Indian Economy - News & Updates - Archive

[Contrarian]

Exports of petro goods have touched $10b: Deora

PANIPAT: India's petroleum products exports jumped to $10 billion in the first six months of the current fiscal and are expected to top $20 billion for the full fiscal, government said.

"Petroleum sector emerged as the number one exporter, surpassing the traditional gems and jewellery exports," petroleum minister Murli Deora said at a function here organised to dedicate IOC's Panipat refinery's expanded capacity. Oil products' exports in April-September period last year were $8.3 billion.

The capacity expansion of Panipat Refinery, from 6 to 12 million tonnes per annum meets the petroleum needs of the states of Haryana, Punjab, Jammu & Kashmir, Himachal Pradesh, Uttaranchal, Rajasthan, UP, Chandigarh and Delhi, Deora said.

This capacity expansion required an investment of Rs 4,300 crore, he added.

The year 2006 witnessed an addition of 16.5 million tonnes refining capacity in the country, raising the combined capacity of the 19 refineries to 149 million tonnes per annum.

Deora said 2006 saw a spurt in oil discoveries in India with a total of 31 discoveries involving companies like ONGC, OIL, RIL and Cairns Energy

Indian companies also achieved significant breakthroughs in acquiring oil & gas blocks in several countries like Vietnam, Cuba, Nigeria, Brazil, Gabon, Libya, Yemen, Myanmar, Iran and Syria.

 

[Contrarian]

Co results to push rally

MUMBAI: With Infosys revising its fourth quarter guidance after announcing a result that met the street's expectations, brokers feel other frontline corporates would also meet analysts' expectations.

Other than these, expectations of a tax cut in the budget and any cut in the interest rates in the US would also keep the rally going, Manish Kanchan, CEO, Ambit Capital, said. ''I am expecting healthy foreign fund flows based on these factors," Kanchan said. Provisional data released by the bourses showed that FIIs had net bought stocks worth nearly Rs 400 crore on Friday, compared to net outflow of about Rs 2,100 crore between January 2 and January 11.

Another factor that is giving increased confidence to market players is that Friday's rally was accompanied by good volumes. Compared to the current month's average daily turnover of about Rs 4,300 crore, the day's turnover was a little over Rs 4,600 crore.

After a long time, the combined turnover of the cash and derivatives segments on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) went past the Rs 50,000 crore mark on Friday, to over Rs 51,000 crore, marketmen pointed out.

 

[Contrarian]

Sectoral growth looks promising

NEW DELHI: As industry in November posted a robust growth, the growth was all- round. Continued high rate of growth by basic goods, intermediates and capital goods, which are used for production, also augurs well for industrial production.

The government can also breathe easy with 13 of the 17 sectors showing double-digit growth rates and output for three others — jute and non-cotton vegetable fibre, wood and wood products and rubber and plastics — rising between 8.4% and 9.7%. Only metal products saw a dip in production. Of the 13 sectors posting double-digit growth, basic metals and alloys (25.4%), rubber, plastic, petroleum and coal products (23.2%) and transport equipment (21.8%) were at the top of the heap.

But it is the data for April-November 2006 that is cause for concern since some sectors are not performing as well as the others, and most of the laggards are employment-intensive industries. Food products (1.9%), jute and non-cotton vegetable fibre (1%), furniture and fixtures (2.4%) and leather and leather goods (-3.7%) are the poor performers, while nine of the 17 sectors reported double-digit growth. Basic goods output saw a 11.6% jump in production during November 2006, as against 4.7% during the correponding period last year, while capital goods index rose 25.3% during the period.

Similarly, intermediate goods, or inputs and components used in manufacturing, saw a 16.7% higher output, compared with a 0.6% dip in production in November 2005.

Even during the first eight months the three sectors have fared well. While basic goods production increased 9.3%, capital goods output was up 16.1% and intermediates 10.9%. ''Indian economy is indeed doing well, and the growth in industrial production reflects that," said Mahesh Vyas, ED of Centre for Monitoring Indian Economy (CMIE), an independent economic think-tank.

