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India eases overseas debt norms

Sunday, June 01, 2008

NEW DELHI: India allowed service sector firms on Saturday to agree overseas borrowings of up to $100 million in another attempt to shore up the rupee.

On Thursday, the government had eased overseas borrowing rules for firms, raising the limit on the amount that a company can borrow abroad and repatriate to $50 million from $20 million.

It also allowed firms in the infrastructure sector to borrow $100 million from abroad, and raised the foreign institutional investment limit in government and corporate bonds to $5 billion and $3 billion, respectively.

Economists had said the steps would deepen India’s debt markets and shore up the rupee.

A finance ministry statement said hotels, hospitals and software companies could avail themselves of overseas borrowings of up to $100 million to import capital goods under the approval route.

It said the amendments to the External Commercial Borrowing policy would be effective after the Reserve Bank of India (RBI) approval.

The statement said the changes in policy were made after consultation with the RBI to keep it in tune with evolving macro economic situation, changing market conditions and sectoral requirements. The Indian rupee climbed to its highest level in more than two weeks on Friday, and closed at 42.45/46 per dollar.

India eases overseas debt norms
 
Mega hubs to change face of industrial landscape

30 May, 2008, 0428 hrs IST,Gireesh Chandra Prasad, TNN

With a focus on infrastructure, Andhra Pradesh, Gujarat, Karnataka, West Bengal, Orissa and Tamil Nadu are creating investment hubs that have the potential to collectively attract Rs 10 lakh crore in investments and create 43 lakh jobs in the next several years.

Each of these investment hubs that span several hundreds of square kilometres will have urban utilities like housing complexes, cinema halls, schools and hospitals and major industries in oil, chemicals, petrochemicals and several downstream industries in their heart. The investments into external infrastructure like roads, sea ports, airports and rail network would be made by the union government while power to these massive industries would be provided by the state government.

Besides their own investments into utilities like hospitals and schools, the state governments will also strike partnership deals with builders and other private players to set up housing complexes and other facilities.

Industrial investments would come from state-run and private firms — domestic as well as global. Chemicals and fertilisers minister Ram Vilas Paswan, whose ministry conceptualised these massive investment hubs, said that the first PCPIR is likely to come up in Andhra Pradesh, followed by one in Gujarat. Sources said the ambitious investment hub in Andhra Pradesh is likely to be notified in a couple of months.

In the 603.6 sq km petroleum, chemical and petrochemical investment region (PCPIR) traversing the Visakhapatnam-Kakinada region in Andhra Pradesh, the central government would pump in about Rs 5,974 crore to build roads, rail links, rail freight stations, airports and cargo complexes while the state would spend Rs 2,132 crore to provide mainly water and power supply, it is understood. A larger chunk of infrastructure investment of Rs 10,565 crore would come from private investors, as per the proposal the state government has prepared, it is learned.

Gujarat is expected to invest Rs 18,691 crore in infrastructure — including funds from central government and private players. Karnataka, which is creating a PCPIR in 250 sq km and anticipating an industrial investment of Rs 2.3 lakh crore, will spend Rs 10,147 crore in infrastructure. This includes contribution from the central government and private developers. Orissa, which will create a 284 sq km PCPIR, will get infrastructure investments of about Rs 15,273 crore from all the three sources. The Left-ruled West Bengal will have a total infrastructure investment of about Rs 25,750 crore, while Tamil Nadu will pump in Rs 6,189 crore.

The Andhra Pradesh PCPIR has the potential for industrial investments of Rs 3,43,000 crore while Gujarat has an investment commitment from private players as well as central and state governments of Rs 50,000 crore. The West Bengal PCPIR has the potential to attract industrial investment of about Rs 80,000 crore and the one proposed in Tamil Nadu has the potential for Rs 24,178 crore.

In Andhra Pradesh, global majors like Total SA of France, Mittal Energy Investments, GAIL India, Oil India and oil refining and marketing major Hindustan Petroleum Corp (HPCL) are expected to invest Rs 32,000 crore. This consortium will set up a 15 million tonnes a year (mtpa) refining-cum-petrochemical complex. Besides this, HPCL is expected invest another Rs 10,000 crore to double its existing 7.5 mtpa refining capacity in the region.


Public sector refining major Oil & Natural Gas Corp (ONGC) would invest Rs 31,000 crore to set up a refinery and polypropylene unit in Kakinada SEZ. The state government anticipates exports of Rs 58,000 crore a year and tax receipts of Rs 46,500 crore a year from this PCPIR, which is expected to account for 9% of the total value of goods and services produced in the state.

