Indian Economy shows signs of recovery

by Ashok Handoo*

Is the Indian economy showing early signs of revival or a turnaround? It may be too early to say yes, but the figures thrown up in recent days certainly point to that. And that should be good news for the managers of the Indian economy. Despite that there is no room for complacency as the challenges ahead are indeed, enormous.

Let us first talk of the turnaround indicators. The official data shows that the cement sector has grown 9.97 percent in December 2008 as compared to November and the year on year increase is 11%. Steel, which declined from September onwards last year, has shown a recovery in December last and January this year. It has now touched 22.86 million metric tones, a figure it achieved in May 2008 when the sectoral growth rate was 4.1%. This may not be quite impressive but the very fact that the sector is growing is a matter of some satisfaction. Passenger vehicles grew at 32% in January 2009 compared to December 2008. Commercial vehicles grew at 23%. These are all encouraging signs.

Job losses are an area of immense concern to all of us. Labour Minister Oscar Fernades informed Parliament recently that half a million jobs had been lost in India due to the economic slowdown. That certainly is a cause of concern. But there is a silver lining too. A recent survey conducted by the HR consultancy firm Hewitt says that less than 13% companies in India were considering retrenchment while 60 % are still hiring. India is at the lowest of the ladder of layoffs, with the US topping the list at 55 %. It is followed by China at 30.6%. Japan, Korea, Singapore and Malaysia also are higher up in the ladder.

On the other hand, the survey shows that India is at the top of the ladder with 8.2% in year on year projected salary hike in Asia- Pacific. Even the US and Japan are expected to have a salary hike of only 3.2 % and 2.3 % this financial year. The projected salary hike is indeed far less than 13.3 % India witnessed in 2008 but in these hard days the picture is not all that gloomy. Hewitt says the survey was conducted in December and January for 480 Indian companies.

Finance Minister Pranab Mukherjee has already urged the Indian Industry not to cut down on jobs and salary cuts could instead be effected to tide over the present turmoil.

By all accounts therefore, the pro-active fiscal and monetary measures taken by the Government and the Reserve Bank of India seem to be showing results. But there is a long, long way to go.

Clearly, the key to deal with the present economic crisis is to increase demand domestically, as we have no control on the demand in other countries which are facing a far worse situation than we do. This is precisely why Indian exports have been suffering a big blow as the US, UK the European countries and Japan, which account for more than half of India’s exports, are in the grip of a recession. The downside is that we may have to wait longer than expected in the export sector until these economies revive.

That also explains why the Government is focusing on stimulating domestic demand by ensuring flow of credit to trade, industry, investment in Infrastructure, Housing and Real Estate. Flagship programmes like NREGS and Bharat Nirman too are being allocated adequate resources. But as Shri Pranab Mukherjee pointed out, this is a global crisis and “Global crisis requires a global response and India is playing its own role in fashioning it.”

The Government, on its part, has been injecting huge amounts into the system through stimulus packages and duty cuts. The 3rd package announced by the Finance Minister in Parliament means pumping another 29,000 crore into the system by way of duty cuts in excise and customs as well as service tax. He also announced that the 4% cut in central excise duties made in December 2008, would continue for the next fiscal as well. In the interim Budget also, Shri Mukherjee projected higher spending in the next fiscal year.

The RBI too has reduced the CRR, the portion of deposits banks are required to keep with the RBI, from 9 percent to 5% during the last 4 months. The Repo Rate, at which RBI lends cash to banks, too has been cut 4 times to 5.5%. The reverse repo rate has also been brought down from 6 to 4 percent.

The question now is whether these rates can be further reduced to put more liquidity in the system. The RBI Governor D. Subbarao says there certainly is room for rate cuts. It is now considering whether the rates should be cut, when and by how much.

Fortunately, the situation on the Inflation front is encouraging. The latest figures show that it has dipped to below 4%, 3.92% to be precise, and is heading towards a further fall in the days ahead. It is estimated to touch the low of 2% by the end of current financial year and continue to fall further, thereafter. So, there is no price pressure on the government to work against pumping more money into the system. Despite this one has to take note of Shri Pranab Mukherjee’s words of caution while presenting the interim Budget. “We have weathered the crisis (from inflation) but there is no room for complacency.” The fiscal deficit which was initially estimated to be around 2.5 percent of the GDP is now likely to be in the range of 6% and could thus be a record high in seven years. Higher deficit has also increased government’s borrowing target from Rs. 2.61 trillion to Rs. 3.06 trillion.