Vyas said the comparison should be tempered by the fact of lesser working days in October due to the festival season. Demand has egged on companies to produce at close to maximum capacity as the great Indian middle-class splurges on cars, consumer durables, travel and communication. Companies are expected to spend about $200 billion over the next 5 years to expand capacities.

''The capital expenditure lined up is more than I have ever seen in the past," Vyas pointed out.

 

[Contrarian]

Inflation at 5.58% will bother govt

NEW DELHI: Inflation seems to be the only worry for the government in an economy that is otherwise booming.

Data released on Friday estimated inflation, measured by wholesale price index, at 5.58% during the week-ended December 30, as against 5.48% in the previous week. The increase was on account of higher prices of primary articles, furnace oil and naphtha. This is the first time in the current financial year that provisional numbers breached the upper-end of the 5-5.5% inflation projected for the fiscal. If trends in the previous weeks are anything to go by, inflation could actually be higher during the period when the numbers are revised after eight weeks.

Unlike previous weeks, when it was sugar, wheat and dal which were driving up prices, during the week-ended December 30, cereal prices remained unchanged, while pulses, barring arhar, saw a dip in wholesale rates. Similarly, vegetable prices fell 1.3%, but fruits, egg, meat and fish were costlier.

While a part of the overall rise may be due to a low base last year, the prognosis is not too good. Saumitra Chaudhuri, a member of the Prime Minister's Economic Advisory Council, said inflation could touch 6% over the next few weeks.

A part of the increase is due to heavy demand, which may be prompting companies to raise prices, as is seen in the automobile and white goods sectors. High growth usually comes with high inflation, said D K Joshi, principal economist with rating agency Crisil. This is something that FM P Chidambaram too pointed out earlier this week though the latest data did not point to any change in manufactured goods prices.

On Friday, FM reporters in Panipat that inflation was within "expectations" but the government would take necessary measures to check price rise. He said inflation had been triggered by supply side constraints. "But things have eased now. Sugar prices have stabilised."

 

[Contrarian]

'Sunil Mittal Asia's Businessman of Year'

NEW YORK: India's Sunil Mittal has been adjudged Asia's Businessman of the Year by US magazine Fortune for steering his telecom business in the world's fastest growing wireless market. In a lead article in its latest issue, Fortune said after establishing Bharti Airtel as India's number one mobile service provider, Mittal is now forging his "most audacious" foreign partnership yet.

"In November, he announced that Bharti will team with Wal-Mart to transform India's under-developed retail market," the report said. The magazine said it was an easy choice to declare Mittal as Asia's top leader for his business acumen and some crucial agreements he has signed in recently.

Fortune said that on his new foray in retail sector, Mittal has disclosed he would open hundreds of stores over the next five years in various formats and predicted an investment of more than $1 billion.

Bharti and Wal-Mart, the world's largest retailer, will form a JV to take on back-end activities in which overseas investments is permitted, including wholesale, logistics, supply chain management and distribution.

The telecom venture is expected to announce a revenue of $4 billion by the end of this financial year, up from $509 million in 2003, it said, adding, Bharti Airtel has emerged as India's fourth most-valuable firm and Mittal one of India's richest men.

Ascribing much of his success to his refusal to tie up with other Indian firms, Mittal said: "It is very hard for two Indians to partner well".

Fortune said Mittal's $750 million outsourcing contract to IBM included farming out the bulk of Bharti's ITservices, including billing, management of customer accounts and even operation of its intra-net. Fortune quoted Mittal: "I got calls from around the world saying, You've gone nuts, this is the lifeline of your business, it's something you can't afford to lose."

This allows Bharti to do what it does best — marketing, devising new services for its customers and searching for new business opportunities, says the report. What's truly innovative about Bharti's approach is that it reverses the stereotype about outsourcing — that it's something Indian firms do for big US and European multinationals, the magazine said.

Mittal struck profitable alliances with manufacturers from Japan, Taiwan and Germany. More recently he launched a JV with France's AXA to sell life insurance products in India. He tied up with the Rothschild family to export fresh fruit and vegetables grown in India to supermarkets in Europe, the magazine added.

