Indian Economy: News and Discussion (June 8 2008)

[Nitesh]

http://knowledge.wharton.upenn.edu/indi ... cleid=4295
The Next Frontier for India's Outsourcing Industry? The Domestic Market
Published: June 12, 2008 in India
Knowledge@Wharton

Earlier this year, Genpact, the largest business process outsourcing (BPO) player in India, gave Harpreet Duggal a new role: responsibility for developing and executing the company's domestic BPO strategy. Duggal is already well into discussions with potential customers, and is finalizing operating locations. He's moving fast because Genpact isn't the only Indian company interested in this space. For many reasons, the domestic BPO market is one that no one can afford to ignore anymore.

Duggal primarily is targeting two sets of potential customers: existing global customers who are looking to increase their presence in India and require the same systems and processes they have elsewhere; and Indian companies with global aspirations, both by way of moving beyond Indian boundaries and by providing a global experience in the Indian market. These require world-class processes and systems. Says an upbeat Duggal: "We believe that India is a very exciting market to be in."

Having been on the periphery, the domestic BPO business is steadily moving onto everyone's radar. Companies including IBM Daksh, Firstsource Solutions, MphasiS BPO and Intelenet Global Services are looking to significantly increase their presence. Others, such as Wipro BPO and Infosys BPO, are waiting for the right time to enter the space as part of a total outsourcing solution along with their IT arms. And, firms such as 24/7 Customer have no immediate plans to enter but are watching the space keenly.

What has brought about this growing interest in India's BPO market? Industry players and analysts cite multiple factors. These include reduced costs of connectivity, the scorching pace of the Indian economy, the phenomenal growth of companies in sectors including telecommunications and financial services, rising customer expectations, Indian firms' global aspirations, and global firms entering the Indian market. The changing rupee-dollar equation and the slowdown in the U.S. economy, which is forcing players to look at other markets, have added to the momentum.

Wharton management professor Saikat Chaudhuri says the factors driving that trend are the "tremendous growth" of India's domestic markets, the slowdown in Western markets, and the dollar's weakness against the rupee. He notes that a whole new class of medium-sized companies outside of the well-established and large industrial houses like those of Tata, Birla, Ambani or Goenka is looking at farming out noncore activities to increase efficiencies and focus on core competencies. "These companies are becoming customers of Oracle, Cisco, SAP and so forth," says Chaudhuri.

According to Ravi Bapna, assistant professor at the Indian School of Business, "It's now become profitable to address this market and the industry is set to take off."

A glance at the Indian BPO industry's growth helps put the dynamics of the domestic market in perspective. At a compound annual growth rate of around 37% over the last few years, BPO exports have been the fastest-growing segment of the Indian IT-BPO sector. They have grown from $3.1 billion in fiscal 2004 to $11 billion in 2008 and currently account for 37% of the global business process offshoring pie. They sustain an employee pool of more than 700,000.

Players have tried over the years to add quality and efficiency to their original labor arbitrage sales pitch. They have been moving from low-end, non-core activities to more complex processes. Now, in a move further up the value chain, they are looking at becoming transformational partners to their clients, making an impact on business metrics.

A recent study by the National Association of Software and Services Companies of India (Nasscom) and the Everest Group estimates that in a "business as usual" mode, India's BPO exports will grow to $28 billion to $30 billion over the next four to five years. With proactive measures, the report says, they have the potential to reach $50 billion by 2012, with a maximum addressable opportunity of $220 billion to $280 billion.

Traditionally, Indian BPO vendors have relied largely on English-speaking geographies as their markets. North America and the United Kingdom together account for about 87% of their export revenues. North America, primarily the United States, accounts for roughly two-thirds of the market alone. While this dependence on the U.S. market is expected to continue, players have been expanding their footprints in other markets, notably continental Europe and the Asia-Pacific region. With the slowdown in the U.S. economy, rupee-dollar fluctuations, and growth in other markets, this move to tap other geographies not only acts as a natural hedge against currency fluctuations, it's simply a good business strategy.

India's Growth Beckons

That's where the Indian market comes into play. India's economy is growing too fast for any industry not to want to share in its growth. From less than $100 million in 2002, BPO demand in the domestic market grew to $1.1 billion in 2007. In the last year, it is estimated to have grown to between $1.6 billion and $1.8 billion. The Nasscom-Everest study estimates the potential addressable market at around $15 billion to $20 billion over the next five years. Realizing even half of this potential would be significant.

In many ways it would change the nature of the industry. As it stands, close to 80% of the industry comprises captive shared service centers. The rest of the industry is highly fragmented. Estimates suggest that 400 to 500 firms constitute the unorganized sector. As the industry gains in size and stature, a fair bit of consolidation is expected. Third-party service providers, many whose revenues are growing around 100% a year, are expected to increase their market share significantly.

Telecommunications and financial services have been key verticals spurring domestic demand, followed by consumer goods and airlines. Going forward, government, travel and hospitality, retail, and media and entertainment are expected to attract significant demand for BPO services in India.

Ravi Aron, senior fellow at Wharton's Mack Center for Technological Innovation and an expert on outsourcing trends, points out how BPO firms in India will find the domestic market more challenging than those in developed countries. For starters, he says Indian companies in several services industries including those in the BFSI (banking and financial services industry) segments are wholly owned by the government. BFSI companies have tended to be the biggest opportunity for outsourcing services providers in Western markets, he adds.

"Although these companies present the right opportunity for BPO firms, state-owned banks and insurance companies like the State Bank of India and General Insurance Corp. of India are going to be very slow to start outsourcing on a large scale," says Aron. "That is because of the extraordinary pressure they will face from their unions, who don't want their jobs to go to the private sector."

The second challenge BPO firms will face in India stems from the fact that any company's decision to outsource its needs is "heavily embedded in its technological architecture," says Aron. "Indian services companies in either the public or the private sector are heavily underinvested in technology on a per-capita and per-sale basis compared to those in the U.S. and Europe. Indian services companies are far more labor intensive, and don't have the technology platforms that will facilitate outsourcing, excluding [financial services companies like] an ICICI or HDFC."

Aron talks of the "3 Ps" of information architecture -- platforms, processes and people -- "where Indian companies are not streamlined." He says internal processes at most Indian services companies are "idiosyncratic" and not standardized as in large retail companies like Wal-Mart or U.S. health care companies.

Gaurav Gupta, country head of the Everest Group, points out that with the phenomenal growth in these industries, the name of the game for most companies is to gain market share and grow the top line. The competitive landscape is straining companies' operational models. So companies in these industries are turning to vendors who can help them overcome some of the challenges associated with fast growth, like managing huge volumes and providing a large network that can reach out to different corners of the country rapidly. Says Gupta: "The present systems and processes are nowhere near adequate, either by way of scale or expertise, to sustain the kind of growth that companies are seeing in India. These require tremendous ramping up. Otherwise they will become severe bottlenecks." Adds Susir Kumar, chief executive officer of Intelenet Global: "At this stage of growth, companies would rather use their capital in building their brands, acquiring customers, and focusing on their core competencies and outsource whatever is possible."

'Productivity Arbitrage'

Aron agrees that big opportunities lurk behind those shortcomings at Indian services companies. BPO firms could help standardize and automate processes at Indian companies and achieve "extraordinary productivity gains of up to 35% over 18 to 24 months," he adds. "That is why doing BPO in India for Indian companies makes a lot of sense. Instead of wage arbitrage, start thinking about productivity arbitrage."

Even as companies busily increase their customer base they realize that, with the Indian economy becoming more globally integrated, customers are ever more demanding. The "new" Indian customer is not satisfied with anything less than world-class levels of product and service quality. Take the Indian telecom industry. It is among the most complex in the world, with new products being introduced practically every day. It is becoming imperative for companies to get it right the first time. Customer service is seen as a key differentiator in the crowded marketplace. Customer service, in fact, accounts for two-thirds of revenue in the domestic BPO market, followed by finance and accounting and human resource outsourcing. As Nasscom vice president Rajdeep Sahrawat says: "There is very little to differentiate companies from the product point of view and therefore offering very high quality, personalized, 24/7 customer service is critical. This requires scale, flexibility and expertise."

Bharti Airtel, India's largest mobile services provider, is an often-cited example. Bharti was one of the first and biggest Indian companies to outsource on a large scale. In August 2005, the company signed a mega deal with four global BPO companies -- IBM Daksh, MphasiS, TeleTech and Hinduja TMT -- to outsource its call centers. Bharti had already outsourced its IT and cellular networking requirements to IBM and Ericsson, respectively. These strategic moves allowed Bharti to focus on its core areas of product innovation, marketing and brand building. Bharti has a mobile subscriber base of around 60 million and is adding around 2 million subscribers a month. It is a beacon for others targeting high growth. Says Ramesh Gudalur, president of MphasiS BPO: "Companies like Bharti who look at outsourcing as an integral part of their business strategy are completely changing the way Indian companies have traditionally run their businesses. This is putting pressure on others, both in their own industries and in other sectors, to follow suit."

Opportunities await BPO firms also in providing specialized services to newly emerging industries like retail, fashion apparel or automobile components, such as customer relationship management (CRM), market research, accounting, and inventory and supply chain management, says Aron. "Many of these specialized services companies have the money, but not the managerial capacity or bandwidth to automate their processes and extract efficiencies," he adds. He sees a new trend emerging in the next two to three years of "platform-based BPO" that provide niche services in areas like credit card fulfillment, mortgage loan processing and loan refinancing, and property & casualty insurance.

Delivering Value

Increased capability in the supplier community is also encouraging Indian companies to move toward outsourcing. Having grown via the export market, many large suppliers have developed end-to-end capabilities that are large enough to attract the domestic players looking at huge volume growth. More important, the suppliers now have the capability to deliver value by way of technology platforms or process expertise that goes well beyond just cost.

This doesn't mean that the cost advantage that Indian companies enjoy by outsourcing their business processes is insignificant. Cost, as Sandeep Soni, chief executive officer of Spanco BPO, points out, remains an important driver by sheer virtue of the economies of scale that a vendor brings in. However, it is unlike the export market, where labor arbitrage was the key factor in the industry's early days and continues even today to play a dominant role.

Chaudhuri argues that BPO services companies could still play the wage arbitrage card to a significant extent in India's domestic markets, but differently. "That is because there are many inefficiently run companies in India, and the BPO companies have not just the expertise but also the scale to perform functions across the board at a much lower price," he says. "While the wage arbitrage in India's domestic markets may not be as attractive as it is in the west, certainly the volume of activity can make up for it."

Sabyasachi Satyaprasad, senior director at advisory firm NeoIT, says the absence of a strong labor arbitrage in the domestic market will in fact compel vendors to offer a higher-value proposition, such as solving business problems for their domestic clients. This, he says, could well result in the domestic BPO industry leapfrogging some of the growth stages that vendors had to go through in the global market. Industry players agree. Says Pavan Vaish, chief executive officer of IBM Daksh: "When one is operating in a market where there is no arbitrage benefit, you have to innovate and add value to the customer. When we started out in 2005 we had thought that our international business would give us a lot of insights into our India business. But what we are finding is that it is our India business where a number of amazing innovations are happening."

BPO companies that have concentrated on serving Western markets may not feel the need to reorient themselves as they look to serve domestic Indian companies, says Chaudhuri. While these BPO companies developed their "global delivery model" for Fortune 500 companies, he notes, many of them were "born and bred" in India, including Wipro Spectramind and Genpact's predecessor company. "The outsourcing model has been designed keeping Indian constraints in mind from the very beginning, which allows for very healthy margins when they deal with foreign clients."

