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The Hindu Business Line : Farm loan waiver: An ill-conceived package

Farm loan waiver: An ill-conceived package

While the damage caused by the ill-conceived loan waiver scheme cannot be undone now, the government should immediately initiate measures to rejuvenate agriculture.
S. D. Naik

The substantial expansion of farm waiver package by the UPA Government from Rs 60,314 crore announced in the Budget to Rs 71,680 crore reflects its growing loss of nerve with approaching elections. This announcement has come closely on the heels of bringing political pressure on the State Bank of India to withdraw its internal circular to branches to temporarily suspend new loans to tractors and power tilling equipment segment following mounting non-performing assets (NPAs ) in the segment.

The loan waiver scheme has now been enlarged to include plantations and horticulture, allied agricultural activities such as dairy and poultry farming, as well as investment credit for purchase of tractors and bullocks, deepening of wells etc. Moreover, as recommended by Mr Rahul Gandhi, the scheme will now include bigger farmers with more than five acres of land in dryland areas.

The Government has decided to create a Farmers’ Debt Relief Fund, with an initial corpus of Rs 10,000 crore. The Finance Minister has also stated that Rs 40,000 crore (instead of Rs 25,000 crore) will be provided this year towards the debt waiver scheme. The future installments will be in subsequent Budgets until 2011-12.

ILL-CONCEIVED
Clearly, the massive loan waiver scheme is ill-conceived from several angles. For one, it will impose a huge additional fiscal burden at a time when global crude prices have gone through the roof and the Centre will have to provide for hefty increases in salaries of its employees under the Sixth Pay Commission award.

Moreover, with the National Rural Employment Guarantee Scheme (NREGS) having now been extended to al the 600 districts of the country, the Centre will have to provide more funds for the scheme. Second, it is grossly iniquitous in that it leaves out nearly two-thirds of the farmers who have borrowed from private moneylenders.

Moreover, it will make the farmers who repaid their loans in time, feel betrayed and affect the carefully nurtured credit culture. Already, many banks are finding their farm sector NPAs rising because of non-repayment of loans.

Third, it is a one-time benefit to only a small section of farmers who borrowed from institutional sources and is no substitute for the substantially higher investments needed in agriculture and rural infrastructure on a sustained basis.

Even after the announcement of the expanded package, an overwhelming majority of affected farmers feel left out and new demands and suggestions have been coming from different States every day. In fact, the State government has now announced its own package to include some of the left-out farmers. Thus, as the Magasasay award winning journalist, Mr P. Sainath has aptly put it: “The UPA Government’s waiver is no solution to even the immediate crisis, let alone long-term agrarian problems.”

PRAGMATIC ALTERNATIVE
A pragmatic alternative for the Government would have been to implement some of the recommendations made by the Radhakrishna Committee on Rural Indebtedness. The Committee had suggested several remedial measures to tackle the serious problem of rural indebtedness. However, loan waiver did not find a place in its report.

After noting that more than half of the farm households do not borrow from institutional sources and that they pay usurious rates of interest on borrowings from moneylenders, the Committee wanted the banks to grant a one-time term loan to such farmers to free them from the clutches of moneylenders. It had also mooted a Moneylenders’ Redemption Fund with an initial corpus of Rs 100 crore to operationalise the scheme.

Some of the other pragmatic suggestions of the Committee included the rescheduling of loans, making available fresh loans and waiving of interest liability of borrowers for the extended period of up to two years (both for short and long-term loans).

The financial burden of this was to be equally shared between the Central and State governments. More important, the Committee had suggested that those who repaid their dues promptly must be rewarded.

Thus, rescheduling of loans could have been for a much longer period of three-five years, interest waivers, making available fresh loans on government guarantee, and finding some way to provide the much-needed relief to those indebted to moneylenders on the lines suggested by the Radhakrishna Committee, would have been a much better alternative.

WAY FORWARD
While the damage caused by the ill-conceived loan waiver scheme cannot be undone now, the government should immediately initiate both short and long-term measures to rejuvenate agriculture. And, as the Expert Group on Agricultural Indebtedness has suggested, rejuvenation of the farm sector lies in addressing basic structural, institutional and technological factors as also the restructuring of public support systems.

First and foremost, there is an urgent need to reverse the long-term declining trend in public investment in agriculture since 1980-81. There has been a sharp decline in the share of public sector gross capital formation (GCF) to 17.23 per cent in 1999-2000 from 43.2 per cent in 1980-81. Contrary to expectations, private investment failed to compensate for the drastic decline in public sector investment in the sector.

To overcome the resource constraint, funds allocated under ‘Bharat Nirman’ and National Rural Employment Guarantee Scheme could be used to boost the asset base of the farm sector.

Serious efforts are needed to ensure that not only the institutional credit to the sector increases significantly, but that it reaches more number of farmers, particularly the small and marginal farmers. Though farm credit has shown a robust growth over the past few years, the number of farmers covered has not increased proportionately.

In this context, the suggestion of the Expert Group to make Micro-Finance Institutions (MFIs) an integral part of mainstream banking deserves consideration.

The banks should be asked to provide resource support to MFIs on the condition that they moderate their interest rates and abide by ethical banking practices. This will immensely benefit the vast majority of small and marginal farmers who have no access to banking institutions at present.

The other areas requiring urgent attention are the strengthening of Research and Extension Services and risk mitigation measures such as crop insurance, weather insurance, price risk mitigation and expanding the livelihood opportunities for the rural population outside the farm sector.

