Indian Economy - News & Discussion Oct 12 2013

member_27845 · Post by **member_27845** » 16 Jun 2015 06:35

I would like to make some more comments :

How is that EU / Japan / US and even China have near zero inflation or even deflation , at near zero interest rates ?

Rate cuts or increases can only halt the momentum of inflationary changes . But the structural or underlying causes will determine actual base prices in any sector ( core / mfg sectors , RE whatever )

In India there is huge pent up demand for virtually all categories of goods and services , we are a pretty poor country with vast unmet needs. Most demand is justified and legitimate demand in India , not speculative. Hence higher rates will simply mean that consumers will fork out more , not forego their needs.

The only solution is to simply make more of everything. This will actually curb speculation and hoarding tendencies and lower inflation.

A vast and poor country like China ( even now it is a poor country for the vast majority of its people ) has much lower inflation than India simply because they fixed the supply side first , not kill off demand like what the RBI tries to do .

Suraj · Post by **Suraj** » 16 Jun 2015 08:54

How is that EU / Japan / US and even China have near zero inflation or even deflation , at near zero interest rates ?

Their circumstances are dramatically different. They have way too much overproduction or oversupply of goods, but lack of corresponding demand, resulting in deflationary dangers. They're cutting rates to stoke demand.

On the other hand, we're cutting rates to drive production. We don't have an industrial base that even produces all the raw material to make something like Paracetamol, within the country. Instead it is imported at a cost of $3.5 billion per year. The RBI cannot fix this by cutting rates. It risks stagflation if it does so without corresponding government reform effort.

Rajan stated many times that his rate cut efforts are driven by corresponding reform action. Is he being too pessimistic though ? Maybe. More that pessimistic, I find him somewhat arbitrary, in the sense that he neither signals actions well (performing rate cuts out of turn) nor seems to communicate with the RBI board members. Therefore we don't about internal dissent within the RBI, like we learn about dissenting Fed votes.

Regarding real estate, this is another sphere where the government did not regulate the industry at all, resulting in an oversupply of medium/upper end homes, with a corresponding lack of investment in the low/middle income RE area. There's been an effort, though not yet effective, to provide more incentives for real estate developers building low income housing. As things stand, developers are simply going for high income housing because it is also high margin. Low income / low margin volume housing isn't something they'll put their money into unless the economic terms made it compelling. For example, loans upto a threshold having a substantially lower rate than larger jumbo loans for high income housing. This would require the government to intervene using something analogous to a GSE like Fannie Mae in the US, to provide liquidity according to the government's own interest. Lowering rates alone doesn't quite fix this, because the money would gravitate to the high income end that a large part of the country cannot afford yet.

Further, lowering rates also impacts the exchange rate in two different ways . It leads to some forex outflow on account of loss of arbitrage value. There's also some corresponding gain due to bond investors buying as rates fall. However the bond market is still not liquid enough, with investment limits preventing foreign investors from holding more than $30 billion of Indian govt debt currently.

So, I think Rajan has a point when he says further rate policy action is driven by corresponding pace of reform to break supply side issues. But could it hurt if he cut rates by say another 50bps at least ? Probably not. I'd be happy if he kept his word and kept cutting rates as the government kept implementing reforms.

Suraj · Post by **Suraj** » 16 Jun 2015 20:42

I have moved the posts on Bangalore street construction to the Urban Development and Public Policy thread, which is much more directly relevant to the topic.

Austin · Post by **Austin** » 17 Jun 2015 08:48

Exports Fall For Sixth Month in a Row But Trade Deficit Narrows

Arjun · Post by **Arjun** » 17 Jun 2015 09:31

Austin wrote:Exports Fall For Sixth Month in a Row But Trade Deficit Narrows

Exports fall more than do imports, but the trade deficit is lower !! Is this usual DDM rubbish or is there an explanation?

Added later: 20% on a much lower export base probably worked out smaller than 16.5% on a higher import base. DDM may have been correct in this case.

member_29058 · Post by **member_29058** » 17 Jun 2015 17:07

http://www.firstpost.com/business/more- ... 99470.html
More govt capital will give breathing space for banks but Jaitley should move to cut stakes

Finance minister Arun Jaitely has now showed some willingness to change his stance on the recapitalisation issue of India’s fund-starved public sector banks (PSBs). The minister will soon meet the heads of the government banks to understand how much capital they require beyond what was committed in the Union Budget.
Of course, the fresh thinking has come following repeated cautions from the Reserve Bank of India (RBI) about the weak capital position of PSBs. If denied capital, state-run banks are likely to fall into a deep crisis, especially in the backdrop of rising bad loans. These banks have been rapidly losing their market share to their rivals in the private sector.

For one, there wasn’t any case for Jaitely to abruptly reduce capital infusion in banks without a warning. Just about Rs 7,000 crore was infused in select banks last year compared with the promised Rs 11,200 crore. For fiscal year 2016 too, the government announced about Rs 8,000 crore infusion, while the actual requirement is much higher.
According to estimates, PSBs will need at least five times more than the budgeted amount just to meet their Basel-III requirements in 2015-16. If one includes the burden arising out of extra provisioning due to fresh restructured loans and bad loans, the requirement will be even higher.

