Indian Economy: News and Discussion

[Rage]

Property to lead India rebound

June 24, 2009

MUMBAI - RESIDENTIAL real estate will lead the recovery of India's wounded property market in 2010 thanks to accelerating economic growth, lower interest rates and improved liquidity, Indian ratings and research agency CRISIL said Wednesday.

Prices for commercial and retail space will likely remain weak through 2010 because of oversupply and slack demand, CRISIL said in a new study of 10 cities across India.

'Residential real estate is where we think by 2010 we can look for some kind of recovery,' head of research Sudhir Nair said in a conference call with reporters. 'There is a significant overhang of supply in commercial projects. ... You can't see a lease rental increase for a couple of years in this market.'

India's property market, like many around the globe, boomed from 2005 to mid-2008. Average prices of both commercial and residential space more than doubled during that period, according to CRISIL.

In some high-demand places, like Mumbai, the nation's financial capital, commercial prices went up 231 per cent, while residential prices rose 121 per cent.

Since July, prices have softened. CRISIL predicts commercial lease and rental rates will fall by 38 per cent from early 2008 peaks. Residential prices have already fallen by an average of about 20 per cent, and will likely correct another 10 per cent, CRISIL said.

But falling prices have done little to redress fundamental mismatches of supply and demand in the residential market, Nair said.

From 2009 to 2011, an additional 110 million square meters of residential real estate has been planned - far more than predicted demand of 47 million square meters - but most of that has been targeted at high-end luxury properties, where demand has withered.

What India needs is affordable housing close to jobs. Developers who snapped up pricey land in urban centers during the boom, however, can't afford to build cheap housing there and instead are sitting on the land, Nair said. -- AP


http://www.straitstimes.com/Breaking+News/Money/Story/STIStory_394904.html

 

[Pintu]

Rupee ends five quarter of losses

Rupee ends five quarter of losses
Bloomberg / July 01, 2009, 21:40 IST

India’s rupee rose, snapping five quarters of losses, as the prime minister’s re-election for a second term boosted investor optimism that economic progress will be sustained.

The currency gained almost 6 per cent against the dollar this quarter and analysts in a Bloomberg News survey are betting the rupee will add another 2.4 per cent by the end of the year. The rupee advanced 0.4 per cent to 47.905 a dollar at the 5 pm close in Mumbai. It last posted a winning quarter in the period ended December 2007 and for this period, it's the third-best performing among the 10 most-active Asian currencies after the rupiah and South Korean's won.

Indian bonds fall on concern govt will raise debt target
India’s five-year bonds fell for the first time in six days on speculation the government will raise its debt-sale target for this fiscal year in the budget scheduled to be unveiled July 6.

Benchmark notes completed a monthly decline after Goldman Sachs Group Inc said June 26 the nation’s budget gap will reach 6.5 per cent of gross domestic product(GDP), the most in 19 years, as it borrows more to boost spending on infrastructure and poverty- alleviation projects.

 

[K Factor]

India's external debt up at $230 bn
30 Jun 2009, 1833 hrs IST, IANS

MUMBAI: India's external debt rose 2.4 per cent or $5.3 billion to $229.9 billion for the fiscal ended March 31, the Reserve Bank of India (RBI) said on Tuesday.

India, which has an external debt equivalent to 22 per cent of its gross domestic product, was already the fifth most indebted country in the world in 2007, the central bank said in a statement.

The current account - which includes components like external trade deficit and remittances from overseas - had a deficit of $29.82 billion for last fiscal, compared to a deficit of $17.03 billion in the previous period.

The capital account - which comprises items like foreign investment, external loans and foreign assistance - had a surplus of $9.15 billion for 2008-09 compared to a surplus of $107.94 billion in the year-ago period.


India's external debt up at $230 bn- Finance-Economy-News-The Economic Times

Man, this is not good.

 

[youngindian]

Govt clears 21 FDI proposals, defers 14, rejects 7

Posted: 2009-07-01 15:10:54+05:30 IST
Updated: Jul 01, 2009 at 1510 hrs IST

New Delhi: Government cleared 21 FDI proposals worth Rs 84.90 crore, most of which is likely to be brought in by the world's largest chemical company BASF through an open offer.

The Government, on the recommendation of the Foreign Investment Promotion Board, however, deferred 14 proposals including that of Vijay Mallya-run United Breweries to raise Rs 708 crore through issuing convertible warrants.

A proposal by venture fund India Rizing Fund to reconsider its application to set up a fund for the Indian defence sector in the light of new norms for FDI calculation was also deferred.

As many as seven proposals, including those of three telecom majors Bharti Telemedia, Tata Teleservices and NTT Docomo, were rejected by the Government.

A proposal by Germany-based BASF SE to make an open offer for acquiring a 20 per cent stake in chemcial manufacturer Ciba India may bring in Rs 63 crore.

The acquisition follows global acquisition of Ciba Holding AG by BASF.

Through the Indian acquisition, the German company will manufacture and trade in speciality chemicals.

The Ciba India share was down 0.94 per cent to close at Rs 210 on BSE on Wednesday.

The government also gave the nod to Vodafone Essar, the second-largest GSM operator, to hive off its towers and related infrastructure into a separate arm Ortus Infratel.

Earlier, Vodafone Essar's plans to create Ortus Infratel was deferred after the revenue department had raised concerns over the company's application.

The Government cleared the proposal by venture capital fund -- Ventureast Trustee Company Ltd -- to accept contributions up to 2 million dollars from Mauritius-based Ventureast Proactive Fund.