The effect of the global recession on India has been “much sharper” than expected. It therefore calls for more measures to stem the tide of low growth and layoffs. The figures reveled by the Central Statistical Organization say that the Indian economy will grow by 7.1% in the current financial year against 9 percent in the three previous years. The Deputy Chief of the Planning Commission Shri Montek Singh Ahluwalia believes that it would continue to grow at 7 percent in the next fiscal as well despite the impact of the global financial crisis. Some economists however feel that it may come down to 6 percent.

On balance, the economic situation does seem to be looking up. Things are better than what it was 2 months ago. As Shri Ahluwalia puts it “banks are now willing to lend to good companies with a strong financial position. What is now needed is to get credit flowing to the lot of companies in the middle.” The risk perception in banks, which is very high at this point of time, must go. That may, however take some time. Boosting of demand and investment continue to remain the mantra to deal with the current economic crisis.(PIB Feature)

(Disclaimer : The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of PIB)

Railways’ bid to pull out Indian Economy from crisis

Indian Railways have drawn up plans towards the upgradation of rail infrastructure and procurement of new assets of rolling stock during the current financial year with an estimated expenditure of Rs. 30,000 Crore to shore up the infrastructural development and upkeep. The move will go a long way in boosting the Indian Economy. Some of the projects under execution are as follows:

· Indian Railways have set a target of through rail renewal over 2941kms which will require 3,39,288 MT of rail steel.

· Through sleeper renewal over 2382kms which will require 38.59 lakhs pre-stressed concrete sleepers (approx.).

· A target of renewal of 44.5 lakhs of PSC sleepers has been fixed for open line works.
This will require 88200 MT of steel.

· In addition, 5000 MT of steel is likely to be used towards the manufacture of steel channel sleepers during the current financial year.

· During 2008-09, 5294 MT of steel bridge girders have already been produced up to the month of October 2008, and the total production in the financial year is likely to exceed that of 2007-08 i.e. 8615 MT of steel bridge girders.

· It has been decided by Indian Railways to manufacture 3000 coaches this year which is an increase of 12.5 % over the previous year.

· It is planned to acquire 2873 EMUs, 1091 MEMUs, 216 Kolkatta Metro Coaches and 3 – phase propulsion system for 200 motor coaches with an expected outlay of about 9200 Crore rupees.

· Production of diesel locomotives and high horse power EMD Design Locomotives would be enhanced at the Diesel Locomotive Works, Varanasi. DLW has been able to produce 152 locomotives during the first seven months of the current fiscal as against 137 in the corresponding last year i.e. an increase of 10.9%.

· The production of wheels & axles is being increased by 60% in comparison to the last year which will also help in saving foreign exchange.

· Work is in progress for the development of 300 railway stations into model stations. Besides, Indian Railways have envisaged development of 23 world class stations of which four are being taken up in first stage.

· Indian Railways are setting up a 1000 MW thermal power plant through a joint venture with NTPC at Nabi Nagar, Bihar with a total cost of Rs. 5352 Crore.

· Indian Railways are also seeking an allocation of a coal block of 300 MT which is proposed to be utilised for setting up a 2000 MW power plant.

· About Rs.300 Crore will be spent during the next three months for commissioning modern electronic signalling systems at about 400 stations, intermediate block signalling in about 200 block sections and 400 route kms of automatic block signalling.

· Rs.1800 Crore will be spent during the next year (2009-10) for the modernisation/ upgradation of signalling systems such as Electronic Interlocking, Centralised Panel Operation(500 stations), on board train protection/ train collision avoidance systems (1800 route kms), automatic signalling (500 route kms) and intermediate block signalling system (200 block sections).

· Railway electrification target for the XIth Plan has been enhanced to 3500 Kms. Similarly, the electrification target for the current year has been increased from 700 Kms to 1000 Kms.

