Indian Economy - News & Updates - Archive

[Neo]

Railways’ real estate auction​

By Anand Kumar

INDIAN Railways is the biggest landowner as its track network is spread across 63,000 km across the nation. But it also happens to be one of the most inefficient landlords, and has a terrible track-record of managing the vast tracts of land.

Even in cities like Mumbai, Delhi and Bangalore, where land is at a premium, the railways have mismanaged their estates, resulting in hundreds of acres being occupied illegally by the land mafia. After the land sharks ‘acquire’ the properties – obviously in league with some officials – they put up slum colonies and rent out the shelters to the poor and needy.

Once an illegal shanty comes up on public property, it is a time-consuming and near-impossible task to get them relocated. It is not just the courts and local politicians who are opposed to the forceful eviction of the occupants, but even international organisations like the World Bank do not extend funding in the absence of a resettlement of persons likely to be displaced by a project.

It is only recently that Indian Railways has realised the worth of the land owned by it. In places like Navi Mumbai, a satellite town on the outskirts of India’s financial and commercial capital, the railways have capitalised on their land holdings, putting up sprawling IT parks and office complexes on top of railway stations.

Of course, these developments occurred because of a smart joint venture partner, the Maharashtra government-owned City and Industrial Development Corporation (Cidco), which has been ensuring commercial exploitation of the land. Recently, Cidco and the railways auctioned off tens of acres of land outside new stations in Navi Mumbai, fetching them billions of rupees.

Similarly, in the national capital, the Delhi Metro Corporation – which has built an impressive mass rapid transit network – has been auctioning off land outside the new stations profitably, and top developers have built shopping malls and commercial office blocks.

Railway stations are prime commercial properties because of the fact that thousands of passengers traverse through them. Mumbai’s suburban railway network carries over six million passengers daily, many of who would prefer to do their daily shopping – for vegetables, fruits, groceries, and essential items – near the stations.

While Indian Railways failed to capitalise on this aspect, enterprising traders, hawkers and vendors have exploited it to the hilt. But hawkers and vendors occupy narrow corridors leading from the stations to bus stands, resulting in further congestion. In Mumbai, many of the railway over-bridges are also occupied by hawkers, who block the smooth flow of passenger traffic.

But the suburban railway management has now realised the potential in exploiting the little land that is still left with it, and is planning to auction off space above and below railway stations, and also in the neighbourhood.

Indian Railways, under the stewardship of Lalu Prasad Yadav – who has turned out to be a surprisingly shrewd and pragmatic minister – is now launching an ambitious expansion project. It plans to promote two major dedicated freight corridors – linking Delhi to Mumbai and Kolkata.

These access-controlled corridors would see high-speed freight trains lug cargo in modern containers, from and to the two major ports (Mumbai on the west coast, and Kollkata on the east) to the country’s heartland. Indian Railways has a pathetic track-record in cargo movement, and many private companies prefer sending their goods (including automobiles, consumer durables, industrial products, etc) by road – though the costs are higher – because of factors like safety and timely delivery.

Unfortunately, though Yadav announced the ambitious Delhi-Mumbai dedicated freight corridor ( the nearly 1,500-km-long corridor would cost about $7 billion) nearly two years ago, there has been little movement on the ground. A special purpose vehicle (SPV), the Dedicated Freight Corridor Corporation, was set up last year, but the project has been moving at a painstakingly slow pace.

The Indian Railways, managed by a board, is a top heavy and centralised organised, with little autonomy for divisional railways and other units. Even today, the Indian Parliament has to pass the railway budget, and even senior officers in other parts of the country have little freedom and have to approach the board for clearances.

Allegedly autonomous corporations set up by the railways have failed miserably, as bureaucrats in Delhi are loathe to the idea of allowing managers take decisions on their own. Organisations like the Delhi Metro Corporation, or the Konkan Railway – which built a new railway line along the western coast of the country – have survived and thrived thanks to the presence of strong chief executives who have refused to kowtow to the ‘babus’ in Delhi.

The managing director of Delhi Metro, E. Sreedharan, is a much-respected professional, who brooks no interference from any quarters. He built the metro in a record time, and has ensured its autonomy. Stung by an independent Delhi Metro boss, the railways were reluctant to allow autonomy for metros in other cities.

But state governments, who are joint venture partners in metro corporations, have managed to win independence for new corporations in cities like Mumbai and Bangalore. These mass rapid transit networks are being promoted under public-private partnerships, with private (including international) partners managing the show.

The delay in building the Delhi-Mumbai corridor will prove to be prohibitively expensive for one of the biggest projects being taken up in India. The Delhi-Mumbai Industrial Corridor (DMIC), which will come up along the freight corridor, envisages an investment of a whopping $90 billion over the next few years.

The corridor will see hundreds of industrial clusters, mega power plants, ports and airports come up along side. It is expected to generate three million jobs in the manufacturing and processing sectors, lead to the rapid industrialisation of at least half a dozen states, triple industrial output in the region and quadruple exports from the hinterland.

The corridor is being partly-financed by the Japanese government, and dozens of Japanese corporations are eager to invest in units and in the infrastructure. Last week, Akira Amari, Japan’s minister for economy, trade and industry, visited Delhi and Mumbai, and worked out the modalities of the mega project with Kamal Nath, India’s commerce and industries minister. He also met top industrial barons in Mumbai.

The project, which was conceptualised last December, when Indian Prime Minister Manmohan Singh visited Japan, is likely to kick off formally next month, during the official tour of Japanese Premier Shinzo Abe to India. Work on the project is expected to begin in January, and is likely to be completed within seven years.

According to Amari, the corridor will trigger off an “industrial revolution” in India. The Japanese delegation included top executives from leading companies including Suzuki Motor Corp, Honda Motor Company, Mitsui & Co, Sony Corporation and Hitachi Ltd. All of these corporations are eager to set up units, and hope to establish a regional base along the corridor, to service the European and African markets.

Of course, Indian government leaders, stung by the controversies relating to land acquisition for special economic zones (SEZs), have made it clear that the government would not be involved in acquiring land for the project. Investors will have to negotiate with farmers and landowners, to prevent the kind of violence that broke out in West Bengal recently.

Politicians and state governments are also lobbying for a piece. Nath, the federal minister – who is from Madhya Pradesh – was annoyed that the corridor would not cover his state. He warned that the project would not be a success if Madhya Pradesh – India’s largest state – was not included.

But analysts feel that the project – initially expected to cost around $50 billion – would become prohibitive if the government now decides to divert the corridor to other near-by states and cities. A direct route between the north Indian markets and the western coast ports would cut down travel time and also result in significant savings.

It remains to be seen whether the ambitious project will take off smoothly, and attract huge investments, or whether it will fall victim to petty politicking.

http://www.dawn.com/2007/07/09/ebr11.htm

 

[Bushroda]

Mutual synergies
Mail & Guardian, South Africa
Navdeep Suri: NEWS ANALYSIS
09 July 2007 11:59

When the Confederation of Indian Industry decided to set up an India Business Forum (IBF) here last March, they were pleasantly surprised to discover that as many as 36 Indian companies have resident offices in South Africa.

