Indian Economy - News & Updates - Archive

[Bull]

India could overtake Britain and have the world's fifth largest economy within a decade as the country's growth accelerates, a new report says.

If trends continue, India's economy may then surpass the US and be second only to China's by mid-century, the report by investment bank Goldman Sachs says.

The report says India's programme of reforms has brought increased competition and efficiency.

But there will be a heavy cost as India demands more and more energy.

Everywhere you turn in India's cities are signs of economic boom.

New cars choking the streets, middle-class housing and shopping malls swallowing up farmland, airports chock-a-block with travellers.

But this is probably only the start of a transformation that will reshape the global economy.

Within a decade India can overtake Italy, France and the UK to become the world's fifth largest economy if it keeps up it's current pace of expansion, according to analysts at Goldman Sachs.

India has shifted into a higher gear, they believe, because a decade of reforms have opened the country to greater competition, and spurred industries to become more efficient.

By 2050 India's economy could be larger even than America's, only China's will be bigger, the bank predicts.

The result will be huge demand from this new giant.

Within 15 years Indians should, on average, be four times richer than today, buying five times as many cars, and the country will burn three times as much crude oil to power its growth, putting yet more strain on the world's resources.

But India could also be held back.

The country's poor infrastructure is already struggling to keep up with growth, power cuts are common as there isn't enough electricity to meet current demand, ports are overflowing, many roads pot-holed and crumbling.

And a shortage of skilled workers may undermine the future expansion of India's much-vaunted IT industry.

However, other nations are increasingly waking up to the potentially vast market India holds. Last month the largest-ever American trade delegation to India spent two weeks searching out opportunities.

They were followed by a British group 150-strong led by the finance minister, Gordon Brown.

And the Russian President, Vladimir Putin, is to visit this week where he is pressing for major contracts providing nuclear power and defence equipment.


http://news.bbc.co.uk/2/hi/south_asia/6294409.stm

 

[Neo]

Jan 25 2007
Russia, India to set up titanium joint venture

DELHI. Jan 25 (Interfax) - Russia's Vneshtorgbank and Tekhnosim- Holding and India's Saraf Agencies Private Ltd have signed a trilateral cooperation agreement as part of a visit to India by Russian President Vladimir Putin on Thursday.

"The aim of this agreement is to establish strategic partnership and develop long-term, effective and mutually profitable cooperation in connection with the development of a mechanism for projects being implemented on Indian territory within the framework of setting up a Russian-Indian joint venture," Vneshtorgbank said in a press release.

http://www.interfax.ru/e/B/0/28.html?menu=1&id_issue=11665771

 

[Contrarian]

UBS buys StanC Mutual Fund

MUMBAI: It's final. After months of speculation that had thrown up a slew of possible suitors, Swiss banking giant UBS will buy Standard Chartered Mutual Fund. The European bank, best known for its expertise in managing private wealth in true Swiss banking tradition of extreme secrecy, will pay around Rs 600 crore to buy out the fund house, industry sources said.

The deal, which was finalised in London recently, is somewhat different from the recent acquisition deals in the Indian mutual fund industry. Over the last few years, most of the acquisitions were buyouts of only the assets of the fund house and not the whole mutual fund. But in the UBS-StanC MF case, the Swiss bank is buying out the entire equity in the fund house.

UBS will pay about Rs 530 crore to the promoters of the fund house, while it would also assume a liability of Rs 60 crore, at present in the books of StanC MF, sources said. Aviva, another European financial giant, was also in the race for StanC MF but had backed out, refusing to assume the liability of the fund house.

As of January end, StanC MF's assets under management were about Rs 12,628 crore. So at the current valuation of about Rs 600 crore, the price works out to about 5% of AUM. Going by industry standards, the price was a little on the higher side, industry players said.

Usually, equity fund AUMs fetch a higher price, about 2.5-3% of the AUM while debt funds are priced at about 1.5% of the AUM. Liquid and money market funds are priced lower than 1% of the AUM.

Since its inception in 2000, StanC MF was a pure-play debt fund house. It was only in 2005, that the fund house launched its first equity fund, Classic Equity Fund. Since then it has added about four pure equity schemes and an equity arbitrage fund.