The fund will invest in securities of Indian companies and also distribute income realised to the Mauritius-based company under the automatic route.

A proposal by UB Group to raise Rs 708 crore by issuing convertible warrants to FirStart Inc was deferred after the Department of Revenue raised objections to it.

Also deferred was a proposal by Zee Entertainment to transfer shares to an overseas entity belonging to the promoter group for uplinking a non-news and current affairs TV channel.

A proposal by venture fund India Rizing Fund to launch the Defence SME Scheme to invest in radars, military aircraft, helicopters serial reconnaissance, naval ships, etc was deferred.

Earlier, the Department of Industrial Promotion and Policy has conveyed its no objection to the proposal if the fund is controlled by resident Indians and foreign contribution to it is less than 50 per cent of the total. the matter re-examined under two recent press notes which altered the method of calculation of FDI.

Govt clears 21 FDI proposals, defers 14, rejects 7 - The Financial Express

 

[youngindian]

SAIL enters pact for near Rs 100-cr deal with defence firms

1 Jul 2009, 1857 hrs IST, PTI

NEW DELHI: Steel major SAIL on Wednesday said it has entered into an agreement

with two prominent defence construction agencies- Military
Engineering Services and
Married Accommodation Project- for supply of at least 3 lakh tonnes of steel items estimated at Rs 100 crore.

"The Steel Authority of India Limited (SAIL) has signed memoranda of understanding with the Military Engineering Services (MES) and the Married Accommodation Project (MAP) for assured supply of superior grade construction steel on a regular basis for their infrastructure development," the state -run steel firm said in a statement here.

Confirming the quantity of steel the firm is looking to supply, SAIL spokesperson said that the company is likely to supply 3 lakh tonnes of steel and added that the value of such a deal could be around Rs 100 crore.

SAIL would supply mainly earthquake-resistant SAIL-TMT rebars, the statement added.

With the signing of the MoU, SAIL would benefit in terms of assured orders and the defence establishments will have committed supplies of the steel products, it added.

The country's largest steel maker added that it has already developed special grade steel which are used by defence agencies for making armoured vehicles, tanks, warships, aircraft carriers.

 

[Yusuf]

Indigenous high grade metals for defence purpose was something India lacked for a long time. We had to depend on Russia for it. Our carrier was delayed waiting for steel of the grade required for carriers.
Indian scientists have been doing well on the metturlurgical front in recent years.

 

[Daredevil]

World Beaters: India, Turkey and Argentina

World Beaters: India, Turkey and Argentina

Key Elections and Improving Emerging-Market Sentiment Aid Gains; Russia Falls Just Short
| A WSJ NEWS ROUNDUP

In a quarter where markets rebounded sharply from the depths of the bear market, India, Turkey and Argentina had the best-performing benchmark indexes in their respective regions.

India and Argentina, driven partly by election gains, took top honors in Asia and the Americas. The race in Europe came down to the wire, as Turkey won by a nose over Russia, whose benchmark index nearly took the lead on the quarter's last day.

In India, the Bombay Stock Exchange's benchmark Sensitive Index, or Sensex, was up 49% on the quarter, at 14493.84. It is up 50% on the year. Sentiment was helped by the strong victory by the ruling United Progressive Alliance, led by the Congress party, in mid-May; the Sensex leapt 17% the day after the election and the exchange closed after trading curbs kicked in.

In Turkey, the benchmark National ISE 100 rose 43% to 36949.20, up 38% on the year, as emerging-market sentiment improved. However, Russia's benchmark RTS Index gave it a run for the money, rising 43% on the quarter at 987.02, up 56% this year.

In Argentina, the benchmark Merval index gained 41% to 1587.97, up 47% on the year. The gain mirrored the rise in crude-oil prices and, as the quarter drew to a close, was helped by the ruling coalition's losses in midterm congressional elections. Investors see hope for a friendlier environment for business and foreign investment.

For more coverage on global market performance, please see page C7.

Americas, Asia Mixed as Europe Drops
European markets closed the quarter on a sour note amid doubts about the health of the U.S. economy, and Asian markets had an up-and-down day.

Flat for much of the session, the pan-European Dow Jones Stoxx 600 index fell 1.1% to 205.83 in the afternoon as Wall Street opened lower. For the quarter, the Stoxx 600 index showed a gain of nearly 17%, its best such showing since the fourth quarter of 1999. It has advanced 4.5% year-to-date.

"The run-up has been from really horrendous lows," said Bernard McAlinden, strategist at NCB Stockbrokers. "The market has been pricing out the risk that policy wouldn't work on the economy and that the financial system was terminally ill."

Banks were the best performers in the quarter, gaining nearly 44%, as optimism about the economy returned. But the sector traded lower on Tuesday, with Deutsche Bank down 2.9% and Société Générale down 2.3%.

In London, the FTSE 100 index closed down 1% to 4249.21. BP fell 1% as oil companies came under pressure as crude traded back below $70 a barrel.

In Frankfurt, the DAX index fell 1.6% to 4808.64. Porsche, however, managed to hold on to early gains, rising 2.9%. Late Monday, the firm said that it has received a written offer from state-owned Qatar Investment Authority over a possible stake sale and options deal. Volkswagen fell 4%.

In Paris, the CAC-40 index dropped 1.7% to 3140.44. Supermarket chain Carrefour declined 3%.Carrefour Chief Executive Lars Olofsson detailed plans to reinvent the "hypermarket" format and to streamline the group's organization as he updated investors for the first time on the retailer's efforts to improve its price image in its home market.