The only significant difference BPO companies will encounter In India's domestic market is the need to offer simplified services, according to Chaudhuri. "The BPO companies targeting the Indian market are not going to sell $300 million or $1 billion contracts for five years," he says. "They will have a lot more projects that are in the $1 million, $5 million and $10 million range. They are well-positioned for that because they started small themselves." He says these BPO companies could also replicate the dedicated units they set up with some clients.

This presents its own challenges. While their global education is valuable, vendors must create a proposition that is relevant to their domestic clients' immediate needs. According to Sanjeev Sinha, senior vice president of operations at Firstsource Solutions: "In many cases the India market has requirements that are rather different from the global markets, so vendors need to adapt and customize the solutions to the local situation. A cut and paste of the global solution will not work."

Vendors also need to think ahead of the curve regarding their very business models. With India, an extremely price-sensitive market, pricing models need to be innovative. Vendors must build capabilities that allow them to adapt to the changing expectations of a fast-growing and competitive marketplace. As Anirudha Prabhakaran, chief operating officer of 3i Infotech, points out: "This is a market which not only negotiates very hard on the efficiency front but also constantly raises new demands."

One potential obstacle Aron sees is a "huge divide" that exists between managerial personnel and the clerical staff at Indian companies in the ability to efficiently use technology in processes. While Indian managers are able to use technology to access data, analyze it and create reports, for instance, clerical workers tend not to use computing capabilities to their fullest extent, he notes. "You don't see that sharp divide in the U.S.," says Aron.

Variation in Margins

There are other challenges, too. India, as it is well-known, is not a homogenous market. It has myriad regional languages, varied cultures and remote corners. For players who are looking at scale and who have national ambitions in the domestic BPO market, this means managing a range of complexities. Also, for the economics to be viable, players will have to move from larger cities and set up operations in Tier 2 and Tier 3 locations. It is true that the domestic market does not require that BPO agents be trained by way of voice, accent and culture; therefore it is less expensive and easier for service providers to move into the smaller cities. But the challenges posed by infrastructure and the availability of senior management must still be dealt with.

The biggest challenge, however, could be around profitability. Although the costs by way of infrastructure, wages and training are lower for the domestic market, so is the pricing. Pricing in the India BPO market is estimated to be anywhere between 30% and 60% less than in its global counterpart, though more experienced players insist that their domestic BPO margins are comparable to their global business or only marginally lower. With the outsourcing market in India still not mature, the readiness to pay for world-class services remains a challenge. But as Duggal of Genpact points out: "Even in the global markets the variation in margins is phenomenal." It all depends on how effectively vendors are able to deliver by way of cost structure, people management and value creation.

Chaudhuri says BPO companies focused on India's domestic market could continue to enjoy cost advantages because many of them are extending operations outside of the big cities to cheaper, second-tier cities. They could also use their Indian base to supply markets in other developing countries, he adds. "It's like the Tata Nano [the Tata group's newly launched small car], where the first foreign markets are in Africa, Southeast Asia and European countries that have road density problems, and some parts of Latin America," he says.

Chaudhuri sees other, longer term gains for BPO companies in all this. As service providers to India's new class of business houses that are expanding globally, they "could follow their clients to foreign markets," says Chaudhuri. "The Japanese banks followed the Japanese conglomerates, and U.S. telecommunications companies like Verizon did the same thing, following their financial services clients overseas."

[Nitesh]

http://www.rediff.com/money/2008/jun/13nath.htm

'India created more jobs in US than US did here'

Taking on critics of outsourcing to India and the alleged loss of American jobs in the process, India's Minister of Commerce and Industry Kamal Nath asserted that Indian investments in the United States in the last two years had created more jobs in the US that American investment in India has.

In an interactive session with PBS television's talk show host Charlie Rose at the 33rd anniversary summit of the US-India Business Council, Nath said, "Indian investment in the United States in the last two years is more than the US investment in India in the last two years, and India has created more jobs in the US than the US has created in India."

"Now, the Democrats must hear this," he said, to which Rose quipped and asked if it were a campaign statement.

Nath said that "trade and investment is now a two-way street," and pointed out that American exports to India "went up by over 70 per cent last year. That's not a small thing."

"Why are they going up? Because India is a healthy economy and that's what I keep saying not only to the US, but to all developed countries," he said. "That you must ensure that there are healthy economies in developing countries and it's a great market for developed countries."

Nath said that the US needs to understand this "because healthy economies in developing countries mean greater markets. It's no use being a country of one billion people if you have no ability to buy anything."

Asked if India's remarkable growth rate would continue, Nath said there was no doubt about it and added, "We projected that we would be getting close to 10 per cent growth, but global economic outlook being what it is, we revised it downward to 8.5 per cent. Now, that itself is good."

Nath said this confidence and optimism were borne out of a notion that because of the "strong fundamentals," the Indian economy has "built up a momentum of its own and we are confident this momentum will continue whatever be the global economic outlook."

However, he acknowledged that the 3 F's -- fuel, food and finance -- were certainly cause for concern not just for India but for the whole world, and recalled that "they weren't there when I came to the USIBC last year."

Nath also said the sub-prime loan crisis that has devastated the US housing market and led to unprecedented foreclosures in the country and plunged the country into what many economists say is indeed a recession with worldwide implications, would not impact on India.

"We are quite decoupled from it," he said. "There has been no exposure by the Indian financial system to the sub-prime crisis, but of course if there is slowdown in the US, it does affect us."

But Nath said that "more important is the sentiment and that's what we need to guard against -- this sentiment of gloom. The sentiment of gloom is worse than the gloom itself, and that's what drives markets -- this sentiment and this frenzy that goes around. (But) It's not there in India."

He argued that the impact of this crisis is minimal "because our growth is not export-market driven -- it's domestic market driven. So, that keeps us in a little bit of a less vulnerable position," unlike other Asian countries whose economies are largely export-driven.

Nath also took exception to the allegations that India was responsible with its export ban for the worldwide shortage of rice, saying that "we banned the exports of only the cheap quality rice. If you want to buy rice from India, buy the good quality one. Why do you want to buy the cheap quality one."

He said, "Keep the cheap quality one for our 300 million people who earn less than $1 a day."

Nath also said the criticism that India was attempting to kill the Doha Round of global trade negotiations was "unfair and inaccurate."

He said that "India needs as much as the US, a rule-based multilateral trading system. So, for us, the Doha Round is as important as it is for the US."

But Nath asserted that "this round really needs to respect sensitivities. The United States has sensitivities on subsidies. Some countries have sensitivities on bananas. There is huge issue on coconuts. There are whole issues on tropical fruits. There are whole issues on subsistence. This round will close with each other respecting sensitivities. We need to harmonize these sensitivities."

"We are not going to get everything," he acknowledged. "No country is going to get everything, but no country is going to give away everything."

Nath said, "I don't criticize the US, I enlighten them. But we have moved forward since we were two years ago, where we were two months ago, and we continue to move forward."

The final question by Rose to the articulate and humorous Nath was that it used to be said that "every Senator in Washington used to look in the mirror in the morning and see a future president. When you look in the mirror in the morning do you see a future prime minister?"

The 600 plus audience cracked up and engaged in sustained applause, when Nath replied: "Well, I see myself. And, there's nothing better than seeing yourself."

[SwamyG]

I don't know much about Kamal Nath, based on the interview it looks like he is street smart and can be assertive. If it is true, hope the tribe flourish.

We are not going to get everything," he acknowledged. "No country is going to get everything, but no country is going to give away everything."

[hanumadu]

I mentioned earlier that a number of capacity augmentation projects were coming onstream over 2008-09.

Suraj, What are the sectors/goods facing the supply side constraints. You say that once the suppy side constraints are eased, inflation should come down and so should interest rates. But Ratan Tata said that they kept capacity expansion on hold because of low demand on account of high interest rates. So atleast big ticket items like cars, houses are waiting for interest rates to come down to augment capacity and not the other way round.
So what are the goods that will become cheaper on account of capacity expansion? What is their weightage in the consumre price index or whole sale price index? By how many percentage points will the inflation decrease on account of the added capacity and consequently by the reduced prices?

--Ranadheer

[Suraj]

Ranadheer: I cannot hope to provide concrete numbers to all your questions right away. The constraits pertain to primary capital goods, not consumer goods output. The latter is more affected by the interest rates than the former. While the slowdown in consumer goods demand does affect demand for primary goods in turn, it appears from the IIP data that that there are sufficient number of sectors not tied to consumer goods that are growing fast enough, and therefore supporting the significant capital goods output growth.

Spending on infrastructure and public works is one avenue for the intermediate goods to go to, e.g. all the airports, metro projects, roads etc, that is well tracked on the SSC India forum. While consumer goods demand has be constrained by higher interest rates, both anecdotally (e.g. Ratan Tata's reference) and quantitatively (the IIP figures), capital goods output has not, and in fact it's growth rate has risen over the rate of growth last year, from low to mid teens. A collection of data indicates a number of projects initiated in the early 2007 period coming onstream over the next fiscal.

When I referred to the analysis in the past, I referred to a collection of articles and data referring to investment on cement, steel and other areas, including SEZs. These projects take a while to complete, and typically have their financial closure covered ahead of time, so current interest rates don't matter as much when they're already so late into completion. Another thing is that companies had strong balance sheets and recourse to external commercial borrowings, so their interest rate risk is lower (especially with the US interest rates having fallen during the last 8-12 months). Of course exchange rate risk replaces interest rate risk for them.

[Nitesh]

http://www.dailystar.com.lb/article.asp ... e_id=93096

The joint rise of China and India could benefit everyone
By Joseph S. Nye
Daily Star - Lebanon, Lebanon
Saturday, June 14, 2008

George W. Bush is approaching the end of his presidency mired in low popularity ratings, which partly reflects his policies in the Middle East. But Bush leaves behind a better legacy in Asia. American relations with Japan and China remain strong, and he has greatly enhanced the United States' ties with India, the world's second most populous country.

In 2005, Secretary of State Condoleezza Rice prepared a visit to New Delhi by Bush the following year in which he announced a major agreement on US-Indian civilian nuclear cooperation, as well as a variety of measures for commercial and defense cooperation.

The nuclear cooperation agreement was criticized in the US Congress for not being strict enough on non-proliferation issues, but it looked likely to pass. In India, the Communist Party, a small (but important) member of Prime Minister Manmohan Singh's ruling coalition, has blocked the agreement. But, as one Indian friend explained to me, this is mainly symbolic politics for India's left.

Even if the nuclear agreement fails, the improvement in US-India relations is likely to continue. Some attribute this to the fact that India and the US are the world's two largest democracies. But that was true for much of the Cold War, when they frequently talked past each other.

More importantly, with the end of the Cold War, the Soviet Union was no longer available as an Indian ally, and the US began to assess India and Pakistan in terms of separate interests, rather than as a pair linked in a South Asia balance of power. As Evan Feigenbaum, the top State Department official for South Asia recently said: "[T]he world of 2008 is not the world of 1948. And so India really has the capacity, and, we think, the interest, to work with the United States and other partners on a variety of issues of global and regional scope." This change began under the Clinton administration and is likely to continue regardless of who is elected president in 2008.

Personal contacts between Indians and Americans have increased greatly. There are more than 80,000 Indian students studying in the US. The Indian diaspora in the US constitutes roughly 3 million people, many of whom actively participate in politics. In addition, India's economy has begun to grow by 8 percent annually, making it more attractive for foreign investment. Trade between India and America reached $26 billion in 2006.

