Indian Economy: News and Discussion (June 8 2008)

[svinayak]

Case examples: The poor cannot digest the price rise

[svinayak]

http://www.hinduonnet.com/thehindu/holn ... 291763.htm
Ma Foi Management Consultants, Chennai.

Any specific insights about expats and returning Indians in the job scene?

We are seeing a strong trend of expats coming to India for work. Rough estimates say that close to 30,000 expats are working in India. The primary reason for expats coming into India for employment reasons is the first-hand exposure to a rapidly growing business economy, as well as the quality of the work experience that they will get here. They also come in when the opportunities in their own countries or the pay packages are not up to their expectation levels. We must also bear in mind that working in a foreign country makes a candidate look very efficient, as this proves them to be adaptive to new environments and cultures. Previously, it was only the IT and ITeS sectors that saw many expats coming into India. Today, many more sectors are opening up in terms of job options for the expats. These include retail, hospitality, manufacturing, analytics, infrastructure and the pharmaceutical sectors, among others.

We are also seeing an increasing number of Indians returning to India for employment opportunities. This is especially true in the cases of the IT and ITeS sectors, as well as the retail, telecom, banking, financial services and the automotive sectors. With the infrastructure boom in the country, many NRIs (non-resident Indians) associated with the infrastructure sector are also looking to come back and head and handle construction projects.

Growth stories of these and good pay packages are the factors that are attracting the NRIs back to India. Some others cite personal reasons such as family, ageing parents and education of children as reasons for relocation. Going into this scenario a little further, the South Indian cities of Chennai, Bangalore and Hyderabad are being preferred by those returning to India. For example, while the number of people who returned to South India was about 600 in 2000, this grew to 2,500 in 2006, with a further 25 per cent growth in 2007. However, the global slowdown may bring this down to 20 per cent in 2008.

[Paul]

'Rupee to test 47-level vs USD'

PTI | New Delhi

Posted online: June 29, 2008


Continuing flight of foreign capital from Indian equity markets and the persisting global financial crisis, hit by surging crude oil prices, are likely to send the domestic currency crashing to 47-level against the US dollar in the coming months, the experts have warned.



Since the beginning of 2008, the rupee has depreciated by over 8 per cent against the US dollar in a downward rally, which started after a sharp appreciation of over 11 per cent in the Indian currency spanning over a year-long period.



During its last appreciation leg, the rupee rose from about 45-level to a high of close to 39 per dollar mark, while it is currently inching towards 43-level amid continuing pull- out of foreign capital from India and surge in oil price.



Global brokerage and equity research major CLSA's analyst and a renowned portfolio manager Christopher Wood has said in the latest June edition of his famed "Greed and Fear" report that further rise in oil price would continue to be particularly bad news for India.



"This is both despite and because of the Reserve Bank of India's increasingly pre-emptive monetary tightening stance. The RBI raised on Tuesday the repo rate and the cash reserve ratio (CRR) by 50 bps each to 8.5 per cent and 8.75 per cent, respectively.

"Certainly, a re-test of the 12,000 level on the Sensex cannot be ruled out in these circumstances. And that will be accompanied by a further weakening in the rupee," Wood wrote.

Separately, research and analytics firm Evalueserve's Chairman Alok Aggarwal has written in a whitepaper that the rupee is expected to fall to 47 against the US dollar and GDP growth could slow down to six per cent by the fourth quarter of this fiscal.

[ShauryaT]

Lakshmi Mittal Joins Goldman Sachs as Board Member

June 29 (Bloomberg) -- Lakshmi Mittal, chairman and chief executive officer of ArcelorMittal, the world's biggest steelmaker, was elected to the Goldman Sachs Group Inc. board as an independent member.

[Suraj]

On YV Reddy's term as RBI head ending soon:
For monetary stability

Y Venugopal Reddy's five-year term as the governor of the Reserve Bank ends in two months....In the inevitable speculation that has surfaced about the appointment of Dr Reddy's successor, a number of names have cropped up. The idea also seems to have been floated that since the economy is going through a rocky phase, Dr Reddy should be asked to stay on for another year, by which time a new government will be in office and will have the freedom to select the next governor.

This is a bad idea, and not because Dr Reddy has done poorly as governor. The simple reason is that no one knows whether a stable government will be the result of the next Parliamentary elections. It is entirely conceivable that both the principal parties around whom the two main coalitions converge, namely the Congress and the Bharatiya Janata Party, find that they have fewer seats in the next Lok Sabha than in the current one (where, between them, they account for barely half the seats).

Given this potential uncertainty about the executive arm, it would be unwise in the extreme to risk the stability and continuity of monetary policy during a rocky period for the economy by asking a new government that is still settling in, to decide on who the next governor should be. Rather, it should be the duty of the present government to ensure that there is stability on Mint Road even if there is uncertainty in New Delhi. Therefore, whoever is appointed the governor now (and this need not preclude Dr Reddy being given an extended term, if that is considered desirable) should be appointed for at least two years, preferably three, so that the next government has had the time to settle down and the economy the chance to return to even keel after the present turmoil in physical and financial markets.

Oil prices push up current account deficit:
Fourth quarter current account balance turns negative

Declining capital inflows and surging value of crude oil imports pushed India's current account balance into a deficit of $1 billion in the fourth quarter ended March 31, 2008 as against a surplus of $ 4.3 billion in the corresponding quarter in FY07.

The current account deficit (CAD) for 2007-08 rose to $17.4 billion, 1.5 per cent of the gross domestic product (GDP), from $9.8 billion (1.1 per cent of GDP) in 2006-07. The widening of the trade deficit - led mainly by imports - resulted in to the higher level of CAD, according to the Reserve Bank of India's data released today.

On the balance of payment (BoP) basis, merchandise exports rose by 20 per cent in the quarter as against 16.7 per cent in the previous year period.

The import payments surged at a much higher pace thanks to a sharp rise in crude oil prices. The import payments, on the BoP basis, recorded a 37.2 per cent growth as against an increase of 14.7 per cent in Q4 of 2006-07.

The sharp increase in oil imports reflected the impact of increasing oil prices on the Indian basket of crude, comprising a mix of Oman, Dubai and Brent varieties, which rose to $93.9 per barrel in Q4 of 2007-08 from $56.4 per barrel in the corresponding quarter of the previous year.

[John Snow]

There is ATA conference in NJ, I have heard from reliable guests that AP CM has amassed US $4.00 Billion dollars in wealth. This in such a short time, now where is DRI, imagine the wealth India must be sitting on top of?
In way nice to see duringbthe times of Bhau Gandhi "Garibi Hatao " is comimg true

[Ananth]

Umrao jaan its nice to know that YSR aptly understood what Indira Gandhi was hollering about

Jokes apart, other day, I was wondering what exactly was meant by 11.47% inflation in context of India. Google led me to this article, which I hope will be helpful for other novices like me.