Far-reaching changes are also needed in the land use pattern, water management, reclamation of waste-land and selection of crops to suit the environmental needs. Organic farming also needs a closer look to make agriculture sustainable.
 
And some good news :)

India's GDP to grow at 9.5% in FY'09: CMIE- Indicators-Economy-News-The Economic Times

India's GDP to grow at 9.5% in FY'09: CMIE
16 Jun, 2008, 2016 hrs IST, PTI

MUMBAI: India's real GDP is expected to grow at an impressive 9.5 per cent in FY'09, the Centre for Monitoring Indian Economy said in its monthly review here.

The Indian economy is heading towards the fourth consecutive year of an over 9 per cent growth and like in the last five years, growth this year too was expected to be driven by capital investments happening in India, CMIE said.

As per CMIE CapEx Service, projects worth Rs 3.4 lakh crore are scheduled for commissioning in FY'09. This would be the highest ever completion of investments in the Indian history, CMIE said.

The current growth phase of the Indian economy is driven by the capital investment boom in the country. India's GDP started rising by over eight per cent since FY'04. And, the gross capital formation (GSF) grew in the range of 13-23 per cent during this period.

CMIE expects growth in GSF to accelerate to 18.7 per cent in FY'09 from 13.4 per cent in FY'08. This robust growth in GSF is expected to more than offset the moderation in the growth in private final consumption expenditure (PFCE) and Government final consumption expenditure (GFCE).

CMIE stated that the PFCE is expected to grow by five per cent in FY'09, after growing by 7-9 per cent in the preceding three years. While the slower growth in the PFCE would mainly be on account of the higher base last year, the prevailing high inflation would also affect the consumption demand to some extent.

However, inflation is not expected to depress the PFCE dramatically as income levels in India have also gone up significantly in the last one year.
 
something about modiji
Modi has a point-Right & Wrong-Swapan Dasgupta-Columnists-Opinion-The Times of India

Last year, a prominent leader of Singapore gave Gujarat chief minister Narendra Modi some audacious advice: "Keep aside your preoccupation with selling India. You will be better off marketing Gujarat."

Contrary to what simple-minded nationalists may feel, this was not a coded signal for secession. Why, the Singapore leader was asking, should Gujarat compromise its comparative advantage as a centre of entrepreneurship and prosperity for the sake of that India which doggedly refuses to enter the 21st century? Should the brightest student in a class be forced to dumb down to accommodate the dullard?

The essence of democracy prevents Indian politicians from giving honest answers to such questions. Ever since "equitable growth" and "inclusive development" became consensual buzzwords, India's policy framework has been geared to target the last person in the last row. On paper this sounds noble but the reality is less appetising. In the guise of giving a leg up to the needy, we have punished enterprise, rewarded criminality, indulged mediocrity and brutalised the vulnerable. The Incredible India of smiling peasants and the Fab India-kitted woman prancing about on a Rural Employment Guarantee picnic — a la the ads during the IPL telecasts — exist entirely in the imagination of demented propagandists.

The mindless attachment to failed mantras has blunted the politicians' capacity for innovative thinking. This may be a reason why Modi's plea to the Centre to let Gujarat enjoy complete fiscal independence for one year has been met with incomprehension or drawn a hysterical response — including the silly assertion that he be charged with sedition.

The chief minister's demand that revenues from Gujarat be largely spent on Gujarat is a radical departure from existing federal norms. At present, the Centre collects the lion's share of all major taxes, including income tax and customs and excise duties, leaving the states with the crumbs from stamp duties, irrigation cess, tax on liquor and VAT on consumer sales. A percentage of the central revenues are ploughed back to the states under the Finance Commission's guidelines. But the returns are never proportionate. Additionally, the Planning Commission doles out the capital expenditure on approved schemes.

The present system was centred on two principles: the government in New Delhi should be a redistributive Centre and development should be centrally planned and not left to the market. The system worked without major hiccups as long as the Centre played the role of a neutral arbiter and until the public sector occupied the "commanding heights" of the economy.

Both assumptions are no longer valid. While the market economy has ushered rivalry between states for private investments, fiercely competitive politics has forced ruling dispensations to be more responsive to voters. At the same time, the growing mismatch between those who pay taxes and those who benefit from government expenditure has produced strains in places as far removed as Darjeeling and Mumbai. There is a feeling that revenues generated in the region are inadequately ploughed back and that the present system favours the inefficient. Likewise, there is dismay over the culture of non-accountability that governs grandiose schemes such as the loan-waiver and the NREGS. Some people, it would seem, pay their hard-earned money in taxes while a small, privileged minority squanders and loots it recklessly. Most important, the system is not geared to apportioning accountability for expenditure. A politician in, say, Jharkhand doesn't give a damn for fiscal rectitude because he knows that the funds at his disposal have actually emanated from somewhere else.

In saying that Gujarat should have a greater say in the money it gives to the Centre, Modi is not seeking sops and handouts. Shorn off its polemical flourish, it is a call for a new mindset that treats those who pay for nation building with respect.
 
D.light hopes to shine in India
BUSINESS FOCUSES ON REPLACING KEROSENE LANTERNS WITH LEDS

By Matt Nauman
Mercury News, USA
Article Launched: 06/16/2008 04:04:01 AM PDT

With their Stanford MBAs stuffed in their back pockets, Ned Tozun and Sam Goldman are leaving Silicon Valley for China and India to make the world a better place.