In addition to these practical reasons for the improvement in bilateral relations, the rise of China poses a strategic consideration. As Bill Emmott, the former editor of The Economist, argues in "The Rivals", his new book: "[W]here [former US President Richard] Nixon had used China to balance the Soviet Union, Bush was using India to balance China. Like Nixon's move, with hindsight Bush's approach to India made perfect sense." And the concern is reciprocated on the Indian side. As a senior Foreign Ministry official told Emmott in 2007, "the thing you have to understand is that both of us [India and China] think that the future belongs to us. We can't both be right."

Official pronouncements stress friendly relations between India and China, and some trade analysts argue that, given their rapid growth, the two giant markets will become an economic "Chindia." When Chinese Premier Wen Jiabao visited India in 2005, he signed 11 agreements, including a comprehensive five-year strategic cooperation pact. In addition, Wen announced that China would support India's inclusion as a permanent member of an expanded United Nations Security Council, and oppose Japan's inclusion, which the US supports. As Singh put it during Wen's visit, "India and China can together reshape the world order."

The two countries' recent rapprochement marks a considerable change from the hostility that bedeviled their relations following their 1962 war over a disputed border in the Himalayas. Nevertheless, strategic anxiety lurks below the surface, particularly in India. China's GDP is three times that of India, its growth rate is higher, and its defense budget increased by nearly 18 percent last year. The border dispute remains unsettled, and both countries vie for influence in neighboring states such as Myanmar.

China's rise has also created anxiety in Japan, again despite professions of good relations during Chinese President Hu Jintao's recent visit to Tokyo. Thus, Japan has increased its aid and trade with India. Last year, the US suggested quadrilateral defense exercises including American, Japanese, Indian, and Australian naval units, but the newly elected Australian Prime Minister Kevin Rudd has pulled his country out of such arrangements.

Rudd wisely believes that the right response to China's rise is to incorporate it into international institutional arrangements. Or, as Robert Zoellick, currently the president of the World Bank, put it when he was a State Department official, the US should invite China to become a "responsible stakeholder" in the international system.

Improved relations between India and the US can structure the international situation in a manner that encourages such an evolution in Chinese policy, whereas trying to isolate China would be a mistake. Handled properly, the simultaneous rise of China and India could be good for all countries.

Joseph S. Nye is a professor at Harvard and author, most recently, of "The Powers to Lead." THE DAILY STAR publishes this commentary in collaboration with Project Syndicate

[Nitesh]

http://www.businessweek.com/globalbiz/c ... l+business

Who Will Ride India's Next Wave?
Media and entertainment, private education, infrastructure, and renewable energy companies are poised to prosper as India's middle class expands
by William Nobrega
Businessweek
June 13, 2008

Welcome to the "Next Wave." We are living in an unprecedented point in human history when the new consumer, technology, infrastructure, and environments begin to converge and create one of the world's greatest eras of economic growth and technological innovation.

During the next 20 years, the Next Wave will create more new consumers than the previous millennium did. Investments in infrastructure will exceed the total investments in the reconstruction of post-war Europe. Technology and the Internet will be the great enabler, facilitating the development of multiple centers of innovation across a wide range of geographies. And the environment will be a critical thread within this new tapestry, as climate change and the need for resources push humankind to find new approaches to economic development and sustainable growth. Although China, Brazil, Russia, and other emerging markets will drive much of this, India stands at the forefront with its rapidly growing middle class, massive investments in infrastructure, a technology-based culture, and growing need for energy and other natural resources.

Many companies will benefit from the Next Wave, but some verticals will capture the lion's share of the growth and profits. Among the most significant of these "Next-Wave Verticals" are media and entertainment groups. They are gaining importance in India because of the country's growing middle class, improving literacy rates and increasingly organized retail sector driving demand for print, radio, and TV content. Improvements in infrastructure and advances in technology are also rapidly increasing media penetration in rural areas of the country where more than two-thirds of the population resides.

Tapping into the "Teenager Effect"

Advertising spending in India is roughly one-third of that in the U.S. and Europe, but that's rapidly changing as retailers find competition growing and consumers become more sophisticated and discerning in their buying decisions. There are now more Indian homes with television sets than homes with telephones. India's 119 million television households comprise about 60% of the total households in the country. About 50 million receive cable-television services, leading to a penetration of about 42%. The television-distribution market consists of revenues generated by companies that distribute television programming to viewers. This includes spending by consumers on subscriptions to basic and premium channels delivered by cable operators, satellite providers, or Internet protocol television (IPTV) services, as well as on video-on-demand (VOD).

The Indian DVD market now exceeds 1.5 billion units per year. This figure is expected to grow to 4.5 billion units per year by 2010. The explosive growth in DVD sales also is attributed to the predominance of single-TV households. However, this is expected to change as rising incomes and a large pool of teenagers fuel mushrooming growth of multiple-TV households, commonly known as the "Teenager Effect." These factors will continue to drive high revenue growth and profitability for such media and entertainment companies as TV18, ENIL, and D.B. Corp., which are leaders in this space.

Private education will also ride India's Next Wave as an aspiring population seeks to give its children and itself the greatest opportunity to succeed and prosper in the new economy. With the exception of the world-renowned Indian Institutes of Management & Technology, the Indian public school system has proved to be a dismal failure. As a result, Indian citizens of all socio-economic brackets have looked increasingly to the private sector for their education needs.

All Eyes on Manipal Education

As with other Next Wave Verticals, technology and infrastructure have fostered the rapid expansion of private education as Internet-based learning programs create opportunities for distance-learning, and improvements in communications and roads have created new education institutions in rural areas of the country.

Private education in India is growing more than 30% per year, and the profitability of this sector exceeds that of most North American institutions. Companies like Manipal Education are at the forefront of this growth as they continue to develop innovative solutions to meet the increased demand.

Environmental services is becoming one India's the fastest-growing Next Wave Verticals, as an increasingly industrialized economy and wealthy population elevates the need for clean air and water and the recycling of scarce natural resources. The Indian government is looking to the private sector to build and manage numerous aspects of environmental services to include waste-water treatment, hazardous waste disposal and air-quality control systems. Considering that approximately 70% of India's cities do not have adequate waste-water treatment, the financial opportunities in this area alone are significant. India's carbon-credit market is currently valued at $5 billion and is expected to double to $10 billion by 2009. This will create a significant opportunity for carbon-capture equipment and for environmental consulting services that focus on reducing greenhouse gases.

Renewable energy is a global issue that could define India's long-term economic success. India has very little in the way of crude oil reserves and finding new fields will become a costly proposition. As India's economy continues to grow, so will its energy needs. Developing renewable sources of energy is a national priority. Renewable energy only accounts for about 5% of India's total energy consumption. The Indian government has set a goal of generating 50% of the country's energy needs by 2050. This will require massive investments in a wide range of renewable energy sources.

Moser Baer Photovoltaic Planning an IPO

India is already developing technical and manufacturing leadership in several areas including wind, solar, and biomass. Suzlon Energy, a publicly traded Indian company, is now the world's fifth-largest wind energy provider, and its ranking is expected to climb in the near future. Moser Baer Photovoltaic, which is planning an initial public offering in 2009, is becoming a global leader in the development and manufacture of thin-film solar technology. And Bhoruka Power has become a leading player in the small hydro segment for power generation in India.

But the largest manufacturer of agricultural vehicles in India, Mahindra & Mahindra, is taking the lead in biodiesel. In February, 2007, the company introduced versions of its two most successful sport-utility vehicles, Scorpio and Bolero, which run on biodiesel. Scorpio is the first Asian vehicle in its class running on 100% biodiesel.

Mahindra also unveiled a biodiesel tractor for the first time in India. The company had set up its own biodiesel plant in 2001. It completed extensive studies and worked with IIT Kanpur, a leading Indian technology institute recognized globally, and the R&D center of Indian Oil Corp. Mahindra is also simultaneously working on its vehicles' fuel adaptability and trying to position itself for when India matures to the point of requiring better fuel sources.

Second Largest Producer of Sugar Cane

That day may not be far off, as India is the world's second-largest producer of sugar cane, which is a preferred source for ethanol. Renewable energy will provide investors and joint venture partners with significant returns during the coming years. And with opportunities in solar, wind, ethanol, and biodiesel, numerous global synergies are emerging exist between homebuilders, power companies, and automotive firms. Savvy investors and corporations already recognize the significant potential of the Next Wave. They know another wave like this won't crest for another 20 years or 30 years, and they're eyeing opportunities to capitalize on this unique opportunity.

William Nobrega is president and founder of The Conrad Group, a global professional-services firm that focuses on emerging markets and technologies. It provides a complete spectrum of strategic planning and mergers-and-acquisitions facilitation services to Fortune 500 and leading regional companies worldwide. The firm is dedicated to maximizing the success of market leaders in international markets. Mr. Nobrega is the author of Riding the Indian Tiger: Understanding India the Worlds Fastest Growing Market, published by John Wiley & Sons. Mr. Nobrega is currently working on his next book, entitled The Next Wave: How Investors Can Ride an Era of Unprecedented Economic Growth and Innovation; it will be released in 2009. For more information, visit The Conrad Group.

[Nitesh]

http://business.timesonline.co.uk/tol/b ... 993678.ece

Cause and effects of film-making in India
Rhys Blakely in Bombay
The Times, UK
May 24, 2008

It is perhaps the ultimate special effects trick. Arrive at the Indian headquarters of Rhythm & Hues (R&H), the Los Angeles-based effects studio, and you could be mistaken for thinking that you were visiting a village in rural India.

The thatched huts, however, are stylised cubicles that house the computer workstations at which R&H's staff weave their visual magic. Many of the Oscar-winning special effects for The Golden Compass, the Hollywood blockbuster that took $370 million (£187 million) at the box office last year, were put together in this thatched village.

As in other effects studios around the world, the labour is painstaking. Each employee will produce the equivalent of five seconds of screen time in a month. The results, though, are usually worth the wait. Babe, the film about a talking pig that won an Academy Award and earned more than $250 million at the box office in 1995, was an R&H creation. Alvin and the Chipmunks, the recent surprise hit for which R&H created the eponymous rodents, has grossed $360 million - not bad for a film with a $60 million production budget.

For the past six years, part of R&H's work on such projects has been completed in these Bombay offices, the design of which Prashant Babu Buyyala, the facility's managing director, seems especially proud. “We wanted something creative yet functional,” he says of the faux village look. “Importantly, we didn't want to spend a lot of money.”

The same principles are directing Hollywood's passage to India. Post-production movie work - everything from complex digital effects (such as the shape-shifting animal daemons of The Golden Compass) to basic colour grading (making sure that shades stay consistent throughout a film) - is migrating from traditional centres such as LA to low-cost locations on the sub-continent.

Nasscom, the Indian IT lobby group, estimates that the global animation market will be worth about $80 billion by 2010, and it is targeting it as a prime source of future outsourcing revenues as more film work is shifted to India.

With emotions already running high over the loss of American jobs in an economic downturn, Mr Buyyala is adamant that Rhythm & Hues is not running a cost-cutting operation in India. The Bombay office handles work as complex as that done in the United States, he says. Moreover, despite India's size, a lack of art schools has translated into a relative dearth of talent. “I keep on having to tell people: This country just isn't that cheap any more.'”

Yet it is hard to believe that cost has no bearing. Starting salaries in R&H's Bombay offices are as low as 40,000 rupees (£480) a month. Pay packets rise quickly and the highest earners in Bombay pull in similar sums to their American counterparts, Mr Buyyala says, but still the early discounts offered by young Indian animators are upsetting their peers in the US.

Merzin Tavaria, of Prime Focus, an Indian post-production company that recently has acquired businesses in Los Angeles and London, is more upfront: “You can't get away from the fact that we are cheaper than the West.”