 

[Contrarian]

Bankers welcome SLR cut move

MUMBAI: The government's intentions to reduce the statutory liquidity ratio (SLR) for banks from the current 25% has been welcomed by bankers. However, they believe the government passing an ordinance will not work unless RBI sees merit in slashing the SLR. They are unanimous the RBI reducing the SLR immediately after a CRR hike in December will send a strange signal to the markets. The RBI had raised the CRR to mop up excess liquidity in the banking system.

According to the Banking Regulation Act, every bank is required to maintain at the close of business every day, a minimum proportion of their deposits as liquid assets in the form of cash, gold and approved securities. The ratio of liquid assets to deposits is known as SLR.

''The market is expecting a 2% cut in the SLR, but the issue is whether the RBI will cut it in the short term as it will offset its recent move of hiking the CRR. Even if the ordinance is cleared, the RBI will be in no hurry to slash the SLR," said Abheek Barua, chief economist, ABN Amro Bank.

At present, SLR levels of most banks are well below the stipulated 25%. As a result, they are buying long tenure government paper, a boon for the government as it enables it to raise funds to meet its fiscal deficit. The RBI will not be in any hurry to cut the SLR requirement for banks unless there is clarity on the government borrowing programme in 2007-08. The borrowing programme will be out only after the budget. That is why the market is of the view that the SLR cut will only happen in the long run.

''If the RBI cut SLR levels, it will be a great relief to banks. The SLR requirement in the booming credit market is eating into the lendable resources of banks. With credit growth outstripping the growth in deposits, banks have been grappling to mobilise resources to meet credit need," said chairman of a PSU bank.

 

[Contrarian]

Investors rushing to Gujarat

AHMEDABAD: When Reliance group chairman Mukesh Ambani got up to announce investments worth a whopping Rs 67,550 crore in Gujarat as the who's who of India Inc looked on, Vibrant Gujarat's stock soared to dizzying heights on Friday morning.

Announcements of big ticket deals were made in rapid succession at the Vibrant Gujarat Global Investors' Summit 2007 by top India Inc honchos, right from Tata group's Ratan Tata to ICICI Bank's KV Kamath, Essar group's Shashi Ruia, A V Birla group's Kumar Mangalam Birla, Adani group's Gautam Adani and Torrent group's Sudhir Mehta

By end of the day one of two-day meet, the state had inked a mind-boggling 104 MoUs worth Rs 2,51,967 crore across sectors like oil and gas, power, chemicals and petrochemicals, ports and SEZs.

Leading the race were the centre pieces of Gujarat's future development — SEZs with investments worth Rs 1,42,685 crore (26 MoUs) followed by power sector with Rs 55,139 crore (11 MoUs), oil and gas with Rs 19,488 crore (19 MoUs), chemicals and petrochemicals with Rs 14,416 crore (26 MoUs), ports with Rs 10,474 crore (10 MoUs), urban development with Rs 6985 crore, railway projects at Rs 400 crore and others at Rs 2380 crore.

Evidently, it was Gujarati pride on its best display when Ambani thundered: "Reliance is a Gujarati company. It is an Indian company and it is a global company. That is how it was conceived by my father Shri Dhirubhai Ambani."

"The vision of Vibrant Gujarat reflects Reliance's dream of its own future. Reliance remains committed to Gujarat to make this a reality," Ambani added.

Birla said his group would invest around Rs 2100 crore in various manufacturing facilities for cement and textiles in the state.

 

[Contrarian]

Jindal to invest Rs 25,000 crore

RANCHI: Emboldened by the recent acquisition of Bihar Sponge and Alloy Ltd (BASL) plant near Patratu in Hazaribag district, Jindal Steel and Power Ltd (JSPL) has now decided to scale up the capacity of its proposed steel plant in Jharkhand from five million tonne to six million tonne.

The company, which earlier intended to set up the said plant in Singhbhum, has now decided to use the infrastructure of BASL plant for setting up the new steel plant, JSPL executive vice-chairman and MD Navin Jindal announced on Friday. JSPL had earlier signed a MoU during the erstwhile NDA government for setting up a plant in the state.

