Friday, January 30, 2009
India & China to buoy world eco this yr: IMF
India & China to buoy world eco this yr: IMF
The Times of India, January 30, 2009, Page 1
Global Growth to be lowest since WW-II
TIMES INSIGHT GROUP
China and India—the only sizeable economies likely to record growth rates of over 5%—will prevent the world from recording negative growth in 2009, said the International Monetary Fund (IMF) on Wednesday. Even so, at 0.5%, the world economy will register its slowest growth rate since the Second World War.
The IMF’s update to its World Economic Outlook is a sharp downward revision from the 2.2% growth in global output it had projected as recently as November last year. It now estimates the Chinese economy will grow at 6.7% rather than the 8.5% anticipated in November, while the forecast for India has been pared from 6.3% to 5.1%.
The advanced economies are projected to record a 2% decline in output. Ironically, while the US—where the current global crisis originated—will suffer a decline of only 1.6%, the UK will see its economy shrink by 2.8%, Japan by 2.6% and Germany by 2.5%. The Euro area will fare worse with a 2% drop in output in 2009.
For 2010, the Fund foresees an impressive global recovery to 3% growth, with China’s 8% and India’s 6.5% once again leading the way. While the US will bounce back to grow by 1.6%, the Euro area and the UK will grow by 0.2%, and Japan by a somewhat better 0.6%.
The Times of India, January 30, 2009, Page 1
Global Growth to be lowest since WW-II
TIMES INSIGHT GROUP
China and India—the only sizeable economies likely to record growth rates of over 5%—will prevent the world from recording negative growth in 2009, said the International Monetary Fund (IMF) on Wednesday. Even so, at 0.5%, the world economy will register its slowest growth rate since the Second World War.
The IMF’s update to its World Economic Outlook is a sharp downward revision from the 2.2% growth in global output it had projected as recently as November last year. It now estimates the Chinese economy will grow at 6.7% rather than the 8.5% anticipated in November, while the forecast for India has been pared from 6.3% to 5.1%.
The advanced economies are projected to record a 2% decline in output. Ironically, while the US—where the current global crisis originated—will suffer a decline of only 1.6%, the UK will see its economy shrink by 2.8%, Japan by 2.6% and Germany by 2.5%. The Euro area will fare worse with a 2% drop in output in 2009.
For 2010, the Fund foresees an impressive global recovery to 3% growth, with China’s 8% and India’s 6.5% once again leading the way. While the US will bounce back to grow by 1.6%, the Euro area and the UK will grow by 0.2%, and Japan by a somewhat better 0.6%.
Pranab-bank meet may lead to more rate cuts
Pranab-bank meet may lead to more rate cuts
Business Standard, January 30, 2009, Page 1
Banks say cost of funds still high, sectoral cuts possible
NILADRI BHATTACHARYA &SIDHARTHA
Mumbai, 29 January
In a possible precursor to further rate cuts, Finance Minister Pranab Mukherjee’s meeting with public sector bank chiefs Monday will review their benchmark prime lending rates (BPLR) and interest rates on loans for automobiles, homes, small and medium enterprises (SMEs) and non-banking finance companies (NBFCs).
The government has indicated that it would like interest rates to be reduced next month, just before elections are announced. Bankers, however, have said a rate cut is only possible in March, a source said.
“If the government wants, we can look at extending additional or special lines of credit to certain sectors, where all public sector banks can participate,” a senior executive at astate-owned entity said.
Banks contend that the cost of funds is still high, even though it has been falling through successive rate cuts by the central bank in 2008.
Cutting lending rates will also mean cutting deposit rates and bankers fear losing out to small savings schemes such as post office deposits and public provident fund as a result, which could eventually hamper resource mobilisation to feed credit growth. Small savings schemes offer 8 per cent plus tax benefits. In contrast, banks have reduced interest rates on deposits and only those with a maturity of four years or more come with tax breaks. For instance, State Bank of India offers up to 9 per cent.
Since November, public sector banks have reduced lending rates by up to 150 basis points, against 50 basis points by their private sector competitors. Deposit rates have fallen by up to 300 basis points.
Following the latest round of reductions in deposit rates earlier this month, banks have seen resource mop-up drop to Rs 11,300 crore during the fortnight ended January 16 from nearly Rs 70,000 crore in the previous fortnight.
Finance ministry officials have already held discussions with bankers to assess the flow of credit to various sectors.
Mukherjee is also scheduled to discuss the impact of the stimulus package and the utilisation of refinance to National Housing Bank (Rs 5,000 crore) and the small industries lender Sidbi (Rs 9,000 crore).
The government also wants to assess how banks have fared in extending credit to NBFCs and for commercial vehicle finance. Credit flow to housing, real estate, SMEs and infrastructure and the experience with non-performing assets in these segments is also on the agenda. Banks have been asked to report on their progress on restructuring stressed assets, since the process has to start latest by January 31.
In recent months, banks have scaled down credit to certain segments such as housing, NBFCs and small scale industry owing to a fear of defaults and a drop in demand ( see table ).