How does one calculate inflation?

[vina]

Hmm.. Sensex closes at 12900 levels.. 13,000 levels broken.. So where is the bottom ? .. I think 10,000 abouts.. Oil price goes up from here to 170 , inflation rises in tandem with that, and then so do interest rates, then 10,000 and below will definitely happen.. add to that the fall of the govt sometime in the next couple of months.. Nice.... The mood must be as gloomy as the weather in bangalore right now with the rains.. But hey.. I like the rainy weather in Bangalore!! .. Curling up under a blanket with a nice cuppa..and sitting on all that cash , waiting for the rains to stop.

Meanwhile Real Estate stocks are simply getting murdered. Can someone post what the prices of DLF, Omaxe, Parsvanath , Sobha, Purvankara etc from their highs are ?..That sure must look like a pretty picture. I hope to see CREDAI adverts in newspapers on "how all is fine in the realty market", that there is "no " correction.. yada..yada.. Oh..ignore the news report in ET /Business Standard that all the small to midsize developers are lining up outside Private Equity / Bigger builders offices hoping to sell out on their current projects in the hopes of getting liquidity.

If anyone goes and books a flat in this evironment and gives cash to a builder, what can I say about his intelligence.. Well, what goes my father's.. There was a really nice "advert" by some guy called Value Design Build , who put up some chichi villas called Nusa Dusa or some Bali themed stuff in Whitefield in Bangalore.. This time in Yelahanka.. It goes on the lines of Rs 3500, too much in Yelhankha you say.. But same thing about Whitefiled and hold your breath on the chutzpah..Indiranagar!.. Wahh.. For someone from Bangalore, it must be news indeed that Whitefiled is as "near" /sought after as indiranagar.. and hence ..but I digress. and yada..yada.. buy at Yelahanka for Rs 3500 a sq ft.. What am I to say.. Like the old saying goes ,a sucker is born every minute..Yup.. Good luck to any builder who is hoping to unload stuff in Whitefiled, ORR, Kanakpura, Yelahanka, Devanahalli etc at Rs 3500 a sqft..

[vina]

Finally a Sane interview on the state the economy.. an interview with Barings Private Equity. though dont know about the 2 to 3 years. But the macro scene which he described is accurate and scary..

See no revival for the next 2 to 3 years

[pradeepe]

Vina, blore is sedate compared to what you have in Hyd. You are cribbing about 3500/- in yelahanka.
Try 4000-5000/- and more around Hyd. Unlike blore, most development grows in regional clusters in Hyd. So they rip off en masse. Villas for 3-4cr are common.

[Vipul]

India Inc's market cap below GDP.

India slips out of trillion-dollar stock market club.

[abhischekcc]

Hi,
Can you tell me what are the prices in Narne Estates in Hydrabad?

Thanks.

[Vipul]

India's trade deficit zooms to $90 billion; external debt tops $221 billion news.

[Suraj]

Surge in inflation due to a few commodities: Govt

To buttress its points, the Government said 60 per cent of increase in inflation in the primary articles category was contributed by five commodities — iron ore, cotton, milk, sea fish and oranges.

Among the manufactured goods, 60 per cent of the increase has been on account of eight products, six of which belong to iron and steel category, an official statement said.

As regards the fuel group, the rise has been due to increase in prices of petrol, diesel and cooking gas and also those items whose prices are not fixed by the government like ATF, light diesel oil and naphtha.

Among the 30 essential commodities, the statement said, bajra, moong, urad, potatoes, onions and fish inland witnessed a decline in inflation.

Taking January 5 as a base, it said 206 commodities in the wholesale price index witnessed either price stability or decline.

These commodities have a combined weight of 34.3 per cent in the index.

The government also pointed out that consumer price- based inflation for goods used by industrial workers have declined from 7.81 per cent in April to 7.75 per cent in May.

Infrastructure issues increase ship berthing times

The average pre-berthing detention time at major ports in the country has gone up by nearly 34 per cent in 2007-08 over the previous year due to lack of sufficient infrastructure facilities at these ports. The average pre-berthing detention time at major ports during 2007-08 stood at 11.26 hours, compared with 8.43 hours in 2006-07.

As a result, domestic exporters and importers are feeling the pinch as they have to fork out higher freight charges. Earlier, demurrage charges as a percentage of total freight charges was 3 to 4 per cent, while currently it is 5 to 7 per cent of the total freight charges.

Shipping companies have to pay demurrage charges for docking their ships for a longer-than-stipulated time by the port due to congestion.

Supreme Court stays Mundra SEZ construction due to environmental issues

The Supreme Court today stayed work on Adani Group's Rs 7,400-crore multi-product Special Economic Zone in Gujarat, on a plea by fishermen that the project would affect their livelihood and flora and fauna in the region.

Mundra SEZ is proposed to come up in about 6,000 acres of land with a total investment of Rs 7,400 crore.

The Centre and the Gujarat government had accorded approval to the Adani Group to develop, operate and maintain an SEZ at Mundra in Gujarat on February 12, 2004.

The SEZ is proposed to provide integrated infrastructure encompassing all infrastructure relating to business, living, learning, as well as recreation facilities so as to make the zone self-sufficient.

The PIL moved by a group of seven fishermen has alleged threat to their livelihood and damage to the flora and fauna of the region due to the project.

They said that permission given by the Central government without clearance under the Environmental Impact Assessment (EIA) notifications for the SEZ was illegal and violative of the Section 5 of the Environment Protection Act as well as of Right to Life of the petitioners under Articles 19 and 21 of the Constitution.

Banks to take Rs.11000 crore loss in farm waiver scheme

Contrary to the government's earlier assertions, state-owned banks will take a hit of almost Rs 11,000 crore, or nearly 15 per cent of the revised countrywide loan waiver package of Rs 71,600 crore. The central government's exposure remains at over Rs 60,000 crore, the original amount proposed in Budget 2008-09.

The additional Rs 11,000 crore is on account of unapplied interest, penal interest and other charges that the banks will have to bear. Rough calculations show cooperatives account for Rs 32,000 crore or 45 per cent of the total loan waiver and relief scheme, commercial banks Rs 26,000 crore (36 per cent) and regional rural banks Rs 13,000 crore (18 per cent). Their additional exposure will be roughly the same proportion.

The additional exposure does not come as a surprise to banks, which had largely anticipated this in February when the loan waiver was announced.

"Public sector banks are owned by the government and will abide by its instruction. However, by passing on some benefits to farmers, there will also be a lot of scope for fresh credit to them," said a senior executive of a large public sector bank.

Nearly 40 million farmers are to benefit from the debt waiver and relief scheme, with small and marginal farmers accounting for over 90 per cent of the total.