The comments echo a recent report by Ernst & Young, which said that “the global animation industry is offering a major chunk of business in animation to India to cut costs and increase profits”.

Simon Huhtala, who runs Prime Focus's operations in London, confirms that movie producers are looking to squeeze the pips out of post-production players. Cost and speed are paramount; scale and rationalisation are the industry's driving forces.

There is another compelling reason to enter India: the country's potential as a market. Mr Tavaria is working on Love Story 2050. The film's producers are billing it as Bollywood's first true special effects-driven science fiction film.

The biggest film released in 2007 was the mythological sequel Hanuman Returns. For R&H, already a specialist in making millions from anthropomorphisation, the possibilities are similarly mind-boggling if the world's biggest film industry does succumb to the charms of talking animals.

[Suraj]

Nitesh: please go easy on posting all kinds of news items in full. I appreciate your enthusiasm, so I would suggest this - continuously posting full length news items will overwhelm people, who will tend to do little more than glance at the title. Also, this thread tends to be a bit more focused on economics, while general 'feel good' articles of the kind you post would be better in the 'Nation on the march' thread.

[svinayak]

Rockefeller group in the garb of a academic institution and university research
is advising Indian financial reform

http://www.hindu.com/2008/06/15/stories ... 881700.htm

Economists fear move to weaken RBI, cooperative sector

R. Ramabhadran Pillai

Financial sector reforms opposed

Report submitted  to Planning Commission

Move to sell underperforming banks

KOCHI: A draft report on financial sector reforms prepared by the Raghuram G. Rajan committee, appointed by the Planning Commission, has met with serious objections from economists and bank employees. Experts have criticised the move to establish a Financial Sector Oversight Agency (FSOA), Financial Development Council (FDC) and Financial Sector Appellate Tribunal, as proposed in the report. They have warned against any move to weaken the Reserve Bank of India and the cooperative banking sector.

The high-level committee was set up in August 2007, with Raghuram G. Rajan, Professor, Graduate School of Business, University of Chicago, as chairman. Among the other members of the 12-member body are K.V. Kamath, managing director of ICICI Bank; O.P. Bhatt, chairman, State Bank of India; Uday Kotak, CEO, Kotak Mahindra Bank; Chitra Ramakrishna, deputy managing director, NSE; and R. Ravimohan, managing director, CRISIL. The draft report has been submitted to the Planning Commission and the final report is awaited this month.

The panel is critical of Reserve Bank of India (RBI) and wants to sterilise it by superimposing a range of alternative bodies, says K.V. George, general secretary of the Bank Employees Federation of India – Kerala. The cautious exercise of authority by the RBI had guarded and insulated the Indian financial system from the market, derivative collapse in South East Asia and the U.S., he said.

He said the panel wanted release of the rural credit system to moneylenders at deregulated interest rates and dismantling of the cooperative banking system. The panel recommendations would facilitate legislation of financial gambling and speculation, he said. He criticised non-inclusion of representatives of trade unions in the banking sector in the panel.

The panel has mooted the sale of underperforming public sector banks, possibly to another bank or to a strategic investor. It proposes the creation of stronger boards for large public sector banks, with more power to outside shareholders. After starting the process of strengthening of the boards, delink the banks from additional government oversight, including the central Vigilance Commission and Parliament. The Committee believes that fewer constraints should be imposed on banks and more growth and competition should be encouraged.

An important proposal of the committee is to allow banks to set up branches and ATMs anywhere. One objective of branch licensing is to force banks into under-banked areas in exchange for permission to enter lucrative urban areas. This is an obligation that will have to be revisited as competition increases in urban areas, according to the panel.

In the equity markets, the environment needs to be made more conducive to private equity, venture capital and hedge funds. Mutual funds and pension funds should play a more active role in governance. The panel proposes to bring all regulations of trading under the Securities and Exchange Board of India (SEBI). It also wants to stop creating investor insecurity by banning markets. If market manipulation is the worry, take direct action against those suspected of manipulation, the panel said.

The panel intends to set up a few agencies while weakening the functioning of RBI, points out economist Rajan Varughese.

[Singha]

NYT has a huge article on Mukeshbahi today. not sure of the psyops angle but posting it:

Indian to the Core, and an Oligarch
Ruth Fremson/The New York Times

By ANAND GIRIDHARADAS
Published: June 15, 2008

AT a recent cricket match here, Mukesh D. Ambani sat in his private box quietly watching the team he owns, the Mumbai Indians. He seemed oblivious to the others around him: his son cheering wildly, his wife draped in diamond jewelry and a smattering of guests anxiously awaiting the briefest opportunity to speak with him.

A minor bureaucrat stood a few rows back, strategizing with aides about how to buttonhole “the Chairman,” as Mr. Ambani is sometimes called. Waiters in baggy tuxedoes took turns trying to offer him a snack, but as they drew near became too nervous to speak.

In the last century, Mohandas K. Gandhi was India’s most famous and powerful private citizen. Today, Mr. Ambani is widely regarded as playing that role, though in a very different way. Like Mr. Gandhi, Mr. Ambani belongs to a merchant caste known as the modh banias, is a vegetarian and a teetotaler and is a revolutionary thinker with bold ideas for what India ought to become.

Yet Mr. Gandhi was a scrawny ascetic, a champion of the village, a skeptic of modernity and a man focused on spiritual purity. Mr. Ambani is a fleshy oligarch, a champion of the city, a burier of the past and a man who deftly — and, some critics say, ruthlessly — wields financial power. He is the richest person in India, with a fortune estimated in the tens of billions of dollars, and many people here expect that he will be the richest person on earth before long.

Although he lacks a politician’s silver tongue — he can be a nervous public speaker, and his diction can be halting — he talks more like a father of the nation than a corporate executive. Describing his goals, he says they are for India’s benefit as much as they are for his sprawling company, Reliance Industries.

“Can we really banish abject poverty in this country?” he mused aloud in a rare interview at his headquarters here. “Yes, in 10, 15 years we can say we would have done that substantially. Can we make sure that we create a social structure where we remove untouchability? We’re fast moving to a new India where you don’t think about this caste and that caste.”

As millions of Indians graduate from burning cow dung for energy to guzzling oil, Reliance is plowing billions of dollars into energy exploration and is building the world’s largest oil refinery. It has also opened a chain of nearly 700 stores selling food and various wares; Mr. Ambani promises that it will funnel money from the flourishing cities into the struggling agricultural heartland. He envisions Reliance, with $39 billion in revenue, as providing incomes to 12 million to 30 million Indians within the next five years by buying from farmers and employing new workers in its stores.

And as Mumbai, Mr. Ambani’s hometown and the commercial and entertainment capital of India, has grown ever more populous and ever less livable, he has proposed that Reliance simply build a new, improved city across the harbor.

MR. AMBANI, 51, who feuded with his younger brother after their father died six years ago, took control of roughly half of the divided company. Even as he enters new areas, he has maintained his family’s dominance in its petrochemical, oil and gas and textile manufacturing businesses.

He maintains a low public profile; even those close to him describe him as inscrutable. On one hand, he is seen as a man whose heart bleeds for India. He is motivated by “the ability to change the face of the country,” said K. V. Kamath, the C.E.O. of ICICI Bank and a longtime financier and friend of the Ambanis. “That is the biggest kick anybody would get today — that they could touch the lives of a large number of these billion people and make things better for them.”

On the other hand, Mr. Ambani is also known as someone who lets little stand in his or Reliance’s way.

“Remember: these guys all grew up in the License Raj,” said a close friend of the tycoon, referring to India’s decades-long experiment with rigid state control over the economy. “They grew up as lotuses from the filth. It makes them tough, it makes them suspicious, it makes them vindictive at times, and it makes them come out in a hurry. They always see life as, ‘Oh God, better not miss an opportunity.’ ”

“When they were growing up,” added the friend, who requested anonymity for fear of upsetting Mr. Ambani, “you didn’t get a second chance.”

Emblematic of his ascent is the towering residence he is building on what was once known as Altamount Road, one of the most exclusive streets here. Hundreds of feet tall, it will offer several levels of parking, a multi-tiered gymnasium, a ballroom, a theater, ample living and guest quarters, and a helipad on the roof. (Although the price tag for the residence has drawn estimates as high as $2 billion, a Reliance spokesman said it would ultimately cost $50 million to $70 million.)

For generations, Altamount was a favored address for India’s Anglicized elite, a group British imperialists groomed in their own image. To a 19th-century British official, Thomas Babington Macaulay, they were “interpreters between us and the millions whom we govern; a class of persons, Indian in blood and color, but English in taste, in opinions, in morals and in intellect.”

As time went on, the elites were steeped in British culture, spoke with Oxbridge accents, pooh-poohed Bollywood films and danced only to British and American music. They dismissed those who spoke Indian languages at home as “vernies,” short for “vernaculars.”

Then, in the 1990s, Bombay changed its name to Mumbai, and Altamount was renamed S. K. Barodawalla Marg. Neither name has stuck with everyone, but the changes were part of an emerging movement to purge India of its colonial legacy.

Such changes accompanied the rise to power of a new class of Indians who want to live and work and raise their children in India, who are tethered to Indian values, food and popular culture and who are unapologetic about their indigenous tastes. The Ambanis are this class’s first family.

MANY other Indian business families have been rich for generations, and their scions don finely cut suits and flaunt fussy tastes. Ratan Tata cruises down Marine Drive on Sundays in fast cars and favors Hermès ties with matching handkerchiefs. Vijay Mallya is said to be trailed in his home by a butler holding a silver tray with a cigar and a Scotch. Adi and Parmeshwar Godrej are famous for soirées that attract Hollywood stars.

Mr. Ambani comports himself quite differently. Among family members, he prefers speaking Gujarati to English, friends say. He may ask colleagues to stop at the temple with him during business trips to partake in a ritual Hindu prayer. He loathes Western suits, preferring a white short-sleeved shirt, black trousers and black shoes that resemble sneakers cross-bred with office wingtips.

His idea of entertainment is not ballet but Bollywood; he watches as many as three films a week at home in a private theater. “You need some amount of escapism in life,” he says. “Those two or three hours give you relief.”

He has a legendary appetite, but mostly for the food of the bustling Mumbai streets. He has been known to walk out of fancy restaurants in search of dosas, south Indian crepes sold by the roadside. And he carries those preferences with him when he travels.

One evening, when Mr. Ambani and a former Stanford classmate, Akhil Gupta, were in New York, they dined at Nobu, the popular Japanese restaurant. Mr. Ambani, a vegetarian, picked at the fare, finding it bland. At the end of the meal, Mr. Gupta recalls him saying: “That was nice. Now should we go have dinner?”

For Mr. Ambani, it’s all a matter of comfort food.

“Personally, I still have to eat my dal, roti, chaval,” he says, using the Hindi words for lentil soup, flatbread and rice. “I just have not developed those tastes.”

He recalls “a lot of emulation” of Western ways surrounding him as a child. “My view was: ‘What the hell, man! We can do what we feel like.’ I think what has changed now, and it is changing in multiple generations, is this self-confidence and self-belief.”

His preferences reflect a wider cultural transformation in India, admirers say. “If you look at his interests, they’re very rooted in India,” says Nandan M. Nilekani, co-chairman of Infosys Technologies, a leading outsourcing company in India. “He’s not trying to impress anyone else. It’s part of a broader shift in self-confidence that is happening, where people are no longer looking at Westernized symbols of having arrived.”

The foundation of the Ambanis’ wealth was laid relatively recently, when Mr. Ambani’s father, Dhirubhai, opened Reliance’s doors in 1958, the year after Mr. Ambani was born.