Surprised because, since 1948, India had enforced economic sanctions against the apartheid regime with such vigour that a flourishing trade in commodities like jute and tea had come to a grinding halt and by the time we resumed full relations in 1994, our economic and commercial links were non-existent. Trade is booming, as the accompanying articles attest.

Investment flows are another important indicator of the growing economic partnership. Accurate FDI data is much harder to obtain than trade statistics, but we estimate that Indian companies in South Africa are currently executing projects to the tune of more than $2-billion. These cover a broad range of sectors including automobiles, metallurgical industries, telecommunications, pharmaceuticals, processed foods, software development, minerals beneficiation, hospitality and financial services.

Several Indian companies have strong social responsibility programmes in place. To take just a few examples:

The Tata group is taking 50 unemployed women graduates to India for internships and provides bursaries to deserving students at the University of the Witwatersrand.

Satyam has already taken 50 young South African graduates to their state-of-the-art IT facility in Hyderabad for a year-long programme that includes nine months of on-the-job training.

Ranbaxy plans to take chemists and pharmacists to India for training and will start enrolling local staff in an online training programme for its Be-Tabs facility.

Rosy Blue and KGK are training and employing several hundred local staff in their diamond-cutting and -polishing facilities in Cullinan and in Jo'burg's CBD.

Neotel is setting up a Telecom Training Academy in Jo'burg to meet its needs for skilled professionals.

The Confederation of Indian Industry is in dialogue with the Umsobomvu Youth Fund to set up separate training centres for IT and vocational skills.
But this is not a one-sided relationship. As the Indian economy grows annually at 8% to 9%, several South African companies have moved quickly to position themselves in a trillion-dollar economy with a middle class of more than 300-million.

Airports Company South Africa and Bidvest have won the huge contract for expansion and upgrade of Mumbai International Airport; SAB-Miller is now India's second largest brewer; Altech will soon start supplying set-top boxes to the Indian market and FirstRand Bank has become the first African bank to establish a presence in India, joining financial services majors Old Mutual and Sanlam, which have already been around for a while. Sasol, De Beers, BHP Billiton, Batemans and Tiger Brands are some of the other major local players looking for a piece of the action. The Sahara group is executing substantial projects in both countries.

In doing so, the private sector in both countries is giving concrete shape to the somewhat nebulous concept of South-South cooperation. Indian pharmaceutical companies are playing a key role in making healthcare more affordable for low-income communities in Africa and elsewhere. They were largely responsible for bringing down the price of an antiretroviral dose from an extortionate $30 per day to the much more reasonable level of about $220 for an entire year -- or just 65 cents per day!

When President Thabo Mbeki and Prime Minister Manmohan Singh set the ambitious target of trebling bilateral trade by 2010 as part of the Tshwane Declaration signed in Pretoria last October, we started to draw up a work plan that will take us towards this goal; help us make up the lost time.

As Mahatma Gandhi put it in a different context almost a century ago in Johannesburg in 1908, "If we look into the future, is it not a heritage we have to leave to posterity, that all the different races co-mingle and produce a civilisation that perhaps the world has not yet seen?"

And that really sets a challenge for us, in government and in the business community. Can we harness the synergy, the complementarity between our countries and our economies to truly produce a model of economic partnership, of south-south cooperation, that the world has not yet seen?

Navdeep Suri is India's consul general in South Africa

 

[Bushroda]

May industrial output seen up 11.1 percent
REUTERS[ TUESDAY, JULY 10, 2007 03:30:41 PM]

NEW DELHI- Annual growth in Indian industrial output is expected to have slowed in May to a still-robust 11.1 percent as a year-long monetary tightening campaign slows credit flow and dampens consumer demand.

The median forecast of 10 analysts in a media poll put annual growth below April's 13.6 percent and a 14.5 percent in March. That would be the slowest rate since February when output grew 10.8 percent from a year earlier and well off last November's peak when output grew an annual 15.4 percent, its fastest rate in more than a decade.

"Interest-rate sensitive consumer goods sectors like automobiles will slow down, but the growth in infrastructure industries will still be strong," said Rajeev Malik, economist at JP Morgan in Singapore. The central bank has raised its short-term lending rate five times since June 2006, most recently in late March, and has raised reserve requirements three times since December to contain inflation and credit growth in the red-hot economy. Asia's third-largest economy expanded by 9.4 percent in the 2006/2007 fiscal year to March 31 -- its fastest in 18 years -- attracting huge capital inflows.

The inflows pushed the rupee 9.5 percent higher against the dollar this year, making it Asia's top performer and fuelling concerns that exports may suffer because of the currency's strength. Less competitive exports would weigh on the manufacturing sector which accounts for 15 percent of India's gross domestic product. The central bank and the government expect growth to moderate to around 8.5 percent in 2007/08.

 

[Contrarian]

A Reunion at the "MIT of India"
TIME
Monday, Jul. 09, 2007

Google, Microsoft and General Electric came to Santa Clara, Calif., last weekend, and all but begged graduates of one of the world's top engineering schools to work for them. Google spent $200,000 to be the lead sponsor of the four-day-long reunion of 3,500 alumni. Microsoft's research center in Hyderabad came calling. The CEO of GE, Jeff Immelt, already employs 1,500 graduates and says he needs more. Stanford? MIT? Harvard? Nope. This was a gathering of graduates of the Indian Institutes of Technology.

Prime Minister Jawaharlal Nehru started the Indian Institute of Technology in 1950 because he recognized that his new country needed builders— engineers who would give India the same vitality that was turning the United States into a superpower. The IIT system now includes seven campuses, and its graduates quickly became India's technological elite. A half-century later, their influence is almost as great in the U.S., where 25,000 of IIT's 100,000 graduates live. IIT grads include venture capitalists Vinod Khosla, Kanwal Rekhi and Yogen Dalal; former McKinsey managing director Rajat Gupta; Vodafone CEO Arun Sarin and 35 of the top 600 executives at GE. Silicon Valley couldn't run without them, and India's booming tech economy has opened up another world of opportunity. "You've almost got too many choices," Immelt said in a speech to the group on Friday. Spend some time in the world of IIT, and engineering almost feels — well, glamorous.

IIT has often been called the MIT or Harvard of India, but there's a big difference — IIT is a lot more selective than the top Ivy League schools. About 250,000 Indian students take the first screening exam for a spot at an IIT; 100,000 make it to the next round; but only 4,000 are eventually selected. Even if they could make the cut at IIT, however, the brightest young American students are less likely now than they were a generation ago to choose engineering. The number of engineering grads in the U.S. peaked in 1986 at close to 80,000, and has fallen to about 70,000 now. "Engineering has played second fiddle to other professions in the U.S." says Subhash Tandon, a 1972 IIT grad. "There isn't a prime time TV show about engineers."