LATESTRBI data shows that in the fortnight-ended January 16, lending by scheduled commercial banks, including regional rural banks, was estimated at Rs 13,837 crore against Rs 14,469 crore in the previous fortnight.
With banks going slow on lending, there has been a rise in the statutory liquidity ratio (SLR) holdings from 25.8 per cent in mid-October to 28.9 per cent in early January.
But data also revealed that public sector banks seen a 28.6 per cent rise in credit flow for the year up to January 2 this year, against 19.8 per cent in the year up to January 4, 2008. In contrast, the growth in credit flow from private and foreign banks has dropped sharply despite demand shifting from equity and overseas markets to the Indian banking system.
Business Standard, January 30, 2009, Page 1
Banks say cost of funds still high, sectoral cuts possible
NILADRI BHATTACHARYA &SIDHARTHA
Mumbai, 29 January
In a possible precursor to further rate cuts, Finance Minister Pranab Mukherjee’s meeting with public sector bank chiefs Monday will review their benchmark prime lending rates (BPLR) and interest rates on loans for automobiles, homes, small and medium enterprises (SMEs) and non-banking finance companies (NBFCs).
The government has indicated that it would like interest rates to be reduced next month, just before elections are announced. Bankers, however, have said a rate cut is only possible in March, a source said.
“If the government wants, we can look at extending additional or special lines of credit to certain sectors, where all public sector banks can participate,” a senior executive at astate-owned entity said.
Banks contend that the cost of funds is still high, even though it has been falling through successive rate cuts by the central bank in 2008.
Cutting lending rates will also mean cutting deposit rates and bankers fear losing out to small savings schemes such as post office deposits and public provident fund as a result, which could eventually hamper resource mobilisation to feed credit growth. Small savings schemes offer 8 per cent plus tax benefits. In contrast, banks have reduced interest rates on deposits and only those with a maturity of four years or more come with tax breaks. For instance, State Bank of India offers up to 9 per cent.
Since November, public sector banks have reduced lending rates by up to 150 basis points, against 50 basis points by their private sector competitors. Deposit rates have fallen by up to 300 basis points.
Following the latest round of reductions in deposit rates earlier this month, banks have seen resource mop-up drop to Rs 11,300 crore during the fortnight ended January 16 from nearly Rs 70,000 crore in the previous fortnight.
Finance ministry officials have already held discussions with bankers to assess the flow of credit to various sectors.
Mukherjee is also scheduled to discuss the impact of the stimulus package and the utilisation of refinance to National Housing Bank (Rs 5,000 crore) and the small industries lender Sidbi (Rs 9,000 crore).
The government also wants to assess how banks have fared in extending credit to NBFCs and for commercial vehicle finance. Credit flow to housing, real estate, SMEs and infrastructure and the experience with non-performing assets in these segments is also on the agenda. Banks have been asked to report on their progress on restructuring stressed assets, since the process has to start latest by January 31.
In recent months, banks have scaled down credit to certain segments such as housing, NBFCs and small scale industry owing to a fear of defaults and a drop in demand ( see table ).
LATESTRBI data shows that in the fortnight-ended January 16, lending by scheduled commercial banks, including regional rural banks, was estimated at Rs 13,837 crore against Rs 14,469 crore in the previous fortnight.
With banks going slow on lending, there has been a rise in the statutory liquidity ratio (SLR) holdings from 25.8 per cent in mid-October to 28.9 per cent in early January.
But data also revealed that public sector banks seen a 28.6 per cent rise in credit flow for the year up to January 2 this year, against 19.8 per cent in the year up to January 4, 2008. In contrast, the growth in credit flow from private and foreign banks has dropped sharply despite demand shifting from equity and overseas markets to the Indian banking system.
Govt clears infra projects worth Rs 34,000 crore
Govt clears infra projects worth Rs 34,000 crore
Business Standard, January 30, 2009, Page 2
BS REPORTER
New Delhi, 29 January
In a major push to the infrastructure sector, the Cabinet on Wednesday cleared projects worth around Rs 34,000 crore, including the Chennai Metro project.
Apart from that, foreign direct investment (FDI) worth Rs 957 crore in Krishnapatnam Port Company Ltd, which is currently developing the Krishnapatnam port in Andhra Pradesh, was also approved.
The Union Cabinet yesterday gave its approval to Phase Iof the Chennai Metro project, covering a length of around 45 km. The total cost of the first phase has been estimated at Rs 14,600 crore. On the lines of Delhi Metro, this project will be entirely funded by the Centre and Tamil Nadu government on 50:50 basis.
The Cabinet also approved the Delhi Metro Railways (Amendment) Bill, 2009, to amend the Delhi Metro (Operation and Maintenance) Act, 2002, and the Metro Railways (Construction of Works) Act, 1978. “The requirement to move this Bill arose because without a proper legal framework the construction work of the extension to Gurgaon and Noida can be stalled any time or legally challenged. Since these extensions are to be completed before the Commonwealth Games, 2010, there is an urgency to provide an appropriate legal cover for these extensions,” said an official statement.
