Indian Economy - News & Updates - Archive

[Bushroda]

Indian consumption rising; but savings still higher: Survey

New Delhi (PTI): The rising per capita income is proving to be a bonanza both for individuals and the economy as an average Indian is showing an uptrend in savings in spite of increasing consumption expenditure.

According to the Economic Survey 2007-08, tabled in the Parliament today, the per capita consumption in the current fiscal would be 57.56 per cent of the income, a drop from the average 61 per cent and 64 per cent witnessed during the Tenth and Ninth Five Year Plans.

With a per capita income of Rs 29,786 and consumption of Rs 17,145, Indians on an average would be left with a surplus of Rs 12,641 -- an amount nearly double of what they retained during the Ninth Plan period.

During the Ninth Plan (1997-2002), the gap between the per capita income and consumption stood at Rs 6,853, just half of the projections for the current fiscal.

While, during the Tenth Plan (2002-2007) period, the per capita income stood at Rs 24,156 and the consumption was Rs 14,677, leaving a surplus of Rs 9,479.

As per the Survey, the average growth of consumption is slower than that of income, primarily because of rising saving rates, though rising tax collection rates can also widen the gap.

The consumption growth rate on per capita basis has increased to 5.1 per cent per year during five years from 2003-04 to 2007-08, with the current year's growth expected to be 5.3 per cent, marginally higher than the five year average.

Year-to-year changes also suggest that rise in consumption is a more gradual and steady process, as any sharp changes in income tend to get adjusted in the saving rate.

Gross domestic savings as a proportion of GDP rose to 34.8 per cent in FY'07 from 26.4 per cent in FY'03, with an average of 31.4 per cent during Tenth Plan.

 

[Bushroda]

India at risk of missing economic goals
By Jo Johnson in New Delhi
Financial Times, UK
February 28 2008

Palaniappan Chidambaram, India’s finance minister, on Thursday admitted that the Indian economy was coming off the boil in a pre-Budget Day speech that highlighted the downside risks to growth from a possible recession in the global economy.

The finance minister predicted growth of 8.7 per cent in the financial year ending on March 31, down from 9.6 per cent the previous year, and warned of a possible resurgence of inflation.

”Keeping inflation under control will be one of the major challenges in 2008/9,” Mr Chidambaram said, after releasing the government’s annual Economic Survey, a report card that sets the backdrop to Friday’s budget.

The slowdown means that India is falling behind in its goal of sustaining an average growth rate of 9 per cent in the Eleventh Plan, which covers the five years from 2007-08 to 2011-12. The plan predicts Chinese-style double-digit growth in its final year.

Mr Chidambaram said he remained confident of meeting the 9 per cent target, but warned that India needed to invest more in its infrastructure if it were to grow without triggering a return of the high rates of inflation seen in late 2006-7.

Friday’s budget is expected to be populist in tone. It is likely to be the last full budget before the Congress Party-led coalition government – the United Progressive Alliance – faces voters in a general election due to be held by early next year.

The Congress Party is showing signs of electoral nerves. Its poor performance in all five state assembly elections held last year has increased pressure on Mr Chidambaram to deliver an electioneering ’people’s budget’.

Some Congress leaders see the budget as a last chance to buy votes with handouts aimed at softening the sting of widening inequalities between rich and poor, urban and rural areas and upper and lower castes.

Combined with a looming public sector pay review, this could set back the limited progress India has made in reducing its fiscal deficit and public debt over the last five years, during which growth has averaged a record 8.7 per cent.

”The public finances would be vulnerable to the cyclical slowdown now underway in the economy, as well as the outcome of the Sixth Pay Commission,” noted Robert Prior-Wandesforde, an HSBC economist.

”As such, there doesn’t appear to be a strong economic case for an aggressive easing of the fiscal stance” in the budget, he said. “Nevertheless, with the general election fast approaching, it would probably be naïve to expect an entirely neutral fiscal package.”

Economists expect Mr Chidambaram to announce an upward revision in income tax exemption thresholds that remove many people on low incomes from the tax net altogether, as well as further tax rebates for exporters hit by the rise in the rupee.

Including off-balance sheet expenditures on oil, food, and fertilizer subsidies, Morgan Stanley estimates the underlying central government fiscal deficit in 2007-8 will be 5.4 per cent of GDP, rather than the government’s headline estimate of 3.2 per cent.

Weak coalition governments have contributed to a decline in the quality of government spending. Expenditure on development is declining as a percentage of total spending in line with the share of seats in parliament held by the largest political party, according to Morgan Stanley’s Chetan Ahya.

 

[Bushroda]

Getting India's Railroads On Track
By SIMON ROBINSON/ON THE MANGALA LAKSHADWEEP EXPRESS
TIME
Thursday, Feb. 28, 2008

There's a moment late in the afternoon on many long Indian train journeys when the world seems to slow down and rest for a while. As the fading light filters through half-closed shutters and the swaying of the carriages nudges passengers into an irresistible slumber, air-conditioner mechanic T.J. Mathai takes a break from checking that his machinery is working properly and that the vents are open just so. During a recent three-day trip from New Delhi, in India's north, to Kerala, at its southern tip, he hoisted himself up into his tiny nook opposite the toilets in the second-class carriage to rest and read a few pages of Tales from Shakespeare in his native Malayalam. "Wonderful stories," he told me, his body rocking with the movement of the train. A passenger appeared, nodded hello and leaned against the metal frame of the open carriage door so as to watch the countryside lazily scrolling by while he smoked a cigarette. "I enjoy the quiet, slow moments," Mathai said, as we snaked our way up a scrubby pass. "Sleeping people are quiet people."