And to make money doing it.

D.light Design has a mission that sounds both straightforward and challenging: replacing the kerosene lanterns used by one-quarter of the world's population, or 1.6 billion people, with cheap, portable LED sources.

Kerosene, which often is burned in a glass bottle with a wick, is a "terrible solution" for lighting, said Tozun, D.light Design's president. People get burned. The light itself is dim, making work and studying difficult. It emits carbon dioxide, and causes respiratory ailments.

Goldman and Tozun will be selling three designs of light-emitting diodes, from $12 to $25 a piece, that can be charged with small solar panels or via electricity. A fully charged product will emit 12 to 40 hours of light, depending on the brightness setting.

The pair's idea, developed while they were studying for their master's degrees at Stanford University's business school, won a design competition at the school. That led to entering, and winning, the $250,000 Draper Fisher Jurvetson Venture Challenge contest in 2007. That prompted a variety of venture capitalists - traditional ones, Indian ones, ones concerned with both profit and social benefits - to come aboard.

Getting money from VCs - Tozun won't say how much has been invested - is unusual for a company like D.light Design. "But our social mission is really well-aligned with our profit mission," he said.

When Bill Reichert, managing director at Palo Alto's Garage Technology Ventures, first heard about D.light he figured it was one of those "venture/philanthropy, double bottom line, not-for-us kind of deals." But Tozun and Goldman convinced him that the size of the project might spawn a large, profitable company.

The managing director of an Indian venture firm said he invested in D.light because of the "humongous" size of the market opportunity.

"The founders are very passionate and committed and the product is very differentiated at that price point," said Suvir Sujan of Nexus India Capital Advisors in Mumbai.

Tozun will head the company's manufacturing and international-sales office in Shenzhen, China. He's moving there this week. Goldman already heads the company's sales and marketing office in New Dehli, India.

Reichert said the idea of two company principals being so far apart and so far from Silicon Valley is "a little nerve-racking for us, but they seem to be handling it brilliantly."

Perhaps that's because they share an international point of view. Tozun, who previously headed several start-ups, emigrated with his parents from Cyprus. Goldman's parents worked for the U.S. Agency for International Development, and he grew up in India, Pakistan, Peru, Rwanda and elsewhere. He also served in the Peace Corps for four years in Benin in western Africa.

D.light's initial focus will be India, where 72 million households are without electricity. Its growing economy means that some of these families are now ready to move away from the basics of kerosene light.

An unusual component of D.light Design's business plan is its d.light | give the gift of light link. Here, people can donate $30 to provide a light for a family, and get a photo and a story in return.

Tozun admits it'll be good publicity for the company, but it also will provide lights to the poorest of the poor who can't afford them.

"We are very driven by our social mission," he said. "Everyone we hire is passionate about providing families with better quality of life by providing better light. But that mission, I don't think can be achieved, unless we build a very successful business."

That means selling millions and millions of lights.

Right now, he said, the company has thousands of its products in use in India, and hundreds in Africa, where it's likely to expand in the future.

In Tanzania, for instance, 90 percent of the population uses kerosene fuel for lighting.
 
Indian companies see risk as advantage: Study
Michael Bradford
Business Insurance, IL
Posted On: June 16, 2008 3:09 AM CST

LONDON—British companies are far less comfortable than Indian businesses in finding ways to use risk to give them a competitive advantage, a new study reveals.

The study, “Threatening Skies: Risk in the Global Economy,” was conducted by Datamonitor on behalf of BT Global Services, a unit of London-based communications company BT Group P.L.C. It surveyed 2,000 senior executives in the United States, United Kingdom, France, Germany, Spain, Sweden, Brazil, China, India and South Africa.

Among its findings, the study revealed that 99% of Indian companies view risk as a means of increasing competitive advantage, compared with 44% of British companies that feel that way. Eighty-five percent of Indian companies see risk management as a tool to foster innovation and creativity, whereas 34% of U.K. companies share that view.

A commitment by Indian companies to treat risk management as a core to business growth has led 90% to appoint a manager with overall responsibility for risk, the study showed. Only 14% of the U.K. companies in the survey had taken that step.

“There are some well-established FTSE 100 companies working in complex environments who have to manage huge levels of risk on a daily basis,” said John Dovey, president of U.K. corporates at BT Global, in a statement.

“ But, in general, U.K. companies tend to see the kind of risks associated with aggressive economic growth as something to avoid, while competitors in India have had to see them as something to manage.”
 
Yorkshire outshines rival for Bollywood glamour
By Bernard Ginns, Business Editor
Yorkshire Post, UK
Date: 16 June 2008

The region's tourist chief returned from this year's Bollywood film awards and announced: "Everyone said Bangkok was not a patch on Yorkshire."

David Andrews, the chief executive of Yorkshire Tourist Board, attended the Indian film industry's version of the Oscars last weekend in the capital city of Thailand.

The International Indian Film Academy 2007 awards took place in Yorkshire, which organisers said generated £8m for the regional economy on an outlay of £2m and global media coverage worth £40m. And compared to this year's bash in the Far East, it was a much better show, said Mr Andrews.

He told the Yorkshire Post: "Everyone I spoke to had a fantastic time (in Yorkshire]. The message we came back with was that we put on the best one ever. We achieved that. Everyone said we set the benchmark for IIFA."

He said the region has "a huge number of fantastic ambassadors" among the film stars, producers and directors of the Indian film industry.