Earlier Tuesday, overnight gains on Wall Street and higher oil prices set the stage for an advance in Japan and Australia. But stocks in China and Hong Kong retreated as investors locked in profits on the last trading session of a robust half-year.

Asian markets were mostly lower in early Wednesday trading, weighed by weakness on Wall Street and discouraging U.S. data. Japan was down 0.2%, with New Zealand losing 0.5% and Australia shedding 1.6%. South Korea was up 0.4%.

In Tokyo on Tuesday, the Nikkei Stock Average of 225 companies closed up 1.8% at 9958.44, failing to stay above the 10000-point level that it briefly crossed during the session, on caution ahead of the Bank of Japan's tankan business sentiment survey due Wednesday. Nippon Steel rose 3.6%, and oil company Inpex climbed 5%

In Sydney, the S&P/ASX 200 Index advanced 1.8% to 3954.90, with retailers rising on an improved profit guidance from David Jones, which surged 10%. BHP Billiton rose 2.4% .

In Shanghai, the Composite Index dropped 0.5% after rising in the previous four sessions, also pressuring Hong Kong shares. The Hang Seng Index gave up 0.8% to 18378.73, and the Hang Seng China Enterprises Index slipped 0.2%. Cnooc fell 0.7% in Hong Kong. But China Petroleum & Chemical, or Sinopec, climbed 3.3% after China allowed an increase in motor-fuel prices.

In the Americas, markets ended the quarter mixed.

In Toronto, the S&P/TSX Composite Index fell 1% to 10374.91. The materials group led the way lower. Barrick Gold fell 3%

In Mexico City, the IPC stock index fell 0.4% to 24368.38 points, gaining 24% on the quarter and 8.9% on the year. IPC heavyweight América Móvil fell 1.1%.

 

[jayadev]

Economic Survey calls for sweeping reforms

NEW DELHI: Suggesting some sweeping reforms in areas like foreign direct investment, divestment, taxation and the subsidy regime, India's

Economic Survey says the country can achieve 7.75 per cent growth this year despite the difficult global circumstances.

The economy can even expand much higher than last year's growth if the monsoon rains were normal, said the country's annual economic report card for 2008-09 tabled in parliament Thursday by Finance Minister Pranab Mukherjee.

"If the US economy bottoms out by September 2009 there would be good possibility for the Indian economy repeating its 2008-09 performance," it said, adding, even as wide ranging challenges remained, the Indian economy had shock absorbers to facilitate early revival.

The $1.2 trillion Indian economy expanded by 6.7 per cent last fiscal, after registering a 9 per cent average growth in the preceding three years.

The survey, tabled annually ahead of the national budget and prepared by chief economic advisor in the finance ministry, presents an overall view of the state of the economy and gives some suggestions on the future course of action.

The survey, which wants restoration of high growth with price stability, has also called for limiting subsidies such as those doled out on fertilisers and cooking gas, while asking for a review of exemptions granted to exporters.

The survey says government must also take a thorough re-look at its divestment policy and target to realise 25,000 crore per annum ($5 billion) from the sale of at least 10-per cent equity in government-owned enterprises.

Further, it has suggested the auction of loss-making state-run enterprises.

In the case of excise, customs and taxation, the survey calls for a new income tax code, rationalisation of double taxation, phasing out of surcharges, removal of fringe benefit tax and withdrawal of dividend tax.

In the area of external reforms, the survey wants the government to allow 49 per cent foreign equity in defence production, 100 per cent in high-technology defence equipment and permission for global firms in multi-brand retailing.

The survey also appeared to have taken notice of the controversies surrounding the allocation of radio frequencies to telecom companies and has suggested auction of spectrum and make it freely tradable among the operators.

The survey says to counter the negative fallout of the global slowdown, India the Government responded by providing substantial fiscal expansion in the form of tax relief to boost demand and increased expenditure on public assets.
Economic Survey calls for sweeping reforms- Policy-Economy-News-The Economic Times

 

[rocky]

When India lost 6 lakh jobs in 4 months!

Its not all rosy in India. The road to recovery will be slow and painful. This recession is going to be tougher than the one we saw in 2001. The US real estate crisis and banking collapse hasnt yet hit rock bottom.

When India lost 6 lakh jobs in 4 months! Rediff Money

 

[1.44]

'58 mn job opportunities expected in 2007-12 period'

Nearly 58 million jobs are expected to be created in the five years from 2007 to 2012 with the non-agriculture sector boosting employment during that period, the Economic Survey tabled in Parliament said on Thursday.

In the Eleventh Five-Year Plan period (2007-12), employment opportunities would surpass the projection of about 45 million, in turn helping to bring down unemployment in the country to below five per cent, according to the Pre-Budget Economic Survey tabled in Parliament.

"The projected increase in total labour force during the Eleventh Five Year Plan is estimated at 45 million. It is also projected that 58 million employment opportunities would be created in the Eleventh Five Year Plan," the survey said.

The report pointed out that this would be greater than the anticipated increase in labour force, leading to a "reduction in the unemployment rate to below five per cent" by 2012.

Rather than the agriculture sector, others like food processing, gems and jewellery, handloom, tourism and construction are expected to contribute in increasing employment in the 2007-12 period.

"It is expected that agriculture sector may not contribute towards any increase in employment during the Eleventh Five Year Plan," the survey noted.