Initial reimbursements to lenders will take at least three months because the accounts of each branch need to be audited and claim certificates verified before the lenders are reimbursed.

[Sanjay M]

Congress Takes India from Hero to Zero

Well, well -- India's economic growth has started to plunge. No surprise there. The Congress Party has been doing more boasting than actual reforming. So naturally, the economy is starting to reel under the pain of the recent oil hikes.

[Edited to remove derogatory references to Indian PM - Suraj]

[RamaY]

Congress Takes India from Hero to Zero

well... didn't INC come to power claiming India is "NOT" Shining?

[John Snow]

Come on guys be reasonable, the economistry PM hardly had any time to tend to the country, he was ever busy doing 123 math.

[pradeepe]

Hi,
Can you tell me what are the prices in Narne Estates in Hydrabad?

Thanks.

Not sure now. Maybe around 3500/- iirc in their supposed project near the ORR. But please research before plunging in. The Narne guys have been tainted. I remember reading many complaints about them about being crooks.

Btw, was there a services connection to this group?

[Singha]

BW

India's Economy Hits the Wall
Growth is slipping, stocks are down 40%, and foreign stock market investors are fleeing. Businessmen blame the ruling coalition for failing to make reforms

by Manjeet Kripalani

Indian Prime Minister Manmohan Singh: No bold moves. PRAKASH SINGH/AFP/Getty Images

Just six months ago, India was looking good. Annual growth was 9%, corporate profits were surging 20%, the stock market had risen 50% in 2007, consumer demand was huge, local companies were making ambitious international acquisitions, and foreign investment was growing. Nothing, it seemed, could stop the forward march of this Asian nation.

But stop it has. In the past month, India has joined the list of the wounded. The country is reeling from 11.4% inflation, large government deficits, and rising interest rates. Foreign investment is fleeing, the rupee is falling, and the stock market is down over 40% from the year's highs. Most economic forecasts expect growth to slow to 7%—a big drop for a country that needs to accelerate growth, not reduce it. "India has gone from hero to zero in six months," says Andrew Holland, head of proprietary trading at Merrill Lynch India (MER) in Mumbai. Many in India worry that the country's hard-earned investment-grade rating will soon be lost and that the gilded growth story has come to an end.

Global circumstances—soaring oil prices and the subprime crisis that dried up the flow of foreign funds—are certainly to blame. But so is New Delhi. Much of the crisis India faces today could have been avoided by skillful planning. India imports 75% of its oil to meet demand, which have grown exponentially as its economy expands. The government also subsidizes 60% of the price of such fuels as diesel. In 2007, when inflation was a low 3%, economists such as Standard & Poor's Subir Gokarn urged New Delhi to start cutting subsidies. Instead, the populist ruling Congress government spent $25 billion on waiving loans made to farmers and hiking bureaucrats' salaries.

Botched Opportunities

Now those expenditures, plus an additional $25 billion on upcoming fertilizer subsidies, is adding $100 billion a year—or 10% of India's gross domestic product, or equivalent to the country's entire collection of income taxes—to the national bill. This at a time when India needs urgently to spend $500 billion on new infrastructure and more on upgrading education and health-care facilities. The government's official debt, which dropped below 6% of gross domestic product last year, will now be closer to 10% this year. "Starting last year, the government missed key opportunities" to fix the economy, says Gokarn. In fact, he adds, "there has been no significant reform done at all in the past four years"—the time the Congress coalition has been in power.

Even the most bullish on India are hard-pressed to recall any significant economic reforms made in the recent past. A plan to build 30 Special Economic Zones is virtually suspended because New Delhi has not sorted out how to acquire the necessary land, a major issue in both urban and rural India, without a major social and political upheaval. Agriculture, distorted by fertilizer subsidies and technologically laggard, is woefully unproductive. Simple and nonpolitical reforms, like strengthening the legal system and adding more judges to the courtrooms, have been ignored.

A June 16 report by Goldman Sachs' (GS) Jim O'Neill and Tushar Poddar, Ten Things for India to Achieve Its 2050 Potential, is a grim reminder that India has fallen to the bottom of the four BRIC nations (Brazil, Russia, India, and China) in its growth scores, due largely to government inertia. The report states that India's rice yields are a third those of China and half of Vietnam's. While 60% of the country's labor force is employed in agriculture, farming contributes less than 1% to overall growth. The report urges India to improve governance, raise educational achievement, and control inflation. It also advises reining in profligate expenditures, liberalizing its financial markets, increasing agricultural productivity, and improving infrastructure, the environment, and energy use. "The will to implement all these needs leadership," points out Poddar.

"We have a government in New Delhi with the best brains, the dream team," he says, referring to Oxford-educated Prime Minister Manmohan Singh and Harvard-educated Finance Minister P. Chidambaram. "If they don't deliver, then what?"
Disillusioned Business

More worried than most are India's businessmen, who have turned in stellar performances with their investment and entrepreneurial drive and begun to look like multinational players. For them, there's plenty at stake. But lack of infrastructure, from new ports to roads, along with an undeveloped corporate bond market and high prices for real estate, commodities, and talent, are causing them to hit "choke points and structural impediments all over. We will lose years," says Bombay investor Chetan Parikh of of Jeetay Investments.

Sanjay Kirloskar, chief executive of Kirloskar Brothers (KRBR.BO), a premier $470 million maker of water pumps, already has $100 million in overseas contracts. Yet few infrastructure contracts have come from New Delhi. Kirloskar had hoped to be part of a grand project linking India's rivers, but those plans have been on hold for four years. "The infrastructure growth we had hoped for has not come about," he says. "Instead, we will now expand overseas more than in India."

Such constraints on growth at home will have an impact. Corporate earnings growth is likely to dip, says Merrill Lynch's Holland, who now predicts just 10% growth, instead of the previous year's 20%. That slowdown makes it less attractive for foreigners to invest in India's stock market. Already this year, foreigners have taken $5.5 billion out of the market, compared with the $19 billion they invested last year. Gagan Banga, chief executive of India Bulls Financial Services, an emerging finance and real estate giant, points admiringly to China's ability to maintain its growth momentum for a decade, while India's has not been able to hold up for even three years. "Serious companies are going to grow at a much slower pace, and some may even de-grow this year," he says. Unless major policy decisions are made by New Delhi immediately to keep the economy on the growth path, he says, "India will slow down even further."

New Delhi defends its four year reign in India. "We've had 9% growth for four years in a row," says Sanjaya Baru, media adviser to Prime Minister Singh. "That is unprecedented." He attributes it to the increasing rate of investment, up from 28% of GDP to 35% currently, "close to most ASEAN economies," though he admits that a large part is from the private sector. "Yes, there is a fiscal problem, but there's a price to be paid for coalition politics," adds Baru. So having growth drop "from 9% to 7% is not grim."
Social Backlash?

