Indian Economy - News & Updates - Archive

[Flintlock]

Thought I’ll add my two bits here… one reason why the Indian economy is the toast of the world is that our, unlike other Tigers and PRC, is based on consumption…

For example, the IT Services in which India is considered a superpower currently account for less than a percentage of our GDP… but these highly-paid IT professionals have masses of disposable income that percolates down to the economically not-so-well-off… I work in a KPO… but I’m dying to work in a company that caters to the domestic market… plus our rise isn’t just based on export-manufacturing or export-services… but rather on domestic consumption, which is healthy in the long run… and India has genuinely succeeded in creating vibrant multinationals (Tata, Reliance, Bharti, etc.)… moreover, the Indian banking system is world-class…

Also... I think I biggest advantage that India has a large media industry… movies, televisions, print, radio…

The thing that worries me the most is the stagnation in agriculture and the lack/absence of infrastructure… but still we have managed so much… surprises me… there’s a joke in India… we have done all this “without” a government… imagine what we would do with “one”…

Vish, India's economy is still massively underdeveloped in absolute terms.

The reasons why we are in the news so often is because we represent 1/5th of humanity, and therfore tend to generate the most news.

India's government has failed miserably so far, and whatever little Indian industry has achieved, has been against great odds. We should definitely be proud of that.

In any case, this is just the beginning.
With just a fraction of our population gainfully employed, we are creating waves.

If we manage to increase the size of our middle class to half our population, and unlock the hidden talent which has been crushed due to centuries of caste-prejudice and elitist foreign rule, I am sure it that day will be a monumental one in the history of the world.

 

[Bushroda]

Inside the Tata Nano Factory
The tale of the creation and design of the world's cheapest car is one of innovation and ingenuity, both inside and outside Ratan Tata's organization

by Manjeet Kripalani
Businessweek
May 9, 2008, 12:41PM EST

The Nano, nicknamed the "people's car", will cost $2,500 when it goes on sale later this year. Tata Motors

At Tata's Engineering Research Centre, near the bucolic surroundings of the Tata Motors TTM factory in Pune, a suburb of Bombay, there are two cars on display. One is a complete prototype of the Nano, the $2,500 compact car Tata unveiled in January, which has all the essentials and safety features of India's higher priced automobiles along with a sticker price that will forever change the economics of low-cost cars. The other is a neat bisection, with the car's innards clearly visible. "Every day we invite people to come and examine the car and ask: 'How can we make more savings?'" says Tata Motors Chief Executive Ravi Kant

That quest to build the world's cheapest car hasn't ended. The Nano should be available this fall, but the mission began back in 2003, when Ratan Tata, chairman of Tata Motors and the $50 billion Tata conglomerate, set a challenge to build a "people's car." Tata gave an engineering team, led by 32-year-old star engineer Girish Wagh, three requirements for the new vehicle: It should be low-cost, adhere to regulatory requirements, and achieve performance targets such as fuel efficiency and acceleration capacity. The design team initially came up with a vehicle which had bars instead of doors and plastic flaps to keep out the monsoon rains. It was closer to a quadricycle than a car, and the first prototype, Wagh admits candidly, "lacked punch." Even a bigger engine, which boosted the power by nearly 20%, was still dismal. "It was an embarrassment," says Wagh.

But the failure was also the catalyst for Tata's decision to build a proper car, not an upgraded scooter on four wheels or anything flimsy or cheap-looking. "We didn't want an apology for a car," says Ravi Kant. "We were conscious of the fact that whether it was a $2,500 car or not, it ought not to have looked like a $2,500 car."

Becoming a Part of History

The tale of the creation and design of the Nano is one of innovation and ingenuity, both inside and outside Tata's own organization. First, Ratan Tata called a meeting of his top parts suppliers and, after showing them the early, earnest but flawed prototypes, asked them to help. Companies including Germany's Bosch, which makes the computer that is the heart of car's engine, were skeptical. So were local Indian players.

But Tata persisted, pointing out that not only could a company's specific developments for the Nano help to make history but they could also improve their companies' businesses and bottom lines. Soon most of Tata's traditional suppliers were on board. Rane Group, for instance, makes a rack and pinion steering system. It focused on reducing the weight of the materials used, replacing the steel rod of the steering with a steel tube—a major cost-reducer. Typically, the product is made of two pieces, but it was redesigned as one to save on machining and assembling costs. According to Harish Lakshman, director of the $317 million company: "The world has seen this sort of integration of two pieces into one, but applied differently—not for a new car, and not to reduce costs."

GKN Driveline India, a subsidiary of global auto parts leader GKN, made the driveshaft—the component that transfers power from the engine to the wheel.

The team spent a year developing 32 experimental variants to create the perfect driveshaft for the Nano. It roped in designers from the company's French and Italian operations and changed the design to make it lighter and easier to manufacture. For the Nano's rear-wheel drive system, GKN designed a smaller diameter of shaft, which made it lighter and saved on material costs. "We thought if we were successful in this, we could dictate terms to the market, and every other car manufacturer would want to work with us," says Rajendra Ojha, chief executive of GKN Driveline India.