Company MD was here to sign an MoU with the state government for setting up two power plants with a total production capacity of 2500 MW.

The company intends to invest a whooping Rs 25,000 crore for setting up the steel plant and power generation plants. Jindal said acquisition of BASL has been a huge advantage to the company as it can use the same infrastructure for the proposed steel plant, besides the 600 acres of land the company can make use of. He, however, pointed out the company would need an additional 2,500 acre of land for the six million tonne capacity steel plant.

Referring to the contentious issue of land acquisition for the proposed plant, Jindal said instead of looking at the problem from a negative point of view he believed that the problem can be sorted out amicably. “Good compensation package and a comprehensive rehabilitation policy are the two main tools for overcoming the problem,” he said.

About the talks doing the rounds in government circles with regard to giving shares to landowners in the new industries, the JSPL MD said he was not averse to the idea. “But the matter should be decided by the landowners themselves and they should not be forced to invest the compensation amount in purchasing equities in a company,” he said.

Earlier, in the day, Ispat Industries Ltd signed an MoU with the government for setting up a steel plant of 2.8 million tonne capacity in the state. Industry secretary KK Khandelwal signed the MoU on behalf of the government.

IIL is owned by Vinod Mittal. Mittal said the comapny would start the groundwork in a year’s time.

 

[Contrarian]

Cos. to pay Rs 1K cr penalty to tax dept

MUMBAI: The transfer pricing directorate of the tax department has asked assessing officers in Mumbai to add Rs 1,000 crore in tax demands of 150 companies.

The directorate investigates cases of transfer pricing (TP) violations and sends reports to the regular assessment wing of the department. The assessing officer then raises a tax demand on the assesee. The department is expected to collect Rs 1,500 crore in taxes and penalties.

In one such case, an automobile maker had claimed damage of vehicles owing to floods. The department’s investigators refuted the claim and added another Rs 8 crore to the firm’s tax liability.

Till December 31, 2006, TP violations of about Rs 1,000 crore have been found and have been added to the assessments of corporates including pharma companies, banks and financial institutions, courier companies and automobile majors and one media company. About 90% of these additions are in the case of MNCs.

Sources in Aaykar Bhavan said there is also a quantum jump in the detections of alleged TP violations. In Mumbai, last year the violations found were to the tune of about Rs 500 crore. This fiscal the figure has doubled. The major violations are by way of either inflation of purchase price from the foreign arm or suppression of sale price (to the foreign arm), and discrimination in payments of royalty and technical fees.

TP violation happens when companies, by way of controlled pricing between sister concerns or related arms, transfer profits out of India. Violations can be done by Indian companies or MNCs or foreign companies having a permanent establishment (PE) in India, or a branch of a foreign company having taxable status in India.

Since profit is transferred outside India allegedly unfairly, and tax is lost, these practices are considered violations. The Indian companies which have allegedly been probed are mostly diamond firms, sources said.

Big names like General Motors, Fiat, Glaxo, American Bank, Citibank, and Skoda figure in the list of alleged violators. Car major Maruti Udyog, which was investigated in Delhi, is under the scanner for having allegedly transferred profits out to its Japanese parent, Suzuki, which is making losses. MUL pays less taxes in India, and Suzuki Japan will have not have to pay taxes in Japan.

In fact, these transfer pricing violations are also investigated by the enforcement directorate and customs. But it is not known how much data the tax department has shared with these agencies.

 

[Contrarian]

Animation industry faces manpower crunch

HYDERABAD: If you are good at art, communication and story-telling, it’s time you tried your hand at animation. The industry, which is now attracting the attention of global entertainment sector, is reeling through a severe manpower crunch. And, the HR shortage is only going to increase by the day.

According to a report on animation and gaming industry in India, prepared by the National Association of Software and Services Companies (Nasscom), skilled manpower demand-supply gap is huge and the current training infrastructure is inadequate to help narrow the gap. While the animation industry is expected to provide opportunities for 18,545 professionals in 2007, the supply side shows the availability of just 2,244 professionals. By 2010, the industry will grow to a level of providing jobs for 28,877 professionals.