For UBS, the entry into the fast growing Indian fund industry is a huge step forward. For a long time the Swiss banking giant has been trying to enter the country's banking industry but is yet to get a license from the RBI.

 

[Contrarian]

Higher tax burden on shipping cos

MUMBAI: Even as the Indian shipping industry fights tooth and nail to shake off the burden of 12 different taxes, another liability just knocked at its door.

The income tax department is asking companies in the business to shell out 22.5% as TDS (tax deducted at source) on income earned by giving ships out on rent. In shipping parlance, it is called 'charter hire'.

If the department has its way, the Rs 11,000 crore industry will end up with a tax burden that runs into a few hundred crores.

Clearly, people who run the business aren't happy. "This twist will destroy the industry,"said an industry source.

From the tax department's perspective, they have simply put ships on par with 'plant and machinery' given out on rent. Hence, they argue, income earned ought to be taxed at source at 20%. Add cess and surcharges to it and the number shoots up to 22.5%.

The tax department has already turned the heat on companies like Varun Shipping, Mercator Lines and UltraTech. Unlike other kinds of tax payments, the onus of collecting TDS is on the user of the service.

So, UltraTech has already started deducting taxes on the charter hire it pays two companies—K C Maritime and Bulktainer Shipping.

Sources told TOI that notices have also been issued to oil majors like ONGC and Cairn Energy which hire ships or different offshore vessels for their exploration works.

"The highly capital intensive (shipping) industry's net profit is not even 20% of their total income,"said an official.

"The shipping industry has reached a stage where more than looking at the business opportunities, we look at the tax incidence for each and every little transaction. If all the government departments behave in the similar way, shipping in India will not be viable any longer,"said the head of a shipping company.

 

[Contrarian]

Iron ore row may hit CSN's Corus bid

MUMBAI: Even as the battle for Anglo-Dutch steel maker Corus reaches a crescendo, reservations are being expressed about the Brazilian Companhia Siderurgica Nacional's (CSN) ability to supply iron-ore, a key component of the deal.

This is being viewed as a shot in the arm for Tata Steel, the other bidder in the ring for Corus.

Earlier on Thursday, Financial Times, a British newspaper reported that Brazilian mining group Companhia Vale do Rio Doce (CVRD) has challenged CSN's ability to supply iron ore to Corus, which may potentially harm CSN's bid for the Anglo-Dutch steelmaker.

Jose Martins, director for ferrous operations of CVRD, told the newspaper that the company would question CSN's ability to ship iron ore under the terms of a 2001 contract signed between the firms.

"If CSN buys Corus, we will look closely at how the deal is done to see if our right (to the ore) remains in force,"Martins was quoted. CSN has, however, dismissed mining group CVRD's claim.

In a statement to the press, CSN said, "There is no basis for this story. There is no change to our position or our commitment to acquire Corus. Should CSN acquire Corus, it will exercise its rights to supply iron ore from its Casa de Pedra mine to all its operations, including those in Europe."

Banking and financial experts in India viewed this development as an advantage for Tata Steel as the two companies head for a face-off next Tuesday.

"Tata Steel already has an upper hand as its bid has been approved by the EU. Although CSN has dismissed any doubts about its ability to supply iron ore, should its bid go through, CVRD's challenge certainly does not help its cause,"an industry official had said.

Meanwhile, Corus shares fell 1.4 percent to 544.5 pence in early morning trades on the LSE.

 

[Contrarian]

ONGC, Rosneft ink JV

NEW DELHI: Flagship explorer ONGC on Thursday announced signing an MoU for forming a joint venture with Russia's Rosneft, a deal first reported by TOI on Wednesday.

The joint venture is mandated to bid for exploration acreages and develop refining, marketing and petrochem projects in Russia and India as well as third countries.

The MoU envisages setting up of two study groups for identifying opportunities in exploration and other areas of the oil industry.

It provides scope for bringing on board other Indian firms for specific projects decided by the joint venture.

The deal is a progression of the partnership the two companies have in Sakhalin-I, where each of them hold 20% equity in the ExxonMobil-led consortium operating the Far East field.