Until the past few years, Indian Railways (IR) itself was sunk in a languorous snore. The state-owned company, the monopoly owner-operator of the country's rail system, runs 12,000 trains a day over 39,000 miles (62,750 km) of routes, making it the world's largest railroad under a single administration. It was also notorious for being slow, inefficient and requiring constant government bailouts. But over the past six years, India's most important form of transport — "the lifeline of the nation" as it is often called — has undergone a remarkable turnaround. In its fiscal year ending March 2007, Indian Railways made more than $5 billion. Services are improving and rail bosses have announced plans to spend billions on new rolling stock, faster lines and new stations. Though it still gets government funding, IR is now India's second most profitable state-owned company. "Earlier we were dragging the economy down," says Sudhir Kumar, whose official title is officer on special duty to the Railway Minister, and who has helped oversee the revitalization. "Now we are leading the economy from the front."

The resurrection of India's railroads was a three-step process that has been so successful it is studied by visiting business students from places such as Harvard, Wharton and INSEAD. The first step: speed things up — not the trains themselves but the turnaround time between the end and beginning of each new trip. In 2001 the average time to unload, repair, refuel and reload a freight train in India was 7.1 days. Now it is just five days, which means that 800 trains leave on a new journey each day, rather than just 550. Given that an additional trip can earn up to $15 million, the improvement made an important contribution to IR's bottom line. IR also made sure each freight locomotive carries more cars, hence more cargo. That brings in an extra $1.5 billion a year, according to Kumar, who compares the railroads under old management practices to "a Jersey cow that we forgot to milk fully."

Finally, passenger trains have also been increased in length. Until a few years ago a typical train had about 15 carriages. IR officials discovered that a passenger-train journey could earn a profit with 24 carriages, which became the target length. By pushing the "quicker, heavier, longer" mantra, rail bosses have also been able to improve services. For example, in 2006 IR began offering special express trains on certain routes such as the run between New Delhi and Agra, home of the Taj Mahal. Tourists making day trips to India's most popular tourist attraction now can book online and sit in comfortable seats during a trip that takes less than two hours instead of almost three. Even on longer, slower trips the catering, which is now outsourced, has improved.

The man many people credit with rail's comeback is Minister Lalu Prasad Yadav. Known only as Lalu to his energetic supporters in the poor northern state of Bihar, Yadav is a controversial figure. He is adored by millions as a man of the people because he is of a lower caste — a rarity among politicians. Yet he is routinely vilified by his many detractors who claim his term as Chief Minister of Bihar was characterized by mismanagement and corruption. When he became Rail Minister in 2004, Yadav asked Kumar and his team to run the system on sounder business principles, even as it stuck to what Kumar calls IR's "social obligations" to its passengers, its 1.4 million employees and 1.1 million pensioners. Yadav's standing has soared as a result. "A person who was considered a clown of Indian politics is now being seen as a professor of Harvard graduates," says Kumar.

Yadav is certainly lucky that he's heading Indian Railways during a period of tremendous growth in India. The company is minting money hauling freight for mines thanks to the massive demand for iron ore in China, to cite just one example. But you also have to be clever enough to cash in. Contracts with mining firms are now linked to the price of ore rather than "set in concrete like in the old socialist fashion," says Kumar. "You have to make the best use of the opportunities the global market throws up. Before, we were operating like some Mother Teresa charity home."

No more charity. IR wants to compete. Hoping to grab more of the long-haul freight business lost to truckers in recent years, rail bosses plan to borrow at least $15 billion to build a dedicated fast-freight corridor between Mumbai, New Delhi and Kolkata (formerly Calcutta). They also have big plans for some of the 1 million acres (420,000 hectares) of land that IR owns along rail lines and around stations and shunt yards. Real estate developers are currently bidding to overhaul the first of 16 major stations. At New Delhi's central station, which is likely worth billions of dollars, developers plan hotels, wireless Internet services and food courts.

Still, IR has miles to go before it can be called a first-class operation. Train travel in India remains infuriatingly slow. A 1,378-mile (2,217 km) trip from New Delhi to Goa just before Christmas, for instance, took me 35 hours, almost a day longer than a train trip over a similar distance in Europe would take. Because of a lack of equipment and tiny station platforms, freight is sometimes thrown from trains in heaps. The heavier loading, critics charge, has caused more breakdowns. (Kumar denies this.) Older carriages can be dirty, shabby and full of cockroaches — and that's in upper class. "If our carriage, which is the best on the train, is not up to the world standard, what is the scenario of the poor man?" asks A. Ravindran, an officer in the Indian Air Force and one of the 18 million Indians riding a train on the day I met him in the air-conditioned carriage we shared. "There is still scope for improvement." Some policymakers would like to privatize the train system — though given India's political sensitivities that could take years. Yadav and Kumar argue that you don't need to sell India's railways, that things are improving even under government control. "Railways were in a denial mode, living on past glories from when we were a natural monopoly," Kumar says. "Now we have to compete — and we are."

 

[Neo]

India proposes to waive $15bn of farm loans ​

Saturday, March 01, 2008

NEW DELHI: India proposes to waive 600 billion rupees ($15 billion) of bank loans to farmers, the finance minister said on Friday in his annual budget for the fiscal year that begins in April.

Palaniappan Chidambaram said the write-off would be completed by June 30, with 500 billion rupees going towards farmers holding up to two hectares of land. For bigger farmers, the budget proposed a waiver of 100 billion rupees as one-time settlement, provided the farmers repaid 75 per cent of their loan that was overdue on Dec 31, 2007.