Creating sophisticated infrastructure across the country to facilitate industrial development may take time. The government’s idea, therefore, is to select regions in the coastal area, where port connectivity could be provided easily to such industrial hubs in addition to upgradation of other modes of transport. Removing the need for multiple clearances and providing infrastructure would remove the two major hurdles for industrial development.

The states that have moved PCPIR proposals have to create bodies similar to Noida set up by the Uttar Pradesh government, the final administrative step before investments could come in. The ministry of environment and forests is also understood to be working with the pollution control boards in these six states to ensure that environmental disturbance because of large scale industrialisation is kept to a minimum.

To give a big boost to India’s $8.8-billion petrochem industry, the government also came out with a policy that aims at encouraging local production, consumption and export of petrochemicals and plastics. Neighbouring China has a strong presence in plastics and enjoys a substantial share of the global footwear and toys market.

The government intends to promote use of plastics in areas like agriculture storage and water conveyance, and facilitate research on waste management technologies. The policy envisages steps to attract more investments in the sector and to enable the country to capture a larger slice of the Asian demand for polymers. To achieve this goal, the government would strive to provide natural gas — the feedstock — at globally competitive prices, create infrastructure and further rationalise tariffs and taxes.

The government also intends to assist modernising the downstream plastic processing industry to enhance its capacity and competitiveness. By 2011, the per capita consumption of plastic products and synthetic fibre is expected go up three-fold from the current 4 kg and 1.6 kg, respectively. A petrochemical technology upgradation fund, a plastic development council and a task force on petrochemical feedstock to suggest measures to ensure the availability of petrochemical feedstock at internationally competitive prices are in the making.

Mega hubs to change face of industrial landscape- Infrastructure-Economy-News-The Economic Times
 
India sees bumper wheat, rice crops

NEW DELHI, June 3: India expects its rice harvest to rise by two million tons and wheat output to increase by over one million tons next year spurred higher by the use of better seeds, a top farm ministry official said on Tuesday.

Agriculture Commissioner N B Singh told Reuters in an interview India already had more than adequate stocks of wheat, and is expected to meet its target to buy 27 million tons of rice this year, raising hopes curbs on exports will be eased.

“We are hopeful of meeting a target of two million tons of extra rice next year as there is a huge scope to increase productivity by popularising hybrid seeds,” Singh said.

In April, the government forecast a record wheat crop of 76.78 million tons and 95.68 million tons of rice this year.

India has fixed a floor price of $1,000 per ton and levied a $200 per ton export tax on basmati rice, and banned shipments of other grades, aiming to ensure smooth supplies and tame inflation, currently at a three-year high of 8.1 per cent.

India has retained controls on grain exports although Cambodia last month lifted its ban on rice exports, while Japan has pledged to release at least 300,000 tons of imported rice from storage onto the world market to help ease a global food crisis.Singh said India may broaden the definition of basmati rice to include the high-yielding aromatic Pusa 1121 variety, a long-pending demand of exporters who want to export premium non-basmati rice.

“It is being considered. There will be a decision soon.”

Singh said India’s food situation had improved since the country imported wheat two years ago after a gap of six years. “Our efforts were to boost production and productivity.

Weather has been helpful. Supply of fertiliser has gone up and quality seeds have been made available to farmers,” he said.

Farm officials have been trying to raise productivity in the country, where farmland is shrinking because of industrial growth and urbanisation.

Singh said the government was giving incentives to farmers and seed suppliers to make hybrid seeds, which can raise productivity significantly, more popular.

“Last year, the area under hybrid rice was one million hectares. In the next four years, we should increase the area under hybrid to at least three million hectares,” Singh said.

India sees bumper wheat, rice crops -DAWN - Business; June 04, 2008
 
NEW DELHI, JUL 19 : The government on Thursday approved 17 foreign direct investment (FDI) proposals worth Rs 589.85 crore. These include a Rs 313.33-crore proposal by Sweden-based Quinn Hotels to develop hotels in India.

The foreign investment promotion board (FIPB) in its July 13 meeting had recommended to the finance ministry the Quinn’s proposal to form a 100% subsidiary in India for investment in construction of properties and acquire existing companies engaged in hotels development. Flemingo Duty Free Shops Pvt Ltd also got clearance to invest Rs 100 crore to set up duty-free shops at airports and seaports.