Chetan Modi, head of Moody's India, says the increasingly high cost of doing business in India may force global investors who had set up base in India—especially financial-services players—to move to more affordable and efficient hubs, such as Singapore and Hong Kong. If the economy slows and inflation continues to accelerate, says Sherman Chan, economist at Moody's Economy.com, "social unrest is possible."

In fact, India is becoming a dangerous social cauldron. The wealth harvested by the reforms of previous governments has made itself evident in the luxury cars and apartments in India's big cities, leaving much of India full of aspirations but few means to achieve them. There is a severe shortage of colleges, yet a plan to build 1,500 universities gathers dust. The Communists in the ruling coalition are against both globalization and industrialization, so without new factories being built, employment growth has been almost stagnant, rising to just 2%—a disappointing rate in a country where an estimated 14 million youths enter the workforce every year, but just 1 million get jobs in the regulated, above-ground economy.

Meanwhile, few expect any bold moves New Delhi, especially with national elections due in 2009 and five important state elections scheduled before the end of this year. Thus far, the ruling Congress party's record has been poor; it has lost almost every state election this year and is likely to lose all five of the upcoming ones.

The big hope for a return to the course of reform in India, businessmen hope, will be a new government in New Delhi next year. The gravest danger is that India's messy coalition politics will bring into power another indecisive alliance that will keep the country in policy limbo for another five years. If so, says S&P's Gokarn, it's a meltdown scenario: growth slipping below 6.5%, accelerating the chances of India reverting to its 1991 status when it was plunged into a balance-of-payments crisis.

Kripalani is BusinessWeek's India bureau chief.

[Katare]

Meanwhile Real Estate stocks are simply getting murdered. Can someone post what the prices of DLF, Omaxe, Parsvanath , Sobha, Purvankara etc from their highs are ?..That sure must look like a pretty picture. I hope to see CREDAI adverts in newspapers on "how all is fine in the realty market", that there is "no " correction.. yada..yada.. Oh..ignore the news report in ET /Business Standard that all the small to midsize developers are lining up outside Private Equity / Bigger builders offices hoping to sell out on their current projects in the hopes of getting liquidity.

If anyone goes and books a flat in this evironment and gives cash to a builder, what can I say about his intelligence.. Well, what goes my father's.. There was a really nice "advert" by some guy called Value Design Build , who put up some chichi villas called Nusa Dusa or some Bali themed stuff in Whitefield in Bangalore.. This time in Yelahanka.. It goes on the lines of Rs 3500, too much in Yelhankha you say.. But same thing about Whitefiled and hold your breath on the chutzpah..Indiranagar!.. Wahh.. For someone from Bangalore, it must be news indeed that Whitefiled is as "near" /sought after as indiranagar.. and hence ..but I digress. and yada..yada.. buy at Yelahanka for Rs 3500 a sq ft.. What am I to say.. Like the old saying goes ,a sucker is born every minute..Yup.. Good luck to any builder who is hoping to unload stuff in Whitefiled, ORR, Kanakpura, Yelahanka, Devanahalli etc at Rs 3500 a sqft..

There you go Vina,


It seems at these PE levels reality stocks are pretty cheap
http://www.thehindubusinessline.com/200 ... 971700.htm

[ramana]

Case examples: The poor cannot digest the price rise

Reminds you of Marie Antoinette's famous words "let them eat cake!"

[Suraj]

As with GDP, the CPI data used an outdated statistical basis, as a result of which GoI is pushing for reform. Accurate economic statistics are not merely about GDP H&D; they provide for effective responses to economic conditions.
Govt wants CPI revamped

India has four different consumer price indices for well-defined population groups, besides a separate wholesale price index. The other three consumer indices are for industrial workers (CPI-IW), agricultural labourers (CPI-AL) and rural labourers (CPI-ALRL).

The consumer price index for urban non-manual workers (CPI-UNME) was last released on April 25, when it gave the data for the month of March. The index had risen 6.02 per cent over the same month last year.

Because of outdated base year and deployment of field investigators for collection of price data for a broad-based CPI- Urban number, the Central Statistical Organisation (CSO) discontinued the index after the National Statistical Commission (NSC), the apex statistical body, made a recommendation to this effect at its meeting on February 15.

The Commission recommended adopting a "link index" based on the CPI-IW data released every month by the Labour Bureau. "This parallel series will be discontinued after the proposed CPI-Urban index is ready by next year," said an official with the Ministry of Statistics and Programme Implementation. The link index is being made available with a two-month time lag, officials added.

Economists point out that the CPI-UNME, with a base year of 1984-85, had limited use. The index was aimed at determining dearness allowances of employees of some foreign companies working in service sectors, such as airlines, communications, banking, insurance and other financial services, in India.

However, analysts say the CPI-UNME was hardly used for that purpose. The index was used under the Income Tax Act to determine capital gains, while the CSO used it for deflating selected service sectors' gross domestic product (GDP) at current prices to arrive at the corresponding GDP at constant factor cost.

Thanks to poor handling of land acquisition, states now shy away from monster investment projects:
K`taka set to scrap Rs 30,000-crore petrochemical investment region

The proposed Rs 30,000-crore petroleum, chemicals and petrochemicals investment region (PCPIR) project on the Karnataka coastline is set to be nipped by the month-old BJP government. With Lok Sabha elections round the corner, the BJP government in the state wants to play it safe.

The derailment of this project that Karnataka was eyeing for long, comes after the top brass in the government felt that the PCPIR, which will require huge tracts of land, may cause a ‘Nandigram' in the state's coastal districts of Dakshina Kannada and Udupi — the party's stronghold.

A final decision to this effect is likely to be taken in the next cabinet meeting and subsequently, a formal request will be made to the Centre seeking the withdrawal of this project.

The PCPIR was to house manufacturing facilities for domestic and export-led production in petrochemicals along with associated services and infrastructure. The project was expected to draw investments to the tune of Rs 2.31 lakh crore ($53 billion). It was estimated to provide direct employment to 230,000 people and indirect employment to 430,000 people.

Expect inflation to rise as steel prices are raised:
Ministry summons steel makers to discuss retail prices

JPC figures indicate that hot rolled coil (HRC) prices are currently Rs 44,000-47,450 per tonne whereas the industry claims that prices are around Rs 35,000 per tonne. HRC (2.00 mm thickness) prices were at Rs 47,450 per tonne in Kolkata market, according to JPC figures.

"We have challenged JPC data. They are providing data collected from small traders at the mandi and not data provided by us on a fortnightly basis," said a primary steel producer.