The father started the company in a tiny, sparsely furnished trading office in Mumbai, first exporting spices to Yemen, then entering the yarn trade, a business that required special canniness. At that time, the government was severely restricting large-scale manufacturing, so importing yarn required hard-to-get licenses and creative maneuvering around the bureaucracy.

Mr. Ambani and his younger brother, Anil, spent their childhoods in the down-market Bhuleshwar neighborhood, in a two-bedroom apartment in a humble building that Mumbai residents call a “chawl”: a tenement obscured from major roads by more attractive towers. Metal grates still cover the windows and, in a country where a maid is a hallmark of middle-class life, the neighborhood’s chores fall to homemakers who flog mattresses clean and scrub dirty clothes in soapy buckets.

It is customary in the chawls to live communally: anyone’s children are everyone’s children, and as a child Mr. Ambani would visit a neighbor’s house to feast on puris, small discs of fried wheat. In that house one day, a bathroom door slammed shut and severed half of his left pinky. Times were tight in his youth, and he went without an allowance. Friends say, and Mr. Ambani agrees, that growing up as he did gave him an edge over many business peers: While he would go on to enjoy all the privileges of a second-generation billionaire, his early childhood instilled the combative mentality of an outsider typically found among first-generation entrepreneurs.

“All of us, in a sense, struggle continuously all the time, because we never get what we want,” Mr. Ambani says. “The important thing which I’ve really learned is how do you not give up, because you never succeed in the first attempt.”

Reliance was thriving by the late 1960s, and the family moved out of the chawls and into one of Mumbai’s best neighborhoods. But his father, who had never finished high school and worried that his children might grow up too pampered, hired a tutor whose responsibility was to spend three hours a day taking Mukesh, and later his siblings, on working-class field trips: riding public transportation, buying tickets at the rail station. Once a year, the tutor arranged a visit to a village for about two weeks.

It was “one of the best things that happened to me in my life,” Mr. Ambani said of the field trips. “We never studied. We went out and learned how to play hockey. And we went by bus, and we went by train, and we said, ‘This is what life looks like.’ ”

Years later, when Mr. Ambani enrolled in an M.B.A. program at Stanford, his father clung to the belief that real learning came in the trenches, not in academic enclaves like Palo Alto. He summoned Mr. Ambani home in 1980, halfway through the two-year program, to take charge of a yarn manufacturing project.

Working in an Indian village, he won high praise from some of those around him. He slept in a trailer on site and juggled an attention to detail with big dreams. “I found him an extremely receptive listener who was learning all the time,” said Mr. Kamath, a lender to the Ambanis at the time. “He virtually camped out there. It is very unusual for any leader that I have dealt with.”

FRIENDS of Mr. Ambani say the plant’s completion, on schedule, marked his emergence as his own man in his father’s burgeoning corporate empire. By then, Reliance was already one of India’s boldest companies, combining a heady vision for the future with the brass-knuckle tactics required to get there.

In setting up the yarn factory, Mr. Ambani also displayed the first glimmers of his management style. The close friend who had spoken on the condition of anonymity compared Mr. Ambani to the mom-and-pop traders who populated his Gujarati caste ancestry: “He’s a guy who likes to get his hands dirty,” he says. “He is a shopkeeper in many ways. He wants to sit at the till. He wants to see what’s going on.”

His greatest talent, as Ravi Venkatesan, the chairman of Microsoft India, puts it, is for being “in the clouds as well as in the details.”

“In my life, I’ve only met a few people who are able to think on a staggering scale and take the risks to match it,” Mr. Venkatesan says. “Bill Gates comes to mind.”

As Mr. Ambani grew older, Reliance entered a raft of new businesses, gaining more power and placing ever bigger bets on nascent industries. As the eldest son in a traditional Indian family, he helped oversee the company’s diversification into petrochemicals, then energy, then cellphones. His father made him a board member at the age of 17 or 18, he says; and because he was involved with Reliance when it was “just a textile company,” he says he has always felt that he built it with his father, rather than simply inheriting it.

“My big advantage was to have my father accept me as first-generation,” he says. “He treated me like a partner, saying, ‘O.K., let’s go do this.’ And more than that, he gave me the full freedom, the ability to bet the house. So in 1980, he was saying, ‘Here, take 80 crores of rupees’ ” — about $100 million then — “ ‘and build a polyester plant.’ ”

Over the years, Reliance morphed from a small family business into a publicly traded empire, adopting new standards of corporate governance, publishing glossy annual reports and signing up shareholders across the nation. By the time the elder Mr. Ambani died, in 2002, he had become a legend, mourned by throngs of ordinary Indians winding through Mumbai’s streets. The socialist, Gandhian regime he challenged had yielded, beginning in the 1990s, to the kind of bare-knuckles capitalism he had zealously advocated.

Arun Shourie, a politician and former cabinet minister who in his younger days as a journalist had publicly crusaded against Reliance and what he considered to be its heavy-handed business practices, acknowledged a year after the elder Mr. Ambani’s death that he had made a “180-degree turn” in his view of the company. “They set up world-class companies and facilities in spite of those regulations,” he said in a speech in 2003. “By exceeding the limits and restrictions, they created the case for scrapping those regulations. They made a case for reforms.”

IN 2004, two years after the elder Mr. Ambani died, his sons began battling each other for control of Reliance. Their mother, Kokilaben, also a major shareholder, ended the squabble in 2005 by giving Anil control of Reliance’s newer service businesses like telecommunications, electric power and banking. Mukesh got the portfolio of industrial businesses. Each half now operates independently.

Today, both brothers are respected chief executives, though they are said by friends to speak to each other rarely, if ever. Neither of the brothers publicly discusses the relationship.

Anil Ambani, who friends say struggled to be taken seriously as Mr. Ambani’s younger brother, has emerged on his own as a business leader, taking the cellphone business, in particular, to new heights. But it is his older brother, with his gargantuan, quasi-public projects in energy, retailing and urban renewal, who has become the most visible symbol of India’s visceral transformation.

Ticking off one Indian problem at a time, Mr. Ambani has proposed for each a Reliance solution.

While India was once largely self-sufficient in oil and gas, a swelling middle class is burning ever more energy, forcing India to become an energy importer and straining the country’s development. So he is building a world-class oil refining and petrochemical complex in Jamnagar, in the western state of Gujarat.

The $6 billion facility can already process 660,000 barrels a day, and it has helped India to become self-sufficient in producing finished gasoline — though it still must import crude oil. It is one of the most profitable refineries in the world, and Mr. Ambani plans to double its capacity.

Two-thirds of India’s 1.1 billion people still live off the land, and to combat the cycle of poverty that ensnares rural dwellers — while presumably making a handsome profit for his company — Mr. Ambani also wants to foment an agricultural revolution.

He has begun building a nationwide network of hundreds of Western-style supermarkets and other retail outlets, hoping to connect them directly with farmers who have traditionally sold to middlemen, many of whom pay less than market prices and are widely regarded as deceitful and usurious.

In some regions, Reliance’s supermarket push has caused grateful farmers to change their habits and become more productive. But in other areas, landowners have protested Reliance’s acquisition of their property; elsewhere, shopkeepers have staged violent rallies against a supermarket chain that they fear will decimate them. Some states, including Uttar Pradesh, have sought to block Reliance from their territory.

However these challenges are resolved, some businessmen say Mr. Ambani has already established himself as India’s great transformer, with a legacy that has much in common with American industrialists of the 19th century.

“When we talk about Rockefeller and Carnegie and all these guys, they really each changed one industry,” said Mr. Nilekani, the Infosys co-chairman. “But if you look at what he’s doing, he’s really changing three or four industries.”

Like Rockefeller and Carnegie, however, Mr. Ambani has also gone to great lengths — and, critics say, used tough-minded, combative tactics — to secure his company’s fortunes, as well as its social and political influence.

DRIVE past the Makers Chambers IV building in Mumbai on a Saturday night, where Reliance’s headquarters are housed, and you often see the lights blazing inside. Mr. Ambani routinely enters the office after 11 a.m. and stays as late as midnight — even on Saturdays. Employees, eager to follow their leader, usually do the same.

Reliance, like many of its peers, is something of a hierarchical, old-style Indian enterprise, despite its accomplishments. Companies like these are typically run by a big family, whose word is law and whose patriarch’s photo, garlanded with flowers, is everywhere. They tend to have a layer of courtiers below the ruling family who are valued for loyalty as much as merit. Playful disagreements are tolerated, but the boss is often insulated from actual criticism.

In addition to keeping a tight rein on employees, the old-style companies tend to work hard at “managing government,” as their executives call it. Sometimes that involves outright bribery of government officials; sometimes it might involve paying the American college tuition of a bureaucrat’s child.

Although rumors that it actively engages in bribery swirl around Reliance, Mr. Ambani says it has never paid a bribe or broken a rule. “These are all fables,” he says, dismissing the rumors.

But he concedes that there are indirect ways for Reliance to curry favor. Although he says Reliance “never” pays the tuitions of bureaucrats’ children, he also acknowledges that foundations controlled by or affiliated with Reliance sometimes have.

“Some foundation would have given some scholarship maybe, but that’s all out in the public domain,” he says.

In interviews, two former Reliance employees and other close associates of Mr. Ambani, all of whom requested anonymity because they were afraid of jeopardizing relationships with him, say the company also routinely engages in political lobbying and covert monitoring to gain a leg up on its rivals.

To be sure, such practices are hardly uncommon in India. But people in the Indian business scene say few companies match Reliance’s record of having laws changed in its favor and of protecting itself from extensive outside scrutiny. “Everyone is trying to bend the rules,” said Deepak Talwar, a New Delhi lobbyist who has never worked for Reliance but described Mr. Ambani as a friend. “They just do it better, with a combination of understanding, relationships and a bit of cash.”

Mr. Ambani, however, disagrees with at least one element of Mr. Talwar’s calculus. “I don’t think that payments per se work,” he says. “I personally think that money can do very little. And this has been my experience all across.”

Mr. Ambani doesn’t dispute that Reliance tries to exert its influence when necessary, but says that influence-peddling is unimportant relative to its other strengths. “I still think that’s not a critical success factor,” he says.

What is a factor is “relationships,” a word that Mr. Ambani and his acolytes relish. “We believe in relationships,” he says. If someone helpful to Reliance needs an introduction, consider it done. If they need to use the private jet or gain access to a coveted temple to pray, consider it done.

What most distinguishes Reliance from its rivals is what Mr. Ambani’s friends and associates describe as his “intelligence agency,” a network of lobbyists and spies in New Delhi who they say collect data about the vulnerabilities of the powerful, about the minutiae of bureaucrats’ schedules, about the activities of their competitors.

Mr. Ambani said in the interview that all such activities were overseen by his brother before they split, and had since been expunged from his tranche of the company. “We de-merged all of that,” he says, breaking out in a belly laugh. A spokesman for Anil Ambani declined to comment.

Nonetheless, Reliance, some observers say, still manages to stay very well informed. “Their intelligence on government is very strong,” Mr. Talwar says. “If a meeting were to be held and the subject was affecting their business, they would know about it.”

Critics say Reliance has been especially effective at managing the press. Both former Reliance executives, who requested anonymity for fear of angering Mr. Ambani, say the company has actively curried favor with journalists to help it track the progress of negative articles. A prominent Indian editor, formerly of The Times of India, who requested anonymity because of concerns about upsetting Mr. Ambani, says Reliance maintains good relationships with newspaper owners; editors, in turn, fear investigating it too closely.