But, there would be just 3,701 trained animation experts in the country. “The manpower in the animation industry is expected to grow at a cumulative verage growth rate of 14% through 2010. As the studios expand their facilities, they will put pressure on manpower supply. Studios will need to invest in training programmes to develop a production-ready talent,” the report said.

Training institutes already have a combined intake of more than 14,000 studens. At this stage, they need to invest in faculty, equipment and processes rather than any additional expansion, Nasscom felt. The lack of awareness about the industry and proper infrastructure and trainers for the development of fine arts are seen as two key reasons for the industry not being able to find right talent.

The animation industry is excepted to be a $869-million market by 2010 as against the global market of around $59 billion. Similarly, Indian gaming industry will be a $424-million sector by the same time frame, with global market being valued at around $21 billion.

Exports are estimated to have accounted for 70% of the revenue in the segemnt with the entertainment contributing to about 68% of the animation done in the country.

“The Indian animation and gaming industry has taken off in a big way in the last two to three years. The credit to this can not only be attributed to the growing recognition of the Indian IT’s industry’s expertise and creative skills, but also to the growing maturity of animation studios, increase in co-production ventures and development of IP and the attractive domestic market,” Kiran Karnik, president Nasscom said.

“But we need to focus on factors like external investment and specialised training and government support in terms of broadcasting policy regulations in India, on the lines of what it is in countries lkie France, Singapore, China, Canada and Phillipines,” he added.

 

[Contrarian]

Doubles refinery capacity

PANIPAT: The Indian Oil Corporation (IOC) on Friday announced the doubling of its Panipat refinery capacity to 12 million tonnes at a cost of Rs 4,300 crore.

With this, the refinery capacity of IOC group companies goes upto 60.2 million tonnes per annum, the largest share among refining companies in India, IOC Chairman Sarthak Behuria said. The project executed at a cost of Rs 4,300 crore, comprises of Crude and Vacuum Discalation units, Hydro Cracking Unit.

 

[Contrarian]

Sensex closes at a record 14,057

MUMBAI: On Friday, for a change, positive vibes from the government, and not from the Infosyses and the Reliances of the corporate world, did the trick for the investors on Dalal Street. With the government announcing some important changes to rules governing the banks in India and allowing sugar exports again, the BSE sensex surged 426 points to close at 14,057, its highest close ever.

The day's rally also made investors richer by about Rs 1.10 lakh crore with BSE's market capitalisation now at Rs 37.41 lakh crore.

During Friday's trading, the government also announced that the growth rate of industrial output for November 2006, at over 14.4%, was the highest in over a decade. This gave investors reason to buy more and take the sensex to a new level. Buying momentum was so strong, market players said, that the news of the inflation rate shooting past the 5.5% mark, went almost unnoticed, without affecting market's buoyant sentiment.

On Thursday evening the Union cabinet had given the go-ahead for the government to issue an Ordinance to amend the Banking Regulation Act that allowed RBI to deviate from the minimum 25% ceiling for statutory liquidity ratio (SLR). This in effect could lead to availability of more cash to the banks to lend to corporates and earn higher income than under the present regime. As a result, banking stocks rallied from the start of Friday's session. ICICI Bank ended 8.5% higher at Rs 970, SBI closed with a 6.4% gain at Rs 1,223 and HDFC Bank too finished 6.4% up at Rs 1,063.
BSE's Bankex, the banking index, ended nearly 7% higher.

Brokers and dealers said that after the industrial production figures came during market hours, a lot of funds jumped into the ring to buy. "They reacted very positively to the IIP numbers. There was some short covering early in the session as well," said head of institutional dealing at a local brokerage.

Going forward, market players feel the corporate results for the October-December quarter would be the most definitive factor for the sustenance of the current rally.

 

[Contrarian]

Industrial growth highest since 1996

NEW DELHI: Indian industry is rocking, clocking a growth of 14.4% during November 2006 — the highest since February 1996 — backed by a strong performance by the manufacturing sector as demonstrated by booming car and white goods sales.