That said, the idea of rewarding banks based on their performance indeed deserved some merit since this will force banks to be more efficient, besides reducing the burden on state exchequer. The government is in the process of shifting its stake in these banks to a separate holding company and creating a Bank Boards Bureau (BBB) to take care of the capital needs of banks. But such strategies can work over a period of time, not in the short term.
Jaitely’s mistake was that he pulled the plug too soon, leaving most state-run banks, which were so used to government support, in a state of confusion. Instead, the government could have implemented the changed strategy in a phased manner.

If Jaitely infuses capital, this can give a breathing space to banks, but only for now. Capital is a necessity, which banks will require every year, burdening the state finances.
This is where the government should pay attention to the P J Nayak committee, which had recommended privatisation of state-run banks by reducing government stake below 51 percent. At present, the government holds stakes ranging from 56 percent to 84 percent in 27 state-run banks.

Yagnasri · Post by **Yagnasri** » 17 Jun 2015 17:45

I do not know what the fuss about Bank capitalisation. Just issue more shares to public. Who cares to own the PSU banks now a days? May be T-2 Capital also. I did worked on the PSU bank doing that recently. Why there is a big deal on this I do not know. May be my mango legal brain do not understand economics.

Suraj · Post by **Suraj** » 18 Jun 2015 03:35

The SBI Ecowrap is an excellent infographic view of the economy:
Infographic: An Outlook For the Indian Economy
Highlights:
* SBI trend analysis since 1950 shows that if June rainfall is above normal, there is a 65% probability of adequate monsoon for the entire monsoon session.
* Results of an SBI study shows, in the last one year, 8 Indian cities have seen their prices converge to national mean (5%) as against none one year back.
* These results are particularly important for the policymakers as far as inflation targeting for India’s monetary policy is concerned as it shows there is now evidence of better monetary transmission, with prices across more states converging to national mean.
* SBI also believes CPI trajectory will be benign and will be lower than Reserve Bank of India projections at around 6.5% (Mar’16). Aug’15 CPI will be sub 4% (at 3.5%-3.6%), while FY16 March could be around 5.6%-5.7%.
* As the South-West Monsoon 2015 proceeds, the fear of deficit monsoon is waning off. The rainfall which was just at normal in the first 10 days of June, reached to 11% above normal till June 14. Central India, (primarily Madhya Pradesh, Gujarat, Maharashtra and Odisha) have received good rains in the past one week, bringing the region's rainfall to 12% above normal, this season.
* Monsoon rainfall, at 11% above average till date supports SBI trend analysis since 1950 that if June rainfall is above normal, there is a 65% probability of adequate monsoon for the entire monsoon session.
* Domestic yields for the first time have gone up despite heavy redemption. Even after the repo rate cut on 02 Jun’15, bond yields on10-year Government bond have risen by almost 20-25 bps. At a time when RBI has cut rates, the increase in bondyields is presenting a bizarre situation for the markets, as the benchmark 10-year Government bond roughly tracks the movements in repo rate.
* The Wholesale Pricing Index (WPI) inflation contracted by 2.36% year-on-year in May 2015, marking the seventh consecutive month of deflation. The negative numbers are mainly due to huge deflation in Potatoes (-51.9%), Minerals (-28.4%), Fibres (-11.9%) and Fuel and Power (-10.5%). Inflation in some commodities still remain in double digits, like Pulses (22.8%) and Onion (20.4%).
* The manufacturing goods inflation has edged down by 0.64% from a year ago. Core inflation was recorded at negative 0.45%, lowest in the last 66-months.

kmkraoind · Post by **kmkraoind** » 18 Jun 2015 10:44

Super rich defaulters push Indian banks towards collapse

What is worse is that just the top 30 cases of default account for a Rs 1.21 lakh crore, which is almost 40% of the Non Performing Assets (NPAs) in banks. The upper middle class, who usually takes loans of over Rs 1 crore, accounts for 33% of the total NPAs.
........
The mounting bad debts have forced banks to clamp down on wilful defaulters. As on March 31 this year, banks have declared 7,035 wilful defaulters with outstanding of Rs 51,442 crore. The worst hit among PSBs is SBI, which accounts for over a 1,000 cases worth Rs 11,510 crore.

One of the landmine left by UPA govt.

- Give huge loans to cronies (take a big cut for themselves).
- Put roadblocks through Environment ministry.
- Netas get richer by their cuts and Madame Sonia is happy that their NGO-minded cabal had stopped India's projects.

After a time, we have left with biggest excrement of NPAs and stalled projects, chocking Indian financial system.

Avinash R · Post by **Avinash R** » 18 Jun 2015 10:55

^+1 and use the black money collected to convert the poor indians into 'secular' votebanks

Yagnasri · Post by **Yagnasri** » 18 Jun 2015 14:33

The NPA mess we see is only 10% of what is really there. The main reason is useless bankers without any brains. The are both in PSUs and private sector.

member_29058 · Post by **member_29058** » 18 Jun 2015 19:14

Varun dev is kind so far on India and Modi

http://www.mid-day.com/articles/rainfal ... t/16293161

Good rainfall has so far been recorded over southern peninsula, central India and east and northeast India this summer with over 13 per cent above the normal limit, the MET department today said.