OTHER DECISIONS
· Additional market borrowing of Rs 30,000 crore for states by March. The states will continue to get incentives associated with prudential norms even if their fiscal deficit is 3.5 per cent as against the mandated 3 per cent
· All Prasar Bharati employees working in All India Radio and Doordarshan and recruited on or before October 5, 2007, to be considered as central government employees on deemed deputation
· Redevelopment plan for Lady Hardinge medical college approved
· India to join International Renewable Energy Agency
· Rs 125 crore financial relief to ITI Ltd
· India-Albania double taxation avoidance agreement
· Continuation of National Vector Borne Disease Control Programme
· Revision of basic guidelines for urban poor under the Integrated Housing and Slum Development Programme
· Approval to National Commission for Heritage Sites Bill, 2009
· Modifications in guidelines of centrally-sponsored Swarna Jayanti Shahri Rozgar Yojana
· Budgetary support of Rs 71.84 crore for nine sick, lossmaking companies under the Department of Heavy Industry
AFFORDABILITY, the new realty mantra
AFFORDABILITY, the new realty mantra
The Economic Times, ET Realty, 30 January 2009, page 29
Gurgaon, which till recently was catering greatly to high-end customers, has now started moving towards a more affordable range of housing, complete with infrastructural development. ET Realty reports
Prabhakar Sinha
With real estate market facing considerable slowdown, a new trend of building affordable houses is emerging in the National Capital Region of Delhi. After Ghaziabad, Indirapuram, Noida, Greater Noida and Faridabad, a number of projects in the range of Rs 20 lakh to Rs 30 lakh for an apartment, have been launched in Gurgaon.
So far, Gurgaon has been known for its luxury apartments. In the last two years, the township witnessed the development of apartments in the price range of Rs 3,500 to Rs 10,000 per sq ft. On top of this, the size of most of the apartments used to be upwards of 1,800 sq ft. Thus, the cheapest apartment available in the area was priced around Rs 60 lakh. This affected demand in the residential real estate sector here. At the same time, as most builders were into the construction of premium apartments, these properties are in oversupply and witnessing correction in prices.
With capital values ranging approximately in the Rs 5,000-8,000/sq ft in residential apartments such as Beverly Park I & II, Heritage City, Garden Estate, etc, the cheapest apartment in this area is available for around Rs 1 crore. Golf Course Road also gained prominence with developers planning large projects catering to the luxury and premium segment customers.
In fact, there has been a deluge of luxury residential projects on the Golf Course Road, and this coupled with wide roads leading to efficient connectivity, large corporations chose to be located in this area. Golf Course Road thus gained the tag of "the address" in Gurgaon, with excusive luxury projects such as Aralias, Magnolias, Exotica, Central Park 1 being located on this stretch. Capital values in these projects range between Rs 6,500 and Rs 10,000 per sq ft. But as the premium segment of apartments are in oversupply, this has witnessed some correction in prices in the last two months. According to a Cushman & Wakefield report, approximately 8-10% correction has been recorded in these areas in the recent past, although downside is limited due to high occupancy levels and a broad end user base. To revive demand and real estate activities in the area, realtors have now changed their strategy, focusing their projects on affordable housing segment in Gurgaon, as well as Manesar. Various projects have been announced on the Rajiv Chowk-Manesar stretch along NH-8, in the this segment owing to lower land costs - some projects cater to the high-end segment as well. As areas like MG Road and Golf Course Road started to saturate with realty development, growth shifted along NH-8 with a slew of projects launched in these new sectors. With the master plan also emphasizing on these new sectors and with infrastructural initiatives in the form of Metro, ISBT, KMP expressway, Northern and Southern Periphery Road, one can be assured of strong connectivity to other parts of Gurgaon and Delhi, says the report. The capital values of projects along this stretch are in the range of Rs 2,000-Rs 3,500 per sq ft. With apartment sizes varying between 1,200 sq ft and 1,800 sq ft, their prices range from Rs 24 lakh to Rs 40 lakh. The report states that prices are not only attractive for end users, but also for long-term investors. As Gurgaon grows and projects on this stretch come up, one can expect capital values to appreciate in the long term. A number of builders like Pal Group, Falcon Realty, ILD Group, Bestech Group and Raheja Developers have launched a number of projects in the affordable range in the Gurgaon-Manesar region. A number of affordable housing projects are coming up in Sector 37 and 71 of Gurgaon.
Falcon group has launched studio apartments at Rs 5.5 lakh in Global Eqi-city on NH-58; one-bedroom apartment with hall and kitchen on 650 sq ft of covered area for Rs 10 lakh and two-bedroom apartment on 950 sq ft for Rs 15 lakh. Similarly ILD group has launched Spire Green in Sector 37, priced Rs 26 lakh onwards. Pal group has launched the Pal City Park in Sector 95 in Gurgaon for Rs 26 lakh. Similarly, Bestech group and Sidharth Buildtech have launched projects in Sector 71 and 95, respectively, for around Rs 30 lakh. Raheja group has already launched a low-cost apartment project in Sector 92 at around Rs 27 lakh. Big builders like DLF and Unitech are also planning to launch affordable houses in Gurgaon.