Last weekend, he was at a press conference in Bangkok attended by Amitabh Bachchan, one of Bollywood's biggest stars.

"He was walking in," said Mr Andrews, "and he saw me, and despite his minders, he came over and said 'it's fantastic to see you and I'm really glad you put on such a great show'. He's three times bigger than Tom Cruise – people's think he's a god."

Intrigued by the attention he got from such a big star, journalists at the conference later asked Mr Andrews who he was and where he had come from.

Mr Bachchan was one of the star turns at last year's IIFA in Yorkshire. He launched the awards at Leeds Town Hall and described Yorkshire as "a wonderful part of the world" with "unbelievable warmth and affection".

According to Mr Andrews, the programme in Bangkok was very different. All the events took place at one location in a big city, in contrast to Yorkshire where the action was spread out across the cities, culminating with a glitzy awards ceremony at Sheffield's Hallam Arena.

This year's occasion was lost in the hustle and bustle of Bangkok, said Mr Andrews. "No-one knew it was really happening. They did not have as many stars as we had even though it was closer to India. Shilpa Shetty was not there. The number of fans was nowhere near as well. The buzz was not nearly as good as we had."

However, there were many positives from the trip, said the executive. He attended business networking events organised for the IIFA weekend and met with businesspeople, diplomats and politicians.

These contacts could help bring benefits to the region, he said. He met with the directors of Wizcraft, the company that organises IIFA, who expressed an interest in asking Yorkshire to advise on future events.

He said they would "use Yorkshire as a good example" to make sure future hosts meet the standards set by the region.

He said delegates from Toronto, Miami, New York, Egypt, Turkey, Paris, Dublin, Sydney and Malaysia attended IIFA business summits during the weekend.

"They were all trying to learn how Yorkshire did it," said Mr Andrews. "Some of them – Toronto, Dublin and Sydney – indicated they would like to take it a bit further."

"I also talked to the minister of culture and sport from Thailand, the Indian ambassador and the minister for tourism and sport for India about the 2012 Olympics and potentially using Yorkshire for team camps. I got the message across."

The Leeds Metropolitan University sent 75 students and staff to work as volunteers in Bangkok.

Joy Kumar, a director at Leeds Met, said: "UK-based staff and students from a diverse background were joined by students from Hong Kong and India, who worked alongside colleagues from Wizcraft, the global events management company, responsible for delivering the IIFA weekend.

"Volunteers held key roles including assembling the sets, camera operation, security set-up, auto-cue operation, TV and media control and future delegate management.

"The IIFA celebrations in Bangkok had the slogan 'Amazing Thailand, Amazing IIFA'. By the end of the festivities, many were saying, 'Amazing Thailand, Amazing IIFA, Amazing Leeds Met'.

"The university's volunteers were outstanding ambassadors not only for Leeds Met but for Yorkshire."

Mr Andrews added: "There was a big contingent of Yorkshire people – there were Yorkshire accents everywhere."

Yorkshire Forward said it spent £2.5m putting together the region's bid for the awards and marketing campaign.
 
Sky's the limit for Bangalore
Small airports to pop up around Bangalore

By Harsha Pramod
16 June 2008 05:48

An executive visiting Bangalore for the launch of a new project said, “Ah, the airport!” This echoes the feeling of most of the frequent fliers. Almost every visitor to India’s silicon city would complain about the distance from its new airport at Devanahalli. It’s a good 35 kilometres from the city and takes at least two and a half hours and the passengers are annoyed, to put it mildly.

Captain Gopinath, managing director, Deccan Aviation, did not miss the opportunity. Gopinath is well known as someone who dared to take ‘the road less traveled by’ and made all the difference. Gopinath was instrumental in bringing more people to airports by offering low-cost flight services with his motto “Every Indian can fly.” Many people travelled by Air Deccan by paying as low as Rs.99 ($2.30) to Rs.500 ($11.60) . Now he recognises the corporates’ concern about the distance and time. At the same time, they did not want to shift their base from Bangalore.

Currently, Deccan Aviation is in the process of offering the intracity helicopter shuttle service to connect three major centres in the city from the helipads located in UB City, Palace Grounds and Electronic City to the airport. The trip that takes nearly two and a half hours would take only about 15 minutes. The plan has generated considerable interest from the IT giants. Deccan Aviation had earlier announced that the service would start with the commencement of the new airport at Devanahalli. However, it has not taken off yet. According to sources at Deccan Aviation, the service is expected to take wings in a couple of weeks as it is still awaiting clearance from authorities.



Use of private jets and helicopters by major players in the industry has seen unprecedented increase recently. Mukesh Ambani, the world’s richest man, who surpassed Bill Gates to reach this position, was in the news for buying his wife a private jet for her birthday. The Airbus 319 corporate jet is believed to have cost Rs.242 crore ($56.4m) with entertainment cabins, a sky bar and fancy showers, reported the Business Standard.

Mukesh was also fined Rs. 2.43 lakh ($5,660) by the Municipal Corporation of Greater Mumbai (MCGM) for proceeding with the construction of a helipad at his Mumbai home without consent from the authorities. In contrast to this high-flying lifestyle, we also have Narayan Murthy, who used to travel by economy class and has also travelled by the low-cost carrier, Air Deccan. It can be attributed as being stingy or being principled or attempting to set an example to others.

Ministers are a group that uses helicopter services frequently and many got into trouble in this regard. Recently, Jharkhand Chief Minister, Madhu Koda, issued an advisory regarding this. The ministers in Jharkhand will now use helicopters only once a month to save fuel.