But it will take more than a CSI: Palo Alto to reverse that trend. Engineering in the U.S. needs a rebranding. IIT went through such a transformation after the tech bubble burst in 2001, when engineers — Indian and American alike— were being laid off by the thousands. That's when some of the school's most prominent alumni decided to turn IIT into a brand combining the brainpower of engineering with the excitement (not to mention the big money) of entrepreneurship, by playing up the accomplishments of IITans like Umang Gupta, CEO of the web services company Keynote and employee No. 17 of the company that later became Oracle. Gupta is a rock star to young IITans, who say he understands their desire to take what they know and build something bigger out of it. "Everybody wants to start a company," says Deepak Goel, a 1999 IIT graduate and design engineer at Microsoft.

Making a mark in the global economy, however, means becoming a global citizen. "How well do you travel?" Immelt asked. It's a lesson that U.S. workers, too, are starting to learn. Satish Bhat, program manager of Microsoft's development center in Hyderabad, says he's been taking on not just Indians who want to move home, but also "diversity hires" — Americans who want to move to India. "That's where the action is," Bhat says.

Still, the IIT boosters are aware of the challenges of globalization and those it leaves behind. Immelt said India's success will be defined by its ability "to make the pie bigger." Hillary Clinton, who spoke by satellite to the crowd (a decision that left many at the conference wondering whether she was trying to distance herself from India), asked these engineers, scientists and business people to use their skills to create "a shared prosperity for America and India." IIT graduates helped build the technology that made globalization possible. Perhaps they'll also be the ones who make it work for everyone.

IIT is a great instituition, but i never wanted to go there, though i am doing engineering. My dad was hyperventilating the day the results came out for IIT. He wanted nothing more than for me to get in IIT.

 

[Bushroda]

IIT is a great instituition, but i never wanted to go there, though i am doing engineering. My dad was hyperventilating the day the results came out for IIT. He wanted nothing more than for me to get in IIT.

I just gave one attempt & threw my hands in the air. Good thing is that even my dad didn't expect too much from me.

 

[Bushroda]

Favorable Government Policies and a Booming Economy Keep the Indian Healthcare Industry in Top Shape
Frost & Sullivan
Mon, 09 Jul 2007 12:40:02 GMT

PALO ALTO, Calif., July 9 /PRNewswire/ -- With the demand for healthcare services set to more than double in the next five to ten years, the Indian healthcare industry appears ripe for investment. A robust economic reform process and inflated healthcare budgets have attracted big ticket foreign investments in several sectors, such as pharmaceuticals, biotechnology, clinical trials, medical devices and equipment, healthcare services, insurance, and outsourcing.

New Country Industry Forecasts from the Frost & Sullivan Economic Research and Analytics team addressing the Indian Healthcare Industry reveals that opportunities exist in the pharmaceutical and medical tourism sectors of the industry.

If you are interested in a virtual brochure, which provides manufacturers, end users, and other industry participants with an overview of the latest political, economic and social analysis of the Indian Healthcare Industry then send an e-mail to Shwetha Thomas, Corporate Communications, ERA, at sthomas@frost.com with your full name, company name, title, telephone number, e-mail address, city, state, and country. We will send you the overview by e-mail upon receipt of the above information.

India's recognition of pharmaceutical product patents and establishment of new regulatory bodies will likely draw more foreign investors seeking outsourcing opportunities in the country. Additionally, the creation of a suitable infrastructure coupled with an increase in healthcare as well as drug and pharmaceutical R&D expenditures will attract new drug development projects.

"The government is not sparing any efforts to promote India as a hot destination for medical tourism," says Frost & Sullivan Research Analyst Konda Reddy. "It has increased the budget outlay toward the development of medical tourism centers across the country."

By increasing public healthcare expenditures to 2.0 percent of the gross domestic product (GDP) by 2010, as stated in the National Health Policy, the government will help to increase the number of healthcare centers in remote areas and improve essential healthcare supplies.

The government continues to work toward delivering effective and affordable healthcare services to the population's vulnerable sections residing in rural areas through its common minimum program and national rural health mission.

India also looks to modernize its healthcare system through greater collaboration with the healthcare industry. Specifically, the country hopes to provide innovative drugs, expand healthcare insurance, as well as provide modern medical equipment and better services. The government aims to revolutionize the delivery of healthcare services using information and communication technology with its implementation of Telemedicine, one of the world's biggest healthcare projects.

Healthcare-related programs such as e-Health and the government's encouragement of public-private partnerships, have improved the accessibility, standard and quality of medical services. India continues to give priority to its national disease control programs, which receive considerable funding from various bilateral and multilateral donor agencies.

The various health and family welfare programs must share credit with the country's economic and social transformation, for the improvements in basic healthcare indicators such as infant mortality rate (IMR), maternal mortality ratio (MMR), life expectancy, and death rate over the last decade.

Despite obstacles, the economy will likely improve steadily from 2006 to 2010. The GDP and gross capital formation are expected to increase, while the inflation rate will likely decrease. Furthermore, the government will also implement policies to significantly lower the unemployment rate.

"This conducive investment environment has directly and indirectly enhanced healthcare infrastructure, facilities, and the quality of healthcare professionals in India," notes Reddy. "This has, in turn, improved the standard of health services in the country, making it a potential regional hub for healthcare services in the Asia Pacific."

The three-part series addressing the Indian Healthcare Industry is part of the Frost & Sullivan Healthcare GPS subscription services. The Political and Policy Analysis of the Indian Healthcare Industry provides a detailed coverage of the political establishment, general economic and industry specific policies, and their impact on the industry. The Economic Analysis provides an overview of the market size, a discussion of drivers as well as restraints, and an analysis of market structure in the context of the overall Indian economy. The Social, Infrastructure, and Labor Analysis studies the labor market dynamics, infrastructure conditions, and consumption profile of end-users. Analyst interviews and briefings are available to the press.

Frost & Sullivan's Country Industry Forecast research provides a unique country-specific perspective on various industries. The valuable Country-Industry Linkage includes in-depth analyses and forecasts.

The Frost &Sullivan Economic Research and Analytics team provides research focused on timely and critical sociometric, econometric, demographic, political, and regulatory information for specific countries by industry. It produces research services, economic impact articles, and economic updates that discuss relevant and critical economic trends.

 

[Bushroda]

The shape of things to come
T T RAM MOHAN
TNN[ WEDNESDAY, JULY 11, 2007 11:16:25 PM]

Slowly but surely, India’s financial sector is seeing a change in ownership patterns. The process has been on for a while now but it has gathered pace with the growing global integration of the Indian economy. It is most visible in areas directly linked to the capital market — brokerage and investment banking — but others such as asset management, insurance and banking are not entirely immune.

Foreign firms are moving into brokerage and investment banking in a big way. The writing was on the wall when Goldman Sachs broke off its collaboration with Kotak, Merrill Lynch gained control over its joint venture with DSP and Morgan Stanley parted ways with J M Financial. Several foreign firms have made their moves into the retail space: Citibank (Sharekhan), Merrill Lynch (India Infoline), BNP Paribas (Geojit Securities), Standard Chartered Bank (UTI Securities).

When foreign firms came in several years ago, the broking market was smaller, the investment banking opportunities mostly related to the domestic capital market and the local firms had all the relationships. The volumes just did not justify the investment in distribution or the demands on top management time.