“I don’t think anyone else comes close to it,” the editor said of Reliance’s sway. “I don’t think anyone is able to work the system as they can.”

And the net result is plain: although India’s raucous news media have brought down many a powerful person and institution, Mr. Ambani and Reliance are rarely the subjects of hard-hitting Indian reporting.

Reliance disagrees, regarding itself as the target of relentless media attacks. “There is malicious and negative stuff being written all the time. So where is the influence?” the Reliance spokesman said. “Mr. Ambani has told me that he will never pick up the phone and talk to the owner of a publication to say, ‘Write positive stuff’ or, ‘Stop writing negative stuff.’ ”

IN the old days, if Mr. Ambani had anything to tell his father, it was done in the quiet, diplomatic way that an older generation expected. Now a father himself, he has found his own three children blunter. His teenage daughter, for example, questions her father’s environmental record.

“I think that all this is great,” he remembers her saying of his vast empire. “But you know, you should be careful. You are in the plastics business. It’s not one of the greatest. It pollutes a lot. I’d like you to re-evaluate your portfolio.”

Recounting the episode, he laughs, because, with billions of dollars in that business, it may be a little too late.

(mine : aha the obligatory putdown of the natives!)

But Mr. Ambani is indeed thinking beyond his current portfolio. One of the more intriguing ideas swishing around is a quixotic plan for making India a rival to China in manufacturing. The Chinese model consists of large factories in urban areas, populated by millions of migrant laborers who produce goods at cheap prices. Similar efforts have lagged in India, because it remains difficult to acquire land from farmers here, because corruption hinders large infrastructure projects, and because red tape remains so sticky.

Mr. Ambani’s vision is to turn India’s weakness on its head. If manufacturing remains small-scale and fragmented, let it stay that way, he says. “The next big thing is how do you create manufacturing with decentralized employment,” he says. “The Chinese have got very disciplined top-down systems. We have our bottom-up creative systems.”

He mentions products like handmade leather sandals from the Sugar Belt a few hours south of Mumbai, tie-dyed Bandhani saris from Gujarat, artisanal pottery, clothes, jewelry and the like. These wares would be produced in rural areas, sometimes in a villager’s own home. Reliance would forgo manufacturing them and instead teach residents what to make, gather the wares from disparate villages, oversee quality and market and distribute the products.

This is yet another sense in which Mr. Ambani, the most unlikely of Gandhians, is vaguely Gandhian. Mr. Gandhi was famous for his passion for small-scale rural production, symbolized by the spinning wheel. (It is, of course, unlikely that Mr. Gandhi would have endorsed Mr. Ambani’s plan to profit on such goods.)

“How do you really bring about, in a country of a billion people, the individuality of every single individual?” Mr. Ambani asks. “How do you make sure that you create systems that empower everybody and bring them to their true potential? This is what actually Gandhi taught us.”

“The optimistic part to me,” he adds, “is that now these goals look achievable.”

Given such passions, why not enter the political arena?

“I think I can do much, much more in my particular job,” he replies.

[putnanja]

RBI ‘pays’ Rs 169 for each dollar added to its forex kitty

New Delhi, June 15 Rs 168.92 to a dollar? Well, that’s what the Reserve Bank of India has effectively shelled out for every dollar added to its forex kitty so far this fiscal.

As on March 31, 2008, the RBI’s outstanding foreign currency assets stood at $299.23 billion, which, at the exchange rate of Rs 39.97-to-a-dollar for the fiscal-end, was valued at Rs 11,96,023 crore. Since then, the forex assets have risen to $305.92 billion as on June 6. But in the same period, the rupee weakened to Rs 42.79-to-a-dollar, taking the value of the $305.92 billion of forex assets to Rs 13,09,030 crore.

Simply put, during the current fiscal, the RBI’s forex assets have gone up in dollar terms by $6.69 billion, while increasing by Rs 1,13,007 crore in rupee terms. That translates into an incremental exchange rate of Rs 168.92-to-a-dollar.

Thus, for every dollar accumulated in its reserve chest this fiscal, the central bank has ‘paid’ the equivalent of Rs 169 or so. As against this, it ‘cost’ the RBI just Rs 33.5 for adding a dollar to its reserves during 2007-08, which saw an unprecedented upward pressure on the rupee amidst record central bank purchases of dollars from the market.

The current year’s incremental exchange rate of Rs 168.92-to-the-dollar is the highest ever: even more than the Rs 69.27 for 1992-93 (when the exchange rate fell from Rs 25.89 to Rs 31.30-to-the-dollar at the fiscal-end), Rs 61.36 for 1997-98 (from Rs 35.93 to Rs 39.46) and Rs 70.19 for 2000-01 (from Rs 43.62 to Rs 46.64).

The RBI’s forex assets are valued daily on a mark-to-market basis. Any depreciation in the rupee leads to an upward revaluation of the assets, which gets reflected in an expansion in reserve money — the base rupee liquidity created by the central bank whenever it lends to the Government and banks, or mops up foreign currency from the market.

At the same time, revaluation gains are booked into a separate Currency and Gold Revaluation Account, forming part of the RBI’s non-monetary liabilities. The increase in net forex assets, courtesy rupee depreciation, is offset by a corresponding rise in net non-monetary liabilities.

The RBI’s latest weekly statistical supplement shows that during the current fiscal (till June 6), the net forex assets have risen by Rs 1,12,073 crore. But these have been tempered by an increase in the RBI’s net non-monetary liabilities by Rs 89,673 crore, along with a contraction in its net credit to the Government (Rs 13,984 crore) and banks (Rs 4,460 crore).

As a result, the overall reserve money expansion till now during 2008-09 has been only Rs 3,956 crore. This is lower than the Rs 39,984 crore for the same period of 2007-08, which registered a Rs 48,830 crore decline in RBI’s net non-monetary liabilities on the back of a strengthening rupee.

[putnanja]

Farm loan waiver: An ill-conceived package

[Vipul]

India's GDP to grow at 9.5% in FY'09: CMIE.

[Sumeet]

Modi has a point -- Swapan Dasgupta

Last year, a prominent leader of Singapore gave Gujarat chief minister Narendra Modi some audacious advice: "Keep aside your preoccupation with selling India. You will be better off marketing Gujarat."

Contrary to what simple-minded nationalists may feel, this was not a coded signal for secession. Why, the Singapore leader was asking, should Gujarat compromise its comparative advantage as a centre of entrepreneurship and prosperity for the sake of that India which doggedly refuses to enter the 21st century? Should the brightest student in a class be forced to dumb down to accommodate the dullard?

The essence of democracy prevents Indian politicians from giving honest answers to such questions. Ever since "equitable growth" and "inclusive development" became consensual buzzwords, India's policy framework has been geared to target the last person in the last row. On paper this sounds noble but the reality is less appetising. In the guise of giving a leg up to the needy, we have punished enterprise, rewarded criminality, indulged mediocrity and brutalised the vulnerable. The Incredible India of smiling peasants and the Fab India-kitted woman prancing about on a Rural Employment Guarantee picnic — a la the ads during the IPL telecasts — exist entirely in the imagination of demented propagandists.

The mindless attachment to failed mantras has blunted the politicians' capacity for innovative thinking. This may be a reason why Modi's plea to the Centre to let Gujarat enjoy complete fiscal independence for one year has been met with incomprehension or drawn a hysterical response — including the silly assertion that he be charged with sedition.

The chief minister's demand that revenues from Gujarat be largely spent on Gujarat is a radical departure from existing federal norms. At present, the Centre collects the lion's share of all major taxes, including income tax and customs and excise duties, leaving the states with the crumbs from stamp duties, irrigation cess, tax on liquor and VAT on consumer sales. A percentage of the central revenues are ploughed back to the states under the Finance Commission's guidelines. But the returns are never proportionate. Additionally, the Planning Commission doles out the capital expenditure on approved schemes.

The present system was centred on two principles: the government in New Delhi should be a redistributive Centre and development should be centrally planned and not left to the market. The system worked without major hiccups as long as the Centre played the role of a neutral arbiter and until the public sector occupied the "commanding heights" of the economy.

Both assumptions are no longer valid. While the market economy has ushered rivalry between states for private investments, fiercely competitive politics has forced ruling dispensations to be more responsive to voters. At the same time, the growing mismatch between those who pay taxes and those who benefit from government expenditure has produced strains in places as far removed as Darjeeling and Mumbai. There is a feeling that revenues generated in the region are inadequately ploughed back and that the present system favours the inefficient. Likewise, there is dismay over the culture of non-accountability that governs grandiose schemes such as the loan-waiver and the NREGS. Some people, it would seem, pay their hard-earned money in taxes while a small, privileged minority squanders and loots it recklessly. Most important, the system is not geared to apportioning accountability for expenditure. A politician in, say, Jharkhand doesn't give a damn for fiscal rectitude because he knows that the funds at his disposal have actually emanated from somewhere else.

In saying that Gujarat should have a greater say in the money it gives to the Centre, Modi is not seeking sops and handouts. Shorn off its polemical flourish, it is a call for a new mindset that treats those who pay for nation building with respect.

[Katare]

Not slowing enough....

GDP to grow at 9.5 pc in FY09: CMIE

[Suraj]

Katare: it looks like those projects that we'd first tracked in late 2006/early 2007 are indeed coming onstream over the current fiscal as had been predicted.

Ranadheer: The long gestation projects mentioned the CMIE report are what we referred to earlier. They drive a capital investment led growth cycle, compensating for the shortfall in consumer spending led growth, since the latter is effected by current interest rates, while the former have long since completed financial closure, and are just pending completion of project execution. The CMIE figures from the above show this :

As per CMIE CapEx Service, projects worth Rs 3.4 lakh crore are scheduled for commissioning in FY'09. This would be the highest ever completion of investments in the Indian history, CMIE said.

The current growth phase of the Indian economy is driven by the capital investment boom in the country. India's GDP started rising by over eight per cent since FY'04. And, the gross capital formation (GSF) grew in the range of 13-23 per cent during this period.

CMIE expects growth in GSF to accelerate to 18.7 per cent in FY'09 from 13.4 per cent in FY'08. This robust growth in GSF is expected to more than offset the moderation in the growth in private final consumption expenditure (PFCE) and Government final consumption expenditure (GFCE).

CMIE stated that the PFCE is expected to grow by five per cent in FY'09, after growing by 7-9 per cent in the preceding three years. While the slower growth in the PFCE would mainly be on account of the higher base last year, the prevailing high inflation would also affect the consumption demand to some extent.

[hanumadu]

Thanks Suraj for your answers.
But the capital expenditure led growth cannot be expected to continue for a long time.
Sooner or later, shouldn't consumer spending increase so that the next wave of capital investment occurs?
And for that to happens, if I understand correctly, lower interest rates and lower inflation are a must.
I am beginning to get nervous about the continued rise in inflation and UPA's policies of making the treasury bankrupt.

--hanumadu

[Suraj]

But the capital expenditure led growth cannot be expected to continue for a long time.
Sooner or later, shouldn't consumer spending increase so that the next wave of capital investment occurs?

That is correct. One constitutes supply, the other the demand.

And for that to happens, if I understand correctly, lower interest rates and lower inflation are a must.

The very capital investment above leads to an increased supply of goods, i.e. it is disinflationary. The investment also broadens the employment base, thereby putting money in peoples' hands (thus encouraging consumption), and of course in the government's hands (thus narrowing the revenue deficit and lowering pressure on interest rates). This has the effect of pushing down effective interest rates, which in turn drives greater consumer consumer demand, in a cyclical manner, until capacity utilization begins to peak again. This is a continuous process of demand-supply equilibrium.