Taking the Pulse of the Project

All the suppliers have similar stories. And although none would disclose specific cost savings, most stuck to Tata's mandate to cut costs. That was, as Kant acknowledges, the biggest hurdle for the company—"then, now, and in the future,"—particularly as the price of raw materials like steel have more than doubled in the past four years, and the company has to follow new, tighter industry regulations. Kant, who recently led negotiations to acquire luxury auto brand Jaguar Land Rover, has little time to get involved in day-to-day details of Tata's many projects. However, with the Nano, "every cost, every component price, has to be run by me," he says.

Coordinating the vendors with Tata Motors' team was a whole new exercise in logistics. Wagh quickly realized it was necessary to bring everyone on board, "else it leads to last-minute heartache and delays." Every morning, he would spend an hour or two on the floor of the Pune factory, insisting that everyone involved—designers, manufacturing teams, vendor development people—be there to accelerate decision-making and problem-solving. "We had to have the pulse of the project and know exactly where the hurdles were," Wagh remembers.

Over time, Wagh's team grew to comprise some 500 engineers, an impractically large group to gather on a daily basis. So instead, a core team of five engineers gathered every day at 3 p.m. to discuss the latest developments. Each engineer represented a different part of the car: engine and transmission, body, vehicle integration, safety and regulation, and industrial design.

Attention to Detail Pays Off

Fitting the parts of the car together required lots of little, head-breaking details, recalls Wagh. The engine, for instance, was designed three times. Initially, Wagh thought they'd buy an off-the-shelf engine and so studied all the small-capacity engines available. They were unsuitable, so in early 2005 he decided to build his own. The first was a 540 CC engine that, when fitted on the prototype, lacked the necessary power. So its capacity was increased by 9%, then by another 9%, before Wagh finally settled on a 623 CC engine. Then the foot pedal had to be realigned to create more legroom.

The body had to be changed because Ratan Tata, over six feet tall himself, wanted it to be easy for tall people to get in and out of the car. "Imagine the plight of the body designer—he went through hundreds of iterations, then at the last minute the car length was increased by 100 millimeters!" Wagh says. The attention to detail paid off: When the car rolled onto the dais at the Auto Show in New Delhi in January, and Ratan Tata stepped out of the driver's seat with ease, it made an immediate impact.

What shook the automobile world most was the fact that the designers seem to have done the impossible: The sleek, sophisticated Nano doesn't look flimsy or inexpensive. If it had been an upgraded scooter on four wheels, Tata still would have been applauded for making a family of four safer on Indian roads. The Nano, however, affords both safety and status. "The innovation wasn't in technology," Kant recalls. "It was in a mindset change." The Nano, he adds, has put an end to all discussions of having variants of scooters or quadricycles as passenger vehicles on India's roads.

Organizational Innovation

Still, the story of the Nano is not confined to its impact on the auto industry. It's a tale that illuminates the India of today—an eager, ambitious nation with a combination of engineering talent, a desire for low costs and value, and the hunger of young managers looking to break from a hidebound corporate environment. Indeed, the team that worked on the Nano—on average aged between 25 and 30—has helped to flatten Tata Motors' stodgy, multilayered management structure, which has resulted in an unexpected side-benefit Wagh calls "organizational innovation".

The factory in Singur, Bengal, is still being built, and machinery is being installed. Wagh now spends most of his time away from his Pune home, supervising the work at Singur leading up to the launch date in fall. Tata Motors is determined to succeed in its mission, Ravi Kant says. "We are hungry for growth—and innovation is a by-product of that."

 

[Flintlock]

India's Rupee Slides to 13-Month Low as Industrial Growth Slows

By Anil Varma

May 12 (Bloomberg) -- India's rupee slid to the lowest in more than a year after a report showed industrial production expanded at the slowest pace in six years.

The currency weakened past 42 a dollar for the first time since April 2007 after the government said the annual pace of increase in output at factories, utilities and mines more than halved to 3 percent in March from 8.6 percent in the previous month. The gain was the smallest since February 2002. The rupee also fell on concern near-record oil prices are boosting demand for dollars from the nation's refiners.

``Those who were short on the dollar covered those positions after the industrial production report,'' said Paresh Nayar, head of foreign-exchange and debt trading at Development Credit Bank Ltd. in Mumbai. ``The concern is that an industrial slowdown can lead to a slowdown in investment inflows.''

The rupee weakened as much as 1.2 percent to 42.115 per dollar, the lowest since April 2007, before closing at 42.035 at 5 p.m. in Mumbai, according to data compiled by Bloomberg.

The currency declined 2.3 percent last week, the most since 1998. It slid 5.4 percent this year, the second worst among the 11 most-traded Asian currencies after the South Korean won.

Overseas investors have sold $2.7 billion more Indian shares than they bought this year, after making record net purchases of $17.2 billion in 2007, according to the Securities and Exchange Board of India.

Slowing Growth

Growth in Asia's third-largest economy may decelerate to about 8 percent, the slowest since 2005, in the fiscal year that started April 1, according to Finance Minister Palaniappan Chidambaram. The economy expanded 8.7 percent in the 12 months through March, compared with 9.6 percent in the previous year.