The government also gave approval to Japan-based Orix Corporation, a major financial services group, which wants to pick up 5% stake in IL&FS Securities Services Ltd for an estimated investment of Rs 36 crore. It is planning to invest in the business of providing depository participant services.

Singapore-based Google Holding’s proposal to pick up 30% units of Ventureast Denet Fund, a Sebi-registered venture capital fund, was also given a go-ahead.

The proposal of Bhilwara Energy to induct foreign equity of up to 8.26% has also been cleared. The company wants to set up another company, which will invest in firms engaged in power generation and transmission.
 
India witnesses 12% growth in employment
Press Trust of India / New Delhi June 04, 2008, 17:32 IST

Notwithstanding fears of talent shortage in the country, India witnessed a 12 per cent growth in employment by privately-held businesses last year, with Bangalore leading the cities' tally, a latest report says.

According to the International Business Report (IBR) by global consultancy firm Grant Thornton International, Vietnam tops the employment growth index 2008 with a 14 per cent rise in employment by privately held businesses, followed by India and China at 12 per cent each.

With double digit growth, Vietnam, India, mainland China and Armenia (11 per cent) top the employment growth table. Thailand (negative 4 per cent), Italy (0 per cent), France, Ireland and New Zealand (all one per cent) are at the bottom with a negative growth in employment.

Among the cities in India, Bangalore topped the list by 16 per cent growth in employment, followed by Chennai, Pune and Ahmedabad at 14 per cent.

Country's financial hub Mumbai and National capital Delhi showed a growth of only nine per cent each this year, the report stated.

"Developing Asia will account for two-thirds of rise in employment growth, with India alone making up 30 per cent of the net increase in global employment with 142 million new jobs by 2020," Grant Thornton India National Staff Partner Vinamra Shastri said.

The employment growth in Bangalore, Chennai, Pune and Ahmedabad is due to the higher concentration of human-capital among the IT/ITES industries in these cities, Shastri added

India witnesses 12% growth in employment
 
Nissan to build compact cars in India

June 4, 2008 - 9:35AM

Japanese auto major Nissan said it has identified India as one of the five low-cost countries where it would manufacture its new-generation compact cars.

"Nissan will compete in the entry-car market with a dedicated new A platform that will be used for at least three models, including the next generation of Micra, and will be built in five leading competitive countries (LCCs)," the company said in a release.

It said production sites for the new compact cars would include the new plant in the southern Indian city of Chennai being constructed by the Renault-Nissan Alliance.

Nissan and Renault had announced earlier that they would invest 40 billion rupees ($A982.3 million) in setting up the Chennai plant which would roll out 400,000 vehicles a year under both brand names.

Nissan to build compact cars in India - Breaking News - Business - Breaking News
 
New India refinery could squeeze margins globally
Bloomberg News
June 2, 2008, 1:18PM

Reliance Petroleum's new refinery in India may lead to lower margins on gasoline and diesel for refiners in Europe and the U.S. when it starts production this year, a report said.

The 580,000-barrel-a-day Jamnagar refinery, a unit of Reliance Industries, India's most valuable company, will increase global output of both gasoline and diesel by about 1 percent while adding 0.7 percent to global refining capacity, Bernstein Research said in a report today.

''Its massive scale and high complexity will mean it is likely to have a significant impact on global product markets,'' said Neil McMahon, an analyst, in the report e-mailed today. ''It will be a harbinger of the changes to come in the refining industry over the next five years as other greenfield export refineries are constructed in the Middle East and Asia.''

The $6-billion refinery, which Bernstein called the world's sixth-largest, is being built adjacent to a 660,000-barrel-a-day plant owned by Reliance Industries and is scheduled for completion by December this year. The combined facility will be the world's biggest refinery, according to the parent.

Over the next five years, new, export-led refineries in Asia and the Middle East will add 4 percent in capacity annually, outpacing a 1.9 percent growth in demand a year for light products, including gasoline and diesel, the report said.

Refining margins are currently ''unsustainably low'' and should rise in the short term into the peak of the driving season in summer, McMahon said, citing Valero Energy Corp., the largest U.S. refiner, as its ''top refining pick.''

Reliance's refinery, in which Chevron owns 5 percent, benefits from capacity additions because of its scale, complexity and flexibility to supply any market that offers the highest price, the report said.

The refinery is able to process lower cost, high sulfur, heavy crude grades, turn them into premium, low sulfur fuels and ship them at lower transport costs because of its location close to the Arabian Peninsula, the report said. At $10,300 a barrel of capacity, the venture costs about half as much to build as other projects in the Middle East and elsewhere, according to the report.

