plus Ecuador, Iraq and Angola -- have said they see no need to increase output.All want to keep oil prices above $100 a barrel. Brent crude traded at $116 a barrel on Wednesday.Iran and Venezuela are expected to provide the toughest opposition to an increase but Iran's acting oil minister Mohammad Aliabadi struck a conciliatory note at the start of the meeting."Iran is a member of OPEC and will go with the decision of the majority," Aliabadi told reporters."We do not agree with production being increased now, we must continue to consolidate balance in the market and we have to defend fair prices," Venezuelan President Hugo Chavez said on Tuesday in Ecuador.As OPEC's biggest producer and the only one with any significant spare capacity, Saudi usually gets its way.But it could be a close call.Apparently backing the Gulf producers are Nigeria and Algeria who sit on a committee that has recommended a one-million-bpd increment.That makes five for an increase and five against. Qatar, which has not spoken, would normally be expected to back its Gulf Arab allies. Libya's representative Omran Abukraa has yet to be spotted.At a minimum, Gulf producers want to close the 1.4 million bpd gap between OPEC's two-and-a-half year old official production limit of 24.8 million bpd and actual output, estimated by OPEC in April at 26.2 million.Beyond that, it will be up to Saudi Arabia to deliver more oil.Regardless of the policy decision, Riyadh will pump more.A Gulf official said Saudi was already raising output by at least 500,000 bpd in June to 9.5-9.7 million bpd.Saudi output was last as high in the middle of 2008 after oil prices set a record $147 a barrel, shortly before recession sent prices crashing.The numbers suggest more oil is required to stop oil prices rising again.OPEC's Vienna secretariat is forecasting that demand in the second half of the year will be 1.7 million bpd higher than current cartel output.(Reuters)
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India face a difficult task to achieve revenue collections because of slowing growth, senior officials said on Wednesday, indicating the government may come under increasing pressure to meet its fiscal deficit target.The government had projected Rs 3.98 trillion rupees ($89.2 billion) from indirect taxes and Rs 5.33 trillion from direct taxes in the budget for the fiscal year ending next March.With most economic indicators showing signs of slowdown, the government is worried revenues may fall short of expectations.Growth in January to March was the slowest in five quarters and many economists have pared their forecast as rising interest rates to battle high inflation begin to bite.S.D. Majumder, chairman of the Central Board of Excise and Customs, told a conference of senior officials it would be difficult to achieve the indirect tax target for 2011-12."The current financial year is going to be a challenging one. We will see if any mid-course revision in target is required," he said.Taxes on personal and corporate incomes mostly make up direct taxes, while indirect taxes include customs, excise and service tax.Slowdown in revenue receipts may pressure the government's fiscal deficit target of 4.6 percent, but senior officials have ruled out any change in the government's borrowing programme as of now.Finance Minister Pranab Mukherjee said on Tuesday he expected growth of around 8.5 percent in 2011/12.Subir Gokarn, a deputy governor of the central bank, also told television channel CNBC-TV18 at a conference on Wednesday it was inevitable that high interest rates would at some point affect growth but the central bank would look to keep that impact small.The RBI has raised interest rates nine times since mid-March 2010, while headline inflation in April was at 8.66 percent, well above the comfort zone of 4.5-5 percent.(Reuters)
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After two years, a fair wind seems to be blowing behind the sails of Suzlon Energy. India's largest and one of the top four wind turbine makers in the world has posted a profit (Rs 431.5 crore) for the first time since December 2009 in the fourth quarter of 2010-11 (against a loss of Rs 188 crore in Q4 last year)."Key initiatives focused on lowering operating costs, rationalising inventories and improving operating efficiency delivered the results," says Robin Banerjee, chief financial officer of Suzlon Energy on the seeming turnaround. In addition to lowering the cost base, Suzlon brought down its net debt-to-equity ratio to 1.36, maintained a tight focus on cash flow and drove orders.Suzlon's troubles stemmed from a combination of factors — the global economic slowdown that dried up orders for wind energy, equipment (rotor blades) malfunction that forced an expensive blade retrofitting programme for all its turbines, foreign exchange losses and a mounting debt burden of over Rs 12,600 crore that it incurred for the acquisition of its subsidiaries, German REpower and Belgian gear-box maker Hansen Transmission.Chairman and managing director Tulsi R. Tanti and family cut their stake in the company from 65.83 per cent in March 2009 to 54.84 per cent in March 