The Economic Times, ET Realty, 30 January 2009, page 29
Gurgaon, which till recently was catering greatly to high-end customers, has now started moving towards a more affordable range of housing, complete with infrastructural development. ET Realty reports
Prabhakar Sinha
With real estate market facing considerable slowdown, a new trend of building affordable houses is emerging in the National Capital Region of Delhi. After Ghaziabad, Indirapuram, Noida, Greater Noida and Faridabad, a number of projects in the range of Rs 20 lakh to Rs 30 lakh for an apartment, have been launched in Gurgaon.
So far, Gurgaon has been known for its luxury apartments. In the last two years, the township witnessed the development of apartments in the price range of Rs 3,500 to Rs 10,000 per sq ft. On top of this, the size of most of the apartments used to be upwards of 1,800 sq ft. Thus, the cheapest apartment available in the area was priced around Rs 60 lakh. This affected demand in the residential real estate sector here. At the same time, as most builders were into the construction of premium apartments, these properties are in oversupply and witnessing correction in prices.
With capital values ranging approximately in the Rs 5,000-8,000/sq ft in residential apartments such as Beverly Park I & II, Heritage City, Garden Estate, etc, the cheapest apartment in this area is available for around Rs 1 crore. Golf Course Road also gained prominence with developers planning large projects catering to the luxury and premium segment customers.
In fact, there has been a deluge of luxury residential projects on the Golf Course Road, and this coupled with wide roads leading to efficient connectivity, large corporations chose to be located in this area. Golf Course Road thus gained the tag of "the address" in Gurgaon, with excusive luxury projects such as Aralias, Magnolias, Exotica, Central Park 1 being located on this stretch. Capital values in these projects range between Rs 6,500 and Rs 10,000 per sq ft. But as the premium segment of apartments are in oversupply, this has witnessed some correction in prices in the last two months. According to a Cushman & Wakefield report, approximately 8-10% correction has been recorded in these areas in the recent past, although downside is limited due to high occupancy levels and a broad end user base. To revive demand and real estate activities in the area, realtors have now changed their strategy, focusing their projects on affordable housing segment in Gurgaon, as well as Manesar. Various projects have been announced on the Rajiv Chowk-Manesar stretch along NH-8, in the this segment owing to lower land costs - some projects cater to the high-end segment as well. As areas like MG Road and Golf Course Road started to saturate with realty development, growth shifted along NH-8 with a slew of projects launched in these new sectors. With the master plan also emphasizing on these new sectors and with infrastructural initiatives in the form of Metro, ISBT, KMP expressway, Northern and Southern Periphery Road, one can be assured of strong connectivity to other parts of Gurgaon and Delhi, says the report. The capital values of projects along this stretch are in the range of Rs 2,000-Rs 3,500 per sq ft. With apartment sizes varying between 1,200 sq ft and 1,800 sq ft, their prices range from Rs 24 lakh to Rs 40 lakh. The report states that prices are not only attractive for end users, but also for long-term investors. As Gurgaon grows and projects on this stretch come up, one can expect capital values to appreciate in the long term. A number of builders like Pal Group, Falcon Realty, ILD Group, Bestech Group and Raheja Developers have launched a number of projects in the affordable range in the Gurgaon-Manesar region. A number of affordable housing projects are coming up in Sector 37 and 71 of Gurgaon.
Falcon group has launched studio apartments at Rs 5.5 lakh in Global Eqi-city on NH-58; one-bedroom apartment with hall and kitchen on 650 sq ft of covered area for Rs 10 lakh and two-bedroom apartment on 950 sq ft for Rs 15 lakh. Similarly ILD group has launched Spire Green in Sector 37, priced Rs 26 lakh onwards. Pal group has launched the Pal City Park in Sector 95 in Gurgaon for Rs 26 lakh. Similarly, Bestech group and Sidharth Buildtech have launched projects in Sector 71 and 95, respectively, for around Rs 30 lakh. Raheja group has already launched a low-cost apartment project in Sector 92 at around Rs 27 lakh. Big builders like DLF and Unitech are also planning to launch affordable houses in Gurgaon.
UP calls projects pre-bid meet today
UP calls projects pre-bid meet today
The Financial Express, January 30, 2009, page 9
Lucknow: To attract the private sector towards infrastructure development in the state, a high-level delegation of the Uttar Pradesh government, led by chief secretary Atul Kumar Gupta, will hold a pre-bid meet in New Delhi on Friday.
The objective is to facilitate a constructive interaction among the top-rung industrialists, their associations, business people and potential investors with senior state government officials.
The four departments that have been identified as thrust areas are tourism, transport, technical education and housing and urban rejuvenation.
The team of high-level government officials who have been dispatched include the industrial and infrastructure development commissioner VK Sharma, principal secretary, finance, Anup Mishra, principal secretary, infrastructure, VN Garg, and principal secretary, chief minister, Ravindra Singh, along with other senior government officials from various departments.