· Next year, electrification is likely to be undertaken over 1200 Kms with Rs. 1000 crore, between Ghaziabad-Moradabad, Shoranur-Mangalore and Gondia – Ballarshah etc.

· The high density network of Indian Railways, including DC-AC conversion in Mumbai, is being strengthened for carrying heavier trains and the requirement of fund for these works in 2009-10 is Rs.500 crore.

· Acquisition of electric locomotives has been enhanced from to 220 in 2008-09 at a cost of about Rs.1740 crore. Process is underway for acquiring 200 electric locomotives from BHEL at an approximate cost of Rs. 5.5 crore each.

· A factory is to be set up at Madhepura for manufacturing 100 electric locomotives per year through JV route. Bid process is presently underway.

· Indian Railways is seeking an outlay of Rs.2800 crore towards undertaking telecommunication works till 2011-12.

· These telecommunication works include replacement of more than 10,000 route Kms. of overhead alignment in the optical fibre communication and Quad Cable network, provision of a very high capacity DWDM network, modernise the switching and networking structure and Mobile Train Radio Communication.

Slow growth? Don’t worry, says Manmohan

MUSCAT: Admitting that the Indian economy growth this year could be slow due to the current global financial crisis, Prime Minister Manmohan Singh has averred that there was nothing to worry.

 

“However, we still hope to achieve a growth rate of seven to seven and a half per cent next year. The fundamentals of the Indian economy are very strong. Our banking system and financial institutions are well capitalized and their depositors are wholly secure,” Dr Singh said speaking at Oman.

 

“I have constituted a high level committee to monitor the evolving global situation and suggest short-term and long-term measure to use this opportunity to further accelerate our growth,” he told the NRI community at a reception. “I hope that you will continue to display the same confidence in the future and invest in the future of our children and grand children,” he said.

 

There are over 130 companies from India who are currently engaged in Oman. Several Omani companies are engaged in business in India. We will continue to encourage a much greater flow of investment into each other’s countries.

 

The Prime Minister said; “The Government of India is constantly alive to the welfare of the Non-Resident Indian community. Yesterday, a Memorandum of Understanding was signed between India and Oman on Labour Mobility, Protection and Welfare of workers. This important initiative will provide a framework for strengthening cooperation between our two countries in the field of human resource development.”

 

CII for interest rate cut

NEW DELHI: A day after the RBI announced its Mid Term Review of the Monetary Policy, CII has come out with a set of recommendations aimed at bringing the focus back on growth.
 
Mr Chandrajit Banerjee, Director General, CII, commenting on the current situation in the economy, said that there are five symptomatic issues, which are the crux of the problem facing Indian economy today. These are: (1) Inadequate liquidity, (2) High cost of capital, (3) Non- availability of credit, (4) Instability in foreign exchange markets and (5) Low levels of confidence. All these five are interlinked. We are already seeing the impact of these on the manufacturing sector and soon we are likely to see its impact on other sectors too, particularly in the services sector.
 
The CII release went on to say that in the last two weeks in a display of great agility and responsiveness the Government and the RBI have brought in a number of measures to infuse greater liquidity into the system, cut repo rate and checked the slipping rupee. All of these were in CII’s suggestions to bolster the economy and are very welcome initiatives. However, to bring the focus back on growth and instill the lost confidence in the economic system, CII has come out with a set of 11 suggestions, in the broad areas of liquidity and interest rates; foreign exchange management; credit flow and impetus to growth; and communication aimed at building confidence.
 
The CII recommendations:
 
In the area of Domestic liquidity and interest rates, it is necessary to further reduce repo rate by at least 50 bps and in CRR by 150 bps to ensure adequate liquidity and reasonable cost of funding. In addition, there is requirement for provisioning of liquidity to Mutual Fund and NBFC sectors, to enable orderly operation of financial markets. This is very important in view of the redemption pressure created risk that may be faced, particularly by the Mutual Fund sector, said the release. In addition, CII has also asked for the government to guarantee all bank deposits for a two-year period, to maintain depositor confidence in the banking sector.
 
Expressing deep concern about the steadily depreciating Rupee against the US Dollar, CII has made four specific suggestions, which include focused exchange rate management to prevent volatility without reducing rupee liquidity; relaxation of FDI norms to attract foreign capital; utilization of foreign exchange reserves for meeting critical foreign currency needs; and removal of the cap on NRE and FCNR(B) deposits.
 