'58 mn job opportunities expected in 2007-12 period'

 

[youngindian]

India May Allow More Foreign Investment in Defense

Published: 2 Jul 2009 11:13



NEW DELHI - India may further open its defense sector to investment from overseas firms by increasing the legal limit of Foreign Direct Investment (FDI) from the current level of 26 percent to 49 percent. The change is suggested in the annual Economic Survey of the Indian government, presented July 2 to the Indian Parliament.

The Economic Survey 2008-09, which is an economic report card for the period of 2008-09, was presented to the Parliament by Finance Minister Pranab Mukjerjee. The survey also noted that foreign equity in defense production should be raised to 100 percent for high-technology defense equipment.While the suggestion in the Economic Survey is not law, Defence Ministry officials said the increase in the FDI limit has been favored by Indian defense planners, adding that the government is likely to issue a notification to this effect this year.

India opened up its defense sector in 2001 to private participation for the first time, setting an FDI limit of 26 percent. However, though a number of overseas defense companies have tied up joint ventures with Indian private and state-owned companies, no major production centers have emerged as had been expected, the Defence Ministry officials said.

India's defense offset market is targeted at about $10 billion in the next five to seven years, but no major capacities are building up in the private sector, which some attribute to the FDI limit to 26 percent.

An executive of defense major Larsen and Toubro said no major joint ventures are coming up, and only memorandums of understanding are being signed between Indian and foreign firms. The executive advocated raising the FDI limit from 26 percent to 49 percent, and providing concessions to private sector defense companies to allow them to compete on a level playing field with the state-owned defense companies.


India May Allow More Foreign Investment in Defense - Defense News

 

[Daredevil]

Happy new year

State budgets in crisis

Happy new year
Jul 3rd 2009 | AUSTIN, CHICAGO, LOS ANGELES AND NEW YORK
From The Economist print edition


THE mantra in Washington, DC, is simple: spend billions now, pay later. Congress has been crafting ambitious plans for energy, health care and transport. But the mood in state capitals has been different. Forty-six states had a deadline of June 30th to pass their budgets. Just as important, those budgets had to be balanced. With the sole exemption of Vermont America’s state governments, unlike the federal one, are not allowed to run deficits. For many states June was an agonising month.

Every state but two, commodity-rich North Dakota and Montana, has faced a deficit this year. One legislator in New Jersey described her state as “functionally bankrupt”. More than 5,000 Illinoisans gathered on June 23rd to protest against cuts to social services, with a child placed in a coffin for dramatic effect. In California, which faces a $24 billion gap, Arnold Schwarzenegger, the governor, sent the leader of the state Senate a metallic pair of bull testicles to urge him to cut spending.

On the morning of July 1st, the first day of the new fiscal year for most states, taxpayers had reason to be glum. Connecticut, North Carolina and Ohio had passed temporary extensions. California, Arizona, Pennsylvania and Illinois did not have a balanced budget as required. On Thursday California’s controller was preparing to pay the state’s bills with IOUs instead of cash. Most states that did pass budgets imposed painful cuts, higher taxes and fees on everything from pesticides in Minnesota to hunting licences in Maine. Total spending is set to decline for the second consecutive year, says the National Association of State Budget Officers (NASBO), the biggest drop in more than three decades (see chart).

Forty-two states had already trimmed their budgets in the middle of the year, according to NASBO. The three main sources of general revenue are personal income, sales and corporate income taxes. Each failed to meet expectations. Yet as soon as politicians responded to new, lower revenue collections, the floor beneath them sank yet again.

Matters would be worse if it were not for Washington’s stimulus package, which provides more than $135 billion to support state budgets. Most money, $87 billion, is for Medicaid, the government’s health-care programme for the poor. A further $48 billion created a State Fiscal Stabilisation Fund, mostly for schools and universities, with $9 billion for flexible grants. Despite some grandstanding, every governor accepted help. The governor of South Carolina tried to reject the stimulus, but he was overruled first by his legislature and then by the state’s highest court.

However $135 billion goes only so far (though it did, for instance, allow Texas to close its deficit and pass its budget). Most of it will be spent in 2009 and 2010. The gaps for fiscal year 2010 alone amount to $166 billion, according to the Centre on Budget and Policy Priorities (CBPP), a research group based in Washington, DC. The CBPP estimates that by the end of fiscal 2011, the cumulative fiscal gaps in the 50 states will exceed $350 billion.

There are three main ways that a state can close a deficit: raid reserves, raise taxes or cut spending. Though the Republican governors of Indiana and Texas were reluctant to tap their “rainy day” funds, many other states decided that the storm had come and withdrew copious amounts. Louisiana’s legislators were among those to shun a tax hike of any kind, but since January at least 37 states have raised or are considering raising taxes and fees. Hawaii created three new income tax brackets. Illinois’s governor wants to raise the income tax by a whopping 50%.

Some states have taken a gentler route. Those yearning to film in Kansas will no longer get a tax credit for doing so. Many states chose to target sin, raising taxes on cigarettes and alcohol. But states punished more benign activities too. Maine, as part of its efforts to broaden its revenue base, extended its sales tax to car repairs, dog grooming and dry cleaning. South Dakota increased charges on laundromats.

Raising taxes has not prevented cuts. Some states have slashed bloated programmes such as prisons. A handful of states have sacked workers; many more have frozen hiring or are asking workers to take furlough (compulsory unpaid leave). New Hampshire has agreed to cut $25m in personnel costs, either through lay-offs or furloughs. If the latter, the governor has even agreed to furlough himself.