As the three-month commitment for holding steel prices draws to an end this month, the Union ministry of steel is readying to check on prices. As far as indications go, the increase next month could be hefty in the wake of increasing input costs. Iron ore prices were being settled in the international market at prices higher by 96.5 per cent over previous contracts and coke prices had increased more than $100 per tonne since May.

Early review of first quarter corporate results. The second quarter (July-Sept 2008) might be stronger as the low Rupee enables export-oriented firms to report better results.
Q1FY08 earnings: Slowing down

Net earnings are estimated to grow by 9 per cent which is marginally lower than the 10 per cent posted by the firms in aggregate in the March 2008 quarter because operating margins could fall by about 100 basis points.

The profit numbers are slightly more encouraging at 11 per cent if the energy sector is excluded though this would be nonetheless be disappointingly low and way below the 25 per cent recorded in March.

Incidentally, revenues for this sample are forecast to rise just 21 per cent which is much slower than the 25 per cent seen in the March quarter. Operating margins, the report says, are expected to shrink by about 50 basis points, mainly in sectors such as engineering, cement, metals, construction, consumer staples and banks.

Cement and steel firms continue to be hurt by the higher prices of inputs such as coke and coal. Banks' profits will be hit by slower volume growth, weaker net interest margins, deteriorating credit quality and mark-to market losses in their investment books. Companies in the healthcare space expected to do well partly because most firms have a reasonably high share of exports and the rupee has been depreciating.

[G Subramaniam]

India Inc's market cap below GDP.

India slips out of trillion-dollar stock market club.

In general, if the market cap of a country is below its GDP, it is considered very cheap

[Theo_Fidel]

In general, if the market cap of a country is below its GDP, it is considered very cheap

I don't think it is that simple.

It depends on what portion of the economy is actually listed.

Also the NSE Price / Book (P/B) value is currently about 3.45 or so. There are several companies with book values greater than market share!!
This is still a little high. This also means that only about 25% of India's GDP is actually represented by the 1500 or so companies on the NSE.

On the other hand the trailing P/E is now 14 or so (that can't be right, can someone verify) which would justify buying.

I suspect this bear market will last at least another 36 months (the last one lasted 42 months).

Keep buying in small lots.

[Singha]

sensex PE is around 13 now, slightly above the ASEAN avg around 10-12. but some sectors like
infra, realty, banks is still overvalued because the mess UPA made of reforms means the growth
isnt much happening as anticipated in these sectors until a new Govt takes charge.

SP has asked UPA for the heads of Y V Reddy (RBI Guv), Finance Minister and Murli Deora(petroleum
minister) to scapegoat them on inflation and price rice front and also Ronen Sen the ambassador
in D.C. because he tried to "prevent billy boy kilton from visiting UP" (for whatever reason)

with daily faxes and orders from D.C. to sellout on the nukular deal, looks like UPA will ditch the
left, hand over the scapegoats and cross their fingers for 5 state elections coming up.

[Singha]

http://specials.rediff.com/news/2008/jul/02hwl.htm

Oh god, hear their prayer

Vicky Nanjappa in Haveri, Karnataka | July 2, 2008

You think India is on the march -- that lifestyles have changed dramatically, and the standard of living has improved tremendously. Well if you thought this is how the real India lives, then read on.

In a small village near Haveri in northern Karnataka, Kattigere Thimappa and his wife toil day after day on a small patch of land so that they can make two meals a day. The meal is ragi roti with onions -- they eat this every day.

Haveri is 375 kilometres from the IT capital, Bangalore, and the lives here are in stark contrast.

Kattigere is 27, he has two acres of land and a family of four to support. The land is of little consolation as the monsoon has played havoc with his hopes. With no water source anywhere close to the field, he is entirely dependent on the mercy of the rain gods. The last two years have been a disaster -- the previous years the rains had failed and this year, excess rainfall destroyed the cotton crop.

Dejected that he could not depend on his land, he started working as a coolie at the local bus stand. Somakka, his wife, went to work at a construction site and with them went their two children.

"Manjunath is four-years-old and goes with his father, while I take Anita, the two-year-old along. There is nobody to take care of them," she says.

Previously in the series: 'India has great opportunities, you have to take your chances'

Together they earn around Rs 75 a day if they get work and spend all the money on food and some other basic necessities.

"The last time I bought a sari for my wife was a year back. I cannot afford to buy it for another year I think," says Kattigere, "The crops have failed due to heavy rains and the grant promised by the government has not come as yet."

Every morning, the couple set out for work by 7 and return by 6 pm. After that, till darkness falls they work in their field along with the children. Although there is not much work in the field at the moment, they ensure it is kept clean because neglecting it will worsen it.

With an annual income of Rs 8,000, this family has no special days -- time is spent toiling just to be able to subsist.

They hope for a better life, but find their hopes dry as their land. They dream of watching television which they say they have never done so far, and they want to send their children to school.

"We want them to be able to study and are hoping that out condition improves next year so that we can send Manjunath to school," says Somakka.

The last time they had a good meal was around five months ago when Somakka's employer, a construction worker gave her some extra money when work was completed on the building. "It sure was a joyous occasion at our house," she says.

The couple knows no other life apart from their work. Their only pleasure is their children and whatever free time they get is spent playing with them. "I really hope we can give them both a better life. It is not about hard work, it's that our destiny depends on the rain gods. If the rains are good, we are good or else we have to settle for the worst," says Kattigere.

In their misery they never forget one thing -- to pray to god for a good monsoon. They say that is the only hope for a better life.

Vicky Nanjappa responds to those who want to help Kattigere Thimappa:

When Mr Thimappa was informed that Rediff.com readers wanted to help him, he said he was very touched by their thoughtfulness. He, however, declined to accept any monetary help because he said the government was going to give a grant for cotton farmers, which was his legal right and could not be denied to him.

He did ask for one thing, though -- he asked well wishers to pray to the rain gods for a good monsoon.

[sanjaychoudhry]

India's Economy Hits the Wall

Growth is slipping, stocks are down 40%, and foreign stock market investors are fleeing. Business blames the ruling coalition for failing to make reforms

http://www.businessweek.com/globalbiz/c ... 743900.htm

The UPA government will go down as one of the most incompetent in India's history, from the performance of the economy to internal security to triggering social unrest and animosity through reservations. It will be a golden day when this cancerous growth on the body of India is finally cauterised through general elections.

[ramana]

sensex PE is around 13 now, slightly above the ASEAN avg around 10-12. but some sectors like
infra, realty, banks is still overvalued because the mess UPA made of reforms means the growth
isnt much happening as anticipated in these sectors until a new Govt takes charge.