The rules and regulations regarding allow all ministers, including ministers of state and deputy ministers to use state-owned helicopters and aircrafts free of charge, subject to availability. The Deputy Chief Minister, Stephen Marandi, who is in charge of finance said that the decision was taken at the request of the finance department.

Since the helicopter shuttle service caters to only a very small minority, techies don’t think much about it. This concept is a contrast to what the lower rung of the industry is going through now. The newspapers sure convey the message that the industry is on a cost cutting drive, with Times of India discussing the issue of toilet papers and face tissues disappearing from the dressing rooms or being replaced by cheaper ones. The software industry does have its eccentricities. While at one end, the corporate heads go for high-end services such as helicopter shuttle services, at the other end they cut down on toilet paper.

In spite of the shifting of the airport to Devanahalli, the road towards the Electronic city, where major IT companies are housed is still buzzing with traffic. The parallel road that leads to the city is comparatively empty. In the evening, the trend reverses. As usual, techies wait impatiently for the traffic to clear at the signals. They would as always hop into the company buses or bikes or cars. Those who wish to go green opt for bicycles or car pooling. Websites such as www.commuteeasy.com has been encouraging car pooling and even bike pooling to ease the traffic and also cope with the recent hike in fuel price.

While most of the software engineers, both seniors and new entrants, are not much worried about losing their jobs, they are bright enough to be cautious. The insurance industry reflects the situation as it feels the pinch from the uncertainty in the software industry. According to an executive with a leading multinational insurance firm, the software engineers are not actively into investment now. The senior engineers have seen many seasons and don’t see imminent danger and prefer to stay where they are.

For inter-state travel, many software executives prefer to drive down to nearby cities or even take the train. A software engineer who travelled to Chennai by train for his visa interview said that his trip by rail was good and would not opt for flying in these routes. He said the air conditioned compartments are very comfortable and he wasn’t tired at all. He said a trip to Devanahalli and back would have been very stressful as it would mean a lot of waiting for boarding the flight and time wasted commuting. By train he could get off at a railway station near his home and could simply take an auto rickshaw home. But then for the corporate heads and top officials, it is for each his own.

Come what may, the Bangaloreans are always willing to adapt and adopt. They have witnessed unprecedented growth and have watched with awe its growth from “pensioners paradise”, a calm city, to India’s silicon city, bustling with activity. The HAL airport saw huge air traffic and aircrafts waited for their turns to take off like any other vehicle on the roads. In the immediate future, it may not be too much to imagine helicopters and small chartered planes filling Bangalore’s sky. With Bangalore’s infrastructure struggling to cope with its growth, for Bangaloreans, it will not be surprising to see several small airports developing in and around Bangalore in the near future.
 
Volex chief says success in India is 'tip of the iceberg'
Analyst fears downturn may force company into restructuring

By Claire Shoesmith
Crain's Manchester Business, UK
June 16, 2008

Earlier this month Philip Sparks, an analyst at Evolution Securities, changed his recommendation on cable manufacturer Volex to sell from reduce, saying the Leigh-based company is in a “tricky spot”.

“The slowdown in consumer, telecoms and aerospace markets is pressurising revenues, commodity price volatility continues to disrupt Volex's ability to budget and restructuring demands suck in yet more cash,” Sparks said, adding that there is little going on at Volex to find cheer about. He also cut his share price target from 80p to 60p, implying a 25 per cent decline from the current price.

Overly optimistic

Volex chief executive Heejae Chae begs to differ, however. He admits that the company, whose headquarters are in Leigh, may have been overly optimistic in its outlook — it was forced to issue two profit warnings ahead of last week's results. But he said there was still plenty of potential, particularly in India and China. In fact, he expects revenue from the Indian operations to double again in fiscal 2009 after doubling in the year ended March 2008.

“This is just the tip of the iceberg,” he told Crain's last week after revealing a slump in full-year pre-tax profit to £1.7m thanks in most part to a £2.7m restructuring charge and production problems at the wiring harness division, which makes electrical systems for commercial vehicles and aerospace applications. “We are excited about moving into other areas in India and developing a full supply chain in that area.”

According to Chae, the margin achieved in India is 10 per cent higher than elsewhere in the world and as a result he is particularly keen to expand there.

In the year ended March, Asia and South America accounted for 37 per cent of the group's total revenue, with 24 per cent coming from North America and 14 per cent from the UK.

The growth in the current year is expected to come from India and China as problems in the global economy stall orders from electronics companies in the US.

Volex, whose main power products business makes power cord cables used in products such as Dell laptops (about 90 per cent of all sold) and Apple iPhones (about 80 per cent), has undergone a three-year long restructuring programme which has seen significant job losses, manufacturing processes being moved overseas and a £16m fundraising.

Restructuring

It is still not in much better shape though and Sparks said that if revenue does not pick up soon — it increased just 4.4 per cent in fiscal 2008 — the company could be forced into yet more restructuring.

Chae refused to be drawn on this, but said that 13 facilities is too many for a company with revenue of £260m, implying that more sites — it is currently in the process of closing two — will be shut.

Despite all this, Sue Cox, an analyst at ABN Amro, described Volex has “an interesting longer-term opportunity”, saying that following the aggressive and successful reduction of its cost base it has now repositioned itself into growth segments of the market.
 