Cuts to social services and education may be the most painful. Since the start of the recession at least 32 states have reduced money for universities or raised student fees. Not long ago states were rushing to establish themselves as models for health-care coverage. But at least 21 states have cut back their health programmes, according to the CBPP. Massachusetts, the first state to attempt universal coverage, is slashing its health budget by 12%.

The full extent of cuts is still unknown in states without a valid budget. Illinois and California, in particular, are in limbo. Both were in bad shape even before the recession. Years of excessive spending have taken a toll on Illinois. Legislators have yet to agree on how to fill this year’s deficit. It would help if they could agree on the deficit’s size. California, however, probably holds the dismal honour of being America’s most dysfunctional state. Its levels of spending are unsustainable, but legislators seem powerless to do anything about it. Gerrymandered districts produce extremist politicians, among whom agreement is all but impossible since two-thirds majorities are needed to pass budgets and impose new taxes.

Even when these laggards do pass their budgets, the pain will continue. Fresh gaps of $23 billion have already opened in the newly-adopted budgets of at least 12 states. When the national economy recovers at last, state revenues may not. Usually, tax collections rise more slowly than the broader economy.

Many economists fret about an unpleasant scenario in 2011, when the stream of stimulus money will ebb, reserves will have been drained and revenues will still be meagre. Medicaid enrolment may still be swollen by recession. Promises to retired workers, including pensions and health care, will weigh more heavily than they do now. This year was painful, but those to come may be even worse.

 

[Pintu]

ADAG moves SC against RIL to execute gas pact

ADAG moves SC against RIL to execute gas pact

Posted: Saturday , Jul 04, 2009 at 0328 hrs IST
Mumbai:

Two days after Reliance Industries said it would move the Surpeme Court against the Bombay High Court’s order on gas supply, Anil Ambani-controlled Reliance Natural Resources Ltd (RNRL) on Friday filed a special leave petition (SLP) in the Supreme Court, seeking directions from the apex court to RIL to execute a bankable agreement in accordance with the High Court’s findings. RIL also filed a caveat in the Supreme Court to ensure it is given a chance to explain itself in the case.

RNRL filed the petitions challenging the final section of the High Court order asking RNRL to again negotiate after “ruling in our favour in terms of price of gas, tenure and quantity”. The SLP seeks directions from the apex court to amend the Gas Supply Agreement strictly in line with the High Court findings and for immediate implementation of the same.

RNRL said the High Court order required RIL to sign a bankable agreement within 30 days. “RIL continued to adopt a completely obstructionist position and conveyed its reluctance to sign agreement as per court order. The High Court has given clear and unambiguous findings with respect to the quantity (28-40 MMSCMd), the period of supply (17 years), the price ($2.34/ mmbtu) and other key terms,” RNRL said. RIL had refused to sign the gas agreement, saying, “We cannot sign any agreement without approval of the government on price, quantity and tenure."

The tenure, price and other key terms were the same as that of the gas supply contract awarded by NTPC to RIL, pursuant to international competitive bidding conducted under the aegis of power ministry, RNRL said. “The move compelled by RIL’s continued obstructionist position and defying the High Court verdict,” it said. RNRL said gas supply obligation was a result of business reorganisation of Reliance Industries approved by the board of directors, over 20 lakh shareholders of RIL and by the Bombay High Court in 2005. The business reorganisation had followed due process of law and had recorded no-objection by the Centre, it said. The case is a commercial matter between two listed public companies. “RIL has frustrated setting up of new environment friendly, clean, green gas-based power plants of over 12,000 MW capacity of Reliance ADA Group and of NTPC amidst severe power shortage, therefore holding an investment of over Rs 50,000 crore at ransom,” RNRL said. The Bombay High Court had ruled that RNRL should get gas from RIL at a price of $2.34 per mmbtu, but had asked the two companies to firm up an agreement on related issues within a month.

Feud continues

• Bombay HC had ruled that RNRL should get gas from RIL at $2.34 per mmbtu

• Had asked the two companies to firm up an agreement within a month, but no accord reached

• RNRL has now filed a SLP in the Supreme Court seeking directions to RIL to execute a bankable agreement in accordance with HC’s findings

• RIL has filed a caveat in the Supreme Court to ensure it is given a chance to explain itself in the case

 

[Pintu]

EPF interest rate unchanged at 8.5%- Savings News-Savings Centre-Personal Finance-The Economic Times

EPF interest rate unchanged at 8.5%
4 Jul 2009, 1742 hrs IST, ET Bureau

NEW DELHI: For the fifth consecutive year, the over 4.5 crore subscribers to the Employees Providvent Fund (EPF) will earn an interest payout rate of 8.5%, even as both public and private banks lower their interest rate for deposits. The decision by the Fund’s Board of Trustees (CBT) on Saturday has to be ratified by the fiannce ministry before it is credited to subscribers’ accounts for 2009-10.

In comparision to the interest payout to subscribers decided on by the EPF, the country’s largest public sector bank SBI currently offers only an interest rate of 7% on one year deposits and 7.25% on three year deposits. HDFC, among the largest private sector banks, offers an even lower interest rate of between 6.50% and 7.50% on one year deposits and only 6.5% interest rate on three year deposits, since the cost of funds has shot up higher for it.

At its peak, the bank offered as much as 10.5% interest rate in December 2008 to depositors on one year deposits. However, small savings interest rates remain at the same level of 8.5% except for post office savings schemes where the interest rates have gone down.