SP has asked UPA for the heads of Y V Reddy (RBI Guv), Finance Minister and Murli Deora(petroleum
minister) to scapegoat them on inflation and price rice front and also Ronen Sen the ambassador
in D.C. because he tried to "prevent billy boy kilton from visiting UP" (for whatever reason)

with daily faxes and orders from D.C. to sellout on the nukular deal, looks like UPA will ditch the
left, hand over the scapegoats and cross their fingers for 5 state elections coming up.

Wow these are the poster boys of the deal! I thought PC was thrown in for good measure. s en is anyways finished his term and is on extension. Most likely will be in some green pasture in massa land.

[Suraj]

On the subject of balance of payments:
Back to old concerns

The aggregate BoP numbers for the fourth quarter of 2007-08 (January-March) show that the current account deficit for the whole year came in at $17.4 billion, significantly higher than the previous year's deficit of $9.8 billion. Of course, even this higher number was offset many times over by net capital inflows, of close to $110 billion. This resulted in an addition to reserves of about $92 billion, almost three times the amount added in the previous year.

If this trend had persisted, even the significant widening of the current account deficit should not have been a source of concern and dealing with the reserve accumulation would have remained the policy challenge. That is no longer the case. For, the second change of the past few months is that the capital account scenario looks very different from what it did last year. The sharp decline in the stock market in the past few weeks is reflective of large exits by foreign investors. This has reversed the direction of the rupee's movement, which until recently was headed nowhere but up.

Exports grew by a mere 13 per cent in dollar terms, considerably below the 35 per cent rate of growth in April. Imports, on the other hand, grew by 27 per cent, to which oil was a significant contributor with imports growing by over 50 per cent from May 2007. As a result, the trade deficit came in at $10.8 billion, taking the two-month deficit to $20.6 billion, nearly 50 per cent higher than the $13.9 billion in April-May 2007.

With the trade deficit widening on account of sluggish exports and buoyant imports, and capital exiting the country, the BoP has begun to tilt in the opposite direction. Exports of services may continue to provide a cushion, but they too are vulnerable to a US and global slowdown. Remittances are another big contributor and should remain healthy, particularly from West Asia, but it does appear that the global situation is beginning to tell on India's BoP. Of course, the $300 billion reserves do provide considerable cushion, giving the government enough time to deal with the macro-economic situation in its entirety. The longer this response is delayed, the greater the likelihood of the BoP adding yet another vulnerability to an already complex situation.

Govt lifts location curbs on industrial units

The Union Cabinet today relaxed norms for setting up industrial units in the country, by doing away with a restrictive clause in the Industries (Development and Regulation) Act, 1951, which prohibits location of factories near urban settlements. The decision is unlikely to lead to setting up of factories near cities and towns, as the projects will still have to be cleared by the respective state pollution boards and the environment ministry.

The clause that was deleted had come into effect from July 25, 1991. It prohibited the setting up of factories within 25 kilometers of the urban area limits of cities and towns having a population of more than 900,000 in the 1991 census.

The clause was deleted as it was creating "unnecessary hurdles" in setting up of industries. "Since grant of industrial licence is on the basis of recommendations of the state government and clearances from the State Pollution Control Board and Ministry of Environment and Forests, the existing procedure of granting licence can be dispensed with," a government release said.

"The environment ministry as well as state level pollution clearances are adequate to ensure that industrial units do not come up within urban limits. Also, with the urban infrastructure already under constraint, no factories would want to come up inside or next to cities," said a Delhi-based industrial policy expert.

[Theo_Fidel]

http://www.businessweek.com/globalbiz/c ... 743900.htm

Pooh! FUD of the first order. Similar to the Tiger with the Tail on fire a couple of years ago by Economist.

If 7%-8% growth is a brick wall these guys are getting caught up in their own rhetoric.

Admittedly the UPA is complete disaster as coalitions usually are, But at least they did not actually do anything to damage the economy. This is quite a feat in Indian political history.

Yes oil is high, but India is easily amongst the worlds most efficient users of oil. Our cities, that we moan about, are extremely dense and make mass transportation very efficient. Our life style will survive disruptions in oil supply long after most others collapse.

The long term story is still excellent. Best investment of the next 30 years.

[uddu]

T N Ninan: How poor are we?
Link

A person who spends Rs 20 per day spends Rs 600 in a month. A 5-member family (which is the Indian norm) in this income bracket therefore spends Rs 3,000 per month. And, according to the National Sample Survey, as much as 77 per cent of all Indians (836 million in 2004-05) lived on less than this sum. The NSS figure has been quoted in the Arjun Sengupta report on the unorganised sector, released last year, and since then it has gone into the common lexicon. For instance, Mani Shankar Aiyar quoted the number in a speech that he was to have delivered to a bunch of economists at Stanford last month. Lesser mortals have quoted it all over the place, so much so that it is now accepted as gospel.

But, can the NSS numbers be correct, or should we put them to a simple reality check? The easiest way to do that is to look at the number of mobile telephone connections, which in March was in excess of 300 million. The mobile industry thinks that in two years that number will be 500 million subscribers (at the present rate of 8 million new connections every month), in a country that by 2010 will have about 1,150 million people. Somehow, that does not gel with the NSS numbers.

The maths is not complicated. India has some 210 million families. Allow three connections per family for the top 50 million families who live (according to the NSS) on more than Rs 20 per head per day, and you account for 150 million connections. You still have 150 million connections that are there with the 160 million families that are (as the Sengupta report classifies them) extremely poor, poor, marginally poor, or vulnerable. That makes for virtually one phone connection per family in that very deprived group � which seems to defy common sense.

It is of course true that a lot of low-income people can indeed afford mobile phones today, as handsets cost no more than Rs 700. The average revenue per telephone user at the bottom of the pyramid is Rs 70 per month, much of which is on incoming calls. With controlled usage, the low-end user can reduce his monthly bill to no more than Rs 20-30. So we are indeed talking of people with very limited budgets. Still, one phone per poor family does not make sense � especially when the majority lives in rural areas that may not even have cell phone coverage. It makes even less sense when you think of 300 million becoming 500 million connections in two years.

More scientific questioning of the NSS numbers can be done by looking at the household surveys done periodically by the National Council for Applied Economic Research. The survey done in 2001-02, with its numbers projected for 2005-06 (a year after the NSS), says that there would have been only 132 million families out of a total of 204 million (or 65 per cent) who earned less than Rs 7,500 per month � at 2001-02 prices. Compare this with the NSS finding that 77 per cent lived on less than Rs 3,000 per month, at 2004-05 prices, and it becomes clear that either the NSS or the NCAER numbers are completely off the mark. Since the NCAER numbers are more logical when matched with the cell phone numbers, I would believe them and not the NSS.

The truth almost certainly is that the NSS/Sengupta numbers that are taken as gospel by so many, including cabinet ministers, are in fact highly suspect. Indians are better off than what these numbers tell us � by a factor of two or more.