The rupee also fell on concern costlier oil is inflating India's import bill. The currency fell last week as crude oil in New York rallied 8.3 percent, the most since March 2007, to reach an all-time high of $126.27 a barrel on May 9.

``There's still a lot of uncertainty in the rupee market,'' said L.V. Prasad, chief currency trader at IndusInd Bank Ltd. in Mumbai. ``Oil has been a major concern, boosting dollar purchases by oil companies and prompting all who need foreign currency to buy it sooner than later.''

The value of India's oil imports rose to a record $8.6 billion in March as the commodity became more expensive, government data show. Asia's third-largest economy depends on shipments from abroad to meet three-quarters of its energy needs.

The South Asian nation's trade deficit widened to a record $25.4 billion in the three months through December, according to the central bank. The current-account shortfall, a measure of trade and investment flows, increased to $5.4 billion in the same quarter from $4.7 billion in the previous three months.

``Dollar supply from exporters too has dried up as they wait for more rupee losses,'' IndusInd's Prasad said. ``It's typical. Every time the rupee has had a sharp fall, dollar sellers tend to wait, expecting to earn more.''

Bloomberg.com: India & Pakistan

 

[Flintlock]

India's inflation to ease in coming months-adviser
Mon May 12, 2008 5:55am BST

NEW DELHI, May 12 (Reuters) - India's annual inflation rate is expected to moderate to 6.0 percent in the next three to four months from 3-½ year highs of 7.6 percent in late April, a top policy adviser said on Monday.

C. Rangarajan, chairman of Prime Minister Manmohan Singh's Economic Advisory Council, also told reporters the economy is expected to grow 8.0-8.5 percent in the fiscal year ending March 2009 as high global oil prices shave off some momentum.

"High oil prices will have its impact. It could slow down growth," Rangarajan said. (Reporting by Rajkumar Ray; Editing by John Mair)

India's inflation to ease in coming months-adviser | Markets | Reuters

 

[Bushroda]

The historical roots of India’s booming service economy
Stephen Broadberry & Bishnupriya Gupta
Journal of Turkish Weekly, Turkey
Monday , 12 May 2008

India stands out from other emerging economies because its growth has been led by the service sector rather than labour-intensive manufactures. This column summarises recent research showing that India has a long history of strength in services, and its service-led development may play to historical strengths rather than hindering its progress.

India’s recent spectacular rate of economic growth, combined with the sheer size of its population, means that it is beginning to take its place as one of the key players in the global economy.1 One way in which India stands out from other Asian economies is in the better performance of its service sector. Whereas other emerging Asian economies, such as China, have experienced growth led by dynamic manufacturing performance, India’s growth has been led by sectors such as business services.

This is sometimes used to portray India’s performance as fragile, focusing attention on shortcomings of the industrial sector.2 But as much of manufacturing becomes increasingly automated and “de-skilled”, it is not clear that manufacturing-led growth is such a good long-run bet on the road to development. It may be that a focus on services will prove to be a better long-run route to prosperity. Furthermore, this pattern of service-led development may be more in tune with the legacy of India’s past.

Measuring long-run productivity performance

Although we know a great deal about the long-run development of rich countries such as Britain, we know much less about the past performance of less developed countries such as India. In recent research, we seek to remedy this by drawing on quantitative information collected by the British during their period of colonial rule in India to compare sectoral productivity performance in Britain and India from 1870 to the present.3

Our research demonstrates that India’s recent service-led development has deep historical roots. During the colonial period, India’s comparative productivity performance was already better in services than in industry or agriculture. This emphasis on services is in line with much recent research on long-run growth among the developed economies, which finds services playing a key role in comparative economic performance in the late nineteenth and early twentieth centuries as well as during more recent times.4

India has long lagged behind Britain. Between 1870 and 1970, output per worker in India fell from around 15 per cent of the UK level in the economy as a whole to less than 10 per cent, as India fell further behind. Since the 1970s, India has begun to catch up on the United Kingdom, but by the end of the twentieth century it was still further behind than in the early 1870s. Even with the rapid growth achieved by India in recent years, it will take time for India to regain its relative position of the late nineteenth century.

Productivity by sector

Agriculture has an important part to play in explaining this disappointing overall Indian productivity performance. The sector remains India’s largest employer, accounting for three-quarters of Indian employment in the late nineteenth century and nearly two-thirds of employment today.

Furthermore, agriculture is the only sector where India has continued to fall further and further behind, with labour productivity dropping from around 10% of the UK level in the late nineteenth century to around 1% at the end of the twentieth. It is clear that India needs to increase productivity in agriculture if overall productivity performance is to improve substantially.

Much of the existing research on economic growth and development emphasises the role of industry. This is particularly so in the context of twentieth century Asia, where the high-profile cases of Japan, South Korea and China have all been seen as manufacturing-led development.5

The Indian case, however, does not conform to this pattern, and this shows up in the comparative productivity data. Indeed, although there have been fluctuations in comparative India/UK productivity in industry, there has been no trend, with India at around 15% of the UK level in the late nineteenth and late twentieth centuries.

Only in services has there been an improvement in comparative India/UK labour productivity, from around 15% in the late nineteenth century to around 30% by the end of the twentieth century. Services have thus played a positive role in India’s productivity performance throughout the period, limiting Indian relative decline before 1870 and leading the process of catching-up from the 1970s. The service sector productivity growth is not confined to modern services such as finance – it is also visible in trade and transport.