The decision to retain the 2009-10 payout rate to subscribers at 8.5% was taken by the CBT here, just two days prior to the presentation of the annual Budget on July 6, after a meeting which assessed that after the payout, the EPF would be left with a surplous of Rs 6.4 crore. The meeting was chaired by Labour minister Mallikarjun Kharge. Each year, the interest payout to subscribers is decided on the basis of earnings on deposits made by the Fund.

July 4 is also the earliest ever that the interest rate was clinched in the last several years, indicating a new regime where the decision of payout to subscribers will be insured more against political pressures and uncertainties. The early “no fuss, no mess” decision on an 8.5% interest rate when rates were nosediving all around is expected to garner brownie points for the UPA from the labour sector. The governmetn has already signalled that is is not keen on pushing decisions considered adverse to labour, such as legislation backing “hire and fire” by big industries.

The new regime which could ring out decisions such as “interim” interest rates, also rung in during the stint of the NDA at the Centre and reinforced by the UPA during its first stint, may be dictated more by financial circumstances rather than political will. Thanks by and large to pressures from stakeholders for higher rates, a politically sensitive issue, the interest payout rate for EPF subscribers has been decided only post December of the ongoing financial year for close to a decade, allowing time to come up with dilatory tactics such as “interim” rates and dipping into reserve funds.

Over the last 10 years, political pressures have led to a practise by which the Fund has begun consistently dipping into reserve and contingency funds to retain politically-motivated high interest payout not justified by the earnings on deposits made by the Fund.

In end March, Fund oficials told ET that the profligacy on this count had ensured that all funds in reserve and contingency acconts had been completely wiped out, leaving no manoevreing room for 2009-10 or later on interest rates. EPF deposits were pegged at Rs 1.82 lakh crore in 2008-09. Given this, indications that the interest rate would be retained at the same level as in 2008-09 were given by the government earlier.

According to an EPFO official, it was amply clear fairly early on that any decision to payout an interest rate of more than 8.5% would entail a marked deficit. In 2008-09, the EPFO was burdened with a Rs 139-crore deficit after retaining the same rate of interest for subscribers and that was emphasized in the agenda note for today’s meeting of the CBT.. The difference, needless to state, was made up by dipping to the extent of Rs 150 crore into the contingency fund.

Nearly Rs 53,000 crore, or around 44 per cent of the total EPF corpus, was invested in the Special Deposit Scheme, (SDS) according to latest Labour ministry data. Investments in the SDS, which used to earn an interest rate of 12 per cent earlier, now fetch only 8 per cent. Till 1975, EPF funds were invested only in Central Government bonds. The SDS, managed by scheduled banks, was launched in 1975 to achieve better returns. Fresh deposits from EPFO into the SDS were stopped in 1997.

Till 2001, SDS deposits earned 12 per cent interest. In 2001, the rate was reduced to 11 per cent. Then interest rates were revised further down to eight per cent in 2003. Last year, however, the Ministry of Finance proposed to the Ministry of Labour that the latter could take back the EPFO investments in the Scheme run by the Finance Ministry and now wound up, since it would not be renewed.

According to the Labour Ministry, the EPF had a membership of 449.19 lakh as on March 31, 2008, covering 532,702 establishments and with an invested corpus of about Rs 2,00,000 crore. EPFO, which is the second largest financial institution in the country after Life Insurance Corporation in terms of the amount of funds managed by it, comes under the administrative control of the Labour Ministry. It had appointed four private fund managers mid last year.

Signficantly, the issue of investment pattern, that is, whether the EPF should exercise the option of investing upto five per cent in the capital markets as allowed by the finance minsitry-prescribed investment pattern was also part of today’s agenda for the CBT meeting. That option, however, was rejected by the new CBT end last year. Also considered the coverage of contract employees under the EPF Act. The matter is to be taken up in detail at a subsequent meeting.

 

[Pintu]

EPFO wants more of high-yielding PSU bonds

EPFO wants more of high-yielding PSU bonds

Posted: Saturday , Jul 04, 2009 at 0336 hrs IST
New Delhi:

The Employees Provident Fund Organisation (EPFO) is finding itself in a bind following the finance ministry’s investment guidelines of October 2008 that limit the fund’s exposure to bonds of public sector undertakings to 40 per cent. EPFO could invest up to 60 per cent of its incremental deposits in PSU bonds that fetch the highest rate of return among all categories of securities the fund is allowed to invest in.

The Central Board of Trustees — the policy making body of EPFO — may recommend imparting flexibility to the fund by allowing it to invest up to 55 per cent in PSU bonds from 40 per cent now in its meeting on Saturday. The October 2008 guidelines of the finance ministry allow EPFO to invest up to 55 per cent in Central and state government securities and government-guaranteed securities; up to 40 per cent in PSU bonds and up to 5 per cent in money market instruments — a new category introduced by the ministry. The CBT may also recommend enhancement of investment in money market instruments to 10 per cent. As far as investment in government securities is concerned, sources said, the limit of 55 per cent may be maintained.

The EPFO is struggling to find safe and high-yielding avenues for parking its incremental investments. In 2007-08, incremental corpus of EPFO swelled to Rs 30,900 crore, a jump of almost 25 per cent compared to the incremental corpus in 2006-07 of Rs 24,870 crore.

In a related issue, the CBT will also look at enhancing the cap on investment in the PSU bonds which stands at 25 per cent of the PSU’s net worth. As per existing guidelines, EPFO can invest up to a maximum of 25 per cent of net worth of a PSU or public sector financial institution (PSFI) and up to a maximum of 30 per cent of the net worth of a public sector bank. This severely restricts the exposure limit in a single PSU entity.