2011 to infuse funds. Suzlon also sold its 35 per cent share in Hansen for more than Rs 1,700 crore to service loans and undertook a debt-restructuring programme.Old turbine models were phased out and more efficient new models brought in; Suzlon recently launched new generation S9X machines in the market and production of another model S95 turbine will begin soon, followed by launch of S97 series in the fourth quarter of FY12. REpower is also launching new larger offshore wind turbine variants.Will Suzlon maintain its recent profitability? The firm pins its hopes on the growing demand for cleaner energy and large capacity additions. "The case for wind is stronger than ever, and I remain very optimistic about the future of our company and the industry," says Tanti. Those hopes are based on an order book of 4,639 MW (to date) worth Rs 30,100 crore, a jump of almost 60 per cent over the previous year (FY12 revenues are expected to be Rs 24,000-Rs 26,000 crore; FY 11 revenues were Rs 18,000 crore).Nevertheless, Suzlon's financial troubles are far from over. A foreign currency convertible bond (FCCB) of Rs 2,570 crore is due in 2012-13, and Rs 100 crore in January 2012.The competition is causing sleepless nights as well. Gamesa and Siemens are setting up manufacturing bases in India, where Suzlon has over 50 per cent of the market share for the past 12 years. Tanti can breathe easy for now, but not for too long: the winds could just as easily begin blowing the other way.(This story was published in Businessworld Issue Dated 13-06-2011)
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Maharashtra chief minister Prithviraj Chavan is determined to reengineer Mumbai. Following the Adarsh scam, Chavan has the mandate from Congress president Sonia Gandhi to clean up the real estate sector, and he seems to be taking his job seriously.Over the past few months, a series of decisions considered ‘soft' on developers have been rolled back. The controversial public parking policy that allowed builders to build multi-storey public parking lots in exchange for 50 per cent additional floor space index (FSI) has been scrapped recently. The policy, introduced in 2008 by the previous chief minister, Ashok Chavan, had cleared 28 projects. The beneficiaries of this policy included all the big developers including Indiabulls, DB Realty, and the Lodhas, but fortunately only five of them took off before the axe fell. A new parking policy has been introduced last month, but it restricts vertical development and ensures the government gets a 40 per cent share of the additional revenue generated.Further, two huge slum redevelopment projects — in exchange for equivalent FSI for saleable realty — have been unilaterally cancelled. The Malvani project had a layout of over 100 acres, while another in Chembur covered over 60 acres. Both these projects were cleared under the Section 3-K(1) of the Maharashtra Slum Areas Act, 1971, which allows the state government to award a slum redevelopment project to a builder on the grounds of "public purpose" without seeking the normal statutory consent of 70 per cent of the slum families. TOUGH ACT: After the Adarsh controversy, Maharashtra chief minister Prithviraj Chavan is tightening real estate laws (Bloomberg) Not surprisingly, the recent Medha Patkar agitation demanded the repeal of this controversial section and the government has agreed to review it. In another move, Chavan has also put on hold the policy of allowing builders to go vertical, squeezing slum dwellers into multi-storey buildings, while helping themselves to large swathes of slum lands. Chavan is in favour of a height cap of 10 floors.To give teeth to his policies, the chief minister has inducted a set of senior bureaucrats with clean records. One of them, Subodh Kumar, the new municipal commissioner, has taken a dim view of builders ‘loading' their building projects with free-of-FSI embellishments such as canopies and balconies, which are then sold as part of the apartment as ‘super-built-up area' to unsuspecting customers. Referring to the trend of regularising violations by builders through the use of discretionary powers endowed on the municipal commissioner, Kumar told BW: "We are rewriting the rules wherein I will be the first to abolish my own discretionary powers. The new norms will be clear and nobody will have the scope to bend them."But beyond the clean-up campaign, Chavan is a worried man. He is grappling with the problems of a financial capital that is slowly dying because high real estate prices have over the years made it an unviable destination.Chavan recently admitted as much: "The population of the island city has actually fallen. There are jobs that can fetch you Rs 5 lakh a month in Mumbai, but these executives can't find a home easily. Many of them find it easier to locate careers in Bangalore or Hyderabad."Ironically, the Mumbai clean-up has made real estate even scarcer as building permissions have dried up. Chavan is keen to get a mass housing policy going, which will include developing affordable rental housing. But till this pans out on the ground, the dilemmas of an unaffordable city will continue to hound him.(This story was published in Businessworld Issue Dated 13-06-2011)