Explaining India’s better performance in services

The productivity gap between Britain and India has been smaller in services than in industry or agriculture since the First World War. The recent emergence of a dynamic service-led Indian economy thus has long historical roots. But why did the service sector perform better in India, even in colonial times? Our study suggests that the answer can be found at least in part in India’s education system.

This may at first sight seem surprising, since India’s record of investment in human capital, as well as in physical capital, has been less than impressive. Under-investment in education overall has clearly contributed to India’s disappointing productivity performance over the long run.

But there has been a longstanding bias in educational investment towards secondary and higher education, which has produced a small group of highly educated workers, who have worked largely in services. This is relatively straightforward to demonstrate empirically for the recent past, when data are available on educational attainments of workers by sector.

It can also be shown for the colonial period, where data on literacy are available by caste. A small group of high castes, including not only the priestly Brahmans and warrior castes but also trading casts, desired secondary and higher education as well as primary education. However, the majority of the population, working in agriculture and cottage industry, required little education to perform their jobs and had little scope for advancement because of the caste system, so demand for education was depressed.

Conclusions

The first message to take away from this research is that India’s service-led development may be a strength rather than a weakness. The emphasis on manufacturing as the key sector for growth and the neglect of services has now largely disappeared in the analysis of economic performance in the developed world, but continues to hold sway in the analysis of developing countries.

The second message is that history matters for long-run economic performance. A development strategy that is in tune with the legacy of the past has a better chance of success than one that requires the eradication of that legacy.

--------------------------------------------------------------------------------

Footnotes

• 1 See Bosworth, B., Collins, S. and Virmani, A. (2007), “Sources of Growth in the Indian Economy”, in Bery, S., Bosworth, B. and Panagariya, A. (eds.), India Policy Forum, 2006-07, Washington, DC: Brookings Institution Press.
• 2 See Bosworth, B. and Collins, S. (2007), “Accounting for Growth: Comparing China and India”, Brookings Institution, Washington DC.
• 3 “Historical Roots of India’s Service-led Development: A Sectoral Analysis of Anglo-Indian Productivity Differences, 1870-2000” by Stephen Broadberry and Bishnupriya Gupta was presented at the Economic History Society's 2008 annual conference at the University of Nottingham, Friday 28 March to Sunday 30 March.
• 4 Broadberry, S. (2006), Market Services and the Productivity Race: British Performance in International Perspective, Cambridge: Cambridge University Press.
• 5 See Ohkawa, K. and Rosovsky, H. ((1973), Japanese Economic Growth: Trend Acceleration in the Twentieth Century, Stanford: Stanford University Press; Pilat, D. (1994), The Economics of Rapid Growth: The Experience of Japan and Korea, Aldershot: Elgar.

 

[Neo]

France offers to help India modernise railways including fast trains ​

Tue May 13, 2088

MUMBAI (AFP) - France will sign an agreement with India to help modernise its massive railway system with a focus on safety, training and technology including fast trains, the French transport minister said Tuesday.

"Société Nationale des Chemins de fer Français - the French National Railway Company - and the Indian Railways will co-operate through companies to modernise the railways in India," Dominique Bussereau, French state transport minister said.

"Our focus will be to increase safety measures, prevent fires, introduction of high-speed trains and personnel training," the minister told reporters.

France currently holds the record for the world's fastest commercial passenger train service at 320 kilometres (200 miles) per hour, he said.

The agreements will be signed in New Delhi on Wednesday.

Bussereau arrived in India Monday, on a three day visit to boost partnership in railways, aviation and freight transport systems between the two countries.

French and Indian Railways will tackle issues like overcrowding, railway track repairs, signalling, information technology and training, officials from both services added.

The state-run Indian railways, started by India's former British colonial rulers, has around 1.6 million employees -- making it the world's biggest civilian employer -- and runs thousands of trains daily.

But the 150-year-old railway, which transports more than 15 million people daily in the country of 1.1 billion people, has been notorious for deadly accidents, antiquated equipment, financial losses, delays and red tape.

The Indian Railways have posted a record 6.3-billion-dollar surplus for the financial year 2007-08, Railways minister Lalu Prasad Yadav said in February this year.

The French transport minister and his team leaves for capital New Delhi later Tuesday to meet civil aviation minister Praful Patel to discuss issues like building airport infrastructure, control tower systems and pilot training.

France offers to help India modernise railways including fast trains - Yahoo! News

 

[Neo]

India: Industrial Output Growth Slows ​

Published: May 13, 2008

India’s industrial production in March grew at the slowest pace since 2002, as borrowing costs hit a six-year high and discouraged consumer spending. Production at factories, utilities and mines rose 3 percent from a year earlier after gaining 8.6 percent in February, the statistics office said. “Industry is facing headwinds from tight monetary conditions, high raw material costs and weakening foreign demand,” said Sonal Varma, an economist in Mumbai with Lehman Brothers. Manufacturing, which accounts for about 80 percent of India’s industrial production, gained 2.9 percent in March, compared with a 16 percent increase a year ago. Electricity output rose 3.7 percent, mining grew 3.8 percent and consumer goods production fell 0.1 percent

http://www.nytimes.com/2008/05/13/business/worldbusiness/13fobriefs-INDUSTRIALOU_BRF.html

 

[Neo]

Report: Land dispute in India may delay Tata's $2500 car​

India's Supreme Court will examine the validity of the process by which land has been acquired for Tata Motors Ltd.'s Nano car project at Singur in the eastern state of West Bengal, following a petition challenging the venture, Bloomberg News reported today.