The key problem that industry is facing today is the drying up of credit in the system, said the release, and for this purpose, CII has suggested a special corpus for lending to SMEs; in addition to speedy release of government funds for various projects to ensure timely implementation and generation of economic activity; and fast tracking of all infrastructure projects to spur investments and growth through inter-sectoral linkages.
 
Even while the fundamentals of the economy are strong at the present moment, the mood in industry and markets have swung downwards owing to a huge deficiency in confidence. Therefore, CII has particularly stressed on the need for building confidence in the system, through a joint effort of the Government, the RBI and Industry.

Dont panic, banish fear: Chidambaram

NEW DELHI, October 13, 2008: Indian Finance Minister P. Chidambaram today declared that “we must banish fear”.

 

Making a statement on the ongoing crisis in the financial markets, Mr Chidambaram said: We must remain confident and respond to the situation in a cool and mature manner. We must banish fear. Especially, depositors have nothing to fear because their deposits in banks are safe.”

 

He said: “Investors must take informed decisions. Before you sell, you must remember that for every seller there is a buyer. You must ask yourself why the buyer is buying in these times of perceived uncertainty and, therefore, ask yourself the further question whether there is a need to act in haste or in panic. In my view, there is no reason at all to act in haste or to give room for panic.”

 

“If all the players in the economy remain confident and take informed decisions, I have no doubt that the Indian economy will weather the current storm and emerge stronger.,” he said.

 

Pointing out that “this is a time of uncertainty,” he said: “Yet, even in a time of uncertainty there are some facts that cannot be – and ought not to be – ignored.”

 

The Indian economy continues to grow at a satisfactory rate. As recently as last week, the IMF’s research department (Mr. Oliver Blanchard) noted that “the Indian economy would continue to do well despite the impact of the global liquidity crunch.” As per projections made by the IMF, India is expected to post a GDP growth of 7.9 per cent during the current fiscal year.

 

The stock market indices are important indicators, but they are not the only indicators of the health of the Indian economy. The ratio of investment to GDP remains high at over 35 per cent at the end of the first quarter of 2008-09. The monsoon has been normal; the Kharif crop (especially rice and cotton) has been good; farmers are sowing their fields; and the prospects for the Rabi crop are bright. Factories continue to produce goods and the services sector is growing at a brisk rate, he said.

 

“Crude oil and commodity prices have declined sharply. This is expected to have a beneficial effect on inflation.

 

“The root cause of the present uncertainty is liquidity and not any dramatic change in the fundamentals of the economy. According to RBI figures, as on 26th September, 2008, non-food credit increased, year-on-year, by 24.8 per cent. Between April and 26th September, non-food credit grew by 7.8 per cent. Time and demand deposits with banks grew, year-on-year, by 18.8 per cent and, between April and 26th September by 7.2 per cent. I am happy that depositors continue to repose their confidence in the health of our banking system.

 

“Nevertheless, liquidity was found to be inadequate and, consequently, lenders were unwilling to take risks. Some lenders and investors faced redemption pressures leading to a sale of assets, especially stocks. The markets that are bearing the brunt of the problem are the capital market and the money market and, to an extent, the foreign exchange market. These problems can be overcome if adequate liquidity is infused into the system.

 

“Accordingly, RBI has taken measures that have infused an additional Rs.60,000 crore into the financial system. The LAF also provides liquidity and, as on 10th October, 2008, Rs.91,500 crore had been accessed by banks through the LAF window. We believe that these steps should ease the liquidity situation and the flow of credit should become smoother, relieving the pressures that had built up in the last two weeks.

 

“Government, RBI and SEBI have been in close consultation with each other during the weekend. I have spoken to the Governor, RBI and Chairman, SEBI several times in the last two days. We are coordinating our actions. We are watching the situation carefully and we will respond swiftly according to the needs of the situation. We are working on more measures that will infuse liquidity, make credit intermediation smoother, and increase the confidence of depositors and investors. We hope to be able to announce them shortly.

 

“Our banks are ready and willing to provide credit. Suitable advisories are being issued to the banks.

