towards 3rd issue
TRANSCRIPT
-
8/14/2019 Towards 3rd Issue
1/34
towa
rds
.MergeDream1Dream2;
An effort by Stockyard in association with mantra consulting grou
25th A ril 2008 Issue 3w.stockyard.infinities.net
ContentHow to conquer India
Company Search: RIL
Economy: ADB Repor
Economic Forecast
08/09
Business News
G7 meet for crisis
Industry Analysis
Semi conductor I
Casting Industry
Guest Colum: Inflatio
Political Radar
Tata Group
Soros
-
8/14/2019 Towards 3rd Issue
2/34
How to conquer India
Probably, we wont understand the power of our culture and
education system. Here is a rare historical document which revel
our strength. Document itself is self explanatory.
-
8/14/2019 Towards 3rd Issue
3/34
Editorial
A small story.about a cable operatorin 2002...just6 years before.he
was very upset that Set-top boxes have come and Government is unnecessarily
tinkering with his operations ,putting in service tax,etc,andhe felt it was
unprofitable to function in such a scenario..
And a journey began
In 2003 he entered Cinema business...In 2006 he brought IPO Andtoday, his firmhas
become an Entertainment Conglomerate spanning continents and businesses.
Pyramid Saimira and Mr P.S.SamiNathan has turned his small cable
operator business into Worlds 3
rd
largest Cinema Operatorwith nearly 4.5Lakh seats as of January 2008.
And if He has to be believedPyramid will be Number 1 globallyby the end of this
Year.
The group has emerged as a holistic Entertainment supply chain with Market capitalization of
more than Rs 900 crore. Company has taken theatres and multiplexes on long leases and is in
the process of upgrading them to a uniform high quality experience.
Some of the feathers in cap:
Company is the largest distributer of Movies in India with 65 films this year. Its Network includes 53 multiplexes with around 800 screens across India,
Malaysia, Singapore and North America.
In USA, it has acquired a Theatre Chain, Fun-Asia, the largest Asian theatrechain operating 23 screens in Washington, Chicago and the Bay Area.
More than half of south Indian language films are being distributed byPSTL.PSTL has produced 13 films and plans to produce over 70 films in coming
year, at a combines value of over Rs 700 crore,in various languages.
Recently Saimira has entered in a JV with UK-based Spize TV, a DTH platform. In the next 2 years, the group plans to operate 175 multiplexes with 2,000
screens in India alone. Company is expecting revenue of Rs 1,000 crore this
year, from last years Rs 166 crore.
This could make it one of the fastest growing companies in the Indian
growth story!!!
-
8/14/2019 Towards 3rd Issue
4/34
This is the power of DreamAre your dreams equally powerful???
Dreams.Are not those that are seen in deep sleepiness.
Dreams born in deep Human consciousnessDreams born in deep creativitySometimes in
deep frustration too.
I have always felt a dream in me...Since I remember consciouslyand I believe there is a
dream in you alsomay be in most of our hearts
We have dreamsbit of dreamsin fractionsin piecesthey germinatesproutgrow a little
and finally die downWhy? Because perhaps we do not sprinkle and water our dreams with
love
So, should we all let our dream die an unnatural death.? Or is there a way out? To let
dreams flourish let them cherish.let them realizeAndlet them spread in all over the
worldtouching all the lives
Yes There is a way out
I have a dreamyou have a dreamAndfor that matterwe all have wishes, desires
,ambitions and these uncherished dreams
Lets merge them together
In SAS Programming all it takes is fewcoding to merge big files of GBsI often
thinkcould we all merge our dreams togetherlike we merge files in SAS.
Just think over itIf we all come togethershare our dreamsweed out fewcontentious jerks
from themand whatever is left outthe creamthe flowerjust put them one behind
otherjust attach all our dreams like a garland and see our dreams becoming ONE ..A
bigbiggerstill bigger dream...a MEGA...GIGA DREAM..
Just imaginelooks weirdright..?Stilljust try once
How does it look?Possible..? Menifestable? More beautiful.?Achievable.?
And then you ask.How to do it?
Let us all discuss all our dreamsLet us churn out ourselvesput all our dreamscreativities in
one basket stir our mind and conscienceAnd come closerand closer.day by day
The Dream is bornit was always here.the delay was in realizing and manifesting it
A dream is about to born in youand it is crying to be manifestedDo not let it diejust
because you did notcare.
-
8/14/2019 Towards 3rd Issue
5/34
This issue 3rd
in seriesis dedicated to the idea of merging our Dreams
togetherso that we all could realize our dreams in unityin Oneness.
We have a special article on Inflation, contributed by Mr Kankan PaulWho has tried to bring
out all possible explanations on Inflation the single most challenging issue in Global
Economy and society.
We have also included an in-depth analysis on Global; Asian and Indian Economy from the
perspective of Asian Development Bank.ADB has recently come up with its 300+ pages report
on Economy. We have tried to sum-up and provide a gist of it to you.
In our equity research section, we have tried to analyze some of TATA Group companies in a
fundamental perspective.
We also covered a brief outlook and potential of Semiconductor Industry in India for our
Industry Analysis.
May all our dreams come together and cherishAmen.!!!
With this notethe Issue is in your hand.
With Love and Affection
-
8/14/2019 Towards 3rd Issue
6/34
Company Searc
RIL to sell 10% in KG Basin
RIL may hive off its KG basin D-
6 assets into a separate
company and offer stake to a
foreign player. The gas output
from RILs D-6 block in the KG
basin may rise another 50% to
120 mmscmd after eight new
discoveries. With the gas projection from KG b
being increased to 120 mmscmd and comme
production just a quarter away, the valuatio
the field will go up by 50%. Last year, Gold
Sachs had valued RILs D-6 block with 14 tri
cubic feet (tcf) reserves close to $40 billion.
RIL-RNRL case in HC today
The Bombay High Court on Friday will start hearing
the Reliance Natural Resources (RNRL) Reliance
Industries (RIL) case over the vexed gas supply
issue on a day-to-day basis. The outcome of the
case will have enormous implications for RIL, RNRL
and for the entire country as gas production isslated to begin in a few months. This is because
the court has restrained RIL from selling upto 80
mmscmd of gas to any third party. RIL, not being
able to firm gas contracts, had sought that the stay
be lifted. Selling gas at $2.34 per mmbtu will halve
the valuation of the KG-D-6 block. A consortium
comprising Reliance Industries (RIL) has made a
significant oil discovery in Yemen. The discovery in
Block 9 in Qarn Qaymah 2 well is learnt to be
significant, and RIL is in process of evaluating thepotential commercial interest. Block 9 has an
output of 10,000 barrels of oil per day (bopd),
operated by Calvalley Petroleum of Canada holding
a 50% stake. Hood Oil, subsidiary of the Yemen-
based business group, Hayel Saeed Anam Group
(HSA) owns 25% in this block. RIL is setting u
greenfield refinery in Yemen with an in
capacity to process over 50,000 bopd and sca
up to 1,00,000 bopd. It has also sought permis
to set up petrol pumps there. RIL has propo
equal equity participation with partner Hood Othe project. The refinery may comme
operations by 2011. RIL operates a 33-mil
tonne refinery in Jamnagar and is commissio
another 27-million-tonne refinery in the Jamn
SEZ, making it among the worlds largest refine
at a single location. Besides Block 9, RIL
acquired stake in two onshore oil blocks, 34
37, in Yemen where it is partnering Hood Oil.
blocks measure 7,500 sq km each and are loc
along the border with Oman. RILs other gl
exploration assets comprise of two blocks eac
Oman and Columbia and one each in East Ti
and Australia covering an area of about 38,00
km.
RIL planning to enter Rigs manufacturing business
Reliance Industries is scouting for a partner to
enter into the rig manufacturing business besides
investing $2.5 billion to venture into petrocokegasification. Keen to sort out the rig availability
problem that is being faced by the oil and gas
industry, RIL would get into oil field services
business, which includes rig manufacturing. The
company had in October 2007 sought a three-year
drilling holiday for exploring nine deep sea blocks it
won through NELP auctions due to rig shortage.
The proposed rig manufacturing facility would be
operational by the end of the current fiscal or at
the beginning of the next financial year.
company would invest $2.5 billion for its petro
gasification project, which would replace napas feedstock to its captive power plants at
Jamnagar facility. At present, the fuel for cap
plants is sourced from crude oil. Due to surg
price of crude, company is thinking of making
by gasification of petrocoke. RIL plans to expan
power generation capacity to 850 MW from
MW.