The Supreme Court bench asked Tata Motors, the state-run West Bengal Industrial Development Corp. and the West Bengal government to file replies to a petition which said that fertile land had been forcibly acquired by the government.

The challenge may delay the company's plans to start selling the car, pegged to cost around $2,500, this year in India. The delay would push up costs and allow rivals to catch up with Tata Motors with plans of their own to build and sell cars with a similar price tag. The company plans to start production in October.

Report: Land dispute in India may delay Tata's $2500 car

 

[Neo]

India to issue $3.6 bln bonds to state oil refiners​

NEW DELHI, May 13 - India will issue bonds worth 150 billion rupees to state oil refiners for the quarter that ended on March, to compensate half the revenue loss incurred for selling fuel at state-set low prices, a government official said on Tuesday.

This would raise the total amount of bonds issued for 2007/08 to 353 billion rupees, of which about 203 billion had already been issued for April to December, he said.

"This decision is expected to provide a much needed relief to the oil marketing companies," the official, who did not want to be named, said after a meeting Finance Minister Palaniappan Chidambaram and Oil Minister Murli Deora.

India, which imports 70 percent of the fuel it consumes, caps retail prices to soften the blow of high global prices on domestic consumers.

State-run refiners like Indian Oil Corp , Bharat Petroleum Corp and Hindustan Petroleum Corp are incurring huge losses in revenue because of high global crude prices that hit a record $126.40 a barrel on Monday.

During 2006/07, the government had compensated 42.7 percent of the revenue losses of state oil refiners and issued bonds worth 21.21 billion rupees.

Crude oil prices are up more than three quarters since mid-2006, hitting a record above $126 a barrel this week but India has raised retail prices only once by just 3-4.6 percent in February.

India to issue $3.6 bln bonds to state oil refiners - Yahoo! Philippines News

 

[Neo]

Renault-Nissan, India's Bajaj announce cheap car project​

MUMBAI (AFP) - Renault-Nissan and India's Bajaj group said Monday they planned to make a 2,500-dollar car by early 2011, the second effort to make a cheap car for the South Asian nation's rapidly growing middle class.

The budget car, which would cost 100,000 rupees in India, is so far only known as "Codename ULC." The joint venture would be 50 percent owned by Bajaj Auto, 25 percent by Renault and 25 percent by Nissan, a statement said.

The ULC will be produced at a factory to be built at Chakan, Maharashtra, in western India. It will eventually produce 400,000 units a year, the two groups said.

"(The small car) will offer twice the fuel economy than the existing products in the market," Bajaj Auto managing director Rajiv Bajaj had said earlier, with the firm aiming for 34 kilometres (21 miles) on a litre of fuel.

Renault-Nissan president Carlos Ghosn had announced the joint venture in early November 2007 after preliminary talks in July. The main market for the car will be India but it may eventually be sold elsewhere.

Bajaj is India's second-biggest motorcycle maker, and Religare Securities automobile analyst Piyush Parag said the proposed vehicle's low price could be a boon for the firm.

"Bajaj will have a price-point advantage, with few cheap alternatives available in the car segment," the expert said.

One of the few rivals could be Tata Motor's Nano, unveiled earlier this year and billed at the time as the world's cheapest car. Tata said the car could be ready for sale by September and plans to sell it for around 2,500 dollars.

Domestic and international automakers are racing to corner India's small-car market, which accounts for over two-thirds of domestic sales in the country of 1.1 billion people.

Manufacturers will remain committed to the small passenger segment despite rising raw material costs and the likelihood of slower economic growth in India.

"The incremental demand for small-cars is strong," says Piyush, whose firm forecasts 13-percent growth in the passenger car segment for the year to March 2009.

Other experts point out India could serve as an Asian export base for small cars.

"There has been a steady move by automobile makers to make India an export hub for the Asian region," says Bhavesh Shah, vice-president with brokerage Asit C. Mehta.

"Lower costs and technological advance are to India's advantage at this stage of development," he said.

Japan's Toyota Motor Corp. and Honda Motor Corp., among other firms, have also said they are mulling manufacturing low-cost cars as India's population becomes more affluent and trades up from motorcycles.

Renault and Nissan are linked by cross shareholdings. The French carmaker is the biggest single shareholder in the Japanese company.

The Bajaj group is in the process of a demerger, with Bajaj Auto likely to be relisted on the stock market.

Renault-Nissan, India's Bajaj announce cheap car project - Yahoo! News

 

[Bushroda]

Indian economy can withstand shocks: Moody's
14 May 2008, 1614 hrs IST,PTI

NEW DELHI: Indian economy's external fundamentals are strong enough to withstand a wide range of potential shocks and support its foreign currency sovereign and local currency bond ratings, says Moody's.