“All agricultural loans disbursed by scheduled commercial banks... up to March 31, 2007 and overdue as on Dec 31, 2007, will be covered in the scheme,” he said. Shares in Indian banks initially fell sharply on the announcement, but later trimmed losses as there was uncertainty about how much the government would compensate the banks.

India proposes to waive $15bn of farm loans

 

[Neo]

India says keeping growth at 9 percent a challenge​

NEW DELHI: Keeping India’s economic growth at about 9 percent a year will be a challenge due to inflation and infrastructure constraints, and lifting it higher will be even harder, a finance ministry report said on Thursday.

But inflation was likely to remain moderate in coming months and capital inflows, which have pushed the rupee up and complicated monetary policy, should ease in 2008, the economic survey for fiscal year 2007-08 said.

Released a day before the annual budget, it said more reforms were needed to raise economic expansion above 8 to 9 percent but also warned that a shortage of skilled workers was pushing up wages and could erode India’s price advantage.

“The new challenge is to maintain growth at these levels, not to speak of raising it further to double-digit levels,” the report, prepared by the finance ministry, said.

The yield on the benchmark 10-year bond eased 1 basis point to 7.58 percent after the survey and the partially convertible rupee slipped to 39.815/825 per dollar from 39.795/805 beforehand.

Indian policymakers have repeatedly talked of stepping up growth to 10 percent a year to reduce mass poverty and Finance Minister Palaniappan Chidambaram said after the report was released he was confident of achieving an average 9 percent up to 2012 while still keeping a grip on inflation.

“I am optimistic about growth and containment of inflation in the coming year,” he told reporters.

“It will be my priority to provide a conducive investment climate and manage the macro economy to facilitate non-inflationary growth.”

Chidambaram presents his fifth and final budget of this administration on Friday and is widely expected to offer some tax giveaways while spending more on farms, health, education and infrastructure to spread the benefits of high growth.

Price pressures: The economic survey contains policy prescriptions which may not necessarily translate into actual policy or form part of the budget but it does provide clues to medium-term direction.

Analysts said the survey’s acknowledgement that 9 percent and above was going to be tough without reforms highlighted the budget challenge facing Chidambaram of balancing growth with price pressures ahead of national elections due in 2009.

“This underscores the point that under the current environment any growth faster than 9 percent could turn out to be inflationary,” said A. Prasanna, economist at ICICI Securities.

Growth is estimated at 8.7 percent this fiscal year to March 31, after an 18-year high of 9.6 percent in 2006/07.

Annual inflation, based on wholesale prices, hit a six-month high of 4.35 percent in early February but consumer price inflation is closer to 6 percent.

The survey said inflation would be about 4.4 percent this fiscal year but the behaviour of farm prices would be a key determinant in the coming year. Commodity price inflation should be tackled with trade and fiscal policies.

A surge in capital inflows, including foreign direct investment, would continue “in the medium term”, although in the short run inflows might moderate due to slightly slower growth, easing pressure on the exchange rate, it said.

“Any reduction in excess capital flows from the high levels of 2007 may affect the equity markets in the short term but will make the task of monetary management easier.”

Eroding advantage: India serves as a back office for global banking and financial services firms, which have taken advantage of a low-cost English-speaking labour force.

But a lack of quality education means white-collar workers are in increasingly short supply in areas such as software and finance, creating wage inflation of 10-15 percent and high attrition rates.

“Wage costs are rising which not only contributes to cost-push inflation, but may also end up eroding price advantage in some of the tradable sectors of the economy,” the survey warned.

India is gradually opening up its current account, although the high capital inflows last year prompted it to clamp down on some sources of external funding.

The survey said opening the current account must continue despite short-term reversals, as that would increase competition and improve the deployment of funds for asset creation.

Other necessary reforms included greater foreign participation in insurance and retail as well as deregulation of the sugar, fertiliser and drug industries. reuters

Daily Times - Leading News Resource of Pakistan

 

[Bushroda]

Waterfront reflections on India
By Nils Blythe
Business correspondent, BBC News, Mumbai

A short journey along Mumbai's waterfront can tell you a lot about modern India.

In the harbour opposite the famous Taj Palace Hotel, a boat show is getting under way.

Lined up along the floating walkways are vessels ranging from relatively modest speed boats to luxury motor yachts costing over $2m (£1m).

Moored further offshore is a so-called 300-ft "super-yacht" belonging to one of India's billionaires.

This is a country which has about 50 families reckoned to be worth more than $1bn.

According to Malav Schroff, founder of the Mumbai boat show, owning a big boat is the "new craze" for the super-rich in India.

And many of the world's leading boatmakers agree with him, sending more vessels and larger sales teams to the show than to last year's inaugural event.

Brands including Princess, Azimut and Larson all have large vessels on show.

It is not just the billionaires who are being targeted. India also has a rapidly rising number of multi-millionaires who have made fortunes in an economy which has been growing at more than 8% per year.

Vishal Chaudry, director of sales in India for the British-based Princess Yachts, candidly admits that some boat buyers in India are not keen sailors.

Many yachts are primarily used for entertaining or commuting from cities such as Mumbai to nearby beach houses.

He says that a motor yacht is becoming an increasingly important status symbol for rich Indians.

But if you take a 10-minute journey from the Taj hotel and the boat show, you can see a very different kind of waterfront.

This is Colaba, named after the Koli fisherfolk who originally inhabited the area. And there are fishermen here still.

The fishing boats are drawn up along a rubbish-strewn beach.

Behind the beach is a collection of small houses and shacks where the fishing families live.

And here, the preoccupations are very different to those of the boat show customers.

The fishermen gather round to complain that diesel is becoming so expensive that it is becoming very difficult to run their boats.