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US Secretary of State Hillary Clinton urged India on Tuesday to open markets faster and resolve questions on a civilian nuclear accord that US companies hope could mean billions of dollars in new business.Clinton opened high-level US-Indian talks with a polite but firm push for New Delhi to get moving on key economic issues as both sides seek to firm up a relationship that thus far has promised more than it has delivered."The stakes are high. So it is critical that this dialogue lead to concrete and coordinated steps that each of our governments take to produce real results," Clinton said in her opening remarks at the meeting, the latest in a series of talks aimed at deepening political and economic ties between the United States and the world's second most populous country.The global economic slowdown has driven US and European companies to look for sales in emerging markets like India.Clinton's visit will cover a range of bilateral issues including counter-terrorism cooperation, an issue thrown into stark relief by last week's deadly triple bomb attack on India's financial capital Mumbai.Relations between the two countries have warmed since the end of the Cold War, when India was seen as closer to the old Soviet Union.She will brief Indian leaders on US plans to draw down troops in Afghanistan -- which New Delhi fears may mean a hasty US exit -- as well as on India's nuclear-armed rival Pakistan, where the halting battle against Islamic militants has spurred questions about Islamabad's true intentions.Clinton did not mention Pakistan in her opening statements, but did underscore that Washington and New Delhi have a common challenge in confronting the threat of militant violence."We are allies in the fight against violent extremist networks. And homeland security is a high priority and a source of increasing partnership," Clinton said, pointing to a May summit between Indian and U.S. security officials."The events in Mumbai have driven home how important it is that we get results," she said.Wish ListUS officials say they are generally pleased with growing levels of security cooperation with India, which range from intelligence sharing on terror networks to joint efforts against maritime piracy.But India has long been unhappy about what it perceives as Washington's resistance to sharing critical, real-time information on Islamic militants in Pakistan and Afghanistan that may be plotting to attack Indian targets.Clinton highlighted hurdles that continue to hamper progress on economic ties, which US officials say should be growing faster and deeper given India's $1.6 trillion economy.On top of the list is civilian nuclear cooperation, which despite a landmark 2008 accord has yet to overcome Indian legal and regulatory obstacles which could open the doors to US nuclear energy companies such as General Electric and Westinghouse, the US-based arm of Japan's Toshiba.Earlier this month New Delhi hinted that it could ban nuclear reactor purchases from countries refusing to sell sensitive nuclear technology to it after suppliers decided last month to tighten such trade against countries like India.US officials want India to "tighten up" legislation to protect equipment makers from liability in case of nuclear accident, saying it is much more stringent than comparable laws in other countries. India is planning to spend some $150 billion on nuclear power, key to meet soaring energy demand."I look forward to the day when the computers of a school in Gujarat are powered by a reactor designed in America," Clinton said, referring to one of India's fast-growing states. "We need to resolve remaining issues so we can reap the rewards of a robust civil nuclear energy partnership."Clinton will also meet Finance Minister Pranab Mukherjee, and is expected to press him on promises to open domestic financial and insurance markets, as well as to permit "big box" retail operations which could open the country further to U.S. sales giants such as Wal-mart.Clinton made clear that arms sales, too, are part of the equation, saying India, seen as one of the world's biggest defence buyers in coming years, could further improve U.S. military cooperation by buying more U.S. weaponry.The United States was disappointed when India rejected U.S. bids for an $11 billion fighter aircraft contract in April, but still hopes U.S. companies can benefit as New Delhi forges ahead with one of the world's biggest arms purchase programs."The United States expects to continue developing and selling the world's most competitive products," Clinton said."We view these sales as important on their own terms, but also as a means to facilitate the work that the Indian and American militaries can do together."(Reuters)
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As Japan's Kokuyo buys a majority stake in Camlin, a look at the colourful journey of the stationery makerCamel Ride(This story was published in Businessworld Issue Dated 13-06-2011)
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