The country as a whole has received 69.6 mm of rainfall overall as compared to normal limit of 61.4 mm from June 1 till date. Until yesterday, the country had received 5 per cent of excess rainfall but the figure rose by 8 per cent today.

After a good spell of rain across the country, the deficit decreased to minus 1 per cent in northwest India while the southern peninsula recorded normal rainfall and central India registered an 18 per cent of excess precipitation than its normal limit. The east and the northeast India continued to get excess rainfall of 22 per cent.

According to Skymet, a private forecasting agency, over the week, the southwest monsoon is likely to advance over some more parts of Gujarat, entire Madhya Pradesh, Chhattisgarh, Jharkhand, West Bengal, parts of Bihar and eastern Uttar Pradesh this week.

First monsoon system in the Bay of Bengal is also brewing, which may cause good weather activity across the country, particularly in east and central India, the agency added. Skymet has also given a forecast that over the first half of the week, temperatures in the plains of North India are going to rise but no heat wave is expected.

ramana · Post by **ramana** » 19 Jun 2015 01:19

Indian money in Swiss banks falls by 10%

http://www.thehindu.com/news/national/i ... picks=true

kmkraoind · Post by **kmkraoind** » 19 Jun 2015 16:53

NDA sets up Board to boost medical tourism

New Delhi, Jun 19 (PTI) To boost medical tourism, the government today announced setting up of the National Medical and Wellness Tourism Board to provide help to those visiting the country for health care need.

"The Board, besides Ministry officials, will include other stakeholders such as hospitals, hoteliers, medical experts and tour operators," Tourism Minister Mahesh Sharma said after launching a brochure on yoga, titled 'India-the Land of Yoga'.

This step reflects the striking contrast between self-serving Cong and national builder NaMo. There are multiple benefits:
- India will earn some forex money.
- These patients will acts like brand ambassadors, so more tourism revenue and will generate goodwill for India.

Hari Seldon · Post by **Hari Seldon** » 19 Jun 2015 17:10

^Love the medical tourism idea.

heck, a 2000 bed Narayan Hrudalaya in, say, Hyd with close proximity to an int'l airport and ample land around can serve quite a few from around the world - including the 'look east' nations.

Heck, getting cheenis to come in Hordes will say a lot in itself. Of course, its another thing that cheenis due to their diet and genes are not much susceptible to heart disease...

Yagnasri · Post by **Yagnasri** » 19 Jun 2015 19:03

and all local medical costs will go up like anything for our people. No thank u

.

Melwyn · Post by **Melwyn** » 19 Jun 2015 19:22

Yagnasri wrote:The NPA mess we see is only 10% of what is really there. The main reason is useless bankers without any brains. The are both in PSUs and private sector.

I'm sure PSUs were arm twisted by UPA to give these bad loans which turned into NPAs.
UPAs NPAs has a nice ring to it.

A_Gupta · Post by **A_Gupta** » 19 Jun 2015 19:33

Jaitley at CFR:
http://www.cfr.org/india/conversation-a ... ley/p36625
Video & transcript available at the link above.
Video on youtube:

Yagnasri · Post by **Yagnasri** » 19 Jun 2015 19:43

@AmitKv sir,

Not exactly. Jayanthi tax is one of the many reasons. Too much borrowing in the assumtion that GDP will be up at 8, 9 % every year. Idiots as bankers both in PSU and Private and no proper legal frame work to recover are some of the reasons.

RoyG · Post by **RoyG** » 19 Jun 2015 23:28

You may get to convert gold bars into bonds

Mahua Venkatesh, Hindustan Times, New Delhi| Updated: Jun 19, 2015 23:52 IST

This Diwali, you may get an option to buy specially minted Indian gold coins with the Ashok Chakra embossed on it. Separately, you may also get an option to buy government-backed “sovereign gold bonds (SGBs)”, which aim to shift part of the estimated 300 tonnes of physical gold bar purchased every year to dematerialised (demat) gold bond.

These bonds will be marketed through post offices and brokers on a commission basis, according to a discussion paper on the scheme, for which comments are invited till July 2.

“The launch of the gold coin is expected before Diwali as demand for gold during that period is always at a peak,” a senior government official told HT.

The bonds will be issued in 2, 5, 10 grams of gold or other denominations, it said, adding that the tenure of the bond could be for a minimum of 5-7 years so that it would protect investors from medium-term volatility in prices.

Based on current market price, issuance of gold bonds equivalent to 50 tonnes would be Rs 13,500 crore. The tax treatment will likely be the same as for physical gold.

Last month, the finance ministry released the draft of the gold monetisation scheme (GMS), which will allow households to park family jewellery with banks and earn tax-free interests on the value of their yellow metal stock.

Finance minister Arun Jaitley had first announced the government’s intent to launch such a coin, a monetisation and a bond scheme in his 2015-16 budget speech, to mobilise the estimated 20,000 tonnes of gold held by households and institutions.