Global rating agency Moody's Investor Services in its latest report said the strong fundamentals, combined with upturn in savings and investment as well as rising rate of potential growth, supports the Indian government's foreign currency sovereign medium investment grade (Baa3) bond rating and local currency speculative grade (Ba2) bond rating.

"The government's local currency bond rating of Ba2 balances a high level of indebtedness with a favourable debt structure," Moody's Vice-President and author of the latest annual update on India Aninda Mitra said.

Meanwhile, the report notes that the Indian government's Baa3 rating further reflects the country's low external debt and strong external payments capacity.

"At the same time, concerns about the size and servicing burden of the government debt is somewhat mitigated by the latter's high local currency content, long tenor, growing domestic savings and a stable creditor base dominated by domestic institutions," Mitra, who is also a Sr Analyst, said.

However, a major challenge for the country's physical, financial and social infrastructure is the weak government finances, he added.

Besides, the near-term macroeconomic challenges include maintaining monetary stability amid food and fuel price pressures, containing fiscal reversals and managing fiscal consequences after the implementation of hike in civil servants' pay by 40 per cent.

It also includes ensuring more "inclusive growth" that raises incomes in the poorer and slower-growing farm sector in a sustainable fashion.

 

[Bushroda]

Indian retail market to be 6th largest by 2012
14 May 2008, Wednesday

INDIA WILL emerge as the sixth largest retail market by 2012 because of income, population growth and saving behaviour.

This was stated by Vinod Sawhny, the president and chief operating officer (COO), Bharti Retail Pvt Ltd, while speaking at a conference on ’Transforming Retailing in India’, organised by the Confederation of Indian Industry (CII) in New Delhi, on Tuesday (May 13).

Sawhny stressed that the sector will grow on the strength of the rising purchasing power of the consumer, which will mainly come from the services sector.

The rising population of working women, the rising services sector, the growing middle class and easier access to credit are some of the factors that will fuel the growth of retail industry in India. The COO further added that private labels will constitute a big part of organised retail.

He called on the industry to deal with supply chain constraints, wastage and poor storage and distribution. “We need to address issues related with talent, policy, fragmented market and IT infrastructure and ensure affordable real estate,” Sawhny added.

Dr Ira Kalish, director, Deloitte Research, opined that the retail evolution in India is still in its nascent stage and said, “While the Indian retail market is promising, it has a long way to go to make a mark on the global level.”

Speaking on the progression of retail across the world, he said, “Though a number of retailers from emerging markets are doing well, no Indian player figures in the list of top 10 Asia-Pacific retailers.”

“The retail industry is very dynamic and competitive. Many players, who were doing well in the past, are no more in the picture. Retailers can cash in on the growth in consumption in Asia,” Kalish added. He warned that the US is going to witness a sustained period of financial turmoil, which may affect other markets. Talking about currency valuation, he said that considering the changing global economic scenario, the US dollar may depreciate further and China may revalue its currency.

Sounding optimistic about the growth of retail sector, Kalish said that organised retail is poised to grow at 30-40 per cent and the country will see one of the fastest growths in the retail sector. He further said, “India will be an attractive market despite its complexities and marketers need to adapt to Indian realities. Ability to differentiate will determine the success of a retailer.”

Rajeev Karwal, the founder and chief executive officer, Milagrow, said, “Consumers are more prepared than retailers for organised retail. Retail is undergoing transformation, but we need to keep typical Indian buyer in mind while chalking out strategy.”

Assuaging doubts on the future of mom and pop stores, he said, “If organised retail can grow at 30 per cent, mom and pop stores should also expect a 20 per cent growth.”

 

[Flintlock]

India's Global M&A Boom
Indian corporations, established at home and seeking new markets, are flush with cash and spending it abroad. But have they gone overboard?

by Nandini Lakshman

Bharti Airtel, India's largest telecom player, is in the midst of talks to acquire a 51% stake in South African telecom major MTN in a deal that could be worth $20 billion. It's unclear whether Bharti's bid will succeed, but plenty of other Indian companies have been on a global shopping spree. On May 1, Essar Steel Holdings announced its third overseas acquisition in a year—the Nasdaq-listed Esmark (ESMK) for $1.1 billion. In March, Tata Motors (TTM) acquired Jaguar and Land Rover from Ford (F) (BusinessWeek.com, 3/26/08). And investment bankers say there are 10 more acquisitions by Indian companies in the pipeline over the next six months.

Why so much merger-and-acquisition activity from India? Thanks to a four-year bull run that yielded stock market returns of more than 40%, a strong rupee, and an easy availability of funds, the Indian corporate sector is flush with cash. In the last two years, corporate India spent over $40 billion on global M&As alone, according to research firm Grant Thornton, compared to $10.84 billion on domestic acquisitions. High interest rates and stock market valuations made local companies less attractive than international ones. In contrast, lower international interest rates made overseas acquisitions more appealing.