India's economy - reasons to be cheerful
By Kaushik Basu, Professor of economics, Cornell University
BBC, UK

Oil and food shortages combined with rising inflation have created a sense of economic crisis in India and the mood is beginning to turn grim.

While the nation's growth rate even till last year has been a handsome 9% there is some indication that this will decline.

Current inflation is not only the highest in the nation in the last eight years, but the rate at which the inflation itself is rising (the inflation of inflation) is extremely high.

It is likely that within the next few months the inflation rate curve will cross the growth rate curve. This has not happened in a long time and adds to the concern.

Is this just a passing cloud or a foretaste of the end of what has over the last four or five years been widely touted as India's economic take-off?

Persistent flaws

Predicting economic trends is always hazardous, but if one went beyond the headlines to the data, there would be reason to conclude that the long-run prognosis for India continues to be good.

This will entail some skilful policy crafting and so, in making this forecast, I am keeping my fingers crossed that the government, no matter which one it is 2009, will be astute enough to do it right.

The analysis is predicated on two broad "facts".

First, while there are important and persistent flaws in India's policy regime, this particular crisis is not its own doing. It is a global phenomenon that has washed up on the nation's shores.

This therefore compares with the downturns of 1997-1999 and 1972-1974, when there were major global crises and India was hit by them.

The 1972-4 crisis is of particular relevance, since that was also caused by a steep rise in global oil prices.

It was a classic case of stagflation. Prices rose rapidly and growth slowed down. India's inflation rate at that time had inched towards (but never reached) 20%, and that remains the record for independent India.

The 1997-9 crisis, which started in East Asia, also caused a slow down in India's growth rate, which had reached 7% per annum for three years before that and dropped down to 4.5% in 1997.

But these happened when India was a much more closed economy.

There is reason to expect that we will be rocked much harder this time, since the nation is much more open now.

I should hasten to add that this must not be construed to be a case for keeping the economy closed.

The vastly higher growth that India has enjoyed since 1994 is largely because of the more open policies.

To close the economy would amount to opting for perpetual poverty in order to avoid the crisis of occasional poverty.

The second reason for optimism is that India is today one of the highest investment economies in the world.

It saves and invests around 35% of its national income. This is a recent feature of the Indian economy and is comparable to the best-performing East Asian countries.

Judicious mix

Arguably no other macroeconomic variable correlates with a nation's growth rate as well as the investment rate - this augurs extremely well for India's long run growth.

The catch however is in the qualifier "long run". The next year is likely to be very tough on the nation since inflation in a poor country is a curse.

So many Indians live so precariously close to subsistence that inflation can easily tip them over the edge. In the immediate run, the government has to use a judicious mix of market interventions to protect those who are the poorest.

In the longer run much will depend on how well we can create jobs to absorb the surplus labour.

This cannot be done by government alone through subsidies and public-sector jobs.

We need to craft policies to encourage the private sector to expand and use more labour.

This requires three critical changes: better infrastructure, less bureaucracy and more flexible labour laws, which allow for different kinds of contracts and permits firms to lay off workers when demand is slack.

Research shows that policies that making it easier to lay off workers, somewhat surprisingly, create more net employment.

What can destabilise growth is political instability and nothing fuels this more than when large segments of the population feeling left out of the mainstream.

Hence, poverty and unemployment need combating urgently.

A crisis can be an opportunity.

It was the crisis of 1991 that set India on the path of reform. The present global crisis will mean that firms and corporations in industrial nations will look for ways to cut costs.

If a poor country like India can put its house in order and be pro-active in the global market, it can be a critical player in helping corporations cut costs. At the same time it would improve its own economic prospects.

So expect some belt tightening, but don't expect the trousers to fall down.
 
Indian inflation likely to hover at 8 to 9%
By Surojit Gupta and Charlotte Cooper
Business Spectator, Australia

NEW DELHI -- India's headline inflation rate is likely to hover at 8 to 9 per cent for some time and will hit double digits before declining in the last quarter of calendar 2008, its chief statistician said.

India's most widely watched inflation measure, the wholesale price index (WPI), is already at a seven-year high of 8.75 per cent, and the central bank unexpectedly raised its key lending rate last week to 8.0 per cent in an effort to calm prices.

Economists expect the impact of a hike in government-set fuel prices early in June will push the WPI to a 13-year peak above 9 per cent this month and possibly to 10 per cent. The early June data is due this Friday.

Pronab Sen, secretary at the ministry of statistics and programme implementation, told Reuters in an interview primary price increases had been factored in but second-round increases were now coming through into the inflation numbers.

"Numerically, I suspect it's going to hang around at somewhere between the 8 and 9 per cent mark for a while," Mr Sen said.

Asked if inflation would reach double digits, Mr Sen replied: "It will touch it but it's not likely to stay there for very long."

Rising costs of raw materials, food and energy worldwide have stoked prices in Asia's third-largest economy, prompting the government to ban some exports and slash some import duties to keep supplies up and prices down. Policy makers have not put a number on where they expect inflation to peak although some have said any significant decline was most likely months away.

Mr Sen is the first to say it could touch double digits.

It is well above the central bank's comfort zone of 5.5 per cent and is posing a major policy headache for the communist-backed ruling coalition in the run-up to key state and federal polls later this year and in 2009, as rising prices hit the poorer members of the population the hardest.

Back to trend

India's economy grew 9 per cent in the fiscal year which ended in March and Mr Sen said growth was moderating.