This is part of the government’s overall plans to dig deep into thousands of tonnes of gold stocked by millions of Indian families, as part of a bigger plan to channelise idle assets for productive use, and reduce costly bullion imports.

In 2014, total investment demand for gold moderated to 180 tonnes from an average annual demand of 345 tonnes during 2010 to 2013.

“It will represent 27% of the 2014 investment demand and result in a saving of $2 billion on gold imports at current prices,” said Sonal Varma, analyst at broking firm Nomura.

The special gold coins are likely to be of 5 to 10 grams. Initially, 20,000 such coins will be mitted and later scaled up depending on the product’s demand.

http://www.hindustantimes.com/business- ... 60789.aspx

As I've been saying: This scheme will serve as a cover for black bars being brought into the country. PMO and RBI def took notice of gurumurthy and others. I think preparations are well underway to secretly boost our gold holdings and dominate the gold market. I wouldn't be surprised if 5-10 years down the line we suddenly announced that we have over 3500 tons of gold sitting in gov vaults.

Misra · Post by **Misra** » 20 Jun 2015 17:11

Good work by Jaitley at the AEI yesterday analyzing the UPA period and putting NDA steps in perspective:

https://www.youtube.com/watch?v=_--xlv5tHR4

Supratik · Post by **Supratik** » 20 Jun 2015 19:43

X-post

3 flagship schemes to be launched on June 25.

Link

RamaY · Post by **RamaY** » 20 Jun 2015 19:50

Hari Seldon wrote:^Love the medical tourism idea.

heck, a 2000 bed Narayan Hrudalaya in, say, Hyd with close proximity to an int'l airport and ample land around can serve quite a few from around the world - including the 'look east' nations.

Heck, getting cheenis to come in Hordes will say a lot in itself. Of course, its another thing that cheenis due to their diet and genes are not much susceptible to heart disease...

I support the idea of Medical tourism, but GoI need put strict policies in such a way that.

- Medical tourist visas are limited to specific SEZ/Smart cities only & not allowed to mingle with general population.
- Strict enforcement laws concerning organ-donors & surrogate mothers etc.
- A captive containment facility in each medical SEZ so that tourists arent used as bio-weapons in future.

hanumadu · Post by **hanumadu** » 20 Jun 2015 20:35

Misra wrote:Good work by Jaitley at the AEI yesterday analyzing the UPA period and putting NDA steps in perspective:

https://www.youtube.com/watch?v=_--xlv5tHR4

Explains restrospective tax cases well. Not sure why he couldn't provide the same clarity before though he did mention a few times earlier that all the cases were from the past. Here he explains them more clearly including the capital gains tax on FIIs was a legacy of a 2012 court decision and UPA govt's failure to address it then. People who repeatedly say AJ is scuttling Namo and economic growth by retrospective taxation should listen to his explanation. If anything he proves how valuable his law acumen is being to Namo. From a purely economic perspective, all the brouhaha of retrospective taxation by all and sundry is BS, because there will not be any retrospective taxation in the future and NDA did not impose any such tax in its regime.

gakakkad · Post by **gakakkad** » 20 Jun 2015 20:52

I don't see how tourists can be used as bioweapons.. It would be difficult to restrict medical tourism to SEZ only...

Because AFAIK , the Indian visitor visa is a blanket visa valid for travel throughout the country...You can't restrict it to some regions only.

Suraj · Post by **Suraj** » 21 Jun 2015 02:30

xpost from achievements thread:

Anindya wrote:5 Encouraging Charts That Show India Is Getting Better

RamaY · Post by **RamaY** » 21 Jun 2015 03:36

Please help me understand.

Does RBI take out equivalent amount of INR from local economy when it holds the Forex Reserves? If so can we say GoI added $50B (~RS 3Lakh Crores) to national wealth in one year?

Thx

Got the answer:

https://en.wikipedia.org/wiki/Foreign-exchange_reserves

Official international reserves assets allow a central bank to purchase the domestic currency, which is considered a liability for the central bank (since it prints the money or fiat currency as IOUs)

Suraj · Post by **Suraj** » 23 Jun 2015 02:56

India to launch new overnight benchmark rate from July 22

India will adopt from July 22 a new method to set the overnight interest rate benchmark that will be based on traded levels instead of contributions from market participants, the board that will administer the rate said on Monday.

The new method, which follows an announcement by the Reserve Bank of India in 2013, will replace the current Mumbai Inter-Bank Offer Rate (MIBOR), and will be administered by the board of Financial Benchmarks India Private Ltd (FBIL).

The new benchmark will be called the FBIL Overnight MIBOR and will be based on trade-weighted call money transactions conducted on Clearing Corporation Of India's trading platform between 0900-1000 IST, the board said.

That will mark a contrast to the current MIBOR, which is compiled by polling market participants and is used to benchmark overnight pricing of call money rate in India.

The new FBIL Overnight MIBOR reflects RBI's response to the rigging controversy that affected the London interbank offered rate (LIBOR) last year.

FBIL, jointly set up by market industry and banking bodies, will replace National Stock Exchange and Thomson Reuters in administering the overnight rate benchmark.