But it is also similar to one Rosneft has with China's CNPC and will bring the Indian company directly in competition with Beijing's efforts to get a piece of the Russian hydrocarbons treasure.

ONGC has been eyeing the Sakhalin-III acreage as well as the Trebs and Titov fields in the Timon Pechora region. These are lucrative acreages and will see intense competition with other suitors.

 

[Contrarian]

NEW DELHI: The Income Tax department has detected tax evasion of over Rs.1,700 crore and has seized undisclosed assets worth about Rs.228 crore in searches carried out during the current fiscal up to November, 2006.

The searches were conducted across the country, including at Mumbai, Delhi, Kolkata, Chennai, Ahmedabad, Visakhapatnam, Hyderabad and Guwahati, covering various segments of trade, commerce and industry including manufacturers, real estate developers, service providers, civil contractors, performing artists, educational institutions, etc.

 

[Contrarian]

Trai slashes roaming charges by up to 56%

NEW DELHI: Your mobile roaming bill will come down by up to 56% but you could well end up paying more for your local calls — if GSM operators manage to unitedly retaliate against the new measure.

The telecom regulatory body, Trai, announced a new roaming tariff regime on Wednesday and said this will take effect from February 15. But faced with a hit of Rs 800-900 crore in revenues from a niche customer segment, GSM operators say they may have to increase local call charges.

"The decline in roaming tariffs necessitates an increase in local call tariffs as roaming tariffs were so far allowing operators to offer affordable services to consumers. This will adversely affect low-end, marginal consumers," said T V Ramachandran, director general, COAI, an industry association that represents GSM mobile operators. TOI was the first to report Trai’s intent to slash roaming charges.

Experts feel this retaliation exposes the industry’s inability to successfully appeal against Trai’s tariff order in the Telecom Dispute Settlement and Appellate Tribunal as TDSAT is unlikely to rule against a pro-consumer order.

 

[Contrarian]

'Non-regulation on local calls to remain'

NEW DELHI: Trai is on a firm wicket especially since the basis of its order of bringing down roaming tariffs is cost data submitted by the operators themselves.

At present, Trai does not regulate local costs as these are anyway low due to intense competition.

When contacted, chairman, Trai, N Misra, said he was unaware of COAI's intent and would examine the issue. ''But we will continue to exercise forbearance on local calls,'' he added.

However, COAI's hand appears weak. Its ability to raise local call charges is constrained by the public sector BSNL on one hand and CDMA operators on the other. BSNL already offers roaming tariffs in the range prescribed by Trai and may not play ball on raising local call charges. CDMA sources confirm they will not raise their local call rates.

''The four GSM operators in every circle appear alone. They can't consider collusive action to raise local call charges, as any such move will invite regulatory intervention,'' says an industry expert.

The new tariffs are applicable for all mobile customers, prepaid and postpaid, across all types of tariff plans offered by both GSM and CDMA mobile operators.

Consumers will no longer be charged a rental or a surcharge in any form for roaming. Incoming SMS while roaming is free while outgoing SMS continues to be charged.

Trai has placed a per minute cap on charges for roaming calls, irrespective of the terminating networks and tariff plans. This translates to a 22%-56% reduction in roaming tariffs compared with the current market rates, over and above consumer savings on rental charges.

Trai has said it will closely monitor market developments on roaming and if perceptible competition evolves in the market, will revisit the issue and even consider forbearing roaming tariffs.

The telecom regulator had initiated a consultation process in November 2006 to revisit ceiling tariffs for national roaming services specified in 2002. The authority took this step as it felt while competition in mobile services was satisfactory, the same was not found to be true for the roaming segment of mobile services.

Significant developments in the telecom industry in the last five years have brought down costs for provision of service.

New and evolving technologies lowered equipment costs, while the segment also benefited from various regulatory and policy measures like reduction in access deficit charges, carriage charges, annual licence fees payable by operators on the AGR and others. Costs per subscriber were further impacted by explosive growth in minutes of usage, and subscribers which increased 50% in 2006 alone. However, roaming tariffs failed to benefit from any of this.