"Now we are starting to taper down to the trend and the trend would be somewhere between 8 and 8.5 per cent. So I suspect we'll be there somewhere."

But he added that with inflation and efforts to control it, as well as a global slowdown, growth might drop below trend.

"We might actually overshoot on the downward trajectory a little bit, so we might dip slightly below 8 per cent but eventually we'll catch up."

The economy has averaged 8.8 per cent in the past four years. The central bank expects it will expand at 8-8.5 per cent this fiscal year to March, while some economists and policymakers say it could be lower.

On prices, Mr Sen said the peak would depend on how soon demand was compressed and when new industrial capacity came on stream.

"So I'm really looking at the last quarter of the calendar for it to start coming down."

Demand was hard to gauge because of lack of data but there was some evidence of moderation in fast-moving consumer goods and white goods, he said.

Except for steel, capacity was being created across sectors, including pharmaceuticals, auto components, autos and cement, while capital goods, such as engineering plant and machinery, had gained in strength after a late start to capacity addition in 2006.

Inflation eased quickly in late 2007, dropping to just above 3 per cent, and Mr Sen said that base effect would give the headline rate an artificial "push-up" at the same time this year.

Where it ended the fiscal year next March would depend on the government's policy on domestic fuel prices, he said.

"A lot depends on what is done on oil prices and that's a policy matter," he said.
 
John Lamb: Birmingham would do well to follow India's dynamic lead
By John Lamb
Birmingham Post, UK
Jun 17 2008

It was a bizarre experience.

We were in the heart of the West Indian state of Rajasthan protected from the sun by the wooded slopes of the Aravalli mountain range. In front of us was a scene of medieval vintage.

Clay-coloured water was being drawn from the depths by an ox-driven contraption. A huge wheel with buckets attached by rope scooped up the water far below and delivered it into a channel irrigating the fields.

Nearby were straw huts. Young girls in brightly colour saris walked past on their way to market. They carried large wicker trays on their heads piled high with apple and custard fruit - so called because that is exactly how it tasted.

We were beckoned into one of the huts. I ducked through the cloth "door" to be greeted by a young man doing business - on his mobile telephone.

The sight assaulted the senses. You would have thought the only form of communication in these remote parts was by donkey. Not so. The mobile was functioning perfectly.

I was reminded of this scene when I received notification from Mike Loftus, manager of Locate in Birmingham, about an event which asked: India - the world's most dynamic country?

Today Birmingham will welcome a delegation from the Confederation of Indian Industry (CII), who are here to attend a seminar aimed at expanding the business opportunities provided by India's fast-growing economy.

The CII is an employers' organisation and the Birmingham delegation are all senior figures within Indian business.

Whether it's the world's most dynamic economy or not, India is still a country full of surprises and contrasts. You can walk along a village street with open sewers running on each side. Cows and goats roam freely while people in the nearby houses watch Sky television.

So is India the world's most dynamic country? If it is, it marks an amazing turnaround from the days when Mahatma Gandhi was leading the campaign for independence that was to lead India to world status.

For Gandhi, simplicity was a way of life and he took to wearing his signature dress of a simple Indian villager. In 1930 he had caught the eye of Winston Churchill, who then vehemently opposed Indian independence and expressed his displeasure, saying: "It is alarming and also nauseating to see Mr Gandhi, a seditious middle temple lawyer, now posing as a fakir of a type well known in the east, striding half-naked up the steps of the vice-regal palace - while he is still organizing and conducting a defiant campaign of civil disobedience - to parley on equal terms with the representative of the king-emperor."

When the British invited him for talks in London in 1931, Gandhi saw no reason to change his attire. He told the immaculately-dressed viceroy Lord Irvin: "I have caused a great deal of trouble for your government. But as men, we can set aside our differences for the welfare of the nation."

History shows that independence was granted in August, 1947, despite Churchill's strident opposition. What would he have made of events today?

An Indian company has taken over the great British marques Jaguar and Land Rover; immigrants from the sub-continent made a huge impact on the United Kingdom, changing forever our perceptions, our culture and our food; people of an Asian background will be largely responsible for Birmingham becoming the UK's first non-white majority city in a few years.

When I was last in New Delhi, a huge digital counter was clicking away every second. It was recording the number of births in the country as they happened and was designed to make people aware of the need to control the population in a country that is still an incongruous mixture of the medieval and the hi-tech.

The number then was just short of a billion. It is now well past that.

I felt at the time that if this country could get its act together it could become one of the most powerful in the world. Today that eventuality does not appear far away. But is India the world's most dynamic economy? Maybe not yet.

My friend in the straw hut is probably now tapping away on an Apple MacBook Air. And Sir Winston is certainly turning in his grave.
 
India has "exciting growth potential" but must work harder: Goldman Sachs
Investment bank outlines 10 things for India to improve upon, in order to grow 40 times by 2050

By Sanjay Kapoor
IBTimes India, CA
17 June 2008

Global investment bank Goldman Sachs has suggested that the Indian economy has the potential to grow 40 times bigger by 2050 but it has to work harder to achieve its potential.

According to Goldman Sachs' global research report on 'Ten Things for India to Achieve its 2050 Potential,' the world's second fastest growing economy has the potential to even outgrow the US economy by 2050 provided it pay attention to the following ten fields: [1] improve governance [2] raise educational achievement [3] increase quality and quantity of universities [4] control inflation [5] introduce a credible fiscal policy [6] liberalize financial markets [7] increase trade with neighbors [8] increase agricultural productivity [9] improve infrastructure and [10] improve environmental quality.