And among the tiny shops, the women are angry about the rising costs of basic foods.

Inflation in food prices is running at an annual rate of about 10%.

And as one woman explained, "When prices go up, we have to eat less."

It is a stark reminder that for all its booming economy, India has more than 800 million people living on less than $2 a day.

And for those on low incomes, even small prices in the cost of food make a huge difference.

With wholesale prices on world commodity markets setting new records, the cost of living - or surviving - for India's poor is likely to rise further.

'Ghettoes of luxury'

This is leading to increased social tensions, according to Naresh Fernandes, the editor of Mumbai's Time Out magazine, which investigates the big issues facing the city as well as providing a guide to events.

He argues that Mumbai has developed "ghettoes of luxury" in which the wealthy spend their time.

And that rather than being discreet about their wealth, India's super-rich are ever more eager to show it off.

That is why the world's luxury boatmakers have turned up in force for the Mumbai boat show.

But they admit there is one - typically Indian - problem. And that is infrastructure.

Luxury yachts need big purpose-built marinas.

No millionaire wants to moor his boat next to the rubbish-strewn fishermen's beach of Colaba, for example.

The boat makers say that there are ambitious plans to build marinas around India's coastline.

And these will be seen by some as a way of helping the wealth of the super-rich to trickle out into India's economy.

Others will see them as yet more "ghettoes of luxury".

 

[Bushroda]

India spends more on poor in budget 2008-09
Daily Times, Pakistan

* $15.05bn debt relief for farmers, economic growth slows, cuts excise duty on autos, inflation at 4.89 percent

NEW DELHI: India’s Congress-led government announced Friday huge debt relief for farmers as it reached out to its traditional rural support base in possibly its last budget before the next polls.

Finance Minister Palaniappan Chidambaram offered a debt relief package for farmers of 600 billion rupees ($15.05 billion) in the budget for the year starting April 1, even as India’s economic growth began to slow.

He told parliament 30 million indebted farmers would have their loans fully waived by the end of June and another 10 million would receive aid.

Through the loan waiver scheme, “the country is discharging a deep debt and sense of gratitude to farmers,” he said.

The government intends “to make growth more inclusive”, the minister said. “We are raising our sights and doing more.”

The farm sector is crucial as it provides a living for two-thirds of India’s 1.1 billion populations. T.N. Ninan, publisher of leading financial daily Business Standard told India’s NDTV news that the debt relief programme was “the single biggest giveaway in India’s fiscal and banking history.”

But he questioned how it would be applied, noting many farmers’ debts were to moneylenders. Farm growth is forecast to slow to 2.6 percent this fiscal year from 3.8 percent the previous year.

Analysts attributed the market’s unhappiness to a knee-jerk investor response to an increase in the short-term capital gains tax to 15 percent from 10 percent. Chidambaram said he was confident the economy would grow nearly nine percent in the current fiscal year to March 2008, down from 9.6 percent the previous year due to aggressive monetary tightening to curb inflation. But the Indian economy would still be the second fastest-growing in the world after China’s.

Data released Friday showed economic growth slowed to 8.4 percent for the third quarter ended December 31, 2007, compared with 9.1 percent in the same period the previous year as a slew of interest rates hikes hit consumer and infrastructure spending and industrial production.

India’s economy under the communist-backed United Progressive Alliance coalition government, which took office in 2004, had grown by over eight percent during 12 successive quarters since 2005.

“We need an ambitious scheme... to revive agriculture,” he said.

Economic growth slows to 8.4 percent in Q3: India’s economy grew by 8.4 percent in the third quarter, its slowest pace in two years, on lower farm and industrial output from the same period a year ago. The data showed that the economy expanded almost in line with a forecast of 8.7 percent for the year ending March. But the pace is well off the 9.6 percent growth reported in the previous year.

The slowdown for the quarter ended December has been attributed to aggressive monetary tightening to tame prices and a 12 percent gain for the rupee against the dollar in the past year. The rupee’s rise has dented export earnings for Asia’s third biggest economy. Farm growth rose 3.2 percent in the third quarter, down from 3.4 percent a year earlier, while manufacturing gained 9.3 percent from 11.3 percent.

JP Morgan estimates the economy will slow down further in the next financial year and expand at 7.5 percent.

India’s central bank has increased interest rates nine times since October 2004 to check inflation, which jumped to 4.89 percent for the week ended February 16 — the highest since June 2007.

“Growth stability with reasonable price stability is the main objective of our government,” Prime Minister Manmohan Singh said after the annual budget was presented Friday. Finance Minister Palaniappan Chidambaram said that he was confident the economy will grow nearly nine percent in the current financial year.

Automakers cheer tax cut plans: Shares in Indian vehicle makers rose on Friday after the government proposed to cut excise duties in the fiscal year 2008-09, which analysts say will encourage demand, particularly for small cars.

The finance minister proposed to cut excise duties on buses and chassis, as well as small cars, to 12 percent from 16 percent in his annual budget. He also cut duty on hybrid cars to 14 percent from 24 percent and on two- and three-wheelers to 16 percent from 24 percent.

Indian inflation rises to highest level since June 2007: India’s annual inflation rate spiked to its highest level since June 2007 on higher food and fuel prices, data showed on Friday.

Inflation climbed to 4.89 percent for the week ended February 16 from 4.35 percent the previous week, according to the wholesale price index, India’s most watched cost-of-living monitor.

Wholesale prices stood at a then two-year peak of 6.73 percent in the same period a year ago.