Reliance may export gasoline and alkylate to the U.S. West Coast in summer and to Asia in the winter, while supplying low sulfur, less polluting diesel to Europe, the report said. The refinery has a complexity of 14 on the Nelson scale and technology that enables it to produce high quality fuels and shift production among products based on market prices.

''This combination of scale and complexity will be unique in the refining industry,'' McMahon said. ''It will easily be the largest refinery for this level of complexity.''
 
The Trillion Dollar Upgrade: The Unprecedented Scale of Infrastructure Investment in China and India Is Only Now Being Fully Understood


NEW YORK, NY and LONDON -- 06/04/08 -- China and India are spending an unprecedented $1.5 trillion on infrastructure projects in the next five years, approaching the level of US infrastructure spending for the first time, according to investor reports published today which identify the full scale of expenditure for the first time.

The comparison with the US, which spends $400 billion on infrastructure annually, is particularly striking given the big difference in national wealth. US gross domestic product in 2007 was $46 trillion compared to China's $3.6 trillion and India's $1.05 trillion.

The scale of this spending in China and India, on everything from sea ports and railways to energy and water systems, is much larger than previously understood and opens up significant new opportunities for private investment and expertise from overseas. The surprise is that India is likely to offer better infrastructure investment opportunities than much-trumpeted, and still fast growing, China.

India -- playing catch-up, fast


India's infrastructure is largely underdeveloped but the government in New Delhi is now making up for lost time. Almost $500 billion is budgeted for infrastructure spending in the Five Year Plan covering 2007-12, almost double the proportion of GDP earmarked in the previous plan. One third of this investment is now expected from private firms, up from 18 percent previously. Converting this plan into reality will test both the country's political flexibility as well as the patience of potential private investment.

India leads the major emerging economies in attracting private investment in infrastructure. Our report "India Infrastructure: Playing Catch up" analyses how this sets it apart from those economies in which infrastructure investment, other than ports, is dominated by state firms.

Full Article Here:
The Trillion Dollar Upgrade: The Unprecedented Scale of Infrastructure Investment in China and India Is Only Now Being Fully Understood
 
Rail link between Jogbani and Nepal soon: Lalu


FORBESGANJ(Bihar): Seeking closer economic ties between India and Nepal, Railway minister Lalu Prasad on Wednesday announced laying of a rail line between Jogbani in Bihar and Viratnagar, the commercial and industrial hub of Nepal.

"India has an age-old bond of friendship with Nepal and extension of the 108 km-long Katihar-Jogbani broad gauge line to Viratnagar will further strengthen our already close people to people contact and economic relations," Lalu said addressing a gathering after commissioning of the newly laid Katihar-Jogbani broad gauge line at Jogbani.

The minister flagged off 3160 down Jogbani-Kolkata Express and announced commissioning of four pairs of passenger trains between Jogbani and Katihar under Katihar division of North Frontier railway.

He also flagged off by remote control 5715 Kishanganj- Ajmer Garib Nawaz Express with increased frequency from once a week to thrice weekly.

The railways were in the process of executing a number of projects in Bihar which would create job opportunities for the Biharis, who were second to none in term of talent and skill, on a big scale, the minister said.

Deploring the violent attacks on Biharis in different states particularly Maharashtra and Assam, Lalu underscored the need for the state's NDA government to create jobs particularly through development of infrastructure so that Biharis do not have to migrate to other states in search of livelihood.

Rail link between Jogbani and Nepal soon: Lalu-India-The Times of India
 
India needs to triple energy capacity to meet demand

4 June 2008 - India needs to add the equivalent of about half the electricity generating capacity of the UK each year - or about 30 GW - if it is to maintain its present rapid rate of economic growth, a new report shows.

Yet the country in the past decade has managed to build an average of only 4 GW of fresh capacity a year, a fraction of what the study by McKinsey & Co estimates will be required if the economy is to continue to expand at 8 per cent a year.

The consultancy estimates that India will need power generation capacity of up to 440 GW by 2017, or triple its existing capacity, and about one-third more than most projections of what will be required.

"There's been a lot of acceleration of construction of new capacity but this sector is so complex that to achieve your targets, you have to transform the entire way you're doing things," Vipul Tuli, a partner with McKinsey and an author of the report, said.

Power blackouts have become a common feature of life in India as rapid economic growth has led to the development of energy-hungry industries and meant more people are able to afford air conditioners and other appliances.