Thursday, January 29, 2009
Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr
Unitech’s Chandra may exit Orissa Sponge for Rs 40 cr
The Economic Times, January 29, 2009, p13
Sanjeev Choudhary & Pramugdha Mamgain
The Economic Times, January 29, 2009, p13
Sanjeev Choudhary & Pramugdha Mamgain
NEW DELHI : THE family of Ramesh Chandra, chairman and promoter of cash-strapped real estate firm Unitech, may raise Rs 40 crore by selling its shares in Orissa Sponge Iron & Steel to Bhushan Steel while scrambling to make ends meet in a sector that is seeing a sharp reversal of fortune. Bhushan Steel already owns 6% in Bhubaneswar-headquartered Orissa Sponge.
Unitech had debts worth Rs 8,300 crore on its balance sheet in September 2008, of which it had to pay back Rs 2,500 by March 2009. The company claims to have whittled this figure down to Rs 600 crore but continues to search for fresh sources of funds. Ramesh Chandra’s family has been struggling to find a buyer for its 12.11% stake in Orissa Sponge after earlier negotiations with Korean steel major Posco came to naught. The Unitech spokesman declined to comment on the deal.
The Chandra family may get Rs 160-170 per share, which is 50% premium over Orissa Sponge’s current share price that closed at Rs 111.95 on the BSE on Wednesday. The scrip gained 21% within a week, and has almost doubled in price since December 8.
After the Chandra deal, Bhushan Steel will own 18% share in Orissa Sponge, and be compelled by Sebi rules to make an open offer to buy another 20% from the market.
“We are still in discussions with Unitech for acquiring the stake. If it happens, it will add to our existing sponge iron capacity in Orissa meant for captive use. Sponge iron will be converted to steel billets that are primarily used in construction,” said a top executive at Bhushan Steel, who did not wish to be named.
The Chandras own the shares in Orissa Sponge through its investment arm Prakausali Investments, which also owns 36% in Unitech. In 2006, the Chandras had 6% share in Orissa Sponge, but raised it to almost 15% in late 2007 in a Rs 21.40 crore deal. The family has been compelled to find ways to raise money after sales in the real estate sector plunged and led to slashed internal accruals. Raising money from investors has also not been easy because private equity is not flowing into the sector, while banks are reluctant to lend. Together, these factors have become a major hurdle for real estate firms and their expansion plans, said a person with knowledge of the development.
Since all potential sources of funding appear blocked, the company is looking at selling stake in Unitech and its projects, and hiving off its hotels to generate cash. In the last one year, the company’s share value has dropped more than 90%. The 40-year-old Orissa Sponge has iron ore and coal reserves and owns 2.5-lakh-tonne sponge iron and steel billet plants in Palaspanga, Orissa.
Unitech had debts worth Rs 8,300 crore on its balance sheet in September 2008, of which it had to pay back Rs 2,500 by March 2009. The company claims to have whittled this figure down to Rs 600 crore but continues to search for fresh sources of funds. Ramesh Chandra’s family has been struggling to find a buyer for its 12.11% stake in Orissa Sponge after earlier negotiations with Korean steel major Posco came to naught. The Unitech spokesman declined to comment on the deal.
The Chandra family may get Rs 160-170 per share, which is 50% premium over Orissa Sponge’s current share price that closed at Rs 111.95 on the BSE on Wednesday. The scrip gained 21% within a week, and has almost doubled in price since December 8.
After the Chandra deal, Bhushan Steel will own 18% share in Orissa Sponge, and be compelled by Sebi rules to make an open offer to buy another 20% from the market.
“We are still in discussions with Unitech for acquiring the stake. If it happens, it will add to our existing sponge iron capacity in Orissa meant for captive use. Sponge iron will be converted to steel billets that are primarily used in construction,” said a top executive at Bhushan Steel, who did not wish to be named.
The Chandras own the shares in Orissa Sponge through its investment arm Prakausali Investments, which also owns 36% in Unitech. In 2006, the Chandras had 6% share in Orissa Sponge, but raised it to almost 15% in late 2007 in a Rs 21.40 crore deal. The family has been compelled to find ways to raise money after sales in the real estate sector plunged and led to slashed internal accruals. Raising money from investors has also not been easy because private equity is not flowing into the sector, while banks are reluctant to lend. Together, these factors have become a major hurdle for real estate firms and their expansion plans, said a person with knowledge of the development.
Since all potential sources of funding appear blocked, the company is looking at selling stake in Unitech and its projects, and hiving off its hotels to generate cash. In the last one year, the company’s share value has dropped more than 90%. The 40-year-old Orissa Sponge has iron ore and coal reserves and owns 2.5-lakh-tonne sponge iron and steel billet plants in Palaspanga, Orissa.
Institutes can thrive only if they have freedom: Barua
Institutes can thrive only if they have freedom: Barua
The Economic Times, January 29, 2009, p5
INDIA’S top B-School, the Indian Institute of Management, Ahmedabad (IIM-A), is waging three battles. Apart from fighting economic slowdown through innovative programmes, India’s premier institute fears losing its autonomy, if recommendations of a pan-IIM board are accepted. Also, it faces uneven competition from deep-pocket foreign B-Schools if allowed entry into India. IIM-A director Samir Barua spoke to Kumar Anand & Sushmita Mohapatra to assert that “government funding at the time of setting up the IIMs should not be a reason to shackle the institutes.” Excerpts:
How long do you think will recession last?