While the latest numbers look more impressive because of the contrast with the rather low 6% achieved during November 2005, economists feel that they may mark the beginning of a long period of high growth spread. ‘‘Industry will continue to grow by 9% for some more time," said Saumitra Chaudhuri, a member of the Prime Minister's Economic Advisory Council.

‘‘All the indicators are quite strong. Investment is increasing and so are intentions to invest, foreign direct investment inflows are very strong and there is only a minor dip in the brisk pace of credit growth. So, the buoyancy will continue and there is a long-term story building. We may see some ups and downs, but in the short-term a cyclical downturn looks difficult," added D K Joshi, principal economist at rating agency Crisil.

A high growth in the industrial sector also augurs well for the gross domestic product (GDP) numbers that are due to be released at the end of the month. With the economy having grown 9.1% during the first half of 2006-07, chances of closing the year with an over 9% rise in GDP appear real. ‘‘Services are also doing well. Though agriculture seems to be the only joker in the pack, there are no indications that it will do poorly," said Joshi.

The strong industrial performance during November 2006 helped push up growth during April-November to 10.6%, compared with 8.3% during the corresponding period in 2005, according to index of industrial production data released on Friday.

The steep rise in November also compares favourably with the 14.9% industrial growth reported by China during the same period.

While manufacturing stole the limelight, logging 15.7% growth in November, the two other constituents of IIP — mining and electricity — too put up impressive shows, rising 7% and 8.7% respectively.

 

[Contrarian]

Bye-Bye Tata

Bengal gained nothing during all the years that the Birlas manufactured a car there. In exactly the same way, Bengal has nothing to gain by locally manufacturing a Tata car. For the wealth of Bengal to rise, the wealth of every ordinary Bengali must rise: every ordinary Bengali should own a car.

For that, imported used cars, not local manufacture, are the way. Used cars, buses and trucks imported from the West, from Singapore and from Japan will lead to the quick death of all outmoded means of transport like autorickshaws, Ambassador taxis and Tata buses and trucks.

Revenue from low import duty and taxes on petrol and diesel can fund an all-Bengal public highway system. With the highway system connecting the hinterland, and with universal automobile ownership, the price of land in rural areas will rise and more and more of this land will be colonised for urban uses.

The government should acquire land only for truly 'public purposes', such as roads and railways, and, while enforcing private property rights, should allow businessmen to themselves directly bid for and purchase land from rural folk. The lefties have got it all very wrong.

 

[Contrarian]

India draws the line on Asean FTA

NEW DELHI: Lobbing the ball in Asean's court, New Delhi has asked members of the trading bloc to clearly state the extent of market access that each of them will provide to Indian goods under the proposed comprehensive economic cooperation agreement (CECA). At the same time, India is unwilling to reduce tariff any more, saying its domestic industry will be hit by further duty cuts.

"We have significantly pruned the negative list from 1,414 at the start of the negotiations to 490 now, which is subject to Asean members providing us adequate market access. We don't think we can offer anything further without affecting our domestic players," a senior commerce ministry official said ahead of talks in Cebu, Philippines.

While India has been revising its negative lists, Asean only submitted its sensitive products list in November and has been accusing India of not opening up its markets adequately for a trade deal.

India and Asean have been negotiating a CECA for over three years, which was first stuck over the rules of origin to restrict third country imports, and the two have failed to reach a consensus on tariff reduction during talks which started in January 2004.

India's tough posture also emanates from a recent commitment by commerce minister Kamal Nath to Congress president Sonia Gandhi. Nath, who is in Cebu leading the Indian delegation for another round of talks, has told his party chief that the government will ensure that the interests of Indian farmers are not compromised at any cost.

Sonia had earlier written to the PM Manmohan Singh expressing concern over CECA's impact on the local industry and farmers. While the issue appeared to have been resolved, she again forwarded a letter to the government, which she had received from Kerala rubber marketing federation, about concerns on import of the commodity.

Officials, however, termed the correspondence as a routine exchange. Sources said that the Cebu talks, which will be followed by the India-Asean Summit to be attended by Singh, was unlikely to result in any consensus as the details will be discussed later.