The durability of the M&A trend will face a test now, as the fallout from the economic slowdown in the U.S. hits India. The benchmark Sensex index is down 16% this year and the Indian currency has fallen almost 8%, factors that would seemingly make overseas deals less attractive. Still, many analysts and bankers in India say they're confident local companies will continue their global M&A march. The marginal weakening of the rupee will not impact outbound M&As, they say, as U.S. and European assets are still cheap, at one-to-two times multiples compared to three-to-four times multiples earlier.

Moreover, many of the acquisitions so far have fit in nicely with Indian companies' new global strategies. "The early deals have been well received, showing an overall increase in corporate confidence," says Amrit Singh, head of M&A at Deutsche Bank (DB) in India.
Tata Leads the Charge

The acquisitions have been both big and small, across different sectors, some bargains and some trophy deals. Most active has been the Tata Group, the $50 billion private-sector conglomerate. Since January, 2006, Tata has spent a total of $18.75 billion on acquisitions. In keeping with the pattern, local buys were small, numbering just three—a bottler of mineral water, a maker of processed foods, and an operator of pig-iron furnaces—for $225 million. The big bucks were saved for the global plays—21 of them for $18.52 billion, including Tata Steel's Corus for $12.1 billion, and Tata Motors' $2.3 billion spend for Jaguar and Land Rover. Tata has also done smaller overseas deals, such as the acquisition of a coal project in Mozambique for $84 million.

Other Indian industrial groups have been active, too. The Aditya Birla Group's Hindalco paid $6 billion for Atlanta-based aluminium sheet maker Novelis in February, 2007, while Essar Steel forked out $3 billion for Canadian steel maker Algoma Steel, Minnesota Steel, and U.S.-based Esmark in one year. Indian information technology companies like Tata Consultancy (TCS.BO), Infosys Technologies (INFY), Wipro (WIT) and Satyam (SAY) have been buying smaller IT service outfits in Europe, Latin America, and Asia to gain global customers and reduce the reliance on their bread-and-butter U.S. market.

Indian companies are hungry for growth. Having demonstrated their ability to operate in a very competitive home market, Indian managers are looking for new markets that limit their dependence on domestic sales. "In today's markets, companies can't wait for years to build competencies and reach other markets. M&A helps them do all of this in the quickest possible way," says Kavita Thomas, vice-president research at Mumbai-based First Global Securities.
Not the Same as 1980s Japan

But are Indian companies going overboard? So far, analysts are confident that the Indians have avoided going after trophy acquisitions that don't make much strategic sense. "It's not that the Indian companies splurged on outlandish assets, like the Japanese did in the 1980s," says H.V. Harish, a partner at Grant Thornton. While flush-with-cash companies from Japan rushed to buy vital pieces of the American landscape like Rockefeller Center in New York and Pebble Beach in California, Indian corporate houses have been more restrained. Except for a couple of multibillion dollar deals like Corus and Novellis, the average ticket size of the global M&A is around $200 million, providing more value-for-money than vanity buys.

Some acquisitions can be duds, too. Videocon's (VEDI.BO) 2007 attempt to buy Daewoo Electronics came a cropper when it raised price issues with the Korean company's creditors. And some are bold to the point of being overly ambitious. Having failed to take Daewoo, Videocon showed interest in bidding for Motorola's (MOT) handset business "to become a global player," according to Videocon Chairman Venugopal Dhoot, when other heavyweights like Nokia (NOK) and Samsung had held back. Videocon's critics dismissed the move as a publicity stunt.

The acquisitions are adding some much needed froth to the valuations of some companies. By paying affordable "Western multiples to buy and consolidate," companies are getting a higher "Indian market valuation boost," according to Grant Thornton's Harish. The UB Group, with eight listed companies, had barely any standing in India's soaring stock market until two years ago. The stock's performance was way below the galloping local index. Now, with two international acquisitions—Scottish whiskey maker Whyte & Mackay in October, 2006 for $1.2 billion, and French winery Bouvet Ladubay from Taittinger in July, 2006 for an undisclosed amount—and an Indian budget airline (Air Deccan), the UB group's market capitalization has zoomed to $12 billion today, up from just $150 million in 2004. "I had to show the world that I was quite capable of standing on my own feet, making money and creating shareholder wealth," said UB Chief Vijay Mallya soon after the acquisitions.
Spending Gives Pause to Some Investors

All this gorging is bound to result in some indigestion. There are plenty of challenges for the many ambitious acquisitions made by the Indians. Rajeev Gupta, managing director of Carlyle's buyout team in India, is concerned that many of the mid-cap companies making global acquisitions have no experience in plant operation, sales forces, or corporate offices outside their home regions within India. "They will face the difficult challenge of leading the acquired business in a completely new economic, regulatory, and cultural environment," he says. Even the ones that ultimately succeed "will need time to develop a compatible leadership style and community linkages in the new geographies."