Inflation in Asia’s third largest economy has fluctuated in recent months but has been inching closer to the central bank’s ceiling of five percent for the fiscal year to March 31, 2008. agencies

 

[Bushroda]

Hot Indian economy cools slightly
CBCNews, Canada
Friday, February 29, 2008 | 10:44 AM ET

India's economic growth slowed slightly in the October-December quarter, expanding at a still strong 8.4 per cent from the same period a year earlier, driven by manufacturing and construction.

That was down from the 8.9 per cent growth in the fiscal second quarter and 9.1 per cent in the same quarter last year, the data issued by the government-run Central Statistical Organization showed.

The data comes as Finance Minister P. Chidambaram presents the annual budget Friday.

Manufacturing grew 9.3 per cent and construction gained 8.4 per cent in the fiscal third quarter, but agriculture continued to lag behind, growing only 3.2 per cent, figures showed.

On Thursday, the government's annual Economic Survey said that the economy is expected to grow by 8.7 per cent this fiscal year, slowing from 9.6 per cent growth rate it achieved in the 2006-2007 fiscal year, its fastest expansion in nearly two decades.

The survey said it was forecasting a slowdown because of tighter monetary policy and a weakening global economy.

 

[Bushroda]

FM kept his word: Personal tax collections grown to 40%
1 Mar, 2008, 0124 hrs IST,Shaji Vikraman, TNN

Or the past year or two, finance minister had provided enough hints that he would prune tax rates if compliance by taxpayers improved. Undoubtedly, personal tax collections have grown at close to 40% over the last fiscal — possibly the highest ever — reflecting greater compliance, especially among the self-employed. The finance minister kept his word. But it was the extent of the cuts that took most people by surprise.

The FM doled out several lollies: from increasing exemption limits to a higher deduction for medical insurance premium, and a tax exemption for those senior citizens availing of loans under the reverse mortgage scheme. All these will ensure that people will have more money to save and of course spend over the next one year. This clearly augurs well for the economy, which is showing signs of slowing down a bit this fiscal.

Also, the FM has pushed perhaps the biggest restructuring of tax slabs, benefiting all three categories of taxpayers — individuals, women and senior citizens. For male taxpayers, the tax threshold begins only after Rs 1.5 lakh, while for women it is Rs 1.80 lakh and for senior citizens, it is Rs 2.25 lakh.

The lowest rate of 10% will now stretch all the way up to Rs 3 lakh, after which 20% tax will apply. Earlier, the 20% tax rate was levied on those in the income bracket of Rs 1.5 lakh to Rs 2.5 lakh. That rate will now apply to those in the Rs 3 lakh to Rs 5 lakh bracket.

Tax at the highest bracket (30%) will kick in only for incomes above Rs 5 lakh — twice the earlier limit of Rs 2.5 lakh. What remains unchanged, however, is the surcharge of 10% levied on those with incomes in excess of Rs 10 lakh. The widening of the slab means that while earlier having an income of say Rs 2.9 lakh put an individual in the 30% tax bracket, that level of income will now attract a rate of just 10% this year.

The tax slab restructuring may have been done with an eye on the upcoming polls. But Chidambaram has always maintained that it pays to keep tax rates moderate. Dinesh Kanabar, head of PricewaterhouseCoopers’s tax practice, says reasonable tax rates will help boost consumer spending. The clarity offered by the minister on reverse mortgage will help popularise a product that was launched last year but failed to take off owing to uncertainty on the tax front.

Over the past few years, the government has increased its reliance on digital tracking measures, including the annual income returns (AIR). The applicability of permanent account number (PAN) will be now be extended to several additional areas in the financial segment. While the FM did not spell out the new additions, experts say that he may bring the purchase of insurance products under the preview of PAN.

For long, Indian taxpayers have sought a responsive and friendly tax administration. An improved tax regime may be a while in the making. But there’s more to reflect on. In 2006-07, the number of taxpayers with an income of over Rs 10 lakh in the salaried category was estimated at just 1.35 lakh. The widening of the tax slab makes one wonder whether the government wants to address this issue.

Such a large largesse to taxpayers will surely result in the government foregoing substantial revenues. Yet the FM insists that the exercise would be revenue-neutral. Much of it will depend on whether the tax breaks result in higher spending and investments, resulting in higher revenues for the government through indirect taxes.

 

[Bushroda]

India Budget Seeks To Expand Social Mobility
Ruth David, 02.29.08, 12:57 PM ET

MUMBAI - With an eye on upcoming elections India's Finance Minister Palaniappan Chidambaram Friday waived farm debts and cut personal taxes, in an attempt to boost consumption amid slowing economic growth.

In his fifth annual budget presentation, the minister increased exemption limits for personal taxes to 150,000 rupees ($3,755.16), from 110,000 ($2,753.79) rupees, in a nation where only a third of the population pays taxes. He left corporate tax rates and surcharges unchanged.

Chidambaram increased the reach of the service tax, by including services companies like stock and commodity exchanges, asset management firms, clearinghouses and customized software makers.

He also increased budget outlays for the health sector by 15% and for the education sector by 20% and proposed setting up 16 new universities. Defense spending got a 10% increase.

He also cut excise duties on pharmaceutical goods--exempting AIDS drugs entirely--and small and hybrid cars and abolished duties on wireless data cards. Jewelry exports, which suffered last year as the rupee appreciated against the dollar, also got duty relief on select gems.

In the pharmaceuticals sector, Chidambaram gave tax concessions for outsourced research and development. "The budget is very positive in terms of expanding the scope of outsourced R&D, while excise reduction will benefit customers," said Ranbaxy (other-otc: RBXZF - news - people ) Chief Executive Malvinder Singh. As to whether consumers should expect rate cuts on drugs soon, Chidambaram said, "market forces will determine that," adding that Indian drugs were already among the lowest priced in the world.