 

Over the weekend, the US, UK, Euro zone and Australian authorities have announced a number of measures to stabilize the financial system. The Australian capital market and three of the East Asian capital markets have opened on a bright note this morning. I expect that our capital market will also take its cue from these positive developments.”

Indian economy slowing down? CEO forum’s cautious optimism

Hyderabad, Andhra Pradesh, IND, 2008-09-04 15:09:39 (IndiaPRwire.com)

CEO Clubs India panel discussion on “Indian Economy – It is really slowing down? & it’s Impact” at the ISB, campus organised by CEO Clubs of India drew leaders from the Pharma, Media, Private Equity and IT industry body NASSCOM. The Chief Guest of Honor was Dr. Subhashis Gangopadhyay Advisor to Finance Minister, Government of India.

G. Kiran Kumar Chairman, Airports, GMR Group & President CEO Clubs India – Hyderabad Chapter made the introductory remarks and welcomed the chief guest and the keynote speaker. Dr. Rammohan Rao, Dean of ISB in his address urged the need for stronger industry academia partnership.

India has been rated as one of the best performers in the world economy in recent years posting a GDP growth of 9.2% in FY 2007 and 9.6 % FY 2006. This is the highest growth rate achieved in last 18 years for India and second highest growth rate since Independence (1947). It is a remarkable growth set as a result of progressive markets reforms, huge inflows of FDI, rising foreign exchange reserves, boom in the IT and real estate sector, and a flourishing capital market. In his address at the CEO Clubs India panel discussion Dr. Subhashis Gangopadhyay, said we need to prepare ourselves to cope with inflation and get stronger to face fresh economic challenges. Though, the National Rural Employment Guarantee Program has impacted the Fiscal deficit the government likes to ensure that important social programs that were necessary for vulnerable sections of the society are not dismantled.Like most of the world, India is facing testing economic times in today. The Reserve Bank of India had set an inflation target of 4% for FY 2008, but by the middle of the FY 2008 it touched 11% ( It did not take much time to cross the 12% mark. in fact, it the inflation figure touched the 13% mark quite recently), the highest level seen for a decade. The mounting costs of oil, food and the resources which fuel economic growth are slowly taking its toll.NASSCOM president Som Mittal in his comments said that the effect of global economic slowdown is impacting IT industry, as we see the percentage of new projects are beginning to decline. The Quarter to Quarter syndrome is also fast catching up in the IT sector as we are moving away from Year on Year performance charts. The IT industry is also facing lot of challenges arising out of Taxes, uncertain stock market and difficulty in getting land for new projects. But, the India growth story is still strong as our knowledge and talent resources are unparalleled and we will continue to be the new economic drivers in the global economy. In the panel discussion and sector speech there was a mix of caution and optimism expressed by the panel speakers. While Luis Miranda, President and CEO, IDFC Private Equity mentioned that there is continued amount of excitement in the Infrastructure and Power sector as we move into the next level of growth in economy. However, he cautioned certain amount of sluggishness as a result of increase in interest rate, deal flows and lesser number of projects in the power and infrastructure pipeline. In his remarks G V Prasad, Vice Chairman and CEO, Dr. Reddy’s labs said that due ton increase in petroleum products the Pharma industries are facing certain pressure for want of raw materials. There has been also a slowdown in visits to Doctors and people taking drug holiday in some of the global markets. The impact of chemical industries being closed down during the Olympic event also caused certain amount of pressure for raw material. However, he said that CEO’s can use this crisis is good for CEO to rethink and strategize corporate initiatives and make changes in the organization. The conservative approach by FDA in the US coupled with high profile drug delivery failure is also affecting the Pharma industry.Vaidyanathan Iyer, National Business Editor of Indian Express, Utpal Gupta, President & CEO, Agro Tech Foods, Ltd, J A Chowdary, Vice President, CEO Clubs India, Dr. Rashmi Tiwari, of CEO Clubs were also present in the panel discussion and. The panel discussion was moderated by Prof. Amit Bubna.
“We really are at a point today like many countries facing the daunting task of countering the sluggish global economy.” Hari Vallurupalli, Founder and Chairman, CEO Clubs India Said. “We our advisors, board members are working with our colleagues across the globe to choose such important and socially relevant topics as we are doing today that can help evolve valuable views and opinions from industry leaders, opinion makers and policy leaders to tackle subjects of national and global importance.” We are confident the distinguished panel will identify what they see as legitimate concerns currently that need to be addressed and share some bold recommendations on how to address them.”