GoI is implementing one of negi's pet demands:
Govt moots tax sops for card payments, transactions over Rs.1 lakh to be only by electronic mode

To reduce cash transactions in the country, the Centre on Monday proposed income tax benefits for those making payments through credit or debit cards and doing away with transaction charges on purchase of petrol, gas and rail tickets through card-based online transactions.

In a draft paper on moving towards a cashless economy and reducing tax avoidance, the government also proposed making it mandatory to settle transactions worth more than Rs 1 lakh through electronic mode. The paper, posted on mygov.in, is open to public feedback and comments till June 29.

In the 2015-16 Budget, Finance Minister Arun Jaitley had said: “One way to curb the flow of black money is to discourage transactions in cash. Now, a majority of Indians have or can have a RuPay debit card... I propose to soon introduce several measures that will incentivise credit or debit card transactions and disincentivise cash transactions.”

The draft proposals were prepared after consultations with various stakeholders, including the central bank, the National Payments Corporation of India, public and private sector banks, card service providers, mobile service providers, research institutions and various government departments.

FDI more than doubles in the first month of the year:
FDI increases to $3.6 billion in April

Foreign direct investment (FDI) in India increased to USD 3.60 billion in April, says Department of Industrial Policy and Promotion's data.

In April 2014, it stood at USD 1.70 billion, while in March, the foreign direct investment dipped by 40 per cent, according to DIPP data.

Amongst the top 10 sectors, computer software and hardware received the maximum FDI of USD 709 million in April, followed by automobile (USD 655 million), trading (USD 441 million), services (USD 217 million) and power (USD 109 million).

During the month, India received the maximum FDI from Singapore (USD 1.13 billion) followed by Mauritius (USD 907 million), the US (USD 392 million) and the Netherlands (USD 374 million).

During financial year 2014-15, foreign fund inflows grew at 27 per cent, year-on-year, to USD 30.93 billion as against USD 24.29 billion in 2013-14.

Suraj · Post by **Suraj** » 23 Jun 2015 07:14

This is from FT, and has the usual sections to be ignored while holding your nose, but there are some interesting bits of data. If you can't access it behind the paywall, enter the title into google and access the link off there.
India infrastructure: Built on debt

Some day, the Delhi Metro will be able to take race fans to the Buddh International Circuit, a $400m, 16-turn, state-of-the-art track on the outskirts of India’s sprawling capital.

And once a gleaming new highway is completed, the track will be connected to Delhi and the tourist destination of Agra. But for now, there is little traffic on the highway leading to Buddh and even less on the pristine racetrack.

It has been three years since Formula One abandoned the Buddh International Circuit, adding it to the sporting world’s crowded list of white elephants. It does not stand in total isolation, however.

Block after block of concrete skeletons of towers that were meant to provide up to 200,000 apartments line the highway, casting shadows on dusty wasteland, dried riverbeds and mesquite weeds.

Welcome to what is likely India’s largest ghost city, which extends across five expansive parcels of land along the highway adjacent to the racetrack. What was meant to be the crowning achievement of Jaypee Group and Jay Prakash Gaur, its 85-year-old patriarch, has become a monument instead to unrealistic aspirations and poor execution on the one hand and a shortfall in growth, the high cost of capital and an uncertain political landscape on the other.

The scale of Jaypee’s ghost city rivals that of some of China’s famous unoccupied cities. Fortunately for Jaypee, it also owns a collection of power and cement plants across India as well as three listed companies. Unfortunately, it also has about $12bn of debt, creditors and analysts say.

Jaypee is not alone in its plight. The company is ranked number six of 10 indebted Indian conglomerates that collectively owe about $125bn to their bankers, and account for 13 per cent of all bank loans in India, according to data from Ashish Gupta, an analyst with Credit Suisse. Others on the list include Lanco, a construction and power company; GVK, an energy and transport group; and GMR, an infrastructure conglomerate.

They are among the companies that should be leading India’s efforts to bolster its inadequate infrastructure, but instead are hampered by high debt levels and weak balance sheets.

In many ways, the difficulties of these groups embody the problems facing modern India, where private sector investment has virtually ground to a halt. The cost of capital is high, and banks are reluctant to extend credit because they have too many bad loans.

“Infrastructure companies are struggling and only the government can kick-start infrastructure,” says the chief executive of a prominent Indian company. “I don't see any market trigger.”

Despite Mr Modi’s pro-business rhetoric, the private investment required for such projects is still lagging due to unpredictable regulations, powerful government-linked entities that often do not honour contracts and other structural problems.

And then there is debt. Jaypee, for one, needs at least $1bn every year just to service its debts, bankers say. Like many other highly indebted companies in the country, it has technically defaulted on some of its debt, Mr Gupta of Credit Suisse notes.

In some cases, the Reserve Bank of India is letting banks roll over loans to indebted infrastructure companies but only if they have good assets. Until indebted groups can raise the cash to repay the banks — either by selling assets or completing projects so they generate cash flow — the new investment that India needs is still not going to materialise in anything like the magnitude the country requires.

“The problem is that the cash flows from infrastructure are a matter of 25 years while the banks don’t do long-term lending. The combination of the economic slowdown and cash flows that don’t match repayments is the problem,” says a senior official at the Reserve Bank of India.