Over the past four years, the situation has changed dramatically. Trading volumes, both institutional and retail, have risen sharply. Mergers and acquisitions of Indian firms and by Indian firms have shot up. So has international fund-raising by Indian firms. Private equity investment is growing rapidly. Investment banking revenues have soared as a result.

Paradoxical as it may seem, the very success of India’s corporates and their growing integration with the global economy poses a threat to India’s financial firms. The rising share of broking and investment banking income related to cross-border activity means that foreign firms can go it alone on the strength of such activity alone.

They do not need to worry about revenues related to the domestic capital market. This means they do not have to invest for now in domestic distribution. One office in Mumbai is all they need. At the same time, they can sense the potential for growth in retail brokerage and wealth management. So they are taking equity positions in the leading Indian retail players.

Is this finis for Indian investment banks and brokers? Not really. Foreign firms will focus on the investment banking needs of top corporates and on institutional brokerage. Nevertheless, investment banking opportunities in small and mid-sized companies will still be available to Indian players.

Brokerages run by first-generation professionals will see merit in selling out to foreign players. But family-run brokerages, with their long-standing relationships, will stay. Indeed, some of them are strengthening their presence in the retail market by buying up small brokers. By combining retail brokerage with wealth management they can remain viable.

In asset management, the top five includes one public sector firm (UTI), one domestic firm (Reliance) and three joint ventures (HDFC, ICICI and Birla). There is no particular advantage that foreign firms enjoy at the moment. This could change when Indian investors seek exposure to international capital markets in a big way but that is some distance away yet.

In insurance, LIC, with a market share of 80%, remains the leader by a wide margin. Moreover, the entry of new firms has opened up the market in a big way, so loss of market share has not come in the way of healthy growth in premiums at LIC.

In insurance too, it is the domestic market that counts and there is little product differentiation, so foreign firms lack a decisive advantage.

In banking, the situation is closer to that in investment banking. Cross-border business is fast becoming a big source of fee income. Foreign banks have shown a huge increase in profit over the past year on the strength of their global network. This is a material change in the competitive situation. With their entrenched advantages in distribution, public sector banks can hang on to the lower tiers of the domestic business but they need desperately to upgrade their human resources.

Wherever regulatory barriers have been dismantled, the international financial giants have come marching in and domestic players have fallen by the wayside. Will this story be replicated here? It is possible but it is not inevitable. India’s geographical size and lack of financial penetration hold out the possibility that, despite the entry of foreign firms, there is space for Indian firms. But for this to happen, we require a combination of skilful regulation and nimbleness on the part of Indian firms.

 

[Bushroda]

Turkey for India investments in energy, infra
PTI[ WEDNESDAY, JULY 11, 2007 08:30:32 PM]

NEW DELHI: With sugar, energy and petrochemicals sectors to be privatised soon in Turkey, the country on Wednesday invited Indian companies to work in partnership, taking advantage of its favourable investment environment.

"The sugar, energy and petro chemicals sectors in Turkey will be privatised in another 12-18 months and this will give ample opportunity to foreign firms to work in partnership with Turkish companies in these sectors," Investment Support and Promotion Agency of the Republic President and CEO Alpaslan Korkmaz said at a CII conference here.

He said Turkey is enhancing the role of private sector in its economy by opening key markets to competition and regulation by independent agencies.

Once the privatisation is complete, Indian companies can form joint ventures with Turkish firms to expand their market in Turkey, besides gaining access to other global markets, he said.

"Improved investment environment and accelerated privatisation in Turkey will provide Indian companies an access to the EU, Central and Eastern Asian markets," he said.

Growing domestic market, institutionalised economy, qualified and cost effective labour are favourable to Indian companies investing in Turkey, especially in areas like infrastructure, IT, energy, food processing and manufacturing, he added.

Korkmaz said FDI in Turkey is set to be 30 billion dollars for 2007. Citing the example of Indian developer GMR bagging an about Rs 11,000-crore project to modernise Istanbul's second airport, Korkmaz said more Indian firms should emulate such a move and expand presence in the country.

 

[Bushroda]

Engaging India: The great retail debate
By Joe Leahy, Mumbai correspondent
Financial Times, United Kingdom
July 11 2007

Engaging India is a weekly online column analysing the issues, trends and forces behind the business and politics shaping India and its impact on the world, which appears on FT.com India, a dedicated online section on India. Engaging India appears every Thursday morning exclusively on FT.com India and is written by Jo Johnson, the Financial Times’ South Asia bureau chief; Amy Yee, New Delhi correspondent; and Joe Leahy, Mumbai correspondent.

One evening a few weeks ago, I popped into a small grocer’s shop on Peddar Road, a major thoroughfare in wealthy south Mumbai, to buy a carton of milk.

The lights in the shop were dim, presumably to save electricity, and the owner, while polite and helpful, did not even have any plain soy milk in the rusty fridge at the back of the store, let alone the dairy variety.

This in a neighbourhood that probably has one of the highest concentrations of millionaires and billionaires in India. Directly across the road, for instance, is the stately Jindal Mansion, the headquarters of the Indian steel family of the same name.

The experience caused me to reflect on what is becoming perhaps one of the most important debates in the modernization of India’s economy: whether to allow large corporations to invest in India’s retail market even if this is at the expense of the country’s millions of “mom and pop” stores like the one on Peddar Road.

On one side of the debate are the domestic conglomerates led by Reliance Industries, the country’s largest company controlled by industrialist Mukesh Ambani, which has launched a $5bn push to set up a nationwide chain of stores selling fresh produce.

On the other are the millions of small shopkeepers and hawkers, who worry they will be crushed by the entry into the sector of Reliance and its peers, as well as foreign groups such as Wal-Mart, which plan to come in once the government eases restrictions on foreign investment.

At stake is a market worth $200bn in sales, according to KPMG, but of which organised retailing presently accounts for only 3 per cent.

The unsatisfying shopping experience in Peddar Road reminded me of the words of Roger Corbett, the straight-talking former chief executive officer of Woolworths Australia.

During a visit to Mumbai last year, Mr Corbett said India’s neglected retail sector was crying out for investment.

“Why should the Indian people have inferior shopping? Why shouldn’t they have world-class shopping?” he said.

If organised retailing were allowed “what will happen is that the Indian market will also improve and the net benefactor, big time, will be the Indian consumer.”

Such arguments hold little weight with the country’s army of small shopowners. At a press conference this week, a coalition of traders, hawkers, cooperatives and unions, united by an activist group known as India FDI Watch, issued an ultimatum to the large retailers – quit retailing by August 9 or face boycotts and demonstrations.

Equating their struggle to India’s independence movement led by Mahatma Gandhi, the retailers called for a “Day of Protest” against the corporate chains, pointing to overseas studies claiming retailers such as Wal-Mart have wiped out unions and small businessmen in the neighbourhoods they have established stores.

Vinod Shetty of FDI Watch said Wal-Mart should read the history of India’s freedom struggle. “Finally the East India Company had to quit India, the cost of fighting the Indian people was too expensive,” he said, referring to the British colonial trading company.

Mohan Gurnani, the head of an umbrella group that claims to represent 750 traders associations in the state of Maharashtra, of which Mumbai is the capital, said family-owned businesses saw the entry of Wal-Mart and Reliance as an “economic terror” that would lead to the “forced starvation of their families”.