“We appreciate the contributions from our advisors, members on board and our members to date and look forward to their continuing participation to help CEO Clubs India achieve their goal and extend as many benefits as they can to its constituents.”

J A Chowdary, Vice President of CEO Clubs India mentioned that CEO Clubs India plans to organize a number of such social, industry and economy relevant event in the coming years to enable greater networking amongst leaders from across many sectors.

Chief Executive Officer Clubs India (CEO Clubs) is part of global business network & learning organization with several thousand CEOs as its members. CEO Clubs was founded by Joseph (Joe) Mancuso a serial entrepreneur and a professor 30 years ago. CEO Clubs India was launched in March 2008 in Hyderabad.

It started its operation in Hyderabad and Chennai and will soon start its Delhi Chapters 2008. The Club will be operational in all major metros by next year.

The objective of the Club in India is to bring together Indian business leaders for sharing knowledge and skills that could prove critical to their respective organizations and act as a focal point in creating global business opportunities for for their constituents. CEO Clubs enable its members to enter or expand their businesses around the world through most effective networking and business development forums, events,

gatherings, hospitality functions and an online community. Several CEOs around the world have benefited from CEO Clubs membership – many mergers and acquisitions have been created and are noted through the last 30 years Web site: http://ceoclubsindia.com

Indian economy growth to be 7.5%; Interest hikes likely

NEW DELHI: The Economist Intelligence Unit, world leader in global business intelligence estimates India’s economic growth to be at 7.5% this fiscal. This revision is in continuation with the earlier forecasts made by the business intelligence arm of The Economist Group, which clearly indicated the slowdown trend. The Economist Intelligence Unit had pegged the figure at 7.7% in March’08.

The Economist Intelligence Unit expects the Reserve Bank of India (RBI) to remain under pressure to raise interest rates further, despite the sharp tightening of monetary policy in June and July this year. Economist Intelligence Unit believes that in the second half of 2008 the central bank will increase the repo rate from 9% to 9.5%, and the reverse repo rate from 6% to 6.5%. The RBI’s more aggressive approach reflects its growing concern about the sudden acceleration in inflation to nearly 12.7% earlier this month.

“In the absence of other policy options, such as fiscal tightening or currency appreciation, the onus will remain squarely on monetary policy to tackle inflation. The RBI is aware of the balancing act it has to do, as reflected in its policy statement on July 29th, which not only raised the central bank’s inflation target for 2008-09 to 7% (from 5-5.5%), but also lowered its economic growth forecast to 8% (from 8-8.5%). We, however, expect the real GDP growth to noticeably moderate from 9% last year to 7.5% this fiscal” Manoj Vohra, India Director (Research), The Economist Intelligence Unit said.

The Prime Minister’s Economic Advisory Council (EAC) has accepted that India will witness slowdown in growth and revised India’s GDP forecast to 7.7%—something which the Economist Intelligence Unit had forecasted in March this year.

Mr Vohra said that India’s economic prospects will be undermined by higher borrowing and input costs, weaker consumer sentiment and slower external demand growth. Although the slowdown has so far been restricted to the industrial sector, it will spread to the services sector as the squeeze on costs becomes more pervasive and demand slackens.

The Economist Intelligence Unit believes that monetary easing will not occur until 2009, when it expects inflationary pressures to subside. “We forecast two 25-basis-point cuts in the RBI’s key policy rates in the second half of next year”, Mr Vohra added.

About the Economist Intelligence Unit:

The Economist Intelligence Unit is the world leader in global business intelligence. It is the business-to-business arm of The Economist Group.

The Economist Intelligence Unit provides geopolitical, economic and business analysis on more than 200 countries, as well as strategic intelligence on key industries and management practices. With over 300 full-time professionals in 40 offices around the world, supported by a global network of more than 700 contributing analysts, the Economist Intelligence Unit is widely known for its unparalleled coverage of major and emerging markets.