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Archive for November, 2006

WEF – India Summit

Posted by g.e. on November 26, 2006

Record expectations this time, reports WEF – Asia blog.

BusinessWeek:
The three-day India Economic Summit organized by the Geneva-based World Economic Forum comes at a time when the Indian economy is growing by 8 percent a year, driven by an unprecedented boom in consumerism and a surge in new investments.

A key issue at the summit is whether India can sustain, or even accelerate, its economic growth, said Lee Howell, the Forum’s Asia head.

And some reality check from The Economist:
China’s double-digit growth may look like a danger sign but there are few of the usual troubles. Inflation is only 1.4% and China has a widening current-account surplus, which implies excess supply rather than excess demand. Nor do asset price gains look particularly excessive. Average house prices have risen by less than 6% in the past 12 months. And share prices have gained only 42% in the past four years. Even the expansion of bank credit has slowed to an annual pace of 15%, not much faster than nominal GDP growth.

In contrast, India’s economy displays an alarming number of signs that things have gone too far. Consumer-price inflation has risen to almost 7% (see chart), well above Asia’s average rate of 2.5%. A recent report by Robert Prior-Wandesforde at HSBC finds many other signs of excess. For example, in a survey of 600 firms by the National Council of Applied Economics Research, an astonishing 96% of firms reported that they were operating close to or above their optimal levels of capacity utilisation—the highest number ever recorded. Firms are also experiencing a serious shortage of skilled labour and wages are rocketing. Companies’ total wage costs in the six months to September were 22% higher than a year earlier, compared with an average increase of around 12% in the previous four years.

India’s current account has shifted to a forecast deficit of 3% of GDP this year from a surplus of 1.5% in 2003—a classic sign of excess demand. Total bank lending has expanded by 30% over the past year, close to the fastest growth on record.

India’s share and housing markets also look bubbly. Draft proposals by the central bank on November 17th to cap banks’ exposure to stockmarkets and curb reckless lending only mildly dampened the optimism. Share prices are almost four times their level in early 2003. India’s price/earnings ratio of 20 is well above the average of 14 for all Asian emerging markets. House prices have also gone through the roof: Chetan Ahya of Morgan Stanley reckons that prices in big cities have more than doubled in the past two years. Housing loans jumped by 54% in the year to June (the latest figures available) and loans for commercial property were up by 102%.

India’s trend growth rate has almost certainly increased but it is still nowhere near as high as China’s. Mr Prior-Wandesforde estimates that it is now around 6.5%, up from 5% in the late 1980s. But India’s recent acceleration largely reflects a cyclical boom, thanks to loose monetary and fiscal policy. The Reserve Bank of India has raised one of its key interest rates by one and a half percentage points to 6% over the past two years, but inflation has risen by more, so real interest rates have fallen and are historically low. This makes the economy more vulnerable to a hard landing.

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Wharton gets India

Posted by g.e. on November 25, 2006

From BusinessWire:
Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania, today launched a new version of its website called India Knowledge@Wharton at a ceremony in Mumbai. The new site, which is free and published in English, will include articles that focus on India’s growing importance to the global economy.

Dean Harker also announced that simultaneous to the launch of India Knowledge@Wharton, the School is launching its first-ever mobile platform to meet the needs of mobile phone users, including those in India where usage outpaces PC Internet usage nearly two to one. India has 100 million mobile phone users and the numbers are growing at 5 million per month. The new India Knowledge@Wharton Mobile permits alerts, search, sign-ups, and browsing, and eventually will include the ability to download and listen to podcasts.

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What confusions a 0.25 rate increase can cause

Posted by g.e. on November 19, 2006

See What confusions a 0.25 rate increase can cause:

(Setting: YVR’s late October repurchase rate hike)
Last week, the Reserve Bank of India raised, by a quarter point, the repurchase rate it charges banks for lending them overnight funds, while leaving unchanged the reverse repurchase rate it pays them for temporarily taking over their excess cash.

The central bank says it will charge more for lending money even though no one is borrowing from it. At the same time, the monetary authority has refrained from raising the rate at which it is draining billions of rupees in surplus cash every day. That is perplexing.he decision is doubly surprising because it is the latter rate – the one that has been left unchanged – that is considered to be the central bank’s benchmark.

The two indicators have been used since early 2004 to create a corridor for short-term money-market interest rates in India. The reverse repurchase rate sets the lower limit of the range; the repurchase yield acts as the ceiling.

Since the banking system has usually been in a surplus- cash mode, the floor has come to be acknowledged as the policy rate. That notion came crashing down last week. The symmetry of interest-rate action, which the market had taken for granted over the past year of synchronous increases in the repurchase and reverse repurchase rates, was broken.