A minimum of two-quarters of 2009. But there is a likelihood of the slowdown continuing through 2009. Recovery from economic downturn may be seen earliest by January-March 2010 and the economy will take a year-and-half to be back on track. Markets would recover before the economy and the earliest sign of market recovery may be felt by early 2010. Factors like the general elections and monsoon will also hold back or boost the market. As far as Obama package is concerned, I think sentiments of Obama victory may not lead to any major improvement in the market conditions. He can make a difference by only coming up with plans that are radically different.
The RC Bhargava Committee (appointed by the Centre to study IIM functioning) has been critical about IIMs. How do you react to that?
The committee has made general statements regarding all IIMs, including the newly setup IIM-Shillong. Not a single statement (regarding enhancing brand image, improving the quantity and quality of research papers, etc) fits in for the top three IIMs (IIM-A, IIM-B and IIM-C). The report is not backed with adequate data. So, we do not get the right picture for IIM-A. Suggesting a uniform policy for all IIMs is, therefore, not right. Further, the credibility of the pan-IIM board as suggested by committee is questionable. Conceptually, it does not make sense. The committee suggests that this 15-member board will make policies while individual IIM boards will implement them. This will make it difficult to assess failure in governance (in measuring performance). We have written to the ministry that academic institutions will thrive only if given freedom to be different. They cannot be straitjacketed. With pan-IIM board having supremacy over other boards, it will take away the autonomy of the institute.
You seem to be critical about the entry of global institutions in the Indian market. Isn’t IIM-A strong enough brand to take on global institutions?
The Centre is keen on passing the Foreign University Entry and Operation Bill that will allow the entry of the foreign universities to offer education in India. As per the bill, these institutes will enter India as deemed universities and will be at par with private B-schools, with endowments as high as 3,000 times that of IIM-A. With the strength of international brands and deep pockets, they will pay faculty more and introduce scholarship programmes to attract talented students.
Do you think slowdown will affect the upcoming IIM-A placement season?
The slowdown will impact placements across B-schools in the country. But since IIM-A is on the top of the B-school pyramid, it will be affected the least. We think sectors like manufacturing, media and insurance will gain from the loss of financial sector that usually picked up huge chunk of students from IIM-A. Our management development programme (MDP) will get impacted due to recession. It is around this time of the year that corporate houses decide on their training spends, and in the current scenario, this is likely to face the first cut.
The Economic Times, January 29, 2009, p5
INDIA’S top B-School, the Indian Institute of Management, Ahmedabad (IIM-A), is waging three battles. Apart from fighting economic slowdown through innovative programmes, India’s premier institute fears losing its autonomy, if recommendations of a pan-IIM board are accepted. Also, it faces uneven competition from deep-pocket foreign B-Schools if allowed entry into India. IIM-A director Samir Barua spoke to Kumar Anand & Sushmita Mohapatra to assert that “government funding at the time of setting up the IIMs should not be a reason to shackle the institutes.” Excerpts:
How long do you think will recession last?
A minimum of two-quarters of 2009. But there is a likelihood of the slowdown continuing through 2009. Recovery from economic downturn may be seen earliest by January-March 2010 and the economy will take a year-and-half to be back on track. Markets would recover before the economy and the earliest sign of market recovery may be felt by early 2010. Factors like the general elections and monsoon will also hold back or boost the market. As far as Obama package is concerned, I think sentiments of Obama victory may not lead to any major improvement in the market conditions. He can make a difference by only coming up with plans that are radically different.
The RC Bhargava Committee (appointed by the Centre to study IIM functioning) has been critical about IIMs. How do you react to that?
The committee has made general statements regarding all IIMs, including the newly setup IIM-Shillong. Not a single statement (regarding enhancing brand image, improving the quantity and quality of research papers, etc) fits in for the top three IIMs (IIM-A, IIM-B and IIM-C). The report is not backed with adequate data. So, we do not get the right picture for IIM-A. Suggesting a uniform policy for all IIMs is, therefore, not right. Further, the credibility of the pan-IIM board as suggested by committee is questionable. Conceptually, it does not make sense. The committee suggests that this 15-member board will make policies while individual IIM boards will implement them. This will make it difficult to assess failure in governance (in measuring performance). We have written to the ministry that academic institutions will thrive only if given freedom to be different. They cannot be straitjacketed. With pan-IIM board having supremacy over other boards, it will take away the autonomy of the institute.
You seem to be critical about the entry of global institutions in the Indian market. Isn’t IIM-A strong enough brand to take on global institutions?
The Centre is keen on passing the Foreign University Entry and Operation Bill that will allow the entry of the foreign universities to offer education in India. As per the bill, these institutes will enter India as deemed universities and will be at par with private B-schools, with endowments as high as 3,000 times that of IIM-A. With the strength of international brands and deep pockets, they will pay faculty more and introduce scholarship programmes to attract talented students.
Do you think slowdown will affect the upcoming IIM-A placement season?