This is exactly what happened between 2002 and 2008 - a number of intermediate sectors like steel and cement indicated capacity utilization increasing from ~70% to over 100%. However, reinvestment in fresh capacity was slow, since companies had the mid-1990s overinvestment and bust cycle in mind and were conservative. Further, our administrative ability to back quick expansion is poor - such activities require increased access to land, mines, water and electricity smoothly.

I am beginning to get nervous about the continued rise in inflation and UPA's policies of making the treasury bankrupt.

Well, inflation is a worldwide problem today, thanks to the flood of dollars driving up the prices of oil and commodities. About the UPA, well, they are behaving like a Congress govt does - with the air of 'sarkar provides' - though India has moved on from that mindset. These are tough times and there's no underestimating that, but I feel the economy has a degree of resilience that is also underestimated. I'm not a blind optimist, but basing my position on following quite a few aspects of economic development continuously. Contrarian arguments are welcome; my position is merely the interpretation of what I know.

[svinayak]

http://www.parsintl.com/15963.pdf

[Katare]

Suraj,

You'll do really good if you were a teacher

[svinayak]

http://www.parsintl.com/15963.pdf

http://www.thestreet.com/_tscnav/video/ ... 2#10361806

[Suraj]

Katare: I am an SDRE poster onlee I hope more folks post useful information and insights here rather than just read.

On to real news, excise collections have increased in May, while customs revenues remain strong despite lowering duty rates to lower import costs and combat inflation. Together they indicate production and trade remains robust, while services collections are growing @40%:
Indirect tax kitty swells 12.8% in April-May

Indirect tax collections, excluding service tax, grew 12.8 per cent in the first two months of the current fiscal, leading to the government mopping up Rs 35,216 crore as against Rs 31,217 crore in the same period last year.

Excise duty collections recovered from a decline in April to post a healthy 4.4 per cent growth in May, according to data released by the finance ministry here today. Excise duty collections had fallen to Rs 6,410 crore in April from Rs 6,673 crore in the same month last year.

Customs duty collections registered a growth of 25.1 per cent for the two months at Rs 19,223 crore, compared with Rs 15,848 crore during the same period last year. Customs duty collections grew 25.2 per cent to Rs 10,205 crore in May.

Service tax collections, data for which are available only for April, grew by a whopping 40 per cent to Rs 6,093 crore. Customs duty and service tax collections are targeted to grow at 14.4 per cent and 26.1 per cent during the current fiscal, respectively.

On the inflation reporting front, the latest suggestion is to report both weekly and monthly WPI data:
Statistics panel suggests 2 inflation indices

In order to resolve the deadlock on the reporting frequency of the new series of wholesale price index (WPI) — used to measure headline inflation — the National Statistical Commission (NSC) may discuss a proposal for a weekly index comprising only primary articles and fuel items. The comprehensive WPI will be published once in a month, according to the proposal.

The NSC, the country's apex statistical body, has convened a meeting with the Reserve Bank of India (RBI) and the finance ministry to discuss the matter early next month.

Officials involved in the process say this is aimed at pacifying the RBI and the finance ministry as both are opposed to monthly reporting.

According to the proposal, a wholesale price index comprising primary and fuel items will be published every week, while the comprehensive index, including the manufactured items, will be released monthly.

The Department of Industrial Policy and Promotion, which compiles the headline-inflation data, has agreed to the proposal. "Prices of primary and fuel articles are easy to collect, unlike that of the manufactured items. As prices of such items are more volatile, the index could give inputs to policy-makers about price changes affecting a large section of the society," the official said.

[Katare]

Direct tax collection is also stronger

Banks’ advance tax outgo signals robust Q1 results

[Suraj]

April core sector performance shows a dip. But looking at some of the data closely, I wonder just how representative the weightages to various sectors are. For example, refined petroleum products, which is a fast growing sector, constitutes 2% of IIP, while crude oil production has a 4.17% IIP weightage. Considering we import and refine significantly more than we produce locally and refine, I'm surprised at these weightages. It will take data of aggregate outputs of these sectors to verify if the IIP and core sector growth numbers are meaningful anymore (they use 1993-94 base year).
Power, petroleum hit core sector growth

Core sector growth for April 2008 declined to 3.6 per cent from 5.9 per cent in the same month last year on account of a huge fall in production of petroleum refinery products and electricity. The index comprises production data of six sectors.

Crude oil
Production of crude oil, which has a weight of 4.17 per cent in the IIP, registered an increase of 0.9 per cent (provisional) in April 2008, compared with 1.4 per cent in April 2007. The crude oil production registered a rise of 0.4 per cent (provisional) in April-March 2007-08, compared with 5.6 per cent during the same period of 2006-07.

Petroleum refinery products
Petroleum refinery production (which has a weight of 2 per cent in the IIP) grew 4.3 per cent (provisional) in April 2008, compared with 15.1 per cent in the year-ago month. It grew of 6.5 per cent (provisional) during April-March 2007-08, compared with 12.9 per cent in the same period of 2006-07.

Coal
Coal production (weight of 3.2 per cent in the IIP) registered an increase of 10.3 per cent (provisional) in April 2008, compared with 0.6 per cent in April 2007. Coal production grew 6.0 per cent (provisional) during April-March 2007-08, against a rise of 5.9 per cent during the same period of 2006-07.

Electricity
Electricity generation (weight of 10.17 per cent in the IIP) registered a growth of 1.4 per cent (provisional) in April 2008, compared with 8.7 per cent a year ago. Electricity generation grew 6.3 per cent (provisional) during the last financial year, compared with 7.3 per cent during the same period of 2006-07.

Cement
Cement production (weight of 1.99 per cent in the IIP) registered a rise of 6.9 per cent (provisional) in April 2008, compared with 5.8 per cent in April 2007. Cement production grew 8.1 per cent (provisional) during the last financial year, compared with an increase of 9.1 per cent during the same period of 2006-07.

Finished (carbon) steel
Finished (carbon) steel production (with a weight of 5.13 per cent in the IIP) registered a rise of 4.0 per cent (provisional) in April 2008, compared with 2.7 per cent (estimated) in April 2007. Finished (carbon) steel production grew 5.1 per cent (provisional) during April-March 2007-08, compared with an increase of 13.1 per cent during the same period of 2006-07.

[Vipul]

Direct tax collections target revised to 3,95,000 cr.

A day after coming out with a whopping 71 per cent growth in direct tax collections for the first two months of this fiscal , the CBDT on Thursday said budget estimates under this head has been revised up by about Rs 30,000 crore to Rs 3,95,000 crore for 2008-09."We are hopeful of achieving this higher figure too.

Yesterday, we have reported a robust growth of around 71 per cent (for direct tax collections)," Central Board of Direct Taxes (CBDT) Chairman R S Mathoda said in New Delhi.The original Budget estimates for direct tax collections stood at about Rs 3,65,000 crore.The revised figures were over 25 per cent higher than the direct tax collections of about Rs 3,14,000 crore last fiscal.

Upbeat over 36 per cent growth in direct tax collections last fiscal, Finance Minister P Chidambaram had earlier this month asked the CBDT to revise upwards the budget estimates under this head for the current fiscal.
"The estimate will no longer be Rs 3,65,000 crore. The CBDT will meet and increase the estimate upwards," Chidambaram had said.

"Even if you take a 25 per cent increase over last year's collection of over Rs 3,14,468 crore, the budget estimates must be revised upward very sharply," he had said.The government has collected a whopping 71.28 per cent higher revenues at Rs 22,840 crore from direct taxes despite larger tax refunds for the first two months of this fiscal.The direct tax collections have seen a hefty increase from Rs 13,335 crore in the same period a year ago.

While corporate tax collections are up by 68 per cent to Rs 8,126 crore, personal income tax grew by 73 per cent to Rs 14,960 crore, an official statement had said on Thursday.

[Katare]

It's heartening to see that personal income tax is growing as fast (actually faster) as corporate taxes. Implies money is flowing to employees and investors and they are paying their taxes to govt.

Higher TDS mop-up lifts direct tax receipts 71% in April-May

[ramana]

I think we should put Suraj's posts and maybe this whole thread as a Monitoring Indian Economy newletter and charge mucho bucks. That way BRF wont have funding issues etc.

Even otherwise Suraj you should format your posts so that they lend themsleves to newsletter format.

Can do the same with Global Economy threads too!

[ramana]

X-posted...

its upto the political leadership, at the street level the country is always willing to fight and back their leaders.

Frankly speaking, I can't share this enthusiasm. The question that really bogs me is to what extent we average Indians are serious about taking on the PRC. When we hear about incursion in Som-drong-Chu or or north Sikkim, there are some raves and rants (with stoic silence from the left) and the business goes on as usual.
A few simple examples. Assam Govt. runs a chain of handicrafts emporiums named "Pragjyotika". Whenever I visit Guwahati, I just drop in their store at Bordoloi Road to buy some gift items at a reasonable rate. On one such visit last week, I was shocked to see that they have proudly stocked China made Buddha statues and wall hangings (all third grade machine crafted items) in their showroom. Can you ever imagine any Chinese Govt. handicraft emporium meant to promote Chinese handicrafts sell any low quality Indian item?
Look at the broader picture. The left, in spite of its big talks of strengthening Indian PSUs are depriving BHEL and awarding contract to Dong Fang in West Bengal. (Presently both the turbines at Sagardighi & DPL have gone kaput within 15 days of inauguration). Heard CESC and RPower would be importing Chinese equipments to minimize costs. Already Chinse toys and other plastics items have completely swamped our market. Last month when I went to buy a water bottle for my daughter in the local market, I could not find a single India made bottle at a reasonable price (only available was Milton).
Compare this with Chinese market, where outside suppliers are atively discouraged, payment terms are horrible and no reliable statistics is ever available. Although PRC is a very mineral rich country, they lack in quality iron ore which we are merrily supplying. The Rs 300/tonne export duty on iron ore as announced in last year's budget was a welcome step but again the Finmin had to mellow down due to the powerful mineral lobby. PRC also started complaining heaviliy as they were feeling the pinch (http://www.financialexpress.com/old/fe_ ... _id=161487).

IMO, first reaction of GoI should be again jack up the export duty on iron ore and scrap the trend of exporting primary commodity to PRC and importing value added products.

Long time ago the arguement for exporting iron ore to Japan and even Iran was that there were not enough steel plants and no one would give loans for that. I guess its still the same.

[John Snow]

Actually Biladilla Iron ore project using DBK Railways to bring Iron ore to Visakhapatnam, and also the outer harbor project was createdwith a ugly looking Conveyor system from the train terminal to the outer Harbor through the city ( Chavula Mudam) bridge. All to export Iron ore and Bauxite to Japan. Japan/ Taiwan would get coal from (low ash content for down under Australia).

The publicity brochure brought out in April 1968 describes the principal engineering features of the K.K. Line thus:

"The Eastern Ghats, the oldest hill range in India, was formed of weathered rock, called Khondalite, being a form of quartz, sillimanite and felspar. As the rock was highly broken, stratified and weathered, boring tunnels through such strata or even construction of open cuts called for a high degree of technical competence. Orthodox methods of tunnelling had to be abandoned and special techniques employed. Invariably, the top heading had to be constructed duly supported with steel ribs and the benching carried out through under – pinning operations. Chimneys, domes and vaults occurred in some of the tunnels. Difficulty in access to the tunnels rendered it impossible for any heavy machinery to be carried. Materials like cement, steel, sand and smaller equipment like tip wagons and train track had to be handled manually. Numerous gorges had to be bridged, some on piers as high as 40.26 metres. On account of the terrain, many of the bridges had to be built on 8-degree curves. Erection of girders on various major bridges on the alignment posed a serious problem. On the bridge over the Kolab river a long steel-work weighing 1,315 tonnes had to be assembled and erected over piers as deep as 26.8 metres. Assembling and launching of girders on the various bridges involved transport of heavy components from Salur and Shrungavarapukota over difficult ghat roads."