But the sector is one of the most complex areas of Indian infrastructure to reform, requiring not only regulatory changes but also political will from state and central governments to deal with issues ranging from clearing land for plants to negotiating with foreign countries to secure fuel supplies.

The report estimates that India will require about $600bn in investment over 10 years, or around half of present gross domestic product, much of which will have to come from the private sector.
 
India: Soaked by Oil Subsidies
Its state-controlled companies are losing a lot of money, and private rivals can't compete

by Manjeet Kripalani
Businessweek

You'd think Sarthak Behuria, chairman of Indian Oil, would be one of the world's happiest executives. His state-controlled company, with $59 billion in revenues, is India's largest refiner of oil into such products as gasoline and diesel, which are eagerly bought by increasingly affluent consumers and expansion-minded companies. Its 17,800 gas stations are ubiquitous on Indian roads.

Yet Behuria, far from raking in the profits, is struggling to save his company from imminent bankruptcy. Indian Oil is running losses of $76 million a day, and will run through its line of credit of $21.4 billion by July. That's because the government has insisted that Indian Oil subsidize all the gasoline, diesel, and cooking oil it sells, so much so that prices are a third cheaper at the pump in India than they are in the U.S. Since the oil it purchases abroad is so much more expensive than what it sells at home, Indian Oil basically loses money every time it makes a sale. So do the two other state-controlled oil companies, Bharat Petroleum and Hindustan Petroleum.

To defuse the crisis, the government of Prime Minister Manmohan Singh raised fuel prices an average of 13% on June 4. That will not be enough to rescue Indian Oil, but it has already kicked off a political storm. The country's Communists and opposition groups are calling for nationwide strikes to protest the price hikes.

Political Backbone?

India's dilemma reflects one of the big distortions in the energy industry today: the widespread use of state subsidies to soften the blow for consumers in Venezuela, China, Taiwan, India, and beyond. The soaring costs of these subsidies are hammering government budgets in many emerging markets. Indonesia was so squeezed that it just reduced its subsidies drastically. Malaysia is doing the same.

In India, the political courage to terminate the subsidies is lacking. The country faces a slew of elections coming up this year—five in important states before December—as well as national elections in 2009. Remove subsidies? Unlikely. "It's a huge dilemma from the political management perspective," explains Subir Gokarn, Standard & Poor's chief economist for Asia-Pacific. (BusinessWeek and S&P are both part of The McGraw-Hill Companies (MHP).)

Meanwhile, the Indian market has suffered tremendously from the unexpected consequences of subsidies. Private players like Essar Oil and Reliance Petroleum had begun a major rollout of gas stations. But as oil prices began to soar, their higher, unsubsidized prices proved uncompetitive with the subsidized prices of such state-owned players as Indian Oil and Bharat. Unable to compete, Reliance Petroleum has shut down all 1,400 of its new gas stations, while Essar Oil has shuttered half its 1,250 pumps. Multinational Royal Dutch Shell (RDSA) has closed 40 out of 50 stations.

A Circular Road

Many executives at Indian corporations believe the subsidies are bad policy. "Removing subsidies will have a serious impact on the economy, but so will a large public deficit," says Venu Srinivasan, chairman of TVS Motor, a popular motorcycle maker. Yet even a small hike in fuel prices—particularly in the diesel oil widely used by commercial trucks—will push inflation higher. That would cut consumer spending and, of course, stoke voter wrath.

Delhi may keep cutting subsidies cent-by-cent over the next year to mitigate the political fallout. But those cuts might prove too little for India's oil companies, and way too much for Indians accustomed to cheap fuel.
 
Manufacturing success: India prepares its road map for the next growth route
Some in private sector push for SEZs and the Chinese model; govt leaders think leveraging productivity is the key

Daniel Altman
International Herald Tribune

For a few years now, a facile dichotomy has made the rounds in economic circles: Among developing countries, China means manufacturing and India means services. Yet, several leaders of the public and private sector in India see the country’s road to riches leading through manufacturing as well.

For Anand Mahindra, vice-chairman of Mahindra Group, the Indian detour into services was a matter of happenstance more than design. While the Indian government made rule after rule about manufacturing in the waning years of the 20th century, it largely left information technology (IT) companies alone.


Core constraints: The Nokia factory at
Sriperumbudur in Tamil Nadu.
India’s physical infrastructure has
been running behind its potential to grow,
but the government is hopeful it will catch
up within a few years.
(Photo: Madhu Kapparath/Mint)


“There were no regulations to impede them, because no one knew what kind of animal the industry was,” Mahindra said from his office in Mumbai. “We did not have large investments in infrastructure. We did not have large investments in manufacturing. The growth came from the IT boom, the services boom and large gains in agriculture, and then, of course, consumption.”