 

[Contrarian]

Firstsource public offer in Rs 54-64 band

MUMBAI: Firstsource Solutions, formerly ICICI Onesource, is all set to be the first pure-play Indian BPO company to list in the country. On Wednesday, the company announced its initial public offer in the price band of Rs 54 to Rs 64, which will open on January 29 and close on February 2.

Over the last one year, two Indian BPOs — WNS Global Services and EXL Service —also got listed but both had given the Indian bourses the pass and instead tapped the US market.

Firstsource is offering about 6.93 crore shares, of which 6 crore are new shares being issued by the company while the balance 93 lakh shares are offer for sale by SIF, one of the shareholders of the BPO company. At Rs 64 per share, it would raise about Rs 444 crore of which SIF, an ICICI group company, will get nearly Rs 60 crore.

Firstsource proposes to use the IPO proceeds for acquisitions, setting up new facilities, repaying loans and for general corporate purposes.

For the nine-month period ended December 2006, Firstsource's total revenues were Rs 562.1 crore.

 

[Contrarian]

Wipro forms JV with Saudi firm

BANGALORE: Wipro Infotech has formed a joint venture with Dar Al Riyadh Group to cater to the $2.3 billion Saudi Arabian IT market.

The new entity will be called Wipro Arabia Ltd. While Wipro will hold two-thirds stake in the JV the rest will be with Dar Al.

Suresh Vaswani, president, Wipro Infotech, said: "The JV will offer a range of IT solutions including application implementation, development and management, package implementation services and system integration to firms in SaudiArabia." This is the first overseas JV for Wipro in the Asia Pacific market.

Dar will bring 72 people and Wipro 220 staffers to Wipro Arabia's fold. The Saudi Arabia has contributed about $20 million in revenues to Wipro Infotech's total revenue of about $160 million for the first nine months of 2006-07, while the entire Middle East region brought in close to $25 million.

 

[Contrarian]

MS, Infy to research on building software

BANGALORE: Microsoft Research (MSR) is a unit that seeks to make computing easier and affordable. Infosys Technologies excels in building and providing large-scale software solutions. On Tuesday, the two companies announced a collaboration to figure out newer ways to build software and make it work more effectively.

Microsoft and Infosys have come up with a set of problems that call for intensive research. "If we are successful, we will change the way software is written," P Anandan, MD, Microsoft Research Lab India, told TOI.

Adds Subramanyam Goparaju, VP and head of Software Engineering Technology (SET) Labs at Infosys, "When the scale of a project reaches a certain size, people often spend time in building the software. And then they spend an equal amount of time to make it work. If we can define a new standard that is more effective and less time consuming, that will benefit the industry at large."

Microsoft comes to the table with state-of-the-art tools that could help in coming up with more effective ways to build software. Infosys brings with it the advantage of scale. The sheer size and volume of software services that the latter delivers to its worldwide clients could help this tie up in looking at what works best.

"The common challenge for both companies will be to look at how technology can make software more reliable and in turn reduce the complexity involved in its development phase," explains Rick Rashid, senior VP, Microsoft Research, who is also credited with being the first employee to be asked by the board of directors at Microsoft Corp to start MSR, way back in 1991.

MSR has 50 researchers in Bangalore and gets a strong supply of interns every year. It has produced over 55 research papers. SET Labs at Infy is over 100-strong. The two together could change the way software engineers work.

 

[Contrarian]

Inflation falls to 5.9% from 6.12%

NEW DELHI: Inflation declined to 5.95% during the week ended January 13 from a two-year high of 6.12% in the previous week, on the back of decline in food products' prices. Though, it has fallen slightly with respect to previous week, it is still higher than the RBI's projection of containing inflation in the range of 5-5.5% in 2006-07. Inflation figure a year ago was 4.9%.

The fall in the inflation is primarily because of sudden jump in the whole sale price index in the corresponding week last year. Experts feel, headline inflation will continue to hover in 6-6.5 % range.

The government, at the same time, has been announcing measures to bring down the prices of essential commodities. On Thursday, it has brought down duty on maize to nil from 15% on the import of up to 6 lakh tonne and 50% on more than that. Finance minister P Chidambaram on Thursday said, ‘‘We would have anyway done it on February 28 (the union budget presentation day) ...... having regard to inflation we advanced it.''