Beneath the political rhetoric, there are a myriad of factors at play, including the growing impatience of many Indians with the concentration of wealth in the hands of industrialists, businessmen, and highly educated professionals.

India’s communist party and its allies are also latching onto the small traders’ fears to pick up votes ahead of a series of elections over the next couple of years.

But as with many such issues in India, lost in the debate are the interests of the people most in need of help, in this case, the country’s farmers.

Corporate retailers are probably the only group in the country with the capital and the incentive to build the rural infrastructure – the roads, cold storage, and logistics networks – that farmers in the country’s impoverished hinterland desperately need.

India loses as much as 1.7 percentage points of gross domestic product from wastage of farmers’ produce and the siphoning off of commissions by numerous middlemen, according to a study by Crisil, a ratings agency affiliated with Standard & Poor’s.

Asked about how they would improve rural infrastructure, the small traders’ lobby has few answers except to warn that farmers would eventually be worse off if large corporations were allowed to monopolise the market.

In the end, both sides are probably right. It would not only be economically catastrophic if small traders were put out of business en masse, India would also lose an intrinsic part of its cultural and social fabric.

At the same time, India’s countryside needs investment to help cure the social ills that are driving millions to migrate to the slums of big cities such as Mumbai.

Some argue one compromise would be to offer existing small traders jobs in supermarkets or franchises to set up modern convenience stores. But the traders’ lobby rejects this idea, fearing their members will become “enslaved”.

At this point, only one thing is clear. The emerging war over the future of shops like the one on Peddar Road promises to become one of India’s most burning socio-economic issues of the next decade.

 

[Bushroda]

A-380 may land ahead of schedule
12 Jul 2007, 0110 hrs IST,Saurabh Sinha,TNN

NEW DELHI: India will see the world’s biggest commercial airliner, the A-380, in regular operation much earlier than expected. Kingfisher, the only Indian carrier to have ordered this aircraft, was supposed to start getting deliveries from late 2011. However, the airline’s CEO Vijay Mallya told TOI that he has "requested Airbus to advance the delivery of two planes to 2009", something which is most likely to happen.

Hoping to get government clearances to fly abroad much before then, the airline plans to mount these planes on the Bangalore-San Francisco and Mumbai/Delhi-New York routes with a possible stop-over in Europe.

"Negotiations are on with Airbus," Mallya said. Kingfisher is keen on getting these planes fast as the aviation ministry is learnt to be in favour of a case-to-case basis clearance to airlines for flying abroad and do away with the five-year norm. Moreover, Delhi will get an A-380-compliant code F runway next year. New airports in Bangalore and Hyderabad are also going to be ready next year that can easily accommodate this plane.

The airline had placed a firm order of five A-380s, each of which has a list price of Rs 1,200 crore, with an option of five more at the Paris air show in 2005. The original delivery schedule was supposed to begin in 2010 but Airbus’ initial troubles with this plane meant that the planes would start coming from 2011 or 2012. Mallya is learnt to be renegotiating the price because of delays.

But with the focus on the US-India sector amidst Jet beginning flights via Brussels and Air India launching nonstop ones from August, Kingfisher too wants to begin operation on this route with its characteristic bang. It plans to have a casino on board this aircraft and put three classes — first, business and economy.

From next March, Kingfisher will start getting the long range A-340-500 planes that are capable of flying nonstop for 16 hours. Sources say this plane could be used for nonstop flights while trans-Atlantic flights via London may be mounted on the A-380. These plans are not on thin air as the airline’s recent acquisition of 26% stake in Air Deccan has put it on a firmer ground. "Air Deccan will complete five years of operation in 2008 and would be eligible to fly abroad. Anyway, there’s a proposal to relax norms for airlines to go abroad," said a senior official.

Kingfisher clearly wants to be the first Indian carrier to begin operating the A-380s. The only other airline that's currently considering this plane is AI. It is learnt to be looking at the 550-seater (in three classes) A-380 and the 475-seater Boeing 747-800 for being inducted into fleet after 2011.

 

[Bushroda]

Indian hotels show strength in numbers.
Thursday, 12th July 2007
Source : HotelBenchmark™ Survey by Deloitte

India’s size and diversity is matched by very few countries; spreading over 3m square kilometres, India rises in the snowy peaks of Kashmir in the north, and falls to the tropical shores of Kerala’s southern tip -

In the west the barren rocky deserts of Rajasthan provide an arid, hostile environment, while in Bengal to the east lush jungles create a haven for wildlife.

Dotted across this vast and breathtaking countryside are huge metropolises, swelling secondary cities and many thriving regional centres, over 40 cities with populations 1m strong, all with their own particular industries and economies. But despite India’s huge scale, contrasting regions and scattered cities, one thing does link this spectacular country, growth.

The figures are staggering. India contains over 1.13 billion people, and is predicted to become the world’s most populous country by 2050, overtaking China as it swells to 1.6 billion. Three cities – Mumbai, Delhi and Kolkata - contain over 10m inhabitants, and those figures rise daily. The northerly state of Uttar Pradesh has a population of over 139m - approaching the 143m living in the whole of Russia and making it the most populated internal region in the world. Likewise, India’s economy is growing at speed. Real gross domestic product (GDP) grew by 8.5% in 2005, a further 8.8% in 2006, and according to the Economist Intelligence Unit (EIU) this trend will continue in 2007-08.

Yes, India is on the move and the hotel industry is not being left behind. Across India average room rates are sky-rocketing. In the twelve months to March 2007 average room rates have risen 28.7% to US$174, driving revenue per available room (revPAR) up 26.9% to US$122. The Indian hotel market however, does suffer from limited supply. There are an estimated 105,000 hotel rooms in India – a number comparable to that of Manhattan. This lack of supply, especially in the lower end of the market, combined with increased demand, is allowing hoteliers to push up average room rates.

For the first time India looks like becoming a major force in the world hotel industry. So what is fuelling this dramatic growth, and how sustainable is it? In this article we shall look at the factors defining this exciting period in India’s history. To gauge these trends there are no better places to look than India’s four major gateway cities - Delhi in the north, Chennai in the south, Kolkata in the east, and Mumbai in the west.

The new tiger economy

It has to be recognised that it is not India’s hotel industry alone that is prospering. Across the country industries are booming, encouraged by a strong and apparently stable economy. The government is looking east, to their heavyweight partner China and the heavily Chinese influenced Association of South-East Asian Nations (ASEAN), for trade and investment. Combine this with an increasingly close relationships with the US, already excellent ties with the UK and an, albeit partial, thaw in tensions with neighbour Pakistan, and India’s global network of friends looks pretty healthy. Key areas such as IT, pharmaceuticals and telecommunications have seen rapid expansion in recent years. Many companies outsource their operations to India, benefiting from a seemingly bottomless pool of skilled labour, cheap costs and hefty government incentives.

So what effect is this economic upsurge having on the hotel industry? Well, the EIU believes that approximately 80% of foreigners coming to India are there to do business. As business travel generally generates a higher spend than leisure tourism, it is plain to see why the Indian government is keen to promote this further. International tourism expenditure in India in 2006 was some US$8.7 billion, and is expected to rise to over US$10 billion in 2008, with the lion’s share of this being generated from the hotel sector.