[SK Mody]

Firefox/Google blocks http://www.indiastat.com/ and describes it as an "attack site".
Anyone know what the problem is?

[Kati]

This might answer some of the heart-burn ^^^^^^^^^

FIIs play havoc on bourses

Nandu R Kulkarni, The Statesman, Kolkata, July 6, 2008

MUMBAI, July 5: Foreign institutional investors who were mainly responsible for the prolonged bull run from 2003 to January 2008, with their $50 billion net purchases here, have pulled the same edifice down as a desperate strategy to set right their follies in their native countries.

Old traditional brokers claim the markets here would not have fallen so steeply on domestic economic concerns which they say are not as overriding as in other countries including China where the inflation rate was around 18 per cent. Nor are the growing fuel demand and prices only confined to India. The rising fuel prices are now a global catastrophe. Under identical circumstances only Indian equities are suffering the most only on account of domestic markets’ unlimited dependence on foreign investors for around five years.

The main Sensitive Index in June wilted over 17 per cent. The 30-stock index in the first half of 2008 had shed about 40 per cent from its 21,206.77 point peak on 10 January 2008. Analysts say the collapse was because of the FII selling to offset losses abroad. As one broker put it: “ If Citibank or Lehman lose some billions in the American sub-prime mortgage markets they will sell stocks on Dalal Street to cover up, albeit partially, their total losses.” And they have been doing it at regular intervals.

“Their holdings here are working like an insurance cover. Handy in time of economic crises,” said an investment banker, Mr Nayan Shah. He pointed out how they dumped stocks worth over $6.5 billion in six months of which only June accounted for $4 billion.

The first setback came when the market regulator Securities and Exchange Board of India stepped in to wipe out faceless investors under the cover of Participatory Notes. P-Notes allowed them not to reveal their identities and trade from behind in the guise of an FII. The markets actually started slipping following the imposition of restrictions on P-Notes lest they become handy for terrorist outfits to make hay in Indian stock markets.

“Now FIIs are withdrawing in herds ending their honeymoon with domestic bourses,” said a seasoned broker at the BSE. The markets world over are bearish and are expected to stay so for some months. The crises in Europe and the USA are worse than in India, claim a broker.
He cited developed nations are suffering huge food crisis whereas India at least do not suffer shortage and reported a record production.

Analysts say Dalal Street is not new to a bearish phenomenon. The current slowdown in the markets, they say, was mainly caused by the foreign investors or hedge funds functioning alternately as bulls and bears which has been an alien phenomenon on Indian bourses. To act as a bull or a bear depended on profit consideration and FIIs have lived up to that binary role.

[Suraj]

There's something wrong with the industrial production figures if the tax collection growth is much faster than the statistical estimate of industrial growth rate. I wouldn't be surprised if upon fixing the statistical system, the industrial growth figures are stronger than currently estimated:
Direct tax collections up 38% in first quarter of fiscal

In spite of a slowdown in the growth of both industrial production and merchandise exports, India's direct tax collections rose by as much as 38.61 per cent in the first quarter of the current fiscal, the finance ministry said on Friday.

The direct tax collections, according to an official statement, rose to Rs.573.73 billion during the period against Rs.413.91 billion in the like quarter of the previous fiscal.Among the various components of direct taxes, corporate taxes rose by 32.65 per cent to Rs.345.66 billion, while personal income tax jumped by 48.84 per cent to Rs.227.82 billion.

"The growth in direct taxes has been maintained despite much larger refund payouts at Rs.115.78 billion, as against Rs.73.02 billion during the corresponding period last fiscal," the statement said.

The growth registered in fringe benefit tax was 38.74 per cent, while securities transaction tax and banking cash transaction tax were up 22.11 per cent and 21.03 per cent, respectively. Among the various regions, the Delhi circle saw the direct tax collections grow by 53.57 per cent, while Mumbai saw an increase of 40.19 per cent.

Nagpur with 74 per cent, Cochin with 68 per cent, Bangalore with 47.26 per cent and and Kolkata with 45.30 per cent also registered significant increases in the mop up.

[Katare]

Katare: I have deleted your ad hominem statement about sanjaychoudhry. That is very uncharacteristic of you considering how much you contribute to this thread; please do not attack posters.

vsudhir: just acknowledging that I've deleted your post in response to Katare's statement, to clean up the discussion.

[Katare]

Suraj,

Not a problem, I didn't call him names and I was very respectful but still better to ignore than to vitiate.




We need a massive upgradation of our data collection mechanism for inflation....the whol thing is a big mess

http://www.business-standard.com/common ... =0&chkFlg=

"Headline inflation would have touched 8 per cent in March and 9 per cent in April, had there been timely revisions. The WPI was 50-200 basis point (bps) downward biased between February and April due to lack of timely revision of data," said Abheek Barua, chief economist, HDFC Bank.

Authorities (or their incompetence) artificially suppressed inflation in march and April when it was at 8-9% level. This incompetence robbed us of valuable time early on when we should have taken steps to "nip the inflation in the bud".

For the week ended March 8, in one of the highest revisions in recent times, provisional headline inflation rate was revised from 5.92 per cent to 7.78 per cent. Similarly, WPI inflation data for the week ended March 15 was also revised to 8.02 per cent from the provisional figure of 6.68 per cent.

[svinayak]

No Abu Dhabi or Rockefeller in the list you put up. Besides being one of the 30 holders maketh not a conspiracy.

Usually we make sure that people who have Econ 101 post in this thread. Probably that may be the best advice.

[putnanja]

Will Reddy do a Volcker?

espite several increases in interest rates and the cash reserve ratio (CRR), inflation hardly shows signs of behaving. It has become the despair of the Government and the Reserve Bank of India. Most are of the opinion that inflation news will get worse before it gets better.

So has conventional medicine failed? Is it time to try something different? More specifically, should we make the monetary policy much harsher?

For, hasn’t Milton Friedman said inflation is anywhere, everywhere and at all times a monetary phenomenon? If that is so, it is right to seek a monetarist solution.

Unfortunately (or fortunately depending on how you look at it), central banks around the world aren’t sure. The raising of interest rates, amidst a slowdown, risks throwing the baby out with the bathwater. Inflation isn’t out of control to justify punitive interest rates — at least not yet. Still, former US Fed Chairman Mr Paul Volcker is back in circulation (at least in print).

He was the one who drove up interest rates to the dizzy levels of 20 per cent in the early eighties. But he didn’t do this till inflation hit double digits. As of now, the US and Europe are far from that inflexion point.

But India is in the thick of double digit price rises. Should Reddy do a Volcker?

The answer clearly lies in the chances of a sharp rate hike being followed with immediate success in significantly bringing down inflation.

Assume that, for argument’s sake, the RBI turns the screws and pushes money rates to 15 per cent. (It can jack up the CRR sufficiently to achieve this). What’s likely to happen?