Prior to the import duty cut on maize, government had slashed import duty on several items like capital goods, cement, steel, aluminium and copper on Monday. It also cut the import duty on edible oil by up to 12.5 percentage points on Wednesday. Government had earlier exempted custome duty on wheat and pulses.

However, the decline in the inflation in the week ending January 13 is not due to the custome duty cut effected early this week.

In the week ending January 13, cereals, pulses, fruits, vegetables became cheaper. Urad, whose trading has been suspended in futures market, declined.

However, the decision to ban futures trading came on January 23, while the inflation data pertained to January 13. Food articles prices declined both in primary articles category and the manufactured category.

 

[Contrarian]

3G policy by March: Maran

NEW DELHI: India, one of the world's fastest-growing mobile phone markets, said on Wednesday it plans to announce its next generation — 3G — policy by March that telecom players expect will ease congestion.

"The policy will be ready by March 2007," communications minister Dayanidhi Maran said on the sidelines of a conference in the Indian capital.

Major telecommunications providers have been carrying out trials of mobile services using the 3G or third generation spectrum in order to test equipment.

Indian telecoms firms are keen to be given frequencies in the 3G spectrum to ease congestion resulting from a boom in mobile phone sales.

A government-appointed panel has been reviewing such issues as pricing and allocations. India has 189.9 million
telephone subscribers, of which 149.5 million were mobile customers, according to official figures that were released in December 2006.

The country gained 6.48 million new mobile subscribers last month, making it one of the world's fastest growing mobile markets.

The government forecasts that by 2010 India will have more than 500 million mobile subscribers. "India's mobile subscriber base is increasing phenomenally every year — one customer is added every second," Maran said recently.

Media reports have said that regulatory authorities favour an auction of spectrum for the launch of 3G mobile services and that only five existing mobile operators should be given the frequency.

 

[Contrarian]

Big reduction in India's working poverty: ILO

NEW DELHI: This is one endorsement that votaries of economic reforms may cherish. International Labour Organisation, in a report, has said that working poverty has been "dramatically reduced" in India, indicating that more people have managed to pull themselves out of the net of absolute poverty.

Coming from a body mandated to protect workers' interests, the finding in ILO's latest report on ‘Global Employment Trends' may help reformers better battle the propaganda that the dismantling of quota permit raj has increased poverty. And that reforms do not benefit those at the bottom of the social and economic pyramid.

The endorsement is not unconditional and comes with a pointer to the challenge facing India and other countries in South Asia. The report points out that 87.2% of the working population in South Asia is having to subsist at an abysmally low income of $2 a day.

The report also shows that GDP in the region has been dipping, clearly pointing out that the smart rate clocked by India has not been able to mask the poor progress in the region as a whole. Joblessness also remains a worry. In fact, the report shows that the dip in GDP from 7.9% to 7.2% since last year was manily because of growing unemployment.

Ratio of employment to population dropped from 58.4% in 1996 to 56.5% in 2006. In India in particular, it points out that working poverty rate has reduced even though minimum wage at $2 a day is one of the lowest. Yet, even this low wage is an improvement on the past and the report indicates that more people now manage to sustain themselves.

The report also points out that South Asian countries "have tended to be less integrated in global markets. They still strongly depend on agriculture and therefore on weather conditions and demand for farm products".

The agricultural sector still accounts for over half of total employment, but is quite a change from the stock Indian political claim that "80% of the country lives in villages". This is more than in any other region, except sub-Saharan Africa. "Moreover, many of the new jobs created outside agriculture in South Asia are in the informal sector and are not necessarily of better quality than those in agriculture," the report asserts.

The region's employment is not growing as fast as the working age population. The fact that over the past decade, employment-to-population ratio has been dipping shows that employment creation has been insufficient to absorb the growing labour force.

According to the report, low literacy rate, particularly of adult population in South Asia, is a cause of unemployment. "More education and training would help to expand employment opportunities, increase labour productivity and allow people to work themselves out of poverty. This in turn would contribute to sustainable economic growth," it asserted.