"Delivery of all these and more would ensure strong, persistent, medium-to-long-term growth, allowing India to reach its amazing potential," the report, written by Jim O'Neill, head (global research), Goldman Sachs, and Tushar Poddar, vice president (research), Asia Economic Research Team, Goldman Sachs India, said.

"Without better governance, delivery systems and effective implementation, India will find it difficult to educate its citizens, build its infrastructure, increase agricultural productivity and ensure that the fruits of economic growth are well established," the report said.

At the same time, "raising India's educational achievement is a major requirement to help achieve the nation's potential," the report continued, adding, "A major effort to boost basic education is needed."

However, India must not stop at that. Better quality of higher education is needed and India must also increase the number of universities, which are of world standard, it said.

In the wake of inflation hitting a 7-year high rate of 8.75 percent, Goldman Sachs said it is high time that "formal Inflation Targeting (IT) should become a centerpiece of a clearer, more defined and credible medium-term framework for macroeconomic stability."

"As part of this, greater independence for the Reserve Bank of India (RBI) and the abolishment of all FX (foreign exchange) controls are recommended," it said.

The report also warned that India's fiscal deficit is growing at an alarming rate and the overall government deficit which "stood at just under 6 percent in FY2008," may "accelerate to above 7 percent" in FY2009, "due to a large debt-waiver for farmers, a big wage hike for civil servants, increasing fertiliser and oil subsidies, and higher exemptions on income tax."

The report noted that the Indian government's expenditures are directed towards wages and subsidies instead of being directed towards productive investment like health, education and infrastructure, which could enhance growth. "A medium-term strategy for fiscal policy, which reduces the overall deficit to a sustainable level, is critical for India," the report said, before the "already high government debt...becomes a key source of macro vulnerability."

The report has also suggested that the financial markets in India be liberalized as they are still small and underdeveloped. "The state still dominates the sector, holding 70 percent of banking assets, a majority of insurance funds and the entire pension sector. Additionally, markets are lacking in corporate debt, currency and derivatives. This leads to a lack of credit and low financial savings," it said.

"Total credit, at 50 percent of GDP remains well below that of its Asian neighbors (an average of over 100 percent of GDP) and especially compared with China (111 percent of GDP)," it continued.

"Within this, consumer credit remains abysmally low (at 11 percent of GDP) compared with an Asian average of over 40 percent of GDP. Household savings tend to be in physical assets and gold, and risk diversification channels are not available," it added.

Financial reforms, the report said, is urgently needed for India to "meet its growth potential" and the nation should implement policies that "channel savings effectively into investment, meet funding requirements for infrastructure and enhance financial stability."

Goldman Sachs has also urged the Indian government to increase its global trade, especially with its neighbors. India currently accounts for no more than 1.5 percent of global trade and ranks below the average of all developing countries, the report noted.

For instance, though India's trade with the US and China have grown over the years (trade with the US stood at $42 billion in 2007 while with China, trade stood at $37 billion), yet, it is insignificant when compared with China's trade with the US ($405 billon in 2007).

India must think "increasingly 'global,'" in order to avail of the "benefits of trade with other emerging giants," the report said.

"India continues to be much less 'open' than many of its other large emerging nation colleagues, especially Chinawe would recommend that India target a major increase in trade with China, Pakistan and Bangladesh," it said.

Noting that nearly 1/3rd of the population are on the edge of poverty, the report said that increasing agricultural output could help millions of people shrug off poverty and help generate employment. Though 60 percent of India's labor force is employed in agriculture, the total contribution of agriculture to overall economic growth is less than 1 percent.

"India's agricultural yields are a fraction of those of its more dynamic Asian neighbors. For instance, rice yields are a third of China's and half of Vietnam's," the report said.

However, at a time when global food prices are rising, India should increase its agricultural productivity and take advantage of the situation.

According to the report, India should also improve its infrastructure, including airports, roadways, energy and ports. Poor infrastructure, the report said, hinders economic growth, as valuable work hours are lost.

"Indian companies on average lose 30 days in obtaining an electricity connection, 15 days in clearing exports through customs, and lose 7 percent of the value of their sales due to power outages," it said, adding India should develop its infrastructure to keep in step with "economic growth and urbanization."

And, last but not the least, "environmental sustainability" is critical for India's economic progress due to the nation's "high population density, extreme climate and economic dependence on its natural resource."

"Urbanization, industrialization and ongoing global climate change will take a heavy toll on India's environment, if not managed better," the report said.

Goldman Sachs' report is part of the investment bank's latest annual update to its Growth Environment Scores (GES), which shows that India has scored below the other three BRIC nations, Brazil, Russia and China, and is currently ranked 110 out of a set of 181 countries assigned GES.

According to the investment bank, if India works harder on the necessary reforms and implements the changes, it could raise its economic growth potential annually by as much as 2.8 percent and reach double digit economic growth, which China has been able to record.

GES, introduced by the investment bank in December 2005, aims to summarize the overall structural conditions and policy settings for countries globally. To arrive at a score on a scale of 10, Goldman Sachs looks at 13 variables including inflation, government deficit, external debt, investment rates, openness of the economy, penetration of personal computers, phones, internet, education, life expectancy, political stability, rule of law and corruption.

For the year 2007, Goldman Sachs has placed India's GEC at around 4.5, while China and Russia's were around 5.5, and Brazil's just over 5.
 
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