His company, which made its name in automobile manufacturing, now has one of the biggest information technology businesses in India, he said. But, he still sees manufacturing as the priority: “The second phase of India’s growth is now being investment-led. That first wave clearly provoked more reforms, more liberalization. The rise of China has not been lost on us, obviously.”

This time, the government is singing the same tune. “For India, manufacturing sector gro-wth is very important,” Kamal Nath, the Union commerce minister, said in an interview in New Delhi. “We did 12% growth last year; we’re doing about 8.5% growth this year.”

Each job in manufacturing, Nath said, has the potential to add several jobs in services. But, where will all those people work, and where will they live? In China, perhaps hundreds of millions of people have moved from rural homes to cities crammed with factories and dense housing. The same thing may need to happen in India if labour is to be concentrated enough for a manufacturing push.

India cannot grow the same way as China, though, even if it does pursue low-cost manufacturing just as avidly. India is a functioning democracy, where local governments do battle with New Delhi and small constituencies make their voices heard. The Central government cannot rule by fiat, and officials are loath to follow a path that has not been tested as a precedent.

That is why India needs easy-to-follow templates for growth, Mahindra said. To him, the right template is one borrowed from China: the special economic zone, or SEZ, a place where taxes are low, power grids are new, licensing is relaxed and labour is freely hired and fired.

“You have an enclave from which you can work and ignore all the baggage of the old India,” he said, like rigid labour laws and lousy infrastructure. “Is that ideal? No, obviously you would want a pan-Indian rule. But you have the template.”

Nath agreed that SEZs were important, but he denied that they were sufficient to drive growth. “It is one of our greatest flagship employment-generation programmes,” he said, creating more than 200,000 jobs directly and about 400,000 more indirectly since February 2006. “But, for those who are not exporting, who are for the domestic market, why should they go for the SEZs?”

Another concern is that SEZs may be too small for the hundreds of millions of workers who could drive the Indian manufacturing sector.

“Scale economies don’t arise,” said Atanu Dey, chief economist of Netcore Solutions, an information technology company started by Rajesh Jain, a well-known serial entrepreneur. India needs to plan new megacities, he said, with far more capacity than what they may need today.

Nath said India could still distinguish itself by leveraging productivity instead of masses of unskilled labour.

“India is emerging as a manufacturing hub, as an efficient technological manufacturing hub, not a mass-production hub,” he said. “Mass production does not necessarily mean that it’s employment-heavy. All manufacturing today has an information technology backup.”

That kind of manufacturing requires different types of infrastructure: transportation, energy and telecommunications, for starters. Nath said India’s physical infrastructure was running behind its potential to grow, but he expected it to catch up within a few years. Energy, however, could be a tougher nut to crack.

“That is the biggest constraint in India’s future,” Dey said. “India’s economic growth rate could stall. I don’t know if it can compete with China in securing those energy resources,” he said.
 
Exclusive look at the Tata Nano
By Chris Morris
BBC News, UK

Video: Designing the Tata Nano

India is fast becoming the centre of a revolution in motoring.

A new generation of ultra-cheap cars is about to hit the streets, allowing millions of would-be drivers to dream of personal mobility for themselves and their families.

"A totally new market is opening up - the way we are receiving comments and inquiries is quite mind-boggling," said Ravi Kant, the managing director of Tata Motors.

International car manufacturers are also scrambling to establish a firm foothold in India, which is set to become the fastest growing car market in the world.

The Tata Nano was unveiled with great patriotic fanfare in January. Its basic price - about $2,500 - is about half of its nearest current rival.

The BBC travelled to the huge Tata Motors complex in the western city of Pune to get an exclusive look at the Nano in action, and to talk to the team which created the ultimate no-frills car, cutting costs part by part.

Everything from the number of wheel nuts to the number of parts in the door handle was re-examined.

"The body was redesigned three or four times, and the engine three times," said Girish Arun Wagh, the head of Tata's small car project. "Simplicity was the key."

And that means that when the Nano goes on sale towards the end of this year it will be in a position to overturn the economics of motoring.

"We believe that more than goods transportation it is people transportation that is going to see a massive change, and we are prepared to tap into this opportunity, " said Ravi Kant.

But Tata won't have it all its own way.