That is why, a year after Mr Modi took over, optimism about the government is waning. A glimpse at the circumstances of the Jaypee Group highlights how long it will take for corporate India to recover from years of slow growth and poor governance.

Jaypee needs hundreds of millions of dollars to complete construction of the mostly empty residential towers along the highway, but that money is not coming in.

“In the fullness of time, everything might work out,” says one of the most successful real estate investors in India. “But that only works if you can stay the course. Without debt, you can play for time. But we are talking about two decades in the future and, with those sorts of debt loads, how do you keep yourself alive until then?”

Mr Gaur holds the inconsistent and changing policies of past governments largely responsible for his circumstances today.

“The problem is the economic policy of the government. India grew at 9 per cent for 10 years,” he says from his office outside Delhi. “Then suddenly from 2009 on, we paid the price. The use of cement came down and we did not get the price we expected.”

The real benefits came from gaining the right to develop five parcels of land, a total of more than 6,000 acres. The land, for which he paid only the acquisition cost, is close to Delhi alongside the highway in Noida and Greater Noida.

“Without the land development, the road is not profitable,” says Udayan Sharma, head of investor relations for the group.

The group embarked on an ambitious plan to build apartments in high-rise blocks with names such as Kensington Park and Imperial Court, as well as town houses that would sell for up to $2m.

At the same time, construction on the high-rise buildings was delayed after the National Green Tribunal raised concerns over its impact on a nearby bird sanctuary.

Not many apartments appear occupied; laundry flaps in the wind from only a few isolated balconies at the Pavilion Court. A hospital is functioning as are several schools. But the sites are a far cry from the integrated communities the brochures promise.

“I have heard some people say that the only place that they have seen scale like this is in China,” says Mr Sharma, with a mix of sorrow and pride.

Group executives say they have no bank debt on the real estate. Jaypee has collected deposits from buyers, but those deposits are paid on a rolling basis as construction proceeds; as the construction slows, so does the cash from buyers.

“This is the story of the vast majority of real estate in India,” says the property investor. “There is a cascading effect. When the money for one project stops, there is no money for the next project.”

The group has sold some of its power and cement assets in its attempt to raise cash, which is one reason creditors have been patient with Jaypee.

“They have been among the most proactive of all the indebted groups,” says Sanjay Bhandarker, who heads Rothschild’s Indian operation.

Because Jaypee used high-quality equipment, the plants could readily attract buyers. Still, the value of the assets is far less (a total of $3.4bn raised through such sales) than the face amount of the debt, lenders say. “Will the banks force more asset sales to buy time?” asks the head of a bank with a small exposure to the group.

Mr Gaur remains optimistic.

“There is always a cycle. Land is always precious but sometimes it takes time,” he says with a nod at the gods on his wall. “When the government builds the new airport near Agra, the land will become platinum. How can we be in trouble with such gorgeous projects? Next year we will be all right.”

member_29058 · Post by **member_29058** » 23 Jun 2015 19:44

http://www.firstpost.com/business/upa-l ... p_internal
UPA left the banking system toxic, and Jaitley's moving too slowly to fix it

For a government that has moved simply too slowly in recapitalising public sector banks, it is good to hear Finance Minister Arun Jaitley tell investors in the US that this will happen in three-six months.
It will be too little, too late.
Between them, Pranab Mukherjee and P Chidambaram have left behind a huge time-bomb for Jaitley to defuse, and so far he is showing no signs of being on top of the problem. The high-growth years of UPA were bankrolled by excessive, injudicious lending by banks, and Jaitley is facing the music now. According to rating agency Icra, gross bad loans and restructured assets (bad loans that have been rescheduled for borrowers) are in the region of Rs 7.4 lakh crore, and this could spike up to Rs 8 lakh crore by March 2016. That’s 10 percent of all loans made by the banking system – enough to sink weak banks .

An Economic Times story today (23 June) says the finance ministry is asking banks to present five-year recapitalisation plans instead of turning up at North Block every year with a begging bowl. This will at least make banks think through their capital requirements on a long-term basis. It will also force them to economise on the use of capital - which is actually the costliest form of money.
This is the right approach, but again does not go far enough.

The fundamental problem with Jaitley’s approach is that he is seeking remedies without changing the structure that creates capital-hungry public sector banks in the first place. What is wrong is the top-down nature of Indian banking, where the ministry has too large a role in deciding what banks should do, and banks themselves are happy to oblige since this takes away the management’s pressure to perform.

A capricious and arbitrary owner is not good for public sector banking. To insist that banks must pay out a certain proportion of their profits as dividends to the exchequer, and then deny them capital for growth on grounds of being inefficient, and again asking them to incur huge costs in expanding inclusive banking means the government is setting contradictory objectives without an understanding of how money is made in banking.

The UPA’s economic growth record was built on the back of mindless bank lending that was simply unsustainable. If today banks are unable to lend, it is because the UPA years drained them of their capacity to lend or take risks. Banks were forced to lend to all kinds of infrastructure projects that were unviable, not to speak of bankrolling crony businessmen like Vijay Mallya who has left banks saddled with Rs 7,000 crore of dud loans to Kingfisher Airlines. How did banks lend so much for a bad business without adequate collateral?