The slowdown will impact placements across B-schools in the country. But since IIM-A is on the top of the B-school pyramid, it will be affected the least. We think sectors like manufacturing, media and insurance will gain from the loss of financial sector that usually picked up huge chunk of students from IIM-A. Our management development programme (MDP) will get impacted due to recession. It is around this time of the year that corporate houses decide on their training spends, and in the current scenario, this is likely to face the first cut.
Realty body skeptical of package benefits
Realty body skeptical of package benefits
The Economic Times, January 29, 2009, p17
CHENNAI: The Centre’s stimulus package to help the crisis-hit realty sector may not be of much use for both developers and buyers in several cities as most of the housing projects were not expected to take off before the deadline for the scheme, says an industry body. The stimulus package would definitely lift the overall sentiment, especially in the Rs 5 lakh to Rs 20 lakh budget range. However, the lower interest rates extended for loans up to Rs 20 lakh are valid only till June 2009, Confederation of Real Estate Developers' Association of India Tamil Nadu chapter secretary T Chittybabu said. “Even if the developers were to announce projects to suit budget (housing) of Rs 5 to 20 lakh, approvals from the Chennai Metropolitan Development Authority or local bodies would mean buyers and developers cannot meet the June 30 deadline.”
The Economic Times, January 29, 2009, p17
CHENNAI: The Centre’s stimulus package to help the crisis-hit realty sector may not be of much use for both developers and buyers in several cities as most of the housing projects were not expected to take off before the deadline for the scheme, says an industry body. The stimulus package would definitely lift the overall sentiment, especially in the Rs 5 lakh to Rs 20 lakh budget range. However, the lower interest rates extended for loans up to Rs 20 lakh are valid only till June 2009, Confederation of Real Estate Developers' Association of India Tamil Nadu chapter secretary T Chittybabu said. “Even if the developers were to announce projects to suit budget (housing) of Rs 5 to 20 lakh, approvals from the Chennai Metropolitan Development Authority or local bodies would mean buyers and developers cannot meet the June 30 deadline.”
HDIL’s growth slows due to real estate woes
HDIL’s growth slows due to real estate woes
The Hindu Business Line, January 29, 2009, p11
Vidya Bala BL Research Bureau
Substantial correction in prices of transferable development rights (TDR), cut back on land purchase by developers and TDR sales that are yet to be booked led to a decline in revenues and profits for Housing Development and Infrastructure Company (HDIL) in the third quarter of FY-09.
For the quarter, HDIL’s sales declined by 36 per cent to Rs 314 crore compared with the December quarter last fiscal, while net profits declined 31 per cent to Rs 184 crore.
But for a write-back of tax credit received by the company, the net profits would have declined sharply by 72 per cent.
However, the positive aspect of HDIL’s business is that the massive airport slum rehabilitation project appears to be on track, what with the company already selling some of the TDRs generated from the project.
HDIL earns a substantial part of its revenue from sale of TDRs/FSIs that it generates by developing slump rehabilitation projects.
Despite huge working capital requirements, all the other slum rehabilitation projects are also on track, thus providing assurance of TDRs from the same.
PRICE CORRECTION
The company’s management has stated that TDRs are quoting at Rs 1,000-1,200 a square feet at present.
This is a sharp correction to the Rs 2,000-2,500 a sq ft about two quarters ago.
To recollect, TDR prices started correcting after the Supreme Court ruling (on redevelopment of land) in September, which allowed more areas under redevelopment.
This was expected to increase supply of land and reduce high TDR prices.
The company holds one million sq ft of TDRs that it can cash in on.
Another aspect that has to be noted while reading into HDIL’s results is that unlike most construction companies, HDIL follows completed project method of accounting (a relatively conservative approach to percentage completion method) as it generates TDRs only on completion of rehabilitation work.
This essentially means that HDIL would have huge development costs (added to inventory) followed by periods of lumpy revenues.
However, TDRs once generated can be relatively quickly converted to cash by selling them in the market.
NO RESPITE ON COST
Lower realisations could have led to operating profit margins dipping to 30 per cent from 56 per cent a year ago.
The margin, nevertheless, remains good enough for a real estate business.
Cost of construction and development as a percentage of sales and work-in-progress witnessed only a marginal decline suggesting that commodity price declines is yet to provide relief.
A massive jump in interest costs from less than a crore over a year ago to Rs 14 crore for the latest ended quarter also suggests that the company is yet to benefit from lowering interest rates.
The Hindu Business Line, January 29, 2009, p11
Vidya Bala BL Research Bureau
Substantial correction in prices of transferable development rights (TDR), cut back on land purchase by developers and TDR sales that are yet to be booked led to a decline in revenues and profits for Housing Development and Infrastructure Company (HDIL) in the third quarter of FY-09.
For the quarter, HDIL’s sales declined by 36 per cent to Rs 314 crore compared with the December quarter last fiscal, while net profits declined 31 per cent to Rs 184 crore.
But for a write-back of tax credit received by the company, the net profits would have declined sharply by 72 per cent.
However, the positive aspect of HDIL’s business is that the massive airport slum rehabilitation project appears to be on track, what with the company already selling some of the TDRs generated from the project.