Rival car

Another Indian company Bajaj Auto, which makes auto-rickshaws and motorbikes, has announced plans - in partnership with Renault and Nissan - to produce a direct competitor to the Nano by 2011. The starting price will be the same.

"Whoever wants to do it at least has to manufacture it in India," said Rahul Bajaj, the company's chairman.

"If Tata motors can make money I can make money. My costs are lower than Tata Motors. But if General Motors or Volkswagen tries, I don't think they can make money."

But even if they won't compete at the very cheapest end of the market, that hasn't stopped a host of global car companies investing in new factories on the outskirts of cities like Pune and Madras (Chennai).

Soon the region around Pune alone will make more cars than Britain.

Many of them will be sold to India's eager domestic market. And there's plenty of room for expansion out in the countryside, where 70% of Indians still live.

But India's cities are already suffering from congestion and pollution, and millions of new cars will only make matters worse.

"You want to give mobility to all," said Anumita Roychowdhury of the Centre for Science and Environment. "And cars can never give mobility to all in Indian cities."

"You just do not have the space in Indian cities where you can motorise and meet the needs of everyone. There's a big equity issue here."

The response from the motor industry is robust.

"I'm all for a clean environment," declared Rahul Bajaj. "But if you want a real clean environment, go back to the cave age."

The rapid increase in demand for cars is closely linked to soaring economic growth, and Indians are understandably sensitive to suggestions that they shouldn't be able to enjoy freedoms people in the West take for granted.

But that still leaves India grappling with a familiar challenge on a massive scale: How to meet the demand for private cars and personal mobility in a way that works.

For a billion people, and counting.
 
Nissan, Renault Begin Building Car Factory in India
By Vipin V. Nair

June 6 (Bloomberg) -- Nissan Motor Co., Japan's third- largest automaker, and affiliate Renault SA began building a factory in India to challenge Suzuki Motor Corp.'s dominance in the country.

The $1.1 billion factory will begin production in 2010 and will have a capacity to make 400,000 cars annually for local and export markets, the automakers said in a statement in Chennai in south India, where the plant's being built. Nissan will make the Micra model and other cars at the factory while Renault will produce cars based on the Logan and other platforms.

Renault, with 2.2 percent of the local market, and Nissan have lagged behind rivals in expanding into India, where Suzuki has 50 percent of the market. Automakers including General Motors Corp., Ford Motor Co. and Volkswagen AG have already announced a combined $6 billion in investments in the country, where car sales may double by 2013.

``Those who have a foot in the door now can capitalize on it later,'' said Ashutosh Goel, an analyst at Mumbai-based brokerage Edelweiss Capital Ltd. ``There's a large domestic market for compact cars, and the cost of manufacturing is also lower.''

India's automobile market will double to about 4 million vehicles, according to Global Insight Inc., an industry consultant. Expansion in the world's fastest-growing major economy after China helped local car sales to double in the past five years to reach a record 1.2 million units in the year ended March 31, according to the Society of Indian Automobile Manufacturers.

Significant Part

Nissan and other automakers are expanding in India as demand slows in Japan and credit market turmoil and surging oil prices damp sales in the U.S. Building local factories, as opposed to imports, will enable Nissan and Renault to sell cheaper cars.

``India is a significant part of Nissan's global expansion plan,'' Senior Vice President Colin Dodge said at the plant site.

Chennai, formerly known as Madras, is already home to factories of Ford, Mitsubishi Motors Corp., Bayerische Motoren Werke AG and Hyundai Motor Co.

Tokyo-based Nissan said last month it will introduce eight new models in India by 2012 as it aims to sell 100,000 vehicles a year in the country. The models will include an entry-level car powered with an engine between 1 liter and 1.2 liters and a light commercial vehicle.

The company will move production of the Micra to India from a factory in the U.K., Nissan said June 3.

Renault's Presence

Renault already sells the Logan sedan in India with partner Mahindra & Mahindra Ltd. The joint venture sold 25,891 cars in the year ended March 31 with 2.2 percent of the market, according to the Indian automobile grouping.

Nissan and Renault have also teamed up with Bajaj Auto Ltd., India's second-largest motorcycle maker, to sell a car in the country by 2011. Priced at about $2,500 it will take on Tata Motors Ltd.'s Nano, which goes on sale this year.

Nissan has also formed a joint venture with Chennai, India- based Ashok Leyland Ltd., India's second-largest truck maker, to make commercial vehicles. They will invest about $575 million.
 