It is no wonder therefore, that India’s government is tearing down the barriers to potential inward investment and continued growth. The central government’s expenditure tax is no longer applied to hotels and services charges have been slashed. The hotel industry is now classed as part of the country’s infrastructure by the government, lowering borrowing costs. The government is also issuing new long-term tourist visas to the citizens of selected countries, including the UK, Japan, Germany, France, Switzerland and Brazil. The five-year validity of the visa sends out a clear message: encourage repeat visits from wealthy tourists.

Island nation

India can almost be considered an island, and in ancient times it was. Approximately 6m years ago the Indian continental plate crashed into the Eurasian continent, an impact so severe it created the largest visible mountain range on earth – the Himalayas. With such a formidable boundary to the north and two long coastlines tapering to the southern tip - where the Bay of Bengal and the Arabian Sea meet at the Indian Ocean - India can essentially only be reached by air. The volatile border regions with Pakistan and Myanmar only serve to limit land access further. With the existing road and rail network often considered time consuming, unreliable or even unsafe, and a growing number of private low-cost airlines entering the market, domestic air travel across this vast land is also becoming increasingly popular.

Given the scale of India, air travel is a key sector. Domestic air travel throughout the country is becoming a cheaper, more feasible option with private carriers Kingfisher, Jet, Air Sahara, Indigo, Spicejet and Deccan Airways all expanding their fleets and cutting fares. In response to this, the national carriers Indian Airlines and Air India are doing likewise.

The majority of international visitors arriving in India fly into one of the four gateway cities. So how are the hotel industries in these metropolises being affected by, and reacting to, the overriding nationwide trends?

The capital: Delhi

The gateway to the north of India, Delhi is the starting point for the majority of India’s tourists. The apex of the revered Golden Triangle tourist track and capital of the ancient Murghal Empire, Delhi has enough attractions of its own to enjoy before tourists set off to Agra and Jaipur. However with thriving telecommunications, IT, banking and manufacturing industries, a key English-speaking workforce and a per-capita income more than twice the national average, Delhi is also a haven for business travel.

Delhi’s relevance to the world of business is enhanced by the presence of many major multinational companies, with local government actively promoting this area as a counter to the Financial Centre of Mumbai. With the exception of the Taj Group, all hotel industry major players have based themselves here.

A dramatic 35.7% rise in the twelve months to March 2007 forced Delhi’s average room rates up to an incredible US$225; the highest of all Indian cities. While occupancy levels decreased slightly to 74.8%. The main reason for this is under supply, especially in the lower end of market. As with all cities in India, the market in Delhi is dominated by 5-star and 5-star deluxe properties. Efforts are being made to solve this problem; with the local government introducing, as part of their Delhi Master Plan, a scheme intended to create a more even-spread accommodation hierarchy across the city, while also developing accessibility (road, footpaths, road bridges and parking). Another impetus for this is the fact that Delhi will host the forthcoming Commonwealth Games in 2010.

Between now and the Games, new developments in the National Capital Region (NCR - including Delhi and its suburban conurbations of Gurgaon and Noida) are set to include a 320-room Novotel, a 200-room Taj Hotel, three Starwood (the 300-room Westin New Delhi, the 97-room Westin Sohna-Gurgaon and the 220-room Sheraton New Delhi) and a 319-room Leela-Kempinski joint venture. The public sector is also playing a role with the state governments of Delhi, Haryana and Uttar Pradesh having ear-marked 75 potential NCR sites for hotel development.

Together with Mumbai, Delhi accounts for the bulk of inward arrivals. The modernisation plan for Indira Gandhi International Airport by its new private owners is already underway. This is expected to be completed by 2010 and will more than double its capacity.

The financial centre: Mumbai

The capital of the western Maharashtra state, Mumbai was created as a deep water port by the British and Portuguese, and began to boom following the construction of the Suez Canal. It is now the financial capital of India, home to the Reserve Bank of India, the National Stock Exchange and the more traditional Bombay Stock Exchange, contributing an estimated 40% of India’s foreign trade. Mumbai also has thriving industries revolving around IT, engineering and healthcare sectors. Most Indian conglomerates have their corporate offices here, including Tatas, Birlas and Reliance. This status makes Mumbai a haven for national and international business travel.

Mumbai experienced revPAR growth of 40.8% in the year to March 2007. This, again, is due to a sharp increase in average room rates, which rose 35.6% to US$202 over the same period. Occupancy for this period stands at 75.9%. Once again an extremely top-heavy market dominated by luxury properties, as well as a shortfall in supply, is forcing this trend. Increased capacity at Mumbai’s Chatrapati Shivaji International Airport has exacerbated the problem and allowed hoteliers to force average room rates even higher. With the proposed, further expansion and modernisation of the airport by its new owners, and with the new airport planned in the eastern suburbs of Mumbai, the city looks set for an even greater increase in arrivals. Planned developments over the next two years by Marriott, Four Seasons and Accor’s 300-room Sofitel Mumbai will help.

The growth city: Kolkata

The capital of West Bengal, Kolkata is the hub of trade into eastern India. As a traditionally socialist city, Kolkata had been unattractive to inward investment. The state government (the longest serving democratically elected communist government in the world) had long favoured trades’ unions and workers’ rights, and consequently the post-independence days had seen Kolkata lose out as international companies located elsewhere. However since 2000 with changed leadership, IT and manufacturing sectors are now revitalising the city. With its prime location for trade routes with China and the ASEAN countries, and direct flights to Brunei, Bangkok and Singapore, Kolkata looks set to grow and grow.

Although revPAR remains the lowest of the gateway cities, Kolkata’s rate of growth is among the country’s highest. An average room rate rise of 35.7% in the year to March 2007 is on a par with Delhi. Average rates for this period stand at US$120, having hit a peak of US$160 in January 2007, while RevPAR grew 35.6% to US$83. But as the city’s status as a centre of industry grows in the coming years, will supply become increasingly outstripped by demand? In the hotel sector Marriott plan to open a new 250-room Courtyard property in the city by 2009, while Hilton, with its Indian development partner DLF Ltd, also has a new opening planned in the city. It remains to be seen however, if the supply of beds in the city can reach the necessary levels for the projected visitor boom.

The ‘resort’: Chennai

Despite the 12km-long Marina Beach that defines Chennai’s eastern limits, the capital of Tamil Nadu state and the gateway to south India is no beach resort, but a major industrial centre. The traditional hub of India’s automobile industry is also now becoming a major IT centre, housing manufacturing plants for companies such as Dell, Nokia, Samsung and Cisco. Naturally the meetings, incentives, conference and exhibitions (MICE) tourism is a major sector, with the 2,000-capacity Chennai Conference Centre providing an excellent facility. Many of the positive effects of Bangalore (India’s Silicon Valley) have also rubbed off on Chennai, with many IT outfits reportedly considering Chennai more favourably due to the infrastructure that the city offers.