The first reaction of industry and trade would be to cut inventories. For, it makes sense to stock only if the rate of inflation exceeds the interest rate. Destocking transmits through the supply chain, affecting all intermediaries and producers in the supply chain. Pipeline inventory reduction by itself is probably worth some percentage points in the inflation rate. Final demand too would undoubtedly be significantly affected, having a further price softening effect.

There seems no escape from addressing a general inflation problem with a generally tight monetary policy — if inflation crosses the threshold of 10 per cent, the tougher the medicine the better. We are paying the price for not acting in time — keeping, for example, energy prices low even as they shot up globally and escalated our import bill; and compounding the crime with rupee appreciation not from current account strength but from capital flows.

Shock treatment might have to substitute for what might have been a gradual adjustment.

Paul Volcker cannot be far from Dr Y.V. Reddy’s thoughts.

[ramana]

Imitationwont get one far and might lead to disaster.

Meanwhile book review from Hindu, 9 July 2008

Mapping the new wealth creators

Mapping the new wealth creators


RAMAN MAHADEVAN


An attempt to trace the evolution of modern business and to document India’s new entrepreneurial groups


INDIA’S NEW CAPITALISTS — Caste, Business and Industry in a Modern Nation: Harish Damodaran; Permanent Black, D-28, Oxford Apartment, 11, I.P. Extension, Delhi-110092. Rs. 695.


During the early post- Independence years and right until the 1970s, there was considerable critical writing on the Indian capitalists. This was a period when the developmental state was still a viable option. Public investment was the preferred route. The state felt it expedient to position itself on the right side of the Left and to periodically make some noises about the undesirability of economic concentration. In fact, the state itself lent support to the very product ion of knowledge on the structure of big capital in India, evident in the reports of the statutory Monopoly Inquiry Commission and the Industrial Licensing Policy Inquiry Committee. Its core findings, namely that 75 business houses all over India virtually controlled the Indian industry, even became part of the popular discourse of those times. This was also a reflection on the hegemonic influence of the Left liberal intellectual tradition both within and outside Indian academia. The upshot of all this was the spawning and the generation of an enormous amount of very interesting literature which sought to throw light on the nature of the Indian bourgeoisie.

Bridging a hiatus

However, much of the most interesting work was produced by sociologists and historians, and consequently the focus remained limited to the colonial or at best to the early post-Independence period and to issues revolving around the preponderant control of the corporate space by those from traditional business communities. Strangely, when it came to the narration of the post-Independence story, especially the turbulent post-1975 period, there was a virtual drought so far as serious scholarship on the capitalists was concerned. Paradoxically, despite the considerable hype about the India growth story since the post-reform 1990s and the exceptional role of the Indian entrepreneurs as prime movers of this process, there has been no serious attempt by scholars from either side of the epistemological divide to undertake a study of this class. To Harish Damodaran goes the credit of successfully filling the void in our understanding of the process of the emergence of the new “wealth creators” as well as bridging the hiatus between the past and the present. This, in essence, is the point of departure of his scholarly and thought-provoking contribution.

Pattern of accumulation

Writing about capitalists especially in India is no easy task as information and hard data are extremely hard to come by. Indian entrepreneurs as a class are rather tight-lipped and secretive when it comes to sharing information about their investments. Given these inherent constraints it is remarkable that Damodaran has managed to weave what is truly an extremely incisive and thought-provoking account of the complex trajectories of the accumulation process, laying to rest many myths and misconceptions about the social composition of Indian capital. It is probably the first serious study of its kind with a truly all-India sweep. Precisely by extending the gaze beyond the traditionally-renowned centres of capital, largely in the North, as well as by distancing himself from the obsessive size-trap issue, the author is able to capture the diverse and heterogeneous routes to accumulation and making of the new capital. What clearly emerges from this study is a distinct North/East and South/West divide with respect to the pattern of accumulation and social origins of capital — a trend which in some cases had roots going back to the colonial period.

Entrepreneurial base

The chapters dealing with agro-commercial capital especially those on “Kammas, Reddys and Rajus”, “Kongunad Naidus and Gounders”, and “Patidars and Marathas” are among the most interesting sections. Rich in detail and insightful about the larger processes of accumulation, it clearly underscores the need for reinterpreting and redefining the trajectory of Asian capitalism. More significantly, this account provides insights that help one to comprehend and contextualise the recent upsurge of entrepreneurial activity in these parts of India. Rather than the ‘Vaishya vacuum (as the author believes)’, the influence of ryotwari land tenurial system, in conjunction with the commercialisation process, would merit probing as a possible explanation for the ethnically broad-based entrepreneurial base in this region.

Nevertheless, this otherwise finely-textured book does leave one with a few niggling questions. It is not quite clear, as compared to the colonial period, how caste as a social institution in contemporary India facilitated the entry of these new entrepreneurs. While clearly the Marwari-Bania dominance over industry is a thing of the past, this account suggests that they are still a force to reckon with in large parts of northern India. To what extent can this resurgence be explained exclusively in terms of caste, disregarding the overall favourable conditions for investment? Likewise, this study is relatively silent on the influence of government policy both at the Centre and in the states in creating a favourable investment-friendly environment and in facilitating the loosening of entry barriers for these new capitalists. These caveats notwithstanding, Damodaran’s book is certainly a most welcome addition to the sparse literature in this field and a must-read for all those wishing to comprehend the India development story.

[svinayak]

Inflation may touch 14-14.5 pc in December: Assocham

New Delhi (PTI): Amid reports that international crude oil prices may increase upto 170 dollar a barrel, industry body Assocham said that inflation may touch 14.5 per cent by the end of this year.

The trickle down impact of hiked fuel prices will spill over to other commodities by the month of December. Coupling with low-base effect, inflation would peak to 14-14.5 per cent level. This could lead to further tightening of monetary policy pushing the already high interest rates to an upper level, Assocham said in its study on 'Inflation and Interest Rates'.

The report further said if the lending rates go up by another 50-100 basis points, non-food credit offtake may come down to 19-20 per cent in the present financial year and home loan growth may dip by 5-7 per cent.

Despite the increase in deposit rates, effected since July, and negative sentiment in the equity markets, the current inflation may reduce the deposit growth to 20 per cent in 2008-09, the study added.

Home loans have suffered a double whammy of increasing interest rates and high property prices. With the upward revision, home loan rates and interest rates have almost doubled in the past four years, the chamber said.

The price rise, measured by the Wholesale Price Index, shot up well past the double digit figure on June 7, when it touched 11.05 per cent. It has remained unabated touching a 13-year high of 11.63 per cent for week ended on June 21, despite the government and Reserve Bank's steps to cool the demand for commodities and increased supplies.