Riding the ‘earning horse’: Indian Railways
INSEAD Knowledge - Best of business research, France

Indian Railways is the world’s largest employer and one of the biggest and busiest rail networks in the world, carrying some 17 million people and more than one million tonnes of freight daily. It was, however, until very recently, a loss-making organisation, which was heading for bankruptcy. Starting his term in 2004 with a budget of just $200 million with which to save the national institution, India’s Minister of Railways Lalu Prasad engineered a dramatic turnaround. Last year, Indian Railways’ revenue came to $6 billion.

Indian Railways is one of INSEAD’s biggest executive education clients, and the Minister visited the school’s Asia campus as part of his tour of Singapore and Malaysia. During his visit to INSEAD, he told a gathering of MBA participants, alumni and executives about his strategy for bringing the rail network into the 21st century.

Flouting prescriptions to privatise Indian Railways, retrench staff, and increase passenger and freight fares by 20 per cent in every budget, Prasad instead chose to keep on board 1.4 million employees and 1.1 million pensioners, reduced fares by up to 45 per cent, and - while refusing to privatise the core business of Indian Railways - started public-private partnerships in some peripheral areas.

“We have broken the myth that whenever any government organisation runs into losses that you privatise it and retrench the manpower … My belief is that if we have honesty, vision and commitment to the organisation, there is no possibility of any institution and corporation running into losses.”

It’s a strategy based on volume. While output has increased threefold, real operating costs have fallen over the last 25 years. By increasing the capacity of a typical long-distance train to 2000 passengers from 800, unit costs fell by 45 per cent. The practice of taking seven days to load or unload a freight train was reduced to five, and systematic changes have helped to rein in corruption. Garib rath trains, also known as the ‘poor man’s chariot’, now have air-conditioning with cushioned seats and suction toilets.

Bringing down freight fares has greatly benefited local industry, Prasad says. In a country where agriculture is the backbone of the economy, he says there is a huge role for Indian Railways in helping farmers directly connect with markets for their goods.

“There are no markets in the places where production happens and middle men buy the agricultural produce at cheap prices. We are going to open agricultural centres at stations so farmers don’t have to search for markets. Through joint ventures, we will set up cold storage and purchase points in stations, as well as freezer containers, so they can send agricultural produce around the country and beyond. We will charge farmers appropriate and reasonable prices. This will enrich farmers, and this increase in income will mean they can buy the things that everyone else is buying.”

With regard to private investment, Prasad says the turnaround has piqued interest in investing in the railways. While the private sector can play a role – in building engines and wheels, and world-class stations, for example – Prasad insists there is absolutely no chance of allowing privatisation of the core business, “rail, running of trains, [and] control of all the trains.” Indian Railways’ surplus earnings mean that the organisation does not have to depend on overseas development assistance from bodies such as the Japan International Cooperation Agency to expand. “JICA or no JICA - we are self-sufficient.”

In an exclusive interview with INSEAD Knowledge, Prasad said freight trains are Indian Railways’ “earning horse,” and he has extensive plans for expanding freight lines, increasing their efficiency, and capturing the 60 per cent of goods that are still transported by road. A third line – a dedicated freight corridor – is also being constructed to connect even the most remote areas with all ports and industrial hubs.

Prasad is also keen to help in India’s water conservation efforts, by building siphons and canals, and – on the wasteland on either side of the 64,000 kilometres of track – pipes with water for drinking and irrigation. He also outlined efforts to reduce fuel consumption by building train carriages from aluminium to reduce their weight. “With the increasing price of fuel, we have to keep an alternative in mind. Therefore, we are going to electrify the main routes in the entire country. The (proposed civil) nuclear deal (with the US which would allow India to develop nuclear technology to meet its growing energy demands) – which should be reached – is also likely to help.”

With an eye to the future, Prasad says that as India’s population continues to grow, there will be a need for more trains, more engines and wheels. “Even now, we buy wheels from abroad. We have only two factories, and are building a third. It’s fine that these things come from abroad but we have the skills, unemployment, and youth.” Prasad also recommends learning from another country with a “magnanimous population” – China. “China has gotten really far ahead. We will have to learn from them … Instead of jealousy, we should see what our neighbour is doing and copy that.”

Indian Railways’ turnaround had required a fundamental shift in mindset. As Prasad’s adviser, Sudhir Kumar, notes: “We are not in the business of railways; we are in the business of transportation – one of several modes of transportation, and the only way to survive and thrive in the marketplace is to offer superior and compelling value to your customers.”
 
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