Indian automakers were expecting some budget relief after their sales suffered last year because of tightening interest rates. Loans finance a preponderance of the passenger vehicles purchased in India.

"The budget was about populist measures, but the finance minister has shown some commitment to financial reforms" said D. K. Joshi, chief economist at Crisil, the Indian arm of ratings agency Standard and Poor's. "He's given a fillip to growth by reducing excise duties on key sectors like autos, and has put more money to spend into the hands of consumers."

Chidambaram forecast that the revenue deficit will be 1% of the GDP for the fiscal year 2009, while the fiscal deficit is expected at 2.5%, down from an estimated 3.3% in this year.

Economic growth for the quarter ended Dec. 31 stood at 8.4%, compared to 8.9% in the previous quarter, the government said Friday. Last fiscal year, GDP growth was 9.6%.

Agriculture has "struck a disappointing note," Chidambaram said in Parliament. Growth rates in the primary sector are expected to be about 2.8% for the year ending March 31. Agriculture accounts for the livelihoods of about two-thirds of India's population, and consequentially has a powerful voting base.

Farmers don't pay taxes in India. And on Friday, Chidambaram attempted to ensure that those in need also don't have to repay loans. He announced a debt relief package that is expected to cost the exchequer 600 billion rupees ($15 billion), putting additional pressure on government finances.

In defense of the spending, the Harvard-educated Chidambaram pointed out that growth in India was still not all-inclusive, and this would be one way to correct the imbalance. "If we can find a way of writing off these loans and providing money to the banks, the banking system strengthens. The banks will have more money to lend and that will stimulate the economy," he told journalists in New Delhi.

Last year, Prime Minister Manmohan Singh estimated the government's food, fertilizer and oil subsidies were likely to exceed $25 billion. But, as the ruling coalition faces elections in five states this year and general elections that must be held before May 2009, it wants to ensure the voters are happy.

The markets, however, were none too happy with the budget, after Chidambaram hiked taxes on short-term capital gains, to 15%, from 10%. The benchmark Sensex on the Bombay Stock Exchange ended the day down 1.4%, to 17,578.72. The National Stock Exchange's Nifty closed 1.2% to the down side, at 5,223.50.

"The measures are likely to have a short-term impact on the markets, but there's no immediate cause for concern," said Samiran Chakraborty, chief economist at ICICI Bank. "Though the government is indicating there could be further measures to tackle capital flows if they don't moderate on their own." Last year, a surge of capital inflows increased inflationary pressures, prompting the central bank to tighten interest rates. Inflation for the week ended Feb. 16 stood at a high of 4.89%, an eight-month high.

For the commodity markets, Chidambaram added a 12% service tax charge, prompting complaints from the managing director of the Multi-Commodity Exchange, Jignesh Shah. The software services industry wasn’t particularly pleased, either, with the finance minister’s refusal to extend a tax holiday. But Infosys (nasdaq: INFY - news - people ) Chief Financial Officer V. Balakrishnan qualified his criticism, noting that personal tax breaks would take the pressure off technology companies on wage hikes. And the government’s increases on education should help resolve a glaring talent shortage in India.

 

[Bushroda]

India going from strength to strength
Cherry Reynard
Independent, UK
01/03/2008

Country's domestic strength offers rewards for investors. Cherry Reynard reports

With all eyes on the elections in its volatile neighbour Pakistan, it is easy to overlook the quieter investment success story of India.

Last year, burgeoning consumer spending and much-needed infrastructure growth helped the Morgan Stanley Countries' Index (MSCI) India deliver a 71pc return, the highest of any major Asian market.

This year, the economic news has remained buoyant, supporting claims that India's domestic strength insulates it against world economic turmoil.

But investors' waning appetite for risk has sliced 14pc off the Indian stock market since January 1.

Does the Indian growth story still hold strong? And if so, does recent weakness represent a buying opportunity for investors?

Perhaps the most important factor India has on its side is demographics.

According to Avinash Vazirani, manager of the Jupiter India fund, India has the ideal demographic, with lots of young people supporting relatively few older ones.

He said that India is home to around quarter of the world's under-25s, with 60pc of India's population aged under 30.

Much of the booming service sector has been built on this young, well-educated, English-speaking population.

The service sector now accounts for around 50pc of gross domestic product (GDP) and, despite the irritation of some British consumers, the trend for outsourcing to India shows no signs of slowing.

Mr Vazirani said: "A recent McKinsey report suggests that the middle class of around 13m will rise to 140m by 2025. This is a consuming population, who are buying domestic goods and services and creating more jobs. It's a virtuous circle."

Some consumer goods sectors have seen spectacular levels of growth. The most obvious is in mobile telephony, where subscribers are growing at a rate of around 7.5m per month. In general, it is domestic companies supplying these services.

Sam Mahtani, director of emerging market equity at F&C, said that at the higher end, strong growth is being seen in branded goods, consumer electronics and cars, while at the lower end, it is simpler things like toothpaste.

Despite these positive trends, penetration of consumer goods is still small, leaving room for expansion.

Vijay Tohani, manager of the First State India Sub-Continent fund, said: "There are only around 16 credit cards, eight cars and four internet connections per 1,000 of population."

The other big driver has been infrastructure growth. Mr Tohani said: "Historically, infrastructure has always been the Achilles' heel of India, now it is being seen as an investment opportunity. The government has earmarked between $400bn and $450bn to spend on infrastructure."

The strength of this internal demand also means that the economy is not as reliant on exports - and therefore the world economic climate - as some other major emerging markets.