The entire job, costing Rs.553 millions was carried out by Indian engineers. The peak strength of labour was 30,000 and the only mechanical equipment used was the air compressor. The work on the new line commenced in 1960. The year 1961 was spent in planning and the work at site was commenced in early 1962. Construction work was completed in four and half years, the line being opened to departmental traffic in May 1966. Movement of ore started in May 1967.

The author had a visit to K.K. Line in 1970 with Shri R.S. Prasad, Ex-Divisional Mechanical Engineer of Waltair who was actively involved with the heavy-haul trains, a new concept first time practised on K.K. line in India. Ore trains 3600 tonnes gross were hauled by three WDM-2 diesel locomotives of 2600 h.p. each homed at Waltair, the new diesel shed of South Eastern Railway. On its descent from the summit to the foot of the hills, an additional assisting engine would be attached to provide the necessary brake power. Trial runs with 90 BOX wagons (7200 tonne gross load) hauled by eight diesel locomotives were also made on this section. The K.K. line also became the test bed for the air braked freight stock: Where else can one get such rigorous terrain for heavy freight stock!

Research Design and Standards Organisation of Indian Railways evolved a new design of wagon called BOY wagon for transporting iron ore on this line. These wagons have a higher carrying capacity of 71 tonnes as compared to 55 tonnes of BOX wagons, are carried on Amsted bogies instead of U.I.C. bogies and have less maintenance problems.

http://www.serailway.gov.in/General/boo ... roject.htm

***
Added later

Actually I remember during the early 1970s A prof from IIT had patented a cheap way of making steel, IIRC it was direct arc reduction of iron ore using coke, ore and calcium heap as an electrode and the other one a cast steel elctorde. instead of the blast furnace method of Cup and Cone arrangement (every high school student is required to mug up with temp zones and equations.)

I have visited FACOr ( Ferro Allyos corporation Garividi near srikakulam and orissa) and also NavBharat Ferro allyos corporation in Garividi in Kothagudem for supply of equipment. These are highly energy (electric) energy intensive furnaces.

I still dont understand why we have to export so much ores rather than finishid products. The once famous Nellore Bauxite which was heavily mined during 40s 50s 60s for electrical and aluminum are now defunct. when we need them most.

[Uttam]

I still dont understand why we have to export so much ores rather than finishid products. The once famous Nellore Bauxite which was heavily mined during 40s 50s 60s for electrical and aluminum are now defunct. when we need them most.

If I recall correctly most of the iron ore export used to go to Japan. From what I have heard among trade circles these exports were part of conditions of "Foreign Aid Packages" from highly benevolent countries. The same thing happened in many other parts of the world where in guise of aid packages, cheap raw material was extracted.

[ramana]

FT.com article by J Leahy

India’s report card fails to make the grade

What is this guy talking about and can someone tell us?

[Suraj]

Multiple articles about the monsoons in Bloomberg today. Looks like a positive monsoon season, with above average rainfall.
India's Soybean Output May Reach Record on Prices, Early Rains

India, Asia's biggest supplier of soybean meal, may plant a record soybean crop for a second year after prices rose to all-time highs and as early rainfall increases sowing.

The area planted to soybeans may gain as much as 20 percent in the year beginning July from 8.85 million hectares (21.87 million acres) last year, Dinesh Shahra, managing director of Ruchi Soya Industries Ltd., India's biggest soybean processor, said in an interview in Mumbai yesterday.

Soybean production may rise to 9.47 million tons in the year ending June from 7.15 million tons a year earlier, according to the Soybean Processors Association. Meal produced from soybeans is made into animal feed and the oil is used for cooking and alternative fuel.

Farmers may prefer growing soybeans in the western Indian state of Maharashtra to cotton and sugar cane after local soybean prices more than doubled to 28,000 rupees ($651) a ton, Ruchi Soya's Shahra said. Maharashtra is India's second-biggest grower of cotton and sugar cane.

``Sugar and cotton haven't matched the return given by soybeans,'' he said. ``A higher soybean crop will also be good news for the government, which is trying to control edible oil prices.''

India Tea Exports May Gain 28% on Kenyan Shortfall, Iraq Buying

Tea exports from India, the world's largest producer, may rise 28 percent this year after drought cut output in Kenya and Iraq renews purchases of low-priced tea from the South Asian country.

Overseas sales may top 200 million kilograms compared with 156.7 million kilograms last year, Basudeb Banerjee, chairman of the state-run Tea Board of India said yesterday in a phone interview from Kolkata. Production may rise 1.6 percent to 960 million kilograms on good rains, he said.

Higher exports may cut domestic availability of the commodity and drive up costs for packaged tea sellers such as Tata Tea Ltd. and Hindustan Unilever Ltd. Tea prices at Indian auctions gained an average 10 percent in the first four months of this year because of rising exports and local demand.

Tea production in Kenya, the world's biggest exporter of black tea, fell 35 percent to 70 million kilograms after hot and dry weather damaged crop, the Kenya Tea Board said in April

Exports to Iraq, India's biggest buyer of tea in 2006, may rebound this year after exporters resolved issues related to payments, Banerjee said without elaborating. Sales to Pakistan and Egypt were also expected to increase, he said.

Exports climbed to 55.1 million kilograms in the four months ended April 30, 3.4 percent more than the 53.3 million kilograms a year ago, according to the Indian Tea Association.

India Monsoon Rains Above Average So Far: Weather Office

India's June-September monsoon, which accounts for four-fifths of the nation's annual rainfall, has been 45 percent above average so far this season, the weather office said.

The nation received 113.6 millimeters (4.47 inches) of rainfall between June 1 and June 18, compared with an average of 78.2 millimeters, New Delhi-based India Meteorological Department said on its Web site yesterday.

Farmers in India, the world's second-largest rice producer, rely on the timing of the monsoon to decide which crops to grow. A normal monsoon may lift farm production, which accounts for a fifth of the economy, and cool the country's fastest inflation rate in seven years.

Rainfall in the four-month rainy season this year will be near-normal, or 99 percent of the average between 1941 and 1990, the weather office said in April. The department classifies rainfall as near normal when it's between 96 percent and 104 percent of the 50-year average.

[Singha]

NEW DELHI: Inflation raced to a 13-year high of 11.05 per cent for the week ended June 7, 2008, driven by a 7.8 per cent rise in fuel, power and lubricants prices and a 14 per cent surge in ATF prices.

[pradeepe]

Are you sure Singha. Wow! I knew it was heading todwards double digits, but 11%! It was ~8% not a month ago.

[Suraj]

The inflation spurt was not unexpected. The data reporting has a lag time, and the fuel price hike was a fortnight ago. Similarly, as Bloomberg states, China will report a surge in inflation during its next reporting period:
India, China Face Faster Inflation, Higher Rates

India's inflation accelerated to a 13-year high and economists forecast higher consumer prices in China after record crude oil forced both nations to increase the regulated cost of fuel.

India's wholesale prices jumped 11.05 percent in the week to June 7, the government said today, more than the median 9.79 percent increase in a Bloomberg News survey of 18 economists. China's fuel price increase today may lift consumer prices by as much as 1 percentage point this year, a separate survey showed.

A near doubling of crude oil prices has pushed up subsidy costs and threatened to erode profits of refiners such as Indian Oil Corp., prompting governments from Indonesia to Sri Lanka to raise fuel prices. That's adding pressure on central banks to increase interest rates and cool inflation, risking growth.

``If China and India are going to continue to roll back subsidies, then clearly we have not seen a peak in inflation,'' said Joseph Tan, a strategist at Fortis Bank SA in Singapore. ``They need to tighten monetary policy, which means that growth is going to slow.''

China told lenders to set aside more money for a fifth time this year on June 7 to cool inflation that is close to a 12-year high. Banks must put aside a record 17.5 percent of deposits as reserves from June 25.

[Vipul]

Advance tax collection from Mum up 76% in Apr-June.

Advance tax collection from the Mumbai region has witnessed an over 76 per cent growth during April-June with the taxmen netting Rs 18,500 crore for the period."So far, we have collected Rs 18,500 crore as advance tax as compared to Rs 10,600 crore in the year ago period," a Mumbai Income Tax official said.

The impact of the slow down on the corporate sector started only after mid-May, but before that they recorded a good performance, the official said, adding that this has boosted the tax collection.
The rise in advance tax collection has been backed by good collection from sectors like banking, cement and auto.All India too, the revenue collection through direct taxes during the April-June period has gone up by 71 per cent.

Upbeat over the robust tax collection, Union Finance Minister, P Chidambaram, recently asked the Central Board of Direct Taxes to revise the budget estimate of Rs 3,65,000 crore to Rs 4,00,000 crore.

During the last fiscal, the Government had mopped up revenue of Rs 3,14,000 crore on account of collections from direct taxes.

[joshvajohn]

I do not wish to disconnect the arguments above.

No one has noticed that the reason for the slow down of Growth on the one hand and inflation on the other (though the reasons are petrol prices rise) but internally it is the simple reason that the Communis are pulling the Government everywhere. It is because of communis the country's growth is brought to a stand still. Also we do not have a hope for energy in future (particularly nuclear) communis do not offer an alternative but block every growth step in every way that country is destroyed possibly in every front. This is an ideological intention agreed both by communis in India and well liked by the Chinese.

Unfortunately no one seems to have exposed this in the public and communis advise Indian government to block the exports of food grains and continued in every way possible the congress not to do well so that they can come to power which is never possible. It is because of the communis policies that BJP will come to power even surprisingly some small parties such as Sarad Pawar or Mulayam singh and so on BJP has a lot of possibilities to come to power. But the situation is going to make their government impotent because they cannot solve this mess created by communis. I think we needed a joint government in future possibly powersharing equation between congress and BJP to get rid of proChinese and weakening forces like Chinese then only India can grow and move forward in the right direction.






MUMBAI: The euphoria generated over the growth potential of India may have its origin in a 2003 report put out by global investment bank Goldman Sachs. But the bad news is that the ratings card for the country is now sliding. And nowhere is it more sharply reflected as in an update Goldman Sachs has done on India and three other countries — Brazil, Russia and China (together categorised as BRIC).

http://economictimes.indiatimes.com/New ... 149415.cms

[Singha]

sensex dropped 500 pts to 14500 in response

July-Dec is going to get really ugly. a steady stream of bad news is all we can
expect worldwide.

sensex could dip to 12000 in that timeframe. FIIs who pumped in $17b in 2007
have so far pulled out $6b and are selling around $200-300 mil/week nowadays.
retail investor interest is zero. people have found a new religion - FDs.
property is also out, I know people unable to sell their "investment" flats month
after month of reducing prices...or even to rent them at expected prices.

[John Snow]

July-Dec is going to get really ugly. a steady stream of bad news is all we can
expect worldwide

As I have said many times the sub prime mess and investment bankers escapades have not been completely unearthed. We have not seen the bottom yet, but only the sypmtoms of what is still ahead.

When the inflationhits double didgits in India, the FDI investors expect 30% return on investment, which is tall order in view of global slump. Besides the cash crunch in massa land is calling the cash back to some extent.

Watch this space

added later

The high fuel costs are just perculating into the main street just now. See the turbulance for air lines , just as an example. In UK pepsi and Coke want to share the trucks distributing the products.....