Some investors are concerned. In February, 2007, the Novellis acquisition saw Hindalco shares plunge 12% on concerns of profitability and the high price that Hindalco paid. Hindalco has since reported a $265 million quarterly cash profit based after a one-off tax refund. Profitability, however, is still a challenge, confides a senior Birla manager. Auto analysts continue to be skeptical about Tata Motors' Jaguar-Land Rover deal, at least in the short term. Says Ramnath Subramaniam, research head at IDFC-SSKI Securities, "Tata has the management capabilities and skills to handle the acquisitions. But where is the cost rationale of moving manufacturing to India?" To help pay for its acquisitions, Tata Steel recently raised $470 million in the local bond market. On May 15, Standard & Poor's (which, like BusinessWeek, is owned by The McGraw-Hill Companies (MHP)) said the debt offering had not affected the company's BB/stable credit rating but warned of risks ahead. "Medium-term pressure persists in relation to the incremental debt required for funding the company's ambitious expansion plans in India and potentially softening demand conditions in Europe and North America," S&P said in a statement, "which may result in overall weakening profitability and cash flows."

Still, some people argue that Tata-style ambitious M&A is just what India's struggling software-services providers need. When it comes to overseas deals, the country's vaunted IT players have still remained midgets, making bite-sized acquisitions to fill immediate needs for customers with specific needs. "I wish instead of HP, the Indian IT companies had bid for EDS," says Siddharth Pai, partner and managing director of TPI Advisory, referring to Hewlett-Packard's (HPQ) $13.9 billion deal for Electronic Data Systems (EDS), announced May 13 (BusinessWeek.com, 5/13/08). "They are so focused on profitability, that they missed the chance to catapult to the big league."

Lakshman is a reporter in BusinessWeek's Mumbai bureau.

India's Global M&A Boom

 

[Bushroda]

UK offers tax breaks to woo Bollywood films
Rhys Blakely in Bombay
The Times, United Kingdom
May 17, 2008

The UK is to offer the Indian film industry tax breaks and grants in an effort to entice more Bollywood projects to British locations.

The Highlands of Scotland have already been used as the conflict-ridden vale of Kashmir in scores of Indian productions, in which musical numbers set in the mountains and featuring star-crossed lovers are standard fare. In recent years, however, Indian producers have increasingly fallen for the charms of lower-cost locations in Eastern Europe.

In a renewed effort to woo India's film-makers, British trade representatives had talks this week to pave the way for a new UK-India film co-production agreement.

The treaty will enable UK and Indian film-makers to work together to co-produce films that will be eligible for national status in both countries. In the UK, that means that joint-production films will qualify for the same tax breaks and grants as their purely British peers. Films with a budget of less than £20 million will get 20 per cent tax relief, falling to 16 per cent for bigger projects. Producers will also get access to two funds run by the UK Film Council, worth £13 million.

Officials expect ten Anglo-Indian films to be produced under the treaty in its first two years as Bollywood increasingly broadens its horizons beyond Bombay.

Siddharth Roy Kapur, the chief executive of UTV Motion Pictures, the London-listed group that is one of Bollywood's biggest production houses, said his company would be exploring the opportunities to carry out more work in the UK on the back of the treaty. He said: “We will be looking at the economic case for doing more in the UK.”

Indian production houses are becoming increasingly active in overseas markets. UTV, which is partly owned by Disney, the US media giant, also announced this week that it has launched its first solo production in Hollywood, a small $2 million budget black comedy called Ex-terminators that will star Heather Graham.

The latest film treaty with India is the seventh such deal that the UK has cut. More than 400 co-production films have been made under similar treaties over the past seven years, including more than 140 minority UK co-productions.

On average, about a third of a co-production's budget has been spent in the UK, contributing more than £1 billion to the economy.

The UK already represents a key market for Bollywood, an industry that sells more than 3 billion cinema tickets in India every year - but at rock-bottom prices that deliver slender returns. In the UK, more than 2.5 million people went to see a Hindi-language film in 2005 and Indian films accounted for about 16 per cent of all UK releases.

Creon Butler, the British Deputy High Commissioner in Delhi, said: “The UK is the world's number one market for Bollywood productions outside India.

“With the UK-India film co-production agreement, the opportunities for Indo-British partnerships in the film industry are sure to increase.”

John Woodward, the chief executive of the UK Film Council, said: “Aside from the clear economic benefits to film-makers, the treaty also aims to increase the diversity of film making, giving film-makers the opportunity to tell new stories that reflect our shared history and culture.”

 

[Neo]

India’s rice export curbs may hit winter harvest ​

Saturday, May 17, 2008

NEW DELHI: India’s winter harvest of rice could shrink 5 per cent this year if some farmers switch to oilseeds for fear that export curbs on the grain could prompt shippers to pay lower prices, a leading trader said on Friday.

While the winter crop makes up only around an eighth of India’s 92 million tonnes of total rice output, any sign of falling production in the world’s second-largest exporter could help support Asian prices that have already more than trebled this year.

“Farmers will get 15-20 per cent less from rice processors or exporters and they may switch to oilseeds,” Prem Garg, managing director of the Lal Mahal group, told Reuters in an interview.

“If we have to pay higher tax, we cannot pay farmers much to procure paddy,” added Garg, who said his firm shipped a fifth of India’s rice exports in the last financial year.

India, the world’s biggest exporter of rice last year after Thailand, has slapped a tax on overseas sales of its aromatic basmati variety of rice, and banned exports of other types.

“I believe rice production can fall by 5 per cent due to the decisions of the government to ban non-basmati rice exports and restrict basmati exports,” Garg added. “Farmers will not be interested in rice anymore.

India’s rice export curbs may hit winter harvest