With revPAR growth of 27.2% for the twelve months to March 2007, Chennai follows the pattern of India’s gateways cities. Average room rates, rising 32.5% to US$135, accounted for this growth, while occupancy fell slightly to 75.2%. Direct air links with many ASEAN countries and the Middle East show strong potential for further growth through MICE tourism. Leela-Kempinski plan to open the 300-room Leela Palace Kempinski Chennai by 2008, while the 253-room Hilton Chennai is set to open in December 2007. Both hotels will include significant conference facilities, including a 1,600 square metre convention centre at the Leela-Kempinski.

Indian summer: the autumn effect

The autumn time is always a good period for the Indian hotel industry. The searing temperatures of the summer months cool off to create a more visitor-friendly climate, and India’s inbound tourist cycle begins. This starts in late September/early October and runs through until February or March. Inbound tourism takes a significant leap around this time, and with the government’s ‘Incredible India’ campaign compounding the already versed impacts of India’s economic growth, and increased capacity at India’s two main airports in Delhi and Mumbai, 2006 was an especially good autumn. A good conference season and the fact that cricket-crazy India was hosting the autumn ICC Champions Trophy led to the number of inbound tourists growing 13% to over 4.4m in 2006.

The impact of this combination of factors saw hotels able to force room rates up dramatically. Although previous year comparisons had been positive throughout 2006, momentum gathered in autumn and October saw room rates across India rise 36% to a national average of US$196. By November this had risen further to a staggering US$215, levelling at US$205 in December. The biggest individual impact of this autumnal boom was seen in Mumbai in November 2006, when the soaring average room rates and high occupancy levels saw revPAR swell to US$213 – a staggering 83% rise from the previous year.

A false dawn...?

Make hay while the sun shines’, appears to be the current motto of India’s hoteliers. But can average room rates be forced higher in future years and if so, how high? Already Mumbai and Delhi have average room rates comparable to the traditionally most expensive cities in Asia. Delhi’s average room rate for the April 2006 to March 2007 period (US$225) outstrips all its regional rivals, including Singapore (US$138), Shanghai (US$138), Hong Kong (US$190) and Tokyo (US$196). But how high can they go?

A hotel construction boom in years to come looks like resolving the supply problem in all sectors. India’s budget sector in particular looks set to take off, with Accor and Hilton planning to launch their Ibis, Formule 1 and Hilton Garden Inn brands across the country. Whitbread Plc, operator of the UK’s Premier Travel Inn budget chain have committed to opening several hundred hotels across India and China in the next 5 years, while the easyGroup has also identified India as an important market for its easyHotel.com brand.

Local operators are also expanding their portfolios, with Sarovar having launched its Hometel budget brand, and South-India based Choice Hotels looking to open 8-10 budget hotels a year in the next 3 years. And development is planned not only in the gateways cities, but new, rapidly growing metropolises such as Bangalore, Hyderabad, Pune, Chandigarh, Indore and Jaipur. Once this happens it is likely that the new competitive climate will force average room rates, even in the top end of the market, to plateau or fall.

…Or a bright future?

To maintain such growth, India’s economy needs to continue its boom and the government continue to invest in the country’s infrastructure. There seems no reason why, with India’s wealth of resources and skilled labour, the economy cannot continue to grow at speed. With a booming IT sector, India is ideally placed to thrive in the 21st century. However justification of such high average room rates can be found only in world-class facilities and back-up services for the business traveller. If the logistics of travel itself are troublesome, business people may be dissuaded from travelling to India. As India’s cities attract increasing numbers of visitors, the surrounding services need to be improved.

However with the increasing supply of air travel it is becoming easy to travel around this vast, spectacular land. Whether you enter by the north, south, east or west - through Delhi, Chennai, Kolkata or Mumbai – India is now becoming more accessible. As urbanisation increases, from sprawling gateway metropolises, to the rapid-rising secondary cities, and small but swelling regional cities, the need for hotel rooms will keep pace.

International chains have realised this great opportunity, and even although average room rates cannot continue to climb as steeply in future years as was seen in 2006-07, a large increase in supply will compensate for this. Growth is growth in any form.

 

[Bushroda]

India's Outsourcing Sector Boosted By Tax Ruling
Lorys Charalambous, Tax-News.com,
Cyprus 11 July 2007

India's Supreme Court has said that outsourcing activities carried out by a unit of Morgan Stanley in India are not liable for Indian taxes, in a case that was being keenly watched by other major multinationals with operations in India.

The Supreme Court bench, headed by Justice S. H. Kapadia, was of the opinion that Morgan Stanley Advantage Services (MSAS) was not liable for tax in India since it was a back office processing unit, and did not constitute a permanent establishment in the country.

"There was no agency PE as the PE in India had no authority to enter into or conclude the contracts. The contracts would be entered in the US. The implementation of those contracts only to the extent of back office functions would be carried out in India,” the judgment stated.

However, the court also said that the parent company would have to pay an appropriate "arms length" price to the Indian subsidiary, otherwise tax could be imposed.

The ruling is likely to be viewed with some relief by the numerous other multinational companies such as HSBC and Standard Chartered which have outsourced their back office and administrative functions to India.

The outsourcing industry has been a boom sector for the Indian economy in recent years, but the tax authorities have been unsure on the tax status of such companies, known as ‘BPOs’ (Business Process Outsourcing firms). Tax uncertainty was heightened when the Indian government notified firms in 2003 that a BPO would be liable for income tax on earnings which related to their parent company’s core business. The BPOs opposed the move, arguing that the services being provided were sold to foreign customers, and that therefore foreign firms should be liable for tax.

A Morgan Stanley official speaking after the verdict said that "significant certainty" on the taxation of BPOs had been restored by the Supreme Court.

 

[Bushroda]

Can we twist the dragon’s tale?
MAYUR SEKHAR JHA
TNN[ WEDNESDAY, JULY 11, 2007 06:17:50 AM]

Small industries in India contribute 40% of the country’s industrial output, producing over 8,000 value-added products. They contribute nearly 35% in direct export and 45% in the overall export from the country. They are one of the biggest employment-providing sectors after agriculture, providing employment to over 28 million people. The 3-million-plus small and medium-sized firms produce a diverse range of very basic to highly-sophisticated products. They are driving the India growth story.

“But, despite their strength, SMEs are facing tough challenges in the present scenario of liberalisation and globalisation. They are finding it difficult to sell their products in the domestic and international markets because of increasing competition,” admits a senior official in the ministry of small-scale industries.

enter the dragon

THE biggest competition comes from China. Small companies in several manufacturing sectors such as chemicals, textiles, consumer goods, electricals & electronic gadgets and toys, among others, are losing business to their Chinese counterparts, not only in export markets, but also at home.

In textiles, for instance, despite being under the quota regime, Chinese manufacturers beat their Indian counterparts by huge margins. The story is similar in the case of durables.

According to experts, the biggest difference is that Indian policymakers do not depend on smaller companies for economic growth. “Though there is much talk of SMEs, the general ideological stand is that only large companies can bring about a critical mass in the economic growth. On the other hand, in case of China, the government trusts the SME sector, which forms 99% of all enterprises in the country and are a vital force for the sustained development of the economy,” says Prof Aditya Mukherjee of Delhi’s Jawaharlal Nehru University.