The agenda note prepared by the EPFO said that four most frequent fund raisers in the capital market are EXIM bank, National Bank for Agricultural and Rural Development, Rural Electrification Company and Power Finance Corporation. “EPFO is not in a position to subscribe to their issuances, however attractive the returns may be, because the limit of 25 per cent of net worth of these institutions has already been exhausted,” said the note.

Citing market practices, where Insurance Regulatory and Development Authority has relaxed this norm for insurance companies to 60 per cent of net worth of the institution, the note has asked for enhancing this limit for EPFO investments to 40 per cent and 45 per cent for PSU and PSFI; and public sector banks respectively. However, it has set a rider that the increase in the exposure limit will be restricted to the AAA-credit rating (highest safety rating) instruments issued by public sector entities only.

 

[Pintu]

EPFO defers decision on investment funds in capital markets- Analysis-Markets-The Economic Times

EPFO defers decision on investment funds in capital markets
4 Jul 2009, 1825 hrs IST, PTI

NEW DELHI: The EPFO on Saturday deferred the decision on investing 15 per cent of its corpus of about Rs 1.82 lakh crore into equity, a move which could have seen Rs 25,000 crore flowing into the capital markets.

"We would separately look into it (investing funds in stock markets). Naturally safety and security is the most important and the returns also important for the employees. Looking at all those things we (will) decide," Union Labour Minister M Mallikarjun Kharge told reporters after the meeting of the Central Board of Trustees (CBT).

The issue, he said, would be taken up in the next meeting of the CBT, the apex policy making body of the Employees' Provident Fund Organisation (EPFO).

The Finance Ministry in August last year, had suggested an investment pattern to EPFO under which the organisation could park up to 15 per cent of its funds in the companies listed on the Bombay Stock Exchange and the National Stock Exchange and also equity-linked schemes of Sebi-regulated mutual funds.

The proposal to park funds in the stock market, however, was rejected by the EPFO's advisory body Finance and Investment Committee at its meeting on March 26.

A large number of members in today's meeting including the Union Minister of Labour M Mallikarjun Kharge and Minister of State for Labour Harish Rawat are not in favour of the idea of investing 15 per cent of funds in stock markets as proposed by the Finance Ministry in its new investment pattern," a CBT member and Secretary Hind Mazdoor Sabha A D Nagpal told media.

"Our priority is security of depositors' money. We want good returns on the investments also, but not at the cost of security of retirement money of the subscribers", he added.

When asked about opposition of the idea by CBT members, Labour Secretary Sudha Pillai said, "No this is not the case ... they are concerned with security of the funds. We also want security of funds. We have to see how can we improve or maximize returns keeping safety of funds intact."

"We would have to study the system. There would be a detailed presentation on the issue in next meeting of CBT and matter would be discussed at length before taking a decision", she added.

 

[Pintu]

India does not have god-given right to high growth: CEA- Indicators-Economy-News-The Economic Times

India does not have god-given right to high growth: CEA
5 Jul 2009, 1036 hrs IST, PTI

NEW DELHI: India does not have a "god-given right" to get back to high growth automatically without addressing the problems thrown up by the economic slowdown on the fiscal, financial, energy and investment fronts, says Chief Economic Advisor Arvind Virmani.

"Please do not be complacent ... even though we have survived the short-term shock fairly well, please do not assume that this is some kind of a god-given right that we will have high growth," Virmani, who is the principal author of the Economic Survey that prescribed bold economic reforms, said in an interview.

However, the economy will grow at 7 per cent, plus or minus 0.75 per cent, in the current fiscal if the US economic downturn bottoms out by September and monsoon is normal, he said.

But to sustain long-run high growth, certain problems need to be addressed, he added.

There are four issues that need to be attended to for the economy to return to a high-growth path for a longer period, say, some decades and not five to six years, he said.

On the fiscal front, he said there is no way out but to expand the fiscal deficit for filling the gap created by the fall in export and private demand in the local economy.

The stimulus packages by way of increase in government expenditure and cuts in taxes to boost private and investment demand widen the fiscal deficit, he said.

Though the fiscal stimulus has to be maintained in the short term, Virmani said in the long run the deficit had to be reined in.

The Economic Survey prescribed reviewing the possibility of having a target of zero per cent fiscal deficit with the flexibility to widen it at a time of downturn.

Virmani said the Survey had thrown up an idea and he is nowhere saying that it should be implemented. It is an idea and it is for the Finance Commission to consider it.

On financial sector measures needed, Virmani said the financial system had to be tuned to encourage the flow of domestic savings towards investment as the fall in global capital flows will have its impact on India.

He further wished for an energy policy that reduced the country's dependence on others as the oil price fluctuation will remain. As a country that imports 75 per cent of its oil requirement, India cannot relax and needs to take care of the issue as oil accounts for a big part of its import bill, Virmani said.

The Economic Survey prescribed decontrolling petrol and diesel prices, and taking advantage of low inflation and global crude prices. It also asked for limiting subsidised cooking gas for domestic consumers to 6-8 cylinders per year.

He said high investment has been a driver of growth since 2003, but has now slowed down. As such, the country needs to ensure that investment takes place to return to a high-growth path.

 

[youngindian]

Kazakhstan resolves issues with ONGC Videsh

5 Jul 2009, 1717 hrs IST, IANS


ASTANA: Kazakhstan has resolved its issues with steel magnate Lakshmi N Mittal and

with India's largest oil explorer ONGC Videsh and the
"situation is coming to a
successful end", a top diplomat has said, adding that the country supported India's aspirations for a greater role in an expanded UN Security Council.