The five areas that Jaitley needs to move ahead on are the following:
First, management autonomy. In his budget speech, Jaitley promised the creation of an autonomous bank board. He said: "In order to improve the governance of public sector banks, the government intends to set up an autonomous bank board bureau. The bureau will search and select heads of public sector banks and help them in developing differentiated strategies and capital raising plans through innovative financial methods and instruments. This would be an interim step towards establishing a holding and investment company for banks."

Second, there is the recapitalisation effort. This could have been done easily last year when the markets were buoyant, but this did not happen. This year could offer another opportunity if the markets rebound in the second half of the year, but what if they don’t? Jaitley can’t expect easy options to remain forever. He has to find the money somewhere, and one way would be to ask banks to not pay any dividend to the government this year, and use the money saved to recapitalise themselves as best they can till the market improves.

Third, the long-term solution, if the government does not want to privatise, is to legislate a golden share where it has 51 percent voting rights, but far less economic rights. The capital can be raised from the market which will have higher economic rights (even entitlement to higher dividends) and lower voting rights. This change may not be easy to pass, but presumably some opposition parties can be convinced that this is the only way to recapitalise banks in a tough fiscal situation without privatising them.

Fourth, banks must refocus on their core business and not get diverted into areas that need even more capital – like insurance and other businesses. Public sector banks can raise capital by selling off, or even divesting 49 percent, in their insurance, broking and other subsidiaries. The State Bank, for example, should list its bank subsidiaries instead of trying to merge them with itself. This will allow it to raise capital without diluting the government’s stake in itself.

Fifth, mergers, voluntary retirement schemes and hiving off bad loans are unavoidable. Weak banks should be forced to narrow down their focus to conserve capital, and strong banks should be asked to take over some of them. Bad loans should be sold off at discounts to asset reconstruction companies or even floated off into a special subsidiary so that balance-sheets are cleaned up. Just as the US created TARP (troubled assets relief programme), the RBI and the finance ministry should create a company to buy off the bad loans of troubled banks and allow them to start afresh.
Jaitley is moving simply too slowly given the nature of the problem left behind by the UPA. He should get a move on.

svinayak · Post by **svinayak** » 23 Jun 2015 23:58

Who are these people to advice GOI and Indian minister to make decision

This must be a paid article. Where were they when bad loans were made. There was no article talking about bad investment being made

member_29058 · Post by **member_29058** » 24 Jun 2015 00:10

He is not criticizing NDA Govt. for doing it. Now that it happened, we need institutional reforms so that $onia or Crazywala or PAPPU as PM can't redo it and at the same time rescue these banks. Jagganathan is a big conservative (or the only one) in Indian $cum media who preaches less subsidies and more responsibility

Suraj · Post by **Suraj** » 24 Jun 2015 02:05

There is some merit in R Jaggi's article. Our PSU bank system is heavily fragmented. They should be forced to merge into a few bigger stronger banks. The total bank loan base of 80 lakh crore (~$1.4 trillion) is far less than GDP, at under 66% of nominal GDP. That's really tiny compared to both developed and major developing world banking systems, where domestic credit / GDP is 120%-200%.

High growth is driven by the ability to fund development cheaply, including the ability to disburse billions or tens of billions of dollars into projects. That requires many things, including massively broading the savings base, which PMJDY does, and combining weak PSU banks into bigger stronger ones. One can fix the NPA% in two ways: shrink the value of the NPAs, and/or raise the capital base and therefore the disbursed credit. Jaggi is asking for smaller banks to divest their non-core businesses and gain more capital, and/or combine and form larger banks. That's a fine prescription.

On the other hand Jaggi has repeatedly been on the case of privatization, which I think is a misunderstanding on his part. Yes, Modi supports private enterprise. But he's not a dogmatist advocate of privatization. I think it's fair to demand 'FinMin needs to hurry up' because the effort to tackle the indebtedness of the banking system indeed 'seems' slow. However, this isn't a problem that's easily tackled, and the effects of reforms underway take time. The Chinese had a hard time getting through this in the late 1990s through mid 2000s themselves, and they didn't fix it overnight either.

kmkraoind · Post by **kmkraoind** » 24 Jun 2015 13:27

Foxconn to manufacture Xiaomi mobiles in old Pepsi building in Andhra Pradesh

According to an Economic Times report, the plant will manufacture about 10,000 smartphones every day.

Apart from Apple and Xiaomi , the company has an impressive client base in Cisco, Dell, Microsoft and Hewlett-Packard.

Foxconn is looking at major investments in India. The company plans to invest about $2 billion (Rs 12,700 crore) over the next five years and expand its base into smartphone manufacturing in the country, comparable to China.

I sincerely hope that after 10-15 years, global markets are flooded with Indian branded and Indian made phones.

amit · Post by **amit** » 24 Jun 2015 14:30

^^^^^^

I really hope that happens. But the crucial component for that is a supply chain of component makers because at the end of the day the Foxconn unit will just be a assembly shop. With regards to Foxconn one needs to look out if they invest in component manufacture as well. For iPhones Foxconn not only builds them they also manufacture a lot of (cheaper) components in China. The costly/high tech ones come from Korea, Japan & US.