HDIL earns a substantial part of its revenue from sale of TDRs/FSIs that it generates by developing slump rehabilitation projects.
Despite huge working capital requirements, all the other slum rehabilitation projects are also on track, thus providing assurance of TDRs from the same.
PRICE CORRECTION
The company’s management has stated that TDRs are quoting at Rs 1,000-1,200 a square feet at present.
This is a sharp correction to the Rs 2,000-2,500 a sq ft about two quarters ago.
To recollect, TDR prices started correcting after the Supreme Court ruling (on redevelopment of land) in September, which allowed more areas under redevelopment.
This was expected to increase supply of land and reduce high TDR prices.
The company holds one million sq ft of TDRs that it can cash in on.
Another aspect that has to be noted while reading into HDIL’s results is that unlike most construction companies, HDIL follows completed project method of accounting (a relatively conservative approach to percentage completion method) as it generates TDRs only on completion of rehabilitation work.
This essentially means that HDIL would have huge development costs (added to inventory) followed by periods of lumpy revenues.
However, TDRs once generated can be relatively quickly converted to cash by selling them in the market.
NO RESPITE ON COST
Lower realisations could have led to operating profit margins dipping to 30 per cent from 56 per cent a year ago.
The margin, nevertheless, remains good enough for a real estate business.
Cost of construction and development as a percentage of sales and work-in-progress witnessed only a marginal decline suggesting that commodity price declines is yet to provide relief.
A massive jump in interest costs from less than a crore over a year ago to Rs 14 crore for the latest ended quarter also suggests that the company is yet to benefit from lowering interest rates.
Pledged share sale pulls down Unitech promoter holding
Pledged share sale pulls down Unitech promoter holding
The Business Standard, January 29, 2009, p3
BS REPORTER Mumbai, 28 January
Promoter holding in Unitech, the nation’s second-largest property developer, has dropped by 7 per cent since their September disclosure after lenders sold the shares pledged with them, according to analysts.
The promoter holding in Unitech has fallen to 67.2 per cent in the December quarter compared with 74.3 per cent in the quarter ended September 30, according to the shareholding pattern disclosed by the company on the website of the National Stock Exchange.
The Sanjay Chandra-led group’s attempt to raise money to repay dues had forced the promoters to pledge shares with lenders, who, in turn, sold the shares to recover their loans. The promoters are yet to disclose the total extent of pledged shares to stock exchanges even though market regulator Securities and Exchange Board of India (Sebi) has advised companies to make such disclosures to enhance transparency.
However, Unitech sources maintain that the company is not obliged to disclose the same as the Sebi directive requires an amendment to the listing agreement of stock exchanges. Only last month, IFCI and Sicom had confirmed selling pledged shares of Unitech. The lenders did not assign any reason for the sale and neither did the company comment on the same.
Unitech has also applied to FIPB to raise $1 billion by selling shares to overseas investors. A few analysts view the move as a positive development since it will help the company lower its debt to equity ratio.
“We view any additional equity raising either at the parent or SPV level as a positive development as it will aid in getting consolidated gearing down to manageable levels,” JP Morgan said in a recent report.
The Business Standard, January 29, 2009, p3
BS REPORTER Mumbai, 28 January
Promoter holding in Unitech, the nation’s second-largest property developer, has dropped by 7 per cent since their September disclosure after lenders sold the shares pledged with them, according to analysts.
The promoter holding in Unitech has fallen to 67.2 per cent in the December quarter compared with 74.3 per cent in the quarter ended September 30, according to the shareholding pattern disclosed by the company on the website of the National Stock Exchange.
The Sanjay Chandra-led group’s attempt to raise money to repay dues had forced the promoters to pledge shares with lenders, who, in turn, sold the shares to recover their loans. The promoters are yet to disclose the total extent of pledged shares to stock exchanges even though market regulator Securities and Exchange Board of India (Sebi) has advised companies to make such disclosures to enhance transparency.
However, Unitech sources maintain that the company is not obliged to disclose the same as the Sebi directive requires an amendment to the listing agreement of stock exchanges. Only last month, IFCI and Sicom had confirmed selling pledged shares of Unitech. The lenders did not assign any reason for the sale and neither did the company comment on the same.
Unitech has also applied to FIPB to raise $1 billion by selling shares to overseas investors. A few analysts view the move as a positive development since it will help the company lower its debt to equity ratio.
“We view any additional equity raising either at the parent or SPV level as a positive development as it will aid in getting consolidated gearing down to manageable levels,” JP Morgan said in a recent report.
Adani plans to merge SEZs
Adani plans to merge SEZs
The Business Standard, January 29, 2009, p1
RITUPARNA BHUYAN & MAULIK PATHAK New Delhi/Ahmedabad, 28 January
For the first time since its inception in 2006, the Board of Approval on special economic zones (SEZs) in its next meeting in March will take up a proposal from adeveloper to merge these tax-free industrial enclaves for exports. The Adani group has sought the board’s approval to merge its three SEZs at Mundra in Gujarat. The merger will result in lesser expenses on infrastructure, utilities and administration.
Faced with a liquidity crunch, other developers too