Ou Xinqian, vice-chairman of the National Development and Reform Commission, China's top economic planning panel, told a press conference last week that China has 42 million SMEs, which represent 99% of all enterprises in the country. It provides 75% of jobs in urban areas. Industrial output and export volume of these enterprises constitute 60% of China’s total. The seriousness with which the Chinese government deals with SMEs is evident from the fact that it is implementing a special law for the promotion and protection of these units.

Drag & play policy

NOT that policymakers in India have not been reactive to the issue of empowering SMEs. As part of the Union budget this year, finance minister P Chidambaram had announced a preferential lending policy for small-scale industries (SSIs). However, this policy is yet to see the light of day.

“True, there have been delays in implementing the SSI policy. But it is very much there. Moreover, we are working on certain other incentives for the SME sector as well,” the official in the Union finance ministry adds.

The finance ministry is also considering an industry proposal for setting up a knowledge enterprise development fund. This fund will have an initial corpus of Rs 500 crore and will be used to finance start-ups and ideas. Access to funds, at present, is perhaps the biggest issue with India’s small companies. “If this fund is created, it will solve many wearies of the Indian SME sector. Moreover, provision for loans at lesser interest rates is important. For a small businessman, paying 15% interest kills business sense,” says Chetan Bijesure, manufacturing and senior assistant director (foreign trade division), Ficci.

the think-big factor
THIS is not all that the SME sector has been lobbying for. They say that the government should look at encouraging commercial banks to look favourable at risk-capital funding for SMEs. “We get hampered, specifically while entering into technology-driven areas, as we can get funding only on the strength of our balance sheets and, due to this fact we get limited in our funding processes. The government should encourage commercial banks to actively look at early-stage risk-capital funding,” says Tiger Logistics managing director Harpreet Singh. The Rs 50-crore Tiger Logistics is a first-generation enterprise, which is seeking to expand into the global markets. Until now, most expansion projects of the company have been debt funded.

Rakesh Malhotra, managing director of Luminous Power Technologies, which makes power invertors, says that the government should aim at being more proactive rather than being reactive. “The government should, through various communication channels, aim at displaying information, which is forward looking rather than putting up information only on rules and laws. They should (also) aim at setting up sources for qualified information that shows how the government plans to match up to the changing scenarios rather than just putting up rules and regulations.”

Another critical challenge that Indian SMEs have been facing is that of mid and senior-level managers. “The government, along with education institutions (and not just the tier-I and II institutions) must aim at developing this category of personnel power so that SMEs can benefit from this. The lack of quality managerial bandwidth actually stunts the growth of SMEs,” says Perry Madan, senior partner of Delhi-based HR and temping firm Elixir Web Solutions.

 

[Bushroda]

DP World to buy, expand ports in India
AGENCIES[ THURSDAY, JULY 12, 2007 08:08:13 AM]

NEW DELHI: DP World, the world's third-biggest container terminal operator, is seeking to buy or expand port facilities in China and India as trade booms in the world's two fastest growing major economies.

``India and China are two important markets for us,'' Chairman Sultan Ahmed Bin Sulayem said today in an interview in Singapore. ``India, we are well covered both in the east and west coasts. China we need to cover more.''

DP World and other container terminal operators plan to invest more in the two countries, as economic growth and surging exports boost sea-cargo shipments. The Dubai-based company plans to spend about $3.5 billion over the next five years on overseas projects worldwide.

The company, owned by the government of Dubai in the United Arab Emirates, would acquire or expand facilities as part of the expansion plan, he said.

DP World aims to double its annual handling capacity to 84 million 20-foot equivalent container units by 2016. The company operates 42 terminals in 22 countries, ranking behind PSA International Pte. and Hutchison Port Holdings Ltd.

Last month, it raised $3.25 billion from the sale of bonds, partly to help fund expansion plans. The company also sold six US terminals for an undisclosed sum to American International Group Inc. earlier in the year because of political opposition in the country. The company acquired the facilities as part of its $6.8 billion acquisition of London-based Peninsular & Oriental Steam Navigation Co.

Indian Growth

In India, the company is investing $500 million in a container terminal in the southern city of Kochi. It's also spending $190 million on expanding the Kulpi port in West Bengal, which it acquired as part of the purchase of P&O.

DP World's total investments in India, the world's second- fastest-growing major economy, will likely reach $2 billion, Senior Vice President and Managing Director Ganesh Raj said in March.

In January, DP World won approval to build a terminal in Qingdao, mainland China's third-busiest port. The company already has a stake in a terminal in the port, southeast of Beijing. It also has stakes in terminals in Tianjin and Shanghai.

Container volume at ports in China has tripled since 2001, as U.S. and European consumer buy more low-cost goods made in the country. China's surging exports have fueled economic growth of more than 10 percent in each of the past four years.

Dubai Aviation is in talks to buy an airline in Africa, bin Sulayem said without naming the airline. The company also wants to manage more airports, he said.

 

[Bushroda]

Emerging Asia's Innovation Edge
Developing economies such as India and China are poised to overtake mature ones in innovation and technology adoption

Farihan Bahrin
Businessweek

At the rate developing nations are churning out new inventions, businesses in mature markets can no longer afford to wait for innovation to come to them, warned Gartner in its latest report released Monday.

"[Businesses] have to look beyond their own borders and consider untapped markets that they have perhaps not considered up until now, if they want to continue to innovate in a global economy," said Sandy Shen, research director at Gartner, noting that both China and India are emerging as powerhouses of innovation and creativity.

According to Shen, China and India have the ambition to lead the IT industry in the global market, and innovation is their only way to compete globally. In 2005, for, example, Gartner's study showed that the number of patent filings in China outnumbered those in the United States.

"Slightly less than one-tenth of world intellectual property organization international patents were attributed to emerging markets," revealed Partha Iyengar, vice president and analyst at Gartner. "If the growth rates remain constant, the emerging market share could reach almost one-fifth in 2012."

As the two largest growing economies in Asia, both China and India have been making major progress, particularly in the respective areas of research and IT services innovation.

Chinese firms are already posing a serious threat to global organizations, according to Shen. She noted that conglomerates like Huawei, Lenovo and Haier have been stepping up investment in new product research and aggressively pushing into the global market as low-cost players.

India, on the other hand, appears on the way to becoming an IT services powerhouse with a cohort of mega-sized Indian IT companies such as Wipro, Infosys and Tata Consulting Services (TCS) leading the charge. According to Gartner's report, IT services account for around half of India's services exports, and the market is forecasted to grow at more than 30 percent per year.

With the populations of China and India moving from below poverty line to a size comparable to the European middle-class in purchasing power parity (PPP) terms, Gartner predicts a pent-up demand that will pave the way for the creation of new, relatively untapped markets.

"Eighty-five percent of the world's population reside in emerging markets," said Shen. "We are looking at immense nations that are rapidly moving from subsistence living to being consumers, which in turn means a large number of new people to sell new technology to.

"Global companies in mature markets cannot afford to ignore developing nations, given the huge untapped opportunities they offer," she added.