-
8/14/2019 Towards 3rd Issue
7/34
ECONOMYAsian Outlook
Economic activity in developing Asia is expected to remain
strong and growth of 7.6% is expected in 2008. This solid
performance in an unsteady global economy is underpinned by
favorable policy conditions, strong productivity growth, and
the ongoing structural transformation of Asian economies.
Still, growth projections for 2008 and 2009 are slightly below
the recent historical trend in developing Asia. Developing Asia
will not be immune to the global economic slowdown, nor will
it be hostage to it. Trade channels remain an important
conduit for the transmission of shocks from G3 to Asia. As yet,
market penetration by Asian suppliers in the PRCs (China) final
goods markets is limited, and strong growth in the PRC will
provide only a limited cushion against the G3 downturn. In the
past decade, developing Asia has become much more deeplyintegrated with global financial markets, raising the potential
for contagion. But Asias financial systems are likely to be
spared a credit crunch, though there may be some tightening
in credit markets. Asias banks, which still dominate private
financial markets, are generally well capitalized and there does
not appear to be substantial value at risk on their balance
sheets. In the near term, the major risk lies not so much in
softer growth but in rising commodity prices and accelerating
inflation. If inflation expectations are allowed to become
ingrained, this could create distortions that damage
productivity growth over a protracted period. Though
measures to restrict the impact of rising food prices on the
poor are understandable, these should not be allowed to
jeopardize adjustments that are needed to bring forth
additional supply. Extensive subsidies on fuel come at high
fiscal costa rising burden in several countriesas the gap
between domestic retail and border prices widens. Over the
medium term, and once developing Asia has passed through
the gathering storm of rising commodity prices and inflation,
its growth prospects are likely to depend much more on how
successfully countries manage their economies and overcomedomestic constraints to growth. Developing Asias economy is
expected to expand by 7.6% in 2008, picking up a shade to
7.8% in 2009. These projections suggest a slowdown from
2007s outcome, now estimated at 8.7%, the highest in 19
years. Rising food and fuel prices are stoking headline inflation,
but economic speed limits have also been tested, with recent
output growth straining capacity. If the global slowdown is
concentrated in sectors such as electronics, textiles and
garments, and toys, as recent data appear to suggest, this
Structural Factors for H
crude prices:
Production from the Organization
Petroleum Exporting Countries (O
and non-OPEC production mus
even to meet short-term foreca
demand. The International E
Agency (2008) sees demand risi
1.7 million barrels a day in 2008
most of the added demand co
from Peoples Republic of China,
and the oil-producing countries o
Middle East themselves.
Difficulty in supply keeping up
demand are complex but have
with domestic political const
within the OPEC countries and th
that non-OPEC production has p
and is set to decline.
Alternative fuels such
unconventional sources of oil
sands), biofuels, and natural ga
difficult to develop and involve
investments and lags of up to 5
between investment and productio
Transportation services is gr
rapidly and despite the developm
hybrid engines using combinatio
fuel, there is no meaningful short
substitute for oil-based fuels
transportation services on air, lan
sea.
The rising price of oil is c
associated with the price of natur
as can be seen in sharp increas
fertilizer prices. The price
diammonium phosphatea fer
produced from feedstock of n
gashas risen from $260 per t
2006 (period average) to $76
February 2008.
Higher costs of energy inputs also
electricity costs for use of
irrigation systems, tractor harvester/ thresher fuel costs, an
cost of transporting inputs and ou
related to agricultural production.
Food and oil prices move c
together through time in such a
that a rise in oil prices has a statis
significant positive impact on
prices.
-
8/14/2019 Towards 3rd Issue
8/34
would hurt Asian exporters. Rising food and fuel prices could
probe developing Asias resilience. Countries that are net fuel
and food importers are likely to be squeezed by adverse
movements in their terms of trade; more so, when unit values
of important export products are weakening, as they now are
for garments and textiles. Asias financial markets are becomingmore closely meshed with global markets. Most measures of
financial integration, and thus potential contagion, have greatly
strengthened over the past decade. Through these channels,
Asian borrowers will feel the pinch in international credit
markets and Asias bourses are likely to experience heightened
volatility. Asian banks are still the main originators of domestic
credit, and their leverage and exposure to unsafe securities are
low, the possibility of the credit crunch washing onto Asias
economic shores seems remote. Most Asian economies have
ample foreign reserves in the event of an unexpected rush to
sell domestic currency. Although the slowdown in global
demand should ease inflation pressures, deep cuts in US
interest rates would add to them if Asian economies do not
allow greater flexibility in nominal exchange rates. Lower
interest rates also tend to make commodities more attractive
as assets and so may support high prices, though the effects on
inflation should be transitory.
Any passive acceptance by Asia of an upward drift in inflation
could deal a hard blow to long-run productivity growth. Even
moderate inflation typically proves costly to get rid off.
Conversely, price controls and extensive price subsidies, thoughthey may temporarily corral inflation expectations, are not the
answer and would stymie market adjustment processes.
Developing Asias exports do respond quickly and in some cases
strongly to variations in G3 demand. Precise impacts differ
depending on the source of the demand shock and trade
structure. Though developing Asias economy is not immune to
the vicissitudes of global demand, its longer-run growth
trajectory will be much more a function of structural and supply-side dynamics. To maint
momentum, countries will have to address and overcome a variety of constraints. In the sh
run, the impact of the global slowdown is likely to be modest: even a highly unfavorable gloscenario that dents growth in developing Asia. Though it is unlikely that price of crude rises w
be sustained secularly, the outlook for the next 2 years is for continuing upward pressure. The
is also a risk that cost inflation may lead to demands for upward adjustment of money wages
increased fiscal outlays to subsidize food and fuel consumption. The subsequent monetization
the fiscal costs coupled with accelerating wage increases are potential triggers for an inflat
spiral of prices and costs.
Structural factors
rising Food prices:
Demand that is driven by
economic growth and urbaniza
particularly in India and the Peo
Republic of China, and assoc
changes in diets that require
grain to produce the same amou
calories for consumption.
Supply constraints arising
competition for agricultural land
its conversion, increasing scarci
fresh water; and migration of
from agricultural to nonagricu
activities;
Direct competition for key food
for nonfood demand (such
biofuels)
Underinvestment in agricu
technologies and infrastructurehave contributed to slow grow
yields per hectare of agricultural
Climate change, which is incre
the incidence of drought and floo
that hit agricultural production.
Global rice stocks have fallen an
expected to reach 25 year lows a
70 million tons this year, down
150 million tons in 2000 (USDA 20
Trade policies currently greatly d
international price signals agriculture and lessen the likeli
of rapid and efficient s
responses. Rice prices are
overwhelming importance
developing Asia because well
50% of its population relies on ri
a staple of consumption, and n
-
8/14/2019 Towards 3rd Issue
9/34
India Outlook
Key structural challenges include establishing a new fiscal adjustment road map, raising la
productivity, and enhancing structural reforms.
RBI has been attempting to control money supply growth to maintain price stability, wh
seeking to ensure credit market and interest rate conditions that support investment in t
context of relative stability in the exchange rate. But it has had limited success. The year-on-yemoney supply growth of 24% (to end-January) remains significantly higher than the target grow
rate of 1717.5% Strong capital inflows have increased money supply, raising inflation press
and rendering difficult the management of monetary and exchange rate policy. In FY2007,
followed a dual-policy approach to all
greater exchange rate flexibility along w
intervention in the foreign exchange mark
This led to appreciation of the rupee agai
the United States (US) dollar, mainly in t
early months of the fiscal year, and a la
accumulation in RBIs foreign exchange ass
over the full year. While the rupee weaken
slightly in the latter part of FY2007,
appreciated by about 13% against the do
and by about 7% on average for the year
real effective terms. Some developm
agencies project that global food prices
2017 could be 2040% higher than
average of 20022006. India has emerged as the largest importer of edible oils in the world w
more than 40% of its domestic demand met through imports. Reflecting the tight global situat
and affected by domestic supply constraints, food prices have risen faster than overall inflation
recent months. The Government has responded by increasing subsidies on food items, controlexports, and subsidizing imports. Appreciation of the local currency against the US dollar has h
Indian exporters. Merchandise exports (on a customs basis) grew by 21.6% in the first 10 mont
of FY2007 when expressed in US dollars .However; this reflects the sharp appreciation of t
rupee more than the actual increase in exports, the growth of which, in rupee terms, w
subdued at just 7.7%. The slowdown was evident most notably in chemicals, engineering goo
textiles, and readymade garments and handicrafts. The growth of merchandise imports, at 29.
in US dollar terms in the first 10 months of FY2007, is also overstated when compared to
rupee value (14.7%). Non-oil imports of capital goods, chemicals, edible oils, and precious a
semiprecious stones provided the main stimulus for import growth; rising by 36.1%, while
imports advanced by 16.5%. The net effect was a near 50% widening of the US dollar trade deffrom a year earlier. Preliminary estimates indicate that the current account deficit will be abo
1.9% of GDP, slightly higher than in FY2006. Although the trade deficit widened significantly
was offset by a strong rise in the inflow of remittances and a growing surplus from exports
services such as software and business services, though their expansion in earnings was reduc
from the rapid rates seen in previous years.