Mr Tohani said: "Only a small percentage of GDP - about 13pc - is export-driven. This means that India will keep growing even if the world economy falters."

All these factors have helped generate India's robust GDP growth of around 9pc per year, marginally below China, but above that of Russia and Brazil. If that could be maintained, India would be on course to become the world's second largest economy after China within 30 years.

While that may seem improbable, Arun Mehra, manager of Fidelity's India Focus fund, said he is confident that the Indian economy can continue to grow at between 7pc and 8pc a year for at least the next five years.

The stock market has also broadened out. Mr Mehra said that 15 years ago there were only 40 companies, which were large and liquid enough for investment.

Now the relevant universe is 900 stocks, with plenty of new sectors such as media, infrastructure and property. This has been expanded by government privatisations and other flotations. Not all of these have gone to plan, however, and shares in Reliance Power dropped sharply after its $3bn flotation early last month.

But it is difficult to ignore the fact that the Indian market now trades at a substantial premium to other emerging markets.

Vinay Gairola, portfolio adviser for the Atlantis India Opportunities fund, said that much of the growth has been confined to six or seven stocks: "If you have a helicopter view, the market can look expensive, but the Indian market is not just six stocks and there is plenty of value if you look on an opportunistic basis.

"Investors need to take a five-year perspective."

Mr Mehra agrees that there remains a spread of opportunities in the India market and points to the IT sector as one that has suffered in the setbacks and now looks attractive.

Pinakin Patel, client portfolio manager at JP Morgan, said: "Emerging markets have provided a safe haven, despite their 'risky' perception. The levels of risk within Asian companies are not as high as some of those in developed markets."

Philippa Gee, investment director at independent financial adviser (IFA) Torquil Clark, is more cautious.

She said: "For a lot of people it isn't right to hold something as specific as an India fund, as it can be hard to monitor and the decision about when to sell is a challenge.

"There are some excellent global funds available which provide an allocation to India, but also other regions around the world and are actively monitored and managed to change the percentages held to suit market conditions."

Nick Sketch, senior investment director at wealth managers Rensburg Sheppards, said: "Lots of money has gone in and experienced managers in Asia are now moving money to other areas like Korea and Singapore.

"We are positive on India as a long-term story, but less positive than we were when it was half the price." He likes the Fidelity India Focus fund.

The growth story in India is sound. Well-run companies continue to deliver good earnings, fuelled by massive infrastructure development and a growing consumer economy. These factors are unlikely to reverse.

India is also lightly exposed to the fortunes of the global economy and could therefore outperform if the US turns down. However, valuations are relatively high even after the recent falls in price and other emerging markets may offer better short-term value.

Investors can either leave the decision on which countries look the best value to an expert via a global emerging market fund, or if they are tempted to dip their toe in India directly, select a good active manager and invest for the long term.

Case study: 'I wanted some diversity in my portfolio'

Mohammed Sakendar has been investing in the Fidelity India Focus fund since its launch in 2004, so has already seen some good returns from the region.

He invests monthly to ensure he can ride out the ups and downs of the market. He has been to India a couple of times and seen how the country is changing at first hand.

Mr Sakendar, of Wolverhampton, West Midlands, said: "I have some investments in the UK with both Fidelity and Aberdeen and wanted some diversity in my portfolio. I now have around £29,000 in Asia.

"It's a growing region and I have done well out of my holding in China as well. I also hold the Fidelity Global Special Situations fund. These are all long-term holdings for me."

Mr Sakendar's wife, Rajinder, also invests because the couple hope to retire at 55 and they don't believe they will get much from the Government.

Their daughter, Jasmine, is now 12, so they may also have university fees to pay in a few years' time.

He is hoping that exposure to the higher growth economies of Asia will help him achieve his long-term goals.

 

[Bushroda]

India Cuts Taxes on Automobiles; Maruti, Bajaj Gain
By Cherian Thomas
Bloomberg

Feb. 29 (Bloomberg) -- India's government cut taxes on small cars and motorcycles to accelerate demand in the world's second- fastest growing major economy. Maruti Suzuki India Ltd., the nation's biggest carmaker, led gains among auto shares.

The excise tax on small cars, buses, motorcycles and scooters was lowered to 12 percent from 16 percent, Finance Minister Palaniappan Chidambaram said in New Delhi today while unveiling his budget proposals for the fiscal year starting April 1. The new taxes take effect immediately.

Cutting tax on automobiles may help Maruti, Hyundai Motor Co. and other automakers to lower prices and boost sales in the nation of 1.1 billion people. India's car sales have doubled in the past three years and may triple to 3 million units by 2015, the government had earlier forecast.

"These measures will support growth," said Amit Kasat, a Mumbai-based analyst at Motilal Oswal Securities Ltd. Kasat rates the shares of Maruti a "buy."

Maruti Suzuki, maker of half the cars sold in the country, cut prices for all six models that qualify for the lower excise benefit. Reductions range from 6,500 rupees for the Maruti 800 model to 18,030 rupees for the diesel-powered Swift hatchbacks, the company said in an e-mailed statement.

The stock advanced 3.9 percent, the biggest gainer on the Sensitive Index. The benchmark fell 1.4 percent.

New Delhi-based Hero Honda Motors Ltd., the nation's biggest motorcycle maker, gained 2.3 percent. Second-ranked Bajaj Auto Ltd., also the largest maker of three-wheeled auto rickshaws, rose 2.7 percent.

Reducing Prices

Hyundai pared prices for Santro, Getz and i10 minicars and by as much as 19,419 rupees. The company said its range of cars now start at 261,631 rupees.