"Lakshmi Mittal now adapts himself (to our needs)," Doulat Kuanyshev, ambassador-at-large in the Kazakhstan foreign ministry, told IANS in an interview here.

In January, the Kazakh government had summoned Mittal, the CEO of world's largest steelmaker ArcelorMittal, following a blast that killed at least seven people at one of his mines in the central Asian country. Kazakh Deputy Prime Minister Umirzak Shukeyeve told reporters that Mittal had been "summoned" to answer questions relating to the blast.

"As for ONGC, over a period there was not a good feeling on what (it thought) was a good sell (proposal). This situation is coming to a successful end," Kuanyshev said.

Noting that India had "too many specifics to just plug in", he added: "The role of India as an economic powerhouse cannot be ignored".

After four years of negotiation, ONGC Mittal Energy Ltd, a joint venture of ONGC Videsh and Mittal Investments, had signed in January an agreement with Kazakhstan's national oil company for a stake in its Satpayev oil field.

Kuanyshev also admitted that Kazakhstan had initially missed out on the economic opportunities India had offered because it felt "there should be the right timing" for this. "Over the last two decades (since independence after the collapse of the Soviet Union), we have managed to generate a very good political climate. There is no cause for any discrepancy. We support India's quest for a greater role in the UN.

"At the same time, India supports Kazakhstan's increased role in central Asia as a dynamic power. There is the same approach on regional issues. There has also been greater cooperation in (regional grouping) SCO (Shanghai Cooperation Organisation)," the diplomat added.

Indian Prime Minister Manmohan Singh had for the first time attended the SCO summit at the Russian industrial city of Yekaterinburg, where he delivered a firm message to Pakistani President Asif Ali Zardari to show tangible results on prosecuting the perpetrators of the 26/11 Mumbai terror attacks if the sub-continental dialogue process was to resume.

Adil Akhmetov, secretary of the Kazakh Senate's committee on security, defence and international relations, echoed Kuanyshev's views on economic cooperation with India.

"India is a huge economic power. It is rapidly developing in areas like IT. There are a lot of areas to do business in," he maintained.


Kazakhstan resolves issues with ONGC Videsh- Oil & Gas-Energy-News By Industry-News-The Economic Times

 

[Pintu]

India iron ore steady, braces for export tax hike | Reuters

India iron ore steady, braces for export tax hike

Fri Jul 3, 2009 3:48pm IST

* Iron ore quotes between $62-$65 FOB, nearly same as Thurs

* Chinese interest strong, India budget curtails trade

MUMBAI, July 3 (Reuters) - India's iron ore prices were steady on Friday compared with the previous day, on strong Chinese inquiries but trading was limited by a port strike and a looming tax hike in the upcoming budget.

A small trader in India's east coast said he had stopped trading to wait for the export policy on Monday when Indian Finance Minister Pranab Mukherjee announces the updated budget for 2009/10.

Several iron ore traders believe the export tax on iron ore lumps may be increased from 5 percent, while fines may attract a tax from nil currently. [ID:nBOM437061].

"We have not booked any orders in the last 10 days," said Rakesh Jain, export manager of Steer Overseas Pvt Ltd in Bhubaneswar in eastern India.

"If the tax is raised we will pass on half of that to the buyer and take the other half ourselves," Jain added.

On Friday, iron ore quotes ranged between $62-$65 per tonne FOB for ores with iron content of 63.5 percent.

Deutsche Bank's one month iron ore swaps were at $74, same as a day ago.

A senior official in one of the largest exporting companies said China's demand was strong but unpredictable in the near future.

"Demand from China is further improving. There is price improvement also, but we can't say if it will stay like this," said the official, who was not allowed to be quoted.

Slightly weaker freight costs .BAWB also raised doubts about the sustainability of iron ore prices. [ID:nL2907832].

The official said the company continued to ship out its ores normally from ports not affected by a strike in Haldia port on the eastern coast. A strike by contract workers at Haldia affected the flow of iron ore shipments with some exporters saying the waiting period at Haldia and neighbouring Paradip port was 20 days.

A senior Haldia port official said the state government of West Bengal had called for a meeting later in the day to find a solution to end the strike.

(Reporting by Ruchira Singh; Editing by Ben Tan)

 

[Pintu]

Budget may give revenue targets from BSNL listing, 3G auction - India Business - Business - The Times of India

Budget may give revenue targets from BSNL listing, 3G auction
5 Jul 2009, 1313 hrs IST, PTI

NEW DELHI: The listing of state-run BSNL and the expected realisation from the auction of 3G spectrum are likely to find mention in the budget proposal to be presented by Finance Minister Pranab Mukherjee.

Official sources said, the Budget statement may mention the 10 per cent stake dilution of BSNL under the head expected receipts of the government from disinvestment.

The auction of 3G spectrum is also expected to be a part of the budgetary announcements along with the government's anticipated collection of about Rs 25,000-Rs 30,000 crore from the auction. The details of the process including the reserve price and number of slots will be decided by an empowered Group of Ministers.

The telecom industry has sought rationalistion of multiple taxes and duties imposed on the sector in the Budget.

Taxes, including annual licence fees, spectrum usage charges, microwave access, and service tax comprise 30 per cent of the operators' adjusted gross revenue.

Industry body COAI has sought a uniform license fee of one per cent of adjusted gross revenue, excluding universal service obligation fees, across all segments of telecom. At present, operators levy 6-10 per cent of the AGR as licence fee depending on the circle.