As long as banks do not have to borrow from the central bank, the rate increase would have little effect.

The Reserve Bank of India estimates that the banking system currently has an average “liquidity overhang” of 852 billion rupees, or $19 billion, lower than 924 billion rupees from July to September.

If the excess cash in the system does dry up, as it did at the beginning of this year, the Reserve Bank will become a supplier of liquidity of last resort.

Only then will the increase last week in the cost of funds – to 7.25 percent, from 7 percent – start to bite. Until then, the benchmark is the floor rate, left unchanged at 6 percent.

So in effect, the Reserve Bank of India governor, Y.V. Reddy, is telling banks to brace for a cash crunch. To escape it, they must contain runaway credit growth by raising the price they charge consumers for home and auto loans.

If that is indeed the strategy, then it also means the Reserve Bank would not be too eager to buy dollars to stem the appreciation in the rupee, which has risen almost 5 percent against the dollar since July 19.

By buying dollars, the monetary authority would bolster local money supply. Unless it scoops out the funds by selling bonds, banks would have even more surplus cash than at present.

Three years ago, a panel established by the Reserve Bank had anticipated the confusion that would arise from using the reverse repurchase rate for mopping up excess liquidity as well as signaling the stance of monetary policy.

Using the reverse repurchase rate to indicate higher borrowing costs in the economy automatically increases the cost that the central bank incurs when selling bonds to contain money supply. And that compromises the efficacy of the benchmark.

The policy rate must be in the middle of the interest-rate corridor, not at its bottom, the committee had said.

The concerns expressed by the panel have suddenly become very real. The bond market and the central bank both need an uncompromised benchmark.

And, from the BS roundtable:
OP Bhatt, chairman, State Bank of India, said the current rate of credit growth was not sustainable for the fourth year in a row and liquidity in the banking system was meant for sectors like exports, infrastructure and capital expenditure in the manufacturing sector. “The policy says if you have money, lend. If you come to me, liquidity will be expensive,” Bhatt said, but stressed “at the moment, rates will not be raised”.

KV Kamath, MD and CEO, ICICI Bank, also said rates would remain stable for the time being and there was no signal from the market on rates going up. “Interest rates will remain stable for the time being,” he said.

Naina Lal Kidwai, country head (India), HSBC, said the bank was following a wait and watch policy over the next quarter. Credit offtake, liquidity and inflation will be the deciding factors.

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Jignesh Shah of Financial Technologies

Posted by g.e. on November 19, 2006

Rediff reports:
Financial Technologies India Ltd on Thursday said its group chairman and chief executive officer of Multi Commodity Exchange of India (MCX), Jignesh Shah will be conferred the US India Business Leadership Award (2005-2006).

Shah is honoured for his “outstanding contribution as a serial entrepreneur to integrate rural India with global markets” and the award is a global recognition of his efforts at integrating rural India with the global markets, it said.

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Old Lane invests in Chennai

Posted by g.e. on November 19, 2006

US private investment firm Old Lane and city-based infrastructure development company R R Industries today announced a joint venture to set up an information technology park on the outskirts of Chennai.

A total of $110 million (Rs 510 crore approx.) is being invested in RR Skyline project, for which Old Lane and RR Industries will put in $45 million on a 50:50 basis. The balance would come by way of client deposits and bank borrowings, Guru Ramakrishnan, co-founder & MD of Old Lane, and R Ravi, CEO of RR Inds, said here.

Old Lane has more than $4 billion (Rs 18,000 crore) in asset management, including a $500 million (Rs 2,250 crore) India dedicated private equity fund, which is to be invested in infrastructure, real estate and corporate sectors, Ramakrishnan said.

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Pink dreams

Posted by g.e. on November 19, 2006

An International Film City for Jaipur.

“We have received proposals, including from the Australia-based Warner Roadshow Studios,” an official of the Jaipur Development Authority (JDA) said. The proposed city is to come up on 1,000 acres of land in the Jamdoli area, around 15 km from here.

The project got a boost when several producers and directors from the US and Australia discussed the project with JDA Commissioner D.B. Gupta recently. They suggested that the project be worked out in three phases.

A few months back a Singapore-based firm Scenario Media Limited and two Delhi-based firms had evinced interest in the film city project. The Singapore firm had proposed to develop it on the lines of the RamojiFilmCity in Hyderabad.

All the right keywords (decision will be made soon, it got a boost when, to be worked out in phases, received several proposals, awaiting clearance, local employment/future/ growth, …) typical of such government projects are in place. So lets see.

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World Press Survey

Posted by g.e. on November 19, 2006

See the World Press Survey of the most prominent of its exports: The NRIs.

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