Indian phones can flood the international market only when the country develops a strong components industry. One good thing China has done is that, it used the sheer size of its market to force international companies to manufacture in China. The next step was to understand the technology and set up parallel manufacturing. It's old hat now but there was a time when Cisco went to court in China with the claim that Huawei stole more than a million lines of its proprietary code. They used to have a partnership at that time, Cisco tied up with them to enter the market. Nothing happened and Cisco swallowed the incident just to remain in the market. Today Huawei, has eaten into Cisco's business bringing out cheaper equipment which are about 80-90 per cent capability of the US company's equipment at around half the price.

I'm not suggesting that Indian companies start stealing IP from foreign companies but they need to be much more aggressive and innovative. Now most of them just rely on cheap imports from China. A friend of mine who once attended a trade show in Singapore told me that a small Chinese company which had a stall mistook him for an Indian businessman. He had a whole bunch of brandless phones on display. He told my friend to pick the models he liked and his company would put "his" (Indian) company's brand on and supply them via a third country of his choice. He even told him that if the order was big enough they would emboss "Made in India" inside the phone!

That's the temptation out there and for Indian businessmen out to make a quick buck, this is too enticing. After all who wants to slog for years to develop an international brand?

A mindset change is needed or a government directive, otherwise the only people who will NOT benefit from the sheer size of the Indian market is Indians themselves. It's already happened/happening in the telecom signalling equipment market. We are the second biggest mobile phone market and yet we make no signalling equipment, we don't even have the major equipment makers manufacturing out of India.

gakakkad · Post by **gakakkad** » 24 Jun 2015 14:53

by all means Indian companies should steal ip...it is not a bad thing...everyone does it...

kmkraoind · Post by **kmkraoind** » 24 Jun 2015 14:59

Let see India's chances (component wise) after 10 years.
- Main CPU+GPU - Cant say if Intel, TSMC or Samsung will move their foundries to India, but there are 2 silicon foundries are coming. But if gives huge tax concessions, may be India too can have "Kirin" like Indian brand CPU+GPUs manufactured in India.
- Plastic and metallic casing - high possibility that we can manufacture them in India.
- Motherboard manufacturing and assembling - high possibility that we can manufacture them in India.
- Camera modules - If govt pushes, we may manufacture low end camera sensors, but highends will come Japan/Korea.
- Displays and glasses - High possibilities that MNCs move their manufacturing plants to India.
- Batteries/power packs - High possibilities that MNCs move their manufacturing plants to India with some Indian players pitching in and catering low-to-mid range phones.
- Other sensors - High ends will come from Germany/Korea/Japan, while lower ends will be manufactured in India.

Regarding SW integration and designing of designs, I think already India a big player. Most of our youngsters in Chennai, Bangalore and Noida are already doing that.

Just like modern-day diamond cutting to SW development, once Indians got adequate exposure, I bet Indians will conquer that field. HW manufacturing and assembly segments is no exception for that. Since infrastructure is being taken care of current NaMo's govt, I am seeing bright prospects for us in this arena (manufacturing and assembly segments).

If West/US sees China as a threat, then they will try to hedge it with India, because India is only nation that can match human resources of China, then there might be an acceleration (manufactures moving from China to India) in the above processes.

JMT.

amit · Post by **amit** » 24 Jun 2015 18:35

Boss

All of what you wrote can happen if local phone makers bite the bullet and get ready to slog it out like Lenovo, Huawei, ZTE and others did for almost a decade.

It's only now that they are moving into markets outside of China. Xiaomi, Appo and others are second generation companies who are building on the hard work of the others.

Will Micromax and others be willing to go for the slog or would they take the less painful route of sourcing from China and Taiwan? That will determine the success or otherwise of the nascent smartphone industry in India.

Maybe the government should mandate a Make in India for the industry.

Suraj · Post by **Suraj** » 24 Jun 2015 19:41

amit wrote:I'm not suggesting that Indian companies start stealing IP from foreign companies but they need to be much more aggressive and innovative.

There's no reason not to, if they can get away with it. Despite all the gas about TRIPS and general IP issues, the west has absolutely no problem trying to patent basmati rice or even yoga if they can get away with it. This is not about 'satyameva jayate'. It is 'might is right'. We already do it by applying patent evergreening laws in a manner that suits us, rejecting claims from Pfizer, Novartis etc in the process. We should be more aggressive about it .

NRao · Post by **NRao** » 24 Jun 2015 19:47

If West/US sees China as a threat, then they will try to hedge it with India, because India is only nation that can match human resources of China, then there might be an acceleration (manufactures moving from China to India) in the above processes

You bring up a very, very imp point. Indeed that is the case. The current economic projections (Forbes has even stated "double digit" - do not know if Mr. Forbes knows what Ghee and Shakar means, but .........) are primarily based on the population distribution that India will have in the next 25-50 years. Starting in a few years, this factor will not help China. More to it than just that but that is a very key point - from a very high level POV.