Hero Honda, 26 percent owned by Japan's Honda Motor Co., the world's largest motorcycle producer, will consider cutting prices and "pass on some benefits," Managing Director Pawan Munjal said in a phone interview.

"The market had been wanting this to arrest the slide in demand in recent months," Munjal said. "The tax proposals unveiled in the budget will put more money into the hands of people and that will definitely kick-start demand again."

India's motorcycle and scooter sales declined 8 percent between April and January to 6.1 million units, according to the Society of Indian Automobile Manufacturers. India is the world's second-largest market for two-wheeled vehicles.

Global Hub

This is the second time Chidambaram is reducing taxes in three years. In 2006, the government cut the tax to 16 percent from 24 percent on cars that were shorter than 4 meters to make India a global hub for small-car production.

"The budget didn't fully meet expectations," Karl Slym, managing director of General Motors Corp.'s India unit, said in an e-mailed statement. "The industry expected a reduction in excise duties for all cars, which hasn't happened."

Tata Motors Ltd., India's biggest truckmaker, said it will cut prices of small cars and commercial vehicles in a few days.

The excise tax, levied at the time of shipping from the factory, was as high as 32 percent in 2003.

Passenger vehicle sales climbed 13 percent to 1.26 million units between April and January, slower than the 21 percent pace of growth for the fiscal year ended March 31.

Chidambaram also cut the tax on hybrid cars to 14 percent from 24 percent and scrapped the tax on electric cars.

 

[Bushroda]

India's difficult balancing act
Aditi Charanji
New Statesman, UK
29 February 2008

How do you maintain India's impressive growth while ensuring that the country's rural poor get a share of the new wealth?

When Indian Finance Minister, P. Chidambaram, stood up in Parliament on 29 February to read out India's annual Union budget he did so in the knowledge it could be his last chance to address a fundamental problem.

For this is the Congress-led coalition United Progressive Alliance (UPA) government's last budget ahead of the 2009 general election. It is crucially important for Chidambaram to be able to pull off the tricky balancing act of maintaining high-level growth on the one hand, and attempting to gain electoral support through populist give-aways on the other.

It's people like Ramesh Prasad whom the minister has to appease. Ramesh is a labourer in New Delhi. He makes between 100 – 150 rupees (£1.25 – 1.85) a day and is struggling to cope. His two biggest problems are rising prices of essential goods like food and fuel, and the competition caused by the influx of people like him who have moved from rural areas into the city to seek employment. “There's nothing for them in the villages. And when they come here, they can't even afford food,” he says sadly.

For the last three years, India's economy has been growing at over nine percent a year and the urban middle class has been reaping the benefits. At the same time, almost 80 per cent of the billion-plus population survives on 20 rupees (25p) or less a day.

Most of the economy's growth has come from the booming services sector, while agriculture is barely expanding with growth between two or three per cent.

About two-thirds of India's population depends on agriculture either directly or indirectly, and the government has been repeatedly criticised for not taking enough measures to tackle the what is being called “an agrarian crisis”. The Economic Survey on February 28 has warned the government that any slowdown in the already fluctuating agricultural sector is not only detrimental for the people that depend on it, but will also hurt the economy's growth.

This is why the budget is widely seen as the last chance for the Congress Party to redeem itself in the eyes of rural voters after being defeated in a number of provincial elections last year – including Uttar Pradesh, the country's largest and most politically important state. “I didn't vote for the Congress,” says Pappu, a landless tiller whose income depends completely on agriculture. “They have done nothing for me”.

Chidambaram is expected to announce higher budgetary allocations for sensitive areas like agriculture, education and health. And, following a spate of farmer suicides across the country last year thanks to an inability to repay loans, sources say the chances of a loan waiver for small farmers is almost a certainty.

Both Ramesh and Pappu are sceptical. They say that the government announces new plans for them every year, but nothing changes. “Prices keep rising, and we can't keep up anymore, “ says Ramesh. “Every government promises us that life will get better – it never does.”

 

[Neo]

India’s economic growth slows in Q3​

NEW DELHI, Feb 29: India’s economy grew by 8.4 per cent in the third quarter, its slowest pace in two years, on lower farm and industrial output from the same period a year ago, official data showed on Friday.

The data showed that the economy expanded almost in line with a forecast of 8.7 per cent for the year ending March. But the pace is well off the 9.6 per cent growth reported in the previous year.The slowdown for the quarter ended December has been attributed to aggressive monetary tightening to tame prices and a 12 per cent gain for the rupee against the dollar in the past year.

The rupee’s rise has dented export earnings for Asia’s third biggest economy.

Farm growth rose 3.2 per cent in the third quarter, down from 3.4 per cent a year earlier, while manufacturing gained 9.3 per cent from 11.3 per cent.—AFP

India’s economic growth slows in Q3 -DAWN - Business; March 01, 2008

 

[dotaplayer]

it sucks man!!8.8% for 2007-08 sucks!!

india really needs to pump in agriculture!!

Instead of solving the real probem our politician are simply waiving off 15 billion $

its lke giving a beggar 15000 rs for 1 year!!next year again he wll cme 2 beg!!

they are only putting 2.5 billion $ for irrigation!!if they would have invested 15 billion $ in states like bihar,orissa and bengal who faces floods and famine in a single year ,we could have been able to develop the most backward states of our country!!


Half bihar gets flooded from nepal!!it has the best alluvial land bt coz of lack of lrrigation and water management,state has to face floods..and later GOI will have to give funds 4 flood!! what a bunch of foolst poliricians!!Appeasers!!

Orissa:faces worst famine!!they could have spent sme mney on irrigation..its most backward and that supports naxalixm,!

AP:famine+floods!!coastal areas faces floods and interior have the worst famines!!