Avoiding a deep downdraft in the next 2 years
will primarily be shaped by the outcomes of
three counteracting forces:
keeping food price inflation moderate,
Lowering interest rates to sustain high
levels of investment,
Containing the fiscal deficit.
-
8/14/2019 Towards 3rd Issue
10/34
Economic forecast for 2008/0
Forecast
Economic growth will likely moderate further to 8.0% in FY2008. Overall GDP growth in FY2009
predicted to return to around 8.5%, nudged along by a broad-
based pickup in spending. Even though growth has faltered,the economy has built up considerable momentum in recent
years and this sense of dynamism should help pull up the pace
again. However, major macroeconomic challenges need to be
met in order to ensure that the current deceleration remains
mild in the face of turmoil in global financial markets and of
the marked economic slowdown in industrial countries. The
growth outcomes in the economy over the next 2 years will
depend in part on the timing and scope for relaxing the
present tight monetary policy. Exactly when this will be
feasible will be determined by success in containing inflation,
which in turn depends on two uncontrollable factors: the
outturn in domestic food production and the course of
international commodity prices. Growth in international
commodity prices is expected to flatten in FY2008 and fall in
FY2009, taking the pressure off inflation and allowing
domestic demand to pick up in FY2009. Private consumption
expenditure will remain relatively buoyant in FY2008 at just
over 6%, supported by continued strong wage gains in a skills-
short formal economy, larger income tax exemptions, the
debt waiver for farmers given in the FY2008 budget, higher prices for cash crops in the ru
economy, and higher pay for civil servants. Government consumption expenditure also will risesupport the ambitious social sector development agenda of the 11th Plan. Reinvestment
corporate profits, capital inflows, and credit availability will continue to support investme
growth. While investor enthusiasm remains high, drawing on a broad range of new busin
opportunities and high capacity utilization in existing plants, expansion in fixed investment
projected to slow in FY2008. It will account for about half of the decline in economic grow
although this will be partly offset by some cyclical building of inventories. Postponement
launching initial public offerings in early 2008 is one indicator that the expansion plans of ma
Indian companies are being scaled back. Much of the deceleration in investment is expected
be due to a slowing in property development. Easing of lending rates and revival of the consum
durable goods sector and construction activities are important for achieving a pickup in industgrowth. But despite the current slowdown in demand, lending rates cannot be reduced becau
stabilizing inflation at a moderate level remains the priority of RBI during FY2008, even at the c
of growth. A more accommodative monetary policy stance is expected only after the gene
elections. After that, RBI is likely to move to ease its tight policy stance by reducing policy rate
food inflation is relatively well controlled. A fall in borrowing costs, together with grow
consumption demand, would lift industrial production in FY2009 after an initial hitch in FY20
Agricultural growth will continue to be driven by monsoons until better infrastructure a
institutional set-ups are in place. The 11th
Plan emphasis on agriculture, coupled with a Rs2,8
billion($70 billion) target set for agricultural credit in FY2008, as well as a host of refo
measures for agriculture and water resource management announced in the FY2008 budg
Assumptions:
The domestic food supply position
remain tight but manageable in FY2
but improve in FY2009
RBI and the federal Government
take all steps necessary to co
inflation in FY2008, largely becau
the general elections due by early 2
Monetary conditions will be rela
more accommodative during FY200
Substantial revisions in domestic
of petroleum products will likel
made only in FY2009 (that is, afte
elections)
The rupee/dollar exchange rate
remain relatively stable throughou
period.
-
8/14/2019 Towards 3rd Issue
11/34
should take hold and lead to the needed improvem
in agricultural performance in FY2009. Domestic pric
especially of food and fuel, will be critical in determin
wholesale price inflation, which is projected to be a
moderate level of 4.5% in FY2008. Inflation pressur
however, will persist as the domestic output
foodgrains and vegetables is expected to remain tigh
FY2008 due to subdued sowing of the winter crop
October 2007.The tight supply position of wheat, pulses, edible oil, a
coarse cereals appears due to diversification to c
crops and water shortages in parts of the country. Eas
of international prices of nonfuel commodities, includ
foodgrains, will help in augmenting domestic supp
Several low-profit-margin exports such as textiles a
handicrafts were hurt from rupee appreciation in 20
but exports of more sophisticated products such
capital-intensive manufactured goods, as well as sales
business services, continued to expand. The rupedollar exchange rate is assumed to remain relativ
stable during FY2008 and FY2009. Exports are therefo
expected to grow at about 1618%, partly due to
sizable share in the total (nearly 20%) of refin
petroleum products, whose prices are on the r
Markets other than the US are also opening up to Ind
high-tech service exports such as information a
communications technology and business proc
outsourcing, which provide a cheaper source of sup
to increasing demand from industrial economies. Ind
exporters have started diversifying to other major exp
markets, notably Europe, Peoples Republic of Chi
and the rest of Asia. Import growth will continue to
rapid, reflecting both high international oil prices a
expansion in non-oil imports, especially of capital goo
and intermediates that have become necessary
sustain high levels of investment. These factors ha
been incorporated in the projection of a widen
current account deficit, which is likely to be around 2
2.6% of GDP.
Downside Risks:
Monetary management may have to
deal with the possibility of supply
shocks beyond the 2007 and 2008
sowing seasons.
The loan waiver can be effective inaugmenting food supply provided
that farmers are also supported with
a comprehensive package of
technology, services, and public
policies related to input and output
pricing.
Rising food prices, especially of
commodities consumed by the broad
public, would damp their general
purchasing power and GDP growth.
In the event of high food prices,
monetary conditions would need toremain tight, and the assumed move
to lower lending rates would not
occur and growth would be less.
The global slowdown may more
adversely affect Indias engineering
and other high-end exports as well as
earning from sales of software and
other business services than
projected. While this would raise the
negative impact of net exports, the
main damage would be seen in the
erosion of the exuberant business
outlook.
If the larger part of the private sector
turns cautious and waits to see what
happens next, investment and
growth would fall below those
projected.
-
8/14/2019 Towards 3rd Issue
12/34
Challenges to development
Over the past decade, India has undergone a transformation and climbed to a high growth pa
as macroeconomic and structural reforms reduced regulation, improved the busin
environment, and opened the economy to greater competition. It still needs to focus on cert
key areas with the potential to push growth to a higher plateau. The most crucial are enhanc
the policy and regulatory framework to encourage the private sector and reining in fiscal deficA dynamic private sector that creates jobs, increases productivity, and invests in the econo
plays a crucial role in bolstering growth. Removing the bottlenecks to private sector growth a
competition in India could well generate an additional 2% of GDP growth. All levels
government need to reengineer their laws and procedures to reduce barriers to entry of fir
into any product area; modernize out-dated and excessive regulations, including more flexibi
in the labor code; eliminate the roadblocks that hinder free interstate movement of goods
achieve a competitive national market; and end the present lengthy process required
restructure or close bankrupt companies. Archaic management structures and institutions
prevail in much of the daily working of government. Thus reengineering needs to be introduc
into institutions at all levels by adopting the management and operating techniques
successfully developed by Indias computer software and business services industries. The
changes would be especially effective at the level of local government. Fiscal consolidation,
targeting combined state and federal government deficits, including off-budget and conting
liabilities, is essential to create the fiscal space for essential social and infrastructure spendi
The Governments decisionto keep domestic prices artificially suppressed in response to ris
international food and oil priceshas distorted product prices and generated large, annual o
budget liabilities that are rapidly escalating the already heavy deadweight of interest paymen
Aligning food prices with the international market would raise farmers incomes and set pri
that will not distort land allocation to crops. A similar move for oil will likewise give consum
the right price signal to save energy and demand more energy-efficient products. A part of
saving from ending these subsidies could then be available for direct cash payments in wtargeted safety net programs. This would eliminate the large diversions and losses involved in t
present price subsidy schemes. Declining labor productivity is a key issue in sustaining Ind
long-term growth. Defined as output per worker, labor productivity dropped from an average
5.8% during the period from FY1993 through FY1998 to 3.6% during the period from FY19
through FY2004. One reason is an increasing shortage of appropriate skills.
-
8/14/2019 Towards 3rd Issue
13/34
Business new
Dabur Pharma sells its stake
Dabur Pharma is selling 73.27 % stake to Fresenius Kabi
(Singapore) Pte Ltd for an undisclosed amount. The
Singapore firm would purchase the stake at Rs 76.50 an
equity share from the promoters and certain other
shareholders of the company. At present, Dabur Groupspromoters - the Burman family - hold 65 per cent stake in
the pharma company. Last year, Dabur had sold its non-
oncology formulations business, mostly comprising cardiac
and anti-diabetes drugs, to Ahmedabad-based Alembic for
Rs 159 crore. In 2003, the company had hived off its
pharmaceutical division from the FMCG business. Dabur is
trying to consolidate itself in FMCG space. Fresenius Kabi
Pte is a unit of Germany-based healthcare firm Fresenius
SE, which makes anti-cancer drugs. Daburs strong pipeline
of oncology drugs synergises well with the German parentcompany. The Indian pharma company had recently
launched its rectum cancer injection Irinotecan in the US -
its fourth product in the North American market. Dabur
also has an agreement with Thailands Government
Pharmaceutical Organization to supply a generic version of
an anti-cancer product, Docetaxel. Anti-cancer drugs
worth $10 billion is set to go off patent in the next few
years and with only a few generic players in the global
market, the acquisition makes it a good buy for Fresenius.
Wipro FY08 net up 11% at Rs 3,283
crore
Consolidated total income: Rs 20,397 crore (Rs15,271.4 cr)
Consolidated Net Profit: Rs 3,282.9 cr (11.57 % increase)
Net Profit (4th Quarter) : Rs 880 crore ( Rs 856.1 crore)
Total income (4th Quarter) : Rs 5,777.2 crore (Rs4,395.9 cr)
Indian Bank Results
Net Interest Income for Q4 Rs 513 crore against Rs573 cr
Net Interest Income for Year : Rs1872 cr against Rs759 cr
Net Profit : Q4 242 Crore against Rs 235 crores
Net Profit: Rs 1008.74 crore against Rs 759 crore
Crude Oil at $120 / Bl
Saudi Arabia plans to increase its produ
capacity by five million barrels per day
by 2012. OPEC aimed to boost produ
capacity by nine million bpd by 2020. Cu
OPEC output stands at about 32 million
Even though OPEC has promised to inc
production capacity, the long-term s
increase does not resolve the main fa
that are underpinning prices now
weakening US dollar has spurred oil de
because dollar-priced oil becomes cheap
buyers holding stronger foreign curreGlobal supply worries were stoked
Anglo-Dutch oil group Royal Dutch
reported an output loss of 169,000 bpd
sabotage of its key pipelines in sou
Nigeria.Shell said on Monday that it migbe able to honor oil contracts for Apri
May after the attacks. If oil prices re
above $100 per barrel, inflation could su
9 percent in the third quarter of 2008
average over 7.5 per cent in 2008/09
Impact of CRR Hike
The rupee may slightly appreciate and
prices could harden further by 7-10 basis p
following the hike in the Cash Reserve
(CRR) by the RBI. The rupee may teappreciate in the short term. But the rising
of global crude, widening trade deficit, sl
down of capital flows and the overall c
down of the economy may cause the rup
weaken in the medium term. The CRR hik
now raised expectations of a hike in rep
reverse repo in the monetary policy on Apr
CRR Hike
The CRR hike of 50 basis points in 2 stage
on 26th
April and another on 10th
May. Lik
reduce Net Interest Margin by 5 basis p
Would suck out Rs 18,500 crore from
banking system. Banks do not earn any in
on CRR deposits. Year 2008-09 is likely
more difficult for banks, especially on ma
for Government banks and on loss of in
from forex and collateralized debt oblig
(CDO) provisions for private banks.
Bank earnings could be impacted for
government banks owing to the 60-75
points cut in lending rates. Rising inflatio
weakening demand could impact vo
growth. The key risks to the sector are a
interest rates, deteriorating retail asset q
and a further slowdown in loans and fees.
In the current situation, with demand for
on a slide, credit growth could be just abo
average of 20% this year.
Public sector banks might see multiple pre
points from Basel 2 implementation,
waivers, labour demands and an inabil
respond to interest rate signals approprTotal hit on the banking system is expect
be about Rs 750-900 crore. Private bank
see a loss of Rs 300 crore.
-
8/14/2019 Towards 3rd Issue
14/34
Infosys Results
Consolidated net profit of Rs 4,659 crore for the year
ended March 31, a 20.82 per cent growth over the
corresponding period a year ago. Infosys had a
consolidated net profit of Rs 3,856 crore for the year
ended March 31, 2007.
The consolidated total income rose to Rs 17,396 crore for
the year ended March 31, 2008 from Rs 14,265 crore in
the year-ago period. The company declared a final
dividend of Rs 7.25 on shares of Rs 5 each (145 per cent)
and a special dividend of Rs 20 pe r share (400 per cent
on an equity share of face value of Rs 5). Besides, Infosys
has decided to increase the dividend payout ratio to up
to 30 per cent of net profits effective from fiscal 2009, the company added. For the quarter ended M31, the group reported a net profit of Rs 1,249 crore as compared to Rs 1,144 crore for the quarter e
March 31, 2007. Total income increased to Rs 4,681 crore for the quarter ended March 31, this year
Rs 3,891 crore f or the corresponding quarter a year ago.
Ban on cement exports to dent majors toplines
With the government banning cement exports, revenues of major cement exporters will be dented by about Rs 1
crore. Two cement exporters, Ultratech and Ambuja Cement, in separate statements to the Bombay Stock Exchang
Monday, said their revenues are likely to be impacted. Ambuja Cement said the company exported about 1.32 mtonne of cement worth about Rs 277.48 crore in FY 2007. Similarly, Ultratechs 10% revenues come from cement exp
Going by Ultratechs nine-month turnover, 10% would come to about Rs 392 crore, approximately. Hence, the
Companies, together, will take a hit of more than Rs 670 crore. India exported about 3.5 million tonne cement last
And with international cement prices at about Rs 2,500 per tonne, the Companies will take a revenue hit of about Rs
crore. However, if we include the ban on clinkers as well, then there will be a revenue hit of about Rs 1,000 crore t
1,200 crore. The manufacturers based in the western region, especially Gujarat, would be the worst hit, as 91% of In
exports are from the state. With almost 3.3 million tonnes flowing back to the region due to the export ban, we
pricing decline in the western region, which are currently at Rs 231 a bag.
New Merger policy in
Telecom
The Government on Tuesday said that no mand acquisitions of telecom licenses would
place if the number of service providers re
below four in a circle consequent upon the
Prior approval of DOT for the M&A of the lic
is necessary and the combined market share
merged entity shall not be greater than 4
cent in terms of subscriber base or in ter
revenue.
-
8/14/2019 Towards 3rd Issue
15/34
Orchid Chemical
After much sensation and hype over Solrex bid for
12.8% of Orchid Chemical, for the first time,
Ranbaxy on 22nd April admitted that Solrex was a
partnership between two of its wholly owned
subsidiaries Solus Pharmaceuticals Ltd and
Rexcel Pharmaceuticals Ltd. According to Indian
regulations, the acquisition of a 15 per cent stake
in a firm by persons other than the founder or the
founder-group would trigger a mandatory open
offer for a further 20 per cent. If that happened,
then Orchids current management would have
had to give up control to Ranbaxy. Therefore, the
business alliance with Ranbaxy could put an end to
Orchids fear for now. Ranbaxy has similar strategic
stakes of just under 15 per cent in other pharma
companies, including Krebs Biochemicals and
Industries Ltd and Jupiter Bioscience Ltd.
On the alliance with Orchid, Mr Malvinder Singh
said the companies were looking to leverage on
each others strengths with Orchid having strong
presence in antibiotic cephalosporin formulations.
Orchid is a niche player in the g
pharmaceutical industry with an impressive
record, particularly in sterile products. We
pleased to enter into this long-term stra
alliance with Orchid. The agreement wi
mutually beneficial and synergistic, allowing
organisations to leverage each others inh
strengths.
Commenting on the alliance, Mr K. Raghave
Rao, Managing Director, Orchid, said, We
happy to join hands with Ranbaxy, Indias la
pharmaceutical company. Ranbaxys global
and market reach and Orchids advadevelopment and manufacturing capab
would expand the business of both companie
believe that this will be a win-win arrangeme
both companies.
-
8/14/2019 Towards 3rd Issue
16/34
G 7 meets for Cris
Finance chiefs from the G7 nations signaledconcern on the dollar's slide and said the global
economic slowdown may worsen
amid an ``entrenched'' credit
squeeze. The officials downgraded
their outlook for the world
economy from that of two months
ago, blaming the U.S. housing
recession, credit-market turmoil,
commodity prices and inflation
pressures. The dollar has lost 8
percent against the euro and 6
percent versus the yen sinceFebruary.
Policy makers laid out a 100-day plan to strengthen
regulation of capital markets. They urged financial
companies to ``fully'' disclose in their mid-year
earnings reports their investments at risk of
Firms should also establish ``fair value estima
for the complex assets that investors
shunned and boost their capital as needed.
European Central Bank has left its unchanged
six-year high of 4 percent amid inflation at a
year high. Growth differentials are still stacke
against the dollar and since there's no
whatsoever that the group is about to interv
that clears the way for further dollar weakn
The U.S. currency reached a record low of $1.5
against the euro this week. The dollar is expe
to reach $1.60 per euro. The G-7 again urged C
to allow ``accelerated appreciation'' in its curre
while acknowledging its recent rise through 7
dollar for the first time since a fixed exchange
ended in 2005. With the credit squeeze now ininth month, the G-7 highlighted ``downside r
to growth in a ``challenging and unce
environment.''
``The turmoil in global financia
markets remains entrenched and
more protracted than we had
anticipated,'' the officials said in thei
statement. ``Near-term globa
economic prospects have weakened.''
towards.?
-
8/14/2019 Towards 3rd Issue
17/34
Industry Analy
Semiconductor Industry
The Indian semiconductor design servicesindustry is projected to grow at a compounded
annual growth rate (CAGR) of 21.7 per cent to$10.96 billion in 2010, from the current level of $6
billion. The industry is expected to clock a
revenue of $7.3 billion by 2008-end. The key
factors that position India as a favored destination
for semiconductor and embedded designs are the
growing expertise and capabilities in end-to-end
design, intellectual property (IP) development, a
strong pool of engineers, emergence of
outsourced third party design services companies
and cost effective products. The market for very
large scale integration (VLSI), hardware/board
design and embedded software industry and the
market dynamics between the members of the
eco-system have presented a tremendous
growth potential to the Indian semiconductor
industry. Indian industry growth is three times
more than the global growth rate of around 7 per
cent. Industrys structure is changing as the
proximity between the third party service
providers and original equipment manufacturers
(OEMs) for end-to-end product designs is
increasing in the country. Companies are moving
up the value chain from mere project execution
to end-to-end development of products.
increase in jobs from 129,900 in 2007 to 218
in 2010, a CAGR increase of 18.8 per cen
anticipated in the Industry. At present, the buthe jobs are in the embedded software (82
cent) followed by VLSI design (11 per cent)
hardware/board (7 per cent). A large chun
the industry product design space is occupie
general consumer electronics and the wire
handset area (mobile technology). In the
design projects executed in 2007, 14 per
was portable wireless products, 33 per
pertained to consumers and 31 per cent
telecom networking products. In another co
of years, lot of designs will shift from the pre
90 and 65 nanometres to 45 nanome
Secondly, the growing domestic market w
boost the industry as the consumption
electronic products in the country is estimate
increase. The industry is still nascent. Start
and early stage companies need a different h
holding, tremendous support is needed from
government for nurturing technology outpu
smaller companies. The industry will have
constantly evolve, upgrade and innovate w
keeping the costs down in order to stay
competitive in the global market.
Casting Industry
According to an Engineering Export Promotion
Council data on steel prices, the domestic priceof pig iron on April 3 was $850 a tonne
(inclusive of VAT and excise) and the
domestic price in China was $606-613 a tonne.
Iron ore is the raw material for pig iron. Huge
quantities of Indias iron ore exports go to
China. The Chinese Government now
encourages export of value-added products and
has levied 25 per cent duty on coke
primary steel product exports.The steel plants need 0.8 tonne of coke to mone tonne of steel. Most of the cas
exporters enter into annual contracts with t
overseas buyers. If the buyer sources cast
from China too, then the Chinese have a 25
cent cost advantage in raw material over
Indian manufacturer. Thus, the competitive
of Indian foundries, the fourth largest cas
producer in the world, has been affected.
-
8/14/2019 Towards 3rd Issue
18/34
Guest Colum
Inflation: India and the Global Economy
Recently i.e. on 4th April Government of India had
published the data on Annual Inflation for the
week ended on 22nd March and we observed that
it had touched 7.07%, the highest in the last three
years.
This is a bad news for everyone, starting from the
general Indian population to the Indian policy
makers. But this is definitely a good news for the
politicians in the opposition parties as it is a good
tool that can be used against the ruling
government especially in the election year.
But we will discuss here only the issues related to
Why inflation suddenly increased (i.e.
causes.)? Is it only an Indian phenomenon ri
now or happening globally? If possible, w
could be the possible solution for controlling
inflation?
We will discuss regarding all the aforesaid iss
one by one.
First lets see the recent inflation figures in In
The year 2008 started with 3.79% of inflation r
for week ended on 5th January. As the y
progressed inflation got doubled and crossed
mark.
Week ended on Annual Inflation Percentage increase
1st March 5.11% -
8th March 5.92% 15.85%
15th March 6.68% 12.84%
22nd March 7.07% 5.84%
If you notice carefully then you find out that within
three months annual inflation has gone up by
around 87%. This is really shocking because our
Indian political scenario is very much vulnerable
inflation and you will find each and ev
newspaper publishing it with grandeur.
Now the question is that why this sudden increase?
According to Economics there is no phenomenon
that is the result of a single incident or situation.
Truly there are several reasons behind this sh
rise in prices. Lets explore tho
-
8/14/2019 Towards 3rd Issue
19/34
table showing the increase in wholesale pricesof different items
.
Products Percentage increase on annual basis
Iron and Steel 27%
Minerals in general 41.5%
Edible Oils 21.1%
Cereals 8%
Vegetables 11.4%
Milk 10%
Dairy Products 9%
Cement 12.2%
Mineral Oil and Coal 9%
Hence prices of almost all essential commodities have gone up. Specially Iron and Steel and Oil prices h
shot up like nothing; prices of wheat, rice, corn, soyabean, soyabean oil, palm oil, non-ferrous metals
also of main concern. The metallic minerals have gone up by around 38% in a week.
Just take a look into the data published by IMF (International Monetary Fund). Its commodity price in
showed increase in food prices in February by 65%, metal prices by 70% and petroleum prices by 175since 2005!
As far as the reason is concerned for this price hike rising
demand of the developing nations especially India and
China, production shortfall, higher crude oil prices in the
international market are of prime importance. Chinese
economy has grown by more than 10% on an average
throughout the last two years. Indian economy is growing
at a pace of more than 8% on an average per year (9.4% in 2006-07, expected 8.7% in 2007-08).
agriculture, infrastructure etc. are not growing at the same pace especially in India.
Lets take a look on the agricultural situation world wide.
-
8/14/2019 Towards 3rd Issue
20/34
In 2007-08 wheat production is estimated to be lower at 74.81MMT (million metric tons) lower than
years output of 75.81MMT, which indicates that government may import wheat this year also, at le
there is a high possibility. Rice and maize productions are estimated at 94.08MMT and 16.78M
respectively; both figures are more than those of their previous years. According to the US Departmen
Agriculture
Name of
crops
2007-08 estimated production in MMT (million metric
tons)
Change w.r.t previ
year
Wheat 605.0 +1.9%
Coarse Grains 1056.2 +7.8%
Milled Rice 422.9 +1.11%
Oilseeds 390.1 - 4.4%
Cotton 118.9 - 2.6%
Soyabean 219.85 - 7.34%
Though Soyabean production has increased in India. But this increase is not very much and moreove
case of each and every crop the major exporting countries are facing increasing demand internally, he
they are reducing the amount that they are supposed to export.
Rice: World and India
Recently China, Egypt, Vietnam, India have either curbed their
rice exports or increased the tax on export due to increase in the
domestic consumption. Thailand has expressed its tight
domestic situation and curbed the export by more than half to
1.2 MMT. On the other side the situation of rice is not good in
Philippines; the Department of Agriculture and National Food
Authority has asked the Filipinos to eat more unpolished whole
rice grain to cut down on imports. Philippines, worlds largestimporter of rice, is set to buy around 100,000 MMT of rice from
the US. Already they have bought approx. 1.1 MMT of rice from Vietnam. This will definitely drive
price upward in the international market and also in domestic market in Philippines. An already
future contract has risen to record price on 4th April in Chicago Board of Trade (CBOT).
-
8/14/2019 Towards 3rd Issue
21/34
In India the situation is odd. Though India is the second largest rice producer in the world, we are facin
serious hike in rice price, twice the minimum export price has been increased but still situation is bad. T
is because the government didnt attempt to buy sufficient amount of rice from the farmers and replen
the food stocks. Moreover due to packing restrictions low priced coarse variety rice goes to Africa,
Lanka and Bangladesh through hawala route; this has increased recently and the government has
taken any action against this.
Wheat: World and India
The US is the major producer, after her Argentina, China, Kazakhstan, Ukraine, Russia and Australia
there as important producers and exporters. Two consecutive droughts in the last two years in Austr
hampered the wheat exports very much along with floods in Argentina. China has imposed restrictions
exports of wheat flour, following Ukraine and Russia.
Last week Friday price of Wheat May futures shot up by 5% as there is chance that due to a mix of dry a
wet weather the US wheat production could take a hit. If it happens the wheat prices in the market
definitely go up by leaps and bounds.
Coming to the Indian situation, as I have already mentioned that this year the wheat production
expected to be lower than that of the last years; due to increase in consuming population and as m
people are getting habituated in having wheat based food products it is surely that the wh
consumption will increase this year. Again the general trend is around 12.5% of the output is
-
8/14/2019 Towards 3rd Issue
22/34
considered for consumption on the account of seed, feed and wastage. Government has already fixed
minimum support price (MSP) for wheat as Rs.1000 per quintal. But a problem is that the Pakist
farmers have demanded Rs.1000 per 40 kg of procurement price which could antagonize farmers in In
and it could happen that while competing with ITC and Cargill in procurement FCI (Food Corporation
India) may face problem in achieving procurement target for the year which will result in buying wh
from international market at increased price. This also happened in the last year. The domestic wh
production is expected to take a hit due to hailstorms after 4th April across the north, northwest
northeast India.
Oil and Oilseeds:
India mainly imports the edible oils, around 4 MMT
of palm oil and 2 MMT of soyabean oil. Recentlythe price of Crude Palm Oil (CPO) in the Malaysian,
largest producer, market climbed to record high of
4000 Malaysian Ringgits (MYR) and it could go
upward to at least 4500 MYR. Soyabean Oil is also
expected to grow more than US$1500 per metric
ton in the US, everything depends upon the
weather. The price rise is generally due to demand
supply mismatch as Chinese demand has
increased steadily.
Crude oil is increasing due to increased demand
from China, India and other developing countries
especially BRIC nations along with the US, due to
speculation over demand supply mismatch and
finally geopolitics. Recently supply from the OPEC
(Organization of the Petroleum Exporting
Countries) has reduced. Moreover increased
tension in Middle East Asia, tensed relation
between the US and Venezuela, the US and I
and also decrease in Russian production have to the rise. Recently the value of the US$ has a
decreased somewhat led to the rise. On 17th Ma
NYMEX Crude hit a record US$111.80 per ba
and also US$ lowered to 1.5903 Euro.
Coming to the Indian scenario, Indian Crude Bas
consists of average of Oman and Dubai Sour Gra
Crude and Brent Sweet Grade crude in the ratio
59.8:40.2 since fiscal year 2006-07. Each year In
imports around 76% of its crude oil requireme
which costs it around US$50 billion. Rise in
crude price combining with Rupee appreciation
around 13% has result an extra burden on
Indian coffer by around 4%. Recently
government had increased the fuel prices also
release by some amount.
-
8/14/2019 Towards 3rd Issue
23/34
Metallic Minerals:
Prices of different types of steel has increased by more than 65% w.r.t. that of last year. Last year m
steel was priced at an average ofaround Rs.27000 per ton and now it is priced at around Rs.45000 per
as the steel plants have increased the prices of steel twice. According to them prices of iron ore and cok
coal were hiked. It is true, because NMDC (National Mineral Development Corporation) has increased
price by around 40% during this fiscal year. Not only in India but also in the International market iron
prices are very high as BHP Billiton Ltd. and Rio Tinto are charging higher price for iron ore from As
buyers as freight premium. Also Companhia Vale do Rio Doce, Brazilian mining giant has contracted w
the Chinese and Japanese steel producers on 65% to 71% higher price. Power shortage in the mining a
and increasing demand due to construction boom from the Chinese companies are major reasons for
price increase. Hence more and more Asian companies are going for iron ore from Australia rather th
from Brazil as freight cost has increased. Hence mining companies are charging for freight premium.Coking coal price is soaring due to three main reasons lost production in Australia, Chinese export c
and power shortage in South African mines. Storms in Queensland has resulted in a loss of 15 MMT of c
production that probably wont come to the market and China has imposed export restrictions af
winter storms. Last year Australian coking coal was priced at US$98 per MT for Japanese steelmakers, t
year it is US$258 per MT whereas Australian thermal coal was US$55 per MT and now US$110 per MT.
Industrial Growth in India:
Prices of essential commodities are already on fire and in such a situation industrial growth is falling
India. Im giving the growth of the six core sectors as was in December 2007
Sectors
Weight
(%)
in IIP
Dec-06
% growth
Dec-07
% growth
Apr-Dec 06-
07
% growth
Apr- Dec 07-
08
% growth
Crude Petroleum 4.17 10.7 -1.58 6 0.3
Refinery Products 2 10.8 2 13.2 7.5
Coal 3.22 2.9 8.4 4.6 4.9
Electricity 10.17 9.1 3.8 7.5 6.6
Cement 1.99 8 3.9 10.3 7.2
Finished Steel
(Carbon)5.13 10.2 5.1 11.4 5.6
Overall 26.7 9 4 8.9 5.7
-
8/14/2019 Towards 3rd Issue
24/34
Notice that crude petroleum and refinery products, these two sectors growth had fallen too much wh
is enough too creates pressure on the supply of petroleum products, fertilizers and that is leading towa
price rise, finally inflation.
When our country is growing at an average of 8% every year, disposable income of people are growing
a fast pace, people are spending in perishable goods, durable goods and real estate heavily, the co
sectors are expected to grow at more than 8% in every quarter. Only then the supply demand misma
can be solved to some extent.
Now just look at the following tables for the industrial growth in the 2008
Sector Weight
(%)
in IIP*
Growth in %
Jan-07 Jan-08 Apr-Jan
06-07
Apr- Jan
07-08
Crude petroleum 4.17 4.7 -0.2 5.9 0.3
Refinery products 2 11.2 5.3 13 7.3
Coal 3.22 9.9 4.8 5.2 4.8
Electricity 10.17 8.3 3.3 7.6 6.3
Cement 1.99 7.2 5.2 9.9 7
Finished steel
(Carbon)
5.13 8.5 5.5 11.1 5.1
Overall 26.7 8.3 4.2 8.9 5.5
Sector Weight
(%)
in IIP
Feb-08
% growth
Feb-07
% growth
Apr- Feb
07-08
% growth
Apr-Feb
06-07
% growth
Crude petroleum 4.17 2.30 4.90 0.40 5.80Refinery products 2.00 5.80 11.30 7.20 12.80
Coal 3.22 11.70 6.50 5.60 5.30
Electricity 10.17 9.60 3.30 6.60 7.20
Cement 1.99 12.40 5.80 7.50 9.50
Finished steel (carbon) 5.13 8.20 13.60 5.00 11.30
Overall 26.70 8.70 7.60 5.60 8.70
Though in February the core six sectors grew overall but the petroleum and steel sectors are
underperforming. Can they be penalized for their underperformance that is leading to inflation? Af
months of underperformance how the steel plants, the iron ore mines can go for price increase? They
defending themselves that in the international market price is increasing, but are performing like
international players?
Now let us come to the financial sector. What can be their role in causing inflation? Yes, there is its ro
Has anyone of you ever noticed the central bank interest rates of different countries especially develop
ones and the currency conversion rates?
-
8/14/2019 Towards 3rd Issue
25/34
Last month US dollar was decreasing w.r.t. almost all the major currencies including Indian Rupee. N
just think carefully, in the US the 90 day rate is 1.28% and in India it is 7%. With this massive r
differential generally there is a trend of carry trading. What is that? It is borrowing money from a coun
where the borrowing cost is low i.e. the interest rate that you have to pay on borrowing the money is
and then investing the money in a country where return is high i.e. the interest rate on getting back
money is high. Hence there will be lots of capital inflow in the country where interest rate is high. Sam
happening to India. Big investors and FIIs are borrowing from the US and investing in India and earning
interest rate differential. Hence capital inflow in India is increasing heavily causing increase in the mo
supply finally leading to inflation. Last month when Indian Rupee was appreciating against US Dollar ca
traders were discouraged as such appreciation was decreasing their earnings from carry trading.
Indian Rupee appreciation was hurting Indian exports, hence the central bank (RBI) interfered and a
due to easing out of the speculation of credit crunch through out the world lead to a stop on th
appreciation. Now US Dollar is appreciating against the Indian Rupee and giving a chance to the ca
traders to increase the trading and capital inflow to India.
Hence we saw that inflation is not only creating problem in India but it is a global problem now. Just tak
look
CountriesAnnual Inflation Rate (%)
(CPI based) 2006
Annual Inflation Rate (%)
(CPI based) 2008
China 0.9 8.3
Singapore 1.2 6.3
Japan -0.1 0.7
Hong Kong 1.2 6.1
India 4.6 5.4
Sweden 0.6 3.1
Germany 1.8 2.8
Spain 3.9 4.3
Australia 2.8 3.0
Russia 10.5 12.0
Britain 2.0 2.5
South Africa 3.8 9.3
Brazil 5.4 4.5
United States 3.5 3.9
-
8/14/2019 Towards 3rd Issue
26/34
Now the question is what is the solution? As per Economics there cannot be a particular solution to
economic problem, each and every problem has its own disadvantage and hence it is difficult to prescr
a particular solution to this inflation problem. But still now we can discuss some of the measures.
First the point here is that this problem is a combination of both demand supply mismatch
increasing money supply. So we need to concentrate on both these issues.
Regarding the essential commodities the Indian Government already has curbed the exports of rice, try
to stop hoarding; export of cement is also under consideration along with an import of around 11.5 M
of cement from Pakistan at a cheaper rate (in Pakistan cement price is Rs.170 Rs.175 per 50 kg wher
in India it is Rs.230 235).
FCI should achieve the target regarding buying enough wheat and rice from the farmers so that it
build its buffer stock. But this is a very difficult task to achieve, it seems and India may have to proc
wheat from the international market again. In this regard I want to let you know that the government
allocated a minimum support price (MSP) for wheat at Rs.1000 per quintal which is double w.r.t what w
paid last year but less than by at least Rs.150 per quintal w.r.t. the market price. Hence the governme
can pay an advance to the farmers after a month on the basis of the amount purchased from them so t
the farmers can be attracted towards government procurement. This is already a method that FCI ado
for sugarcane.
Another solution that already the government is considering using a call option to hedge against
rising global prices so that if it has to buy in future it can buy at a rate lesser than the prevailing mar
rate. This measure can act as a deterrent to the farmers willingness to sell wheat to the private play
rather than the government.
Secondly the government had withdrawn the import duty from the crude edible oils and reduced the d
from the refined oils. Though this has brought down the wholesale prices of the edible oils through
the country but it will definitely increase the fiscal deficit.
Third is to ban the export of iron ore at least temporarily, this will lead to increase in domestic supply a
also the government will be able to add at least Rs.2000 crores to its exchequer in the form of excise d
Also government should ask the NMDC to reduce the raw material price otherwise the steel producers
not be able to reduce the steel prices.
Fourth is about increasing the industrial production especially the petroleum and crude oil sector, iron a
steel sector and cement sector. A reduction in the growth of these sectors will definitely hamper not o
the physical growth but also the fiscal growth of the nation.
The fifthsolution about which Im going to discuss is the most common monetary regulation and tha
increasing the central bank interest rate or technically Cash Reserve Ratio (CRR) from 7.75% to 8% or m
-
8/14/2019 Towards 3rd Issue
27/34
whatever the RBI suits better. But will that reduce the capital flow through FII path? Recently ASSOCH
Chairman Mr. Venugopal Dhoot suggested adopting this path immediately. I feel his opinion is pu
superficial without analyzing the situation deeply. Also one suggestion that he had given ban of
commodity futures trading. I feel this is the most absurd solution that a person like him can give. I do
know how, being the Chairperson of a top most industrial body, a person can suggest such an abs
solution.
Since I am not supposed to discuss the benefits or the necessities of futures trading of commodities he
in this article, I just only want to mention that taking such a decision by the Indian government will
only create chaos in the market but it will be of no use, it will make the pricing mechanism of t
commodities, including the essential ones, very much inefficient and the AAM AADMI will bear t
brunt, not persons like Mr. Venugopal Dhoot.
Once I read an article in the Business Standard, and the writer suggested amending the RBI Act, so t
finally the Indian Rupee can be allowed to appreciate against the US Dollar freely, which will fin
discourage the carry traders to trade and thus the capital inflow can be controlled through the FII pa
Well I am really not very sure about this solution. Could anyone from the readers please throw some li
on this issue?
In the above article I have just tried to throw some light on the current burning issue of inflation, whic
not only a national but international problem and caused by not only the domestic abnormalities but a
by the international ones.
If anyone of you has any further suggestions regarding the causes and solutions to the problem of inflat
please suggest us.
Contributed By
Kankan Paul (+91 9962752791)
Commodity Mantra
-
8/14/2019 Towards 3rd Issue
28/34
Political Rad
Monarchy in super Democra
Rahul Gandhi, the crown Prime Minister of India is roamin
across the nation to understand the pulse of India. To
precise, he wants to know the real problems and challen
that hound the India nation. It is ironical that people who
going to rule this country do not know the country. All sec
generation leaders be it Rahul,Priyanka,N
Jindal,Jyotiraditya Scindhia,Manvendra Singh, Umar Abdu
and many moreare all born with silver spoonsThe challe
is how are they going to rule this nation..How much do
know about itNothing literally? All Oxford, Boston or Stan
return Political NRIs, people who spent their childhood pla
Squash and Golf in marquee lawns of London AND
probably would be ruling the nation down the line are actu
illiterate in the sense that their interaction with Indiaas it is is very low and it would be practi
difficult for them to function in a way, they should
It is hance, very appreciable that Mr Rahul Gandhi is trying to understand India in all nooks and corn
He must know India that is beyond 10 Janpath, Columbian Beaches or may be Delhi metro..
Why only Rahul all our politicians in Z-++ security should come on streets , roam villagesnight ou
suburbs leaving their cordon security this is the only way to understand India of 1 billion+ people
how difficult life has been for them all along.
The execution of Indian national
Sarabjit Singh, sentenced to
death for his alleged involvement
in bomb attacks in Pakistan, has
not been postponed further, a
presidential spokesman said on
Saturday, April 19th
.The hanging of
Sarabjit was deferred for 30 days
by President Pervez Musharraf last
month so that Pakistan's new
government could review his case
following an appeal for clemency
from the Indian government.
Sarabjit was originally set to be
executed on April 1. Government
of India has asked for help in the
matter from US President Bush.
China will execute almost 400 people during the Beij
Olympics this August, leading human rights watch
Amnesty International has alleged. "According to reli
estimates, on (an) average China secretly executes around
prisoners every day -- that's 374 people during the Olym
Games," Amnesty's British director Kate Allen said in a statem
In its annual report on worldwide executions, the human ri
group said on Tuesday that Iran remains the country with
second highest number of executions, and that the number
nearly doubled from the year before. The 377 inmates includ
man stoned to death for committing adultery. The United St
was fifth in the rankings with 42 executions.
President Pratibha Patil passed
national flags in Mexico withoutbowing .She passed by both the
flags of India as well as Mexico
without bowing as is necessary
under the protocol of both India
and Mexico. She perhaps did not
know the basic protocol, a
president must have known. For
this she was deliberately insulted
by 15 senators of Mexico causing
embarrassments for Indian
-
8/14/2019 Towards 3rd Issue
29/34
You know why we are unable to solve even the most basic issues of common men. Because people a
helm of affairs do not understand that unless they travel by state buses they would never underst
why a bus with 48 tender kids got drowned in Narmada river in Vadodra and why no state help co
reach them until 2 hours when all those who could be saved were drowned. They didnt diethey w
killed. Most of the people on our roads do not die by accidentthey got killed by state machinery.
Mr Praful Patel,our Minister of aviation has a great sense of economics. Ask him and he will tell you
we have uncomfortable food inflation. His answer North Indian are consuming more of Rice and SIndians more of wheat so please do not blame Government to be poorly handling
fiasco. Rather it is you to be blamed. Great economics Mr Patel!!!.
So at least Mr Rahul is trying to understand India from deep within its roots. It is more crucial tha
learns that India as a nation has become almost Hopeless and things down the lanes.distant from
top echelons of power and luxury is very very ugly. It is in this ugliness that a common Indian is livin
lifethroughout the 50 years of Indian nation. In these 50 years, there has nothing that has changed
many people in this nation. They
are still living in same ugliness
and darkness.
I believe perhapsthis was the
something that has lacked in all
our Leaders that they do not
know the fundamental glooms of
India.
At least Mr Rahul Gandhi is trying
to understand that.
Kudos Mr Rahul Gandhi!!!!
And also to concept of before job
training.
The Supreme Court, in a significant verdict on Thursday
upheld the law enacted by the Union Government providing
27 per cent quota for Other Backward Classes in Centra
educational institutions such as IITs/IIMs from the academi
year 2008-09. The court, however, made it clear that creamy
layer should be excluded from the socially and educationall
backward classes. The court said that the definition ofOBCin Section 2(g) of the Act shall be read as SEBC other tha
SC/ST determined by Central Government, and if the
determination is with respect to caste, creamy layer shall b
excluded.
-
8/14/2019 Towards 3rd Issue
30/34
TATA Group Companies: A research of Group Compan
TATA POWER
Tata Power is Indias largest private sector
power utility with installed capacity in excess
of 2,300 mw. Over 600 mw new capacity is
likely to be added during FY09, with another
8,000 mw capacity to be added over the next
five years including a 4,000-mw UMPP at
Mundra. TPL has acquired a 30% stake in two
major Indonesian coal producers to assure
future fuel requirements. It is emerging as an
integrated player in India's power sector with
investments in power generation,
transmission, distribution and fuel supplies
(coal mining and transport).
Meeting the time and cost deadlines while
executing the long gestation projects is a big
challenge as the costs of equipment and
project implementation services have gone up
substantially. Even after the successful
completion of its projects, TPL has to manage
the regulatory environment well to ensure
sufficient return on its investments.
INDIAN HOTELS
Indian Hotels runs the largest domestic hotel
chain with 71 hotels and an inventory of
10,487 rooms. It enjoys presence across wide
range of hotels right from deluxe properties
to budget. This puts the company in a bright
spot and helps it take advantage of the
growing tourism industry in India. _Besides,
the company has 14 properties overseas and
is expanding its global footprint via
acquisitions and greenfield ventures. This is
likely to result in greater brand recognition
abroad. Its recent entry into lucrative
segment of business jets will help the
company to take advantage of growing
opportunities in this space.
Its revenue is greatly dependent on India,
where average room rates are expected to
see a decline beyond FY09 when supply starts
coming in. Rising real estate costs have
greatly reduced the return on capital on new
properties in major cities.
TATA TEA
The company has taken initiatives to
introduce different variants of tea. It has also
forayed into bottled water and other
beverages. This is likely to help it transform
itself from a tea company to a beverages
company. Acquisitions, geographic expansion
and new products are the way to go for Tata
Tea, which is already the second largest
integrated tea company in the world. Its retail
foray through Chai Unchai beverage stores is
likely to open a new route of growth for the
company. Tata Tea operates in a labour-
intensive tea industry, which has long
gestation periods. This can be an imepdiment
in improving operational efficiency. The
company will have to grapple with the
increase in raw material prices. The
appreciation in the rupee is likely to drag
profitability of the international businesses.
http://economictimes.indiatimes.com/Features/Investors_Guide/A_dozen_reasons_for_Ratan_Tata_to_smile/articleshow/msid-2931112,curpg-5.cmshttp://economictimes.indiatimes.com/Features/Investors_Guide/A_dozen_reasons_for_Ratan_Tata_to_smile/articleshow/msid-2931112,curpg-5.cmshttp://economictimes.indiatimes.com/Features/Investors_Guide/A_dozen_reasons_for_Ratan_Tata_to_smile/articleshow/msid-2931112,curpg-5.cms -
8/14/2019 Towards 3rd Issue
31/34
TATA COMMUNICATIONS
Utilisation of existing infrastructure to deliver
valueadded services is a sound proposition for
Tata Communications. The company recently
tied up with Telsima to provide WiMAX
services in the country. It has also launchedits global telepresence network service to
offer virtual meeting solutions. These
initiatives will fuel future revenue growth.
Tata Comms strategy to build global tie-ups
for high-end technologies will help it keep pace
with the fast-changing technology scenario
and improve its global presence. Tata Comm
needs to increase focus on deploying
managed services, given the stiff competition
in domestic as well as global enterprise dataspace from bigger telecom operators. The
company has to improve operational
processes in order to increase customer base
for its broadband and other services rapidly.
TATA CHEMICALS
The recent acquisition of US-based General
Chemicals has consolidated position of Tata
Chemicals (TCL) in the global soda ash market.
Post-acquisition, TCL has become the second
largest soda ash manufacturer in the world
with majority of the production coming from
cheaper natural sources. This goes well with
its overall global strategy. TCL is already on an
expansion spree for its inorganic chemicals
and fertilisers plants in India. This will help it
to strengthen its domestic presence. TCL is
setting up a 30,000-litres-per-day ethanol
plant and has ventured into wholesaling of
fresh agricultural produce. This diversification
would help in mitigating risk from slowdown
in the core business. TCL has to see through
an effective integration strategy of its soda
ash business with the overseas acquisition.
Managing overall growth of the company will
be a tough task given the diversification into
new business domains.
VOLTAS
Voltas is a market leader in central air-
conditioning and climate control business in
India, besides being a major player in
booming West Asia. It is also India's leading
distributor and re-seller of textile and mining
equipment. Recently it went through a
corporate restructuring which has
transformed it into a leaner and competitive
player. The demand for central A/Cs and
climate control systems is booming, thanks to
rapid growth in retail, real estate and
hospitality sectors. It has also got a boost
from strong capex in textile, mining and retail
sectors where it supplies forklifts. Being a
capital goods supplier, it's highly prone to an
economic downturn. It faces strong
competitors across its product portfolio. The
consumer air-conditioner business continues
to be a drag on the company's profitability.
-
8/14/2019 Towards 3rd Issue
32/34
Soros: Most serious financial crisis of the lifetim
Global financial system is relying on a false paradigm that the financial
Markets tend towards equilibrium and deviations from the equilibrium are
random. I disagree with this and propose a different paradigm that is based
on the concept ofreflexivity.
Right now, we have not just one of these situations connected with the
housing market, but what I call a super bubble.
A reflexive relationship is bidirectional; with both the cause and the effect affecting each another i
a situation that renders both functions causes and effects.
Reflexivity is discordant with equilibrium theory, which stipulates that markets move towards
equilibrium and that non-equilibrium fluctuations are merely random noise that will soon be
corrected.
In equilibrium theory, prices in the long run at equilibrium reflect the underlying fundamentals,
which are unaffected by prices.
Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influence
set of fundamentals then proceed to change expectations, thus influencing prices; the process
continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towarddisequilibrium--a case in which every outcome is uniquely different from the past in a visible
absence of equilibrium.}
{Reflexivity refers to circular relationships
between cause and effect.}.
-
8/14/2019 Towards 3rd Issue
33/34
-
8/14/2019 Towards 3rd Issue
34/34
This magazine is being published and circulated on behalf of Mantra Consultancy Group and
Stockyard by Mr.Akshar Prem and Mr Chandra Prakash .All the liabilities and issues concern to
named individuals.
To get an ad-space write to us at
Send your Suggestions / query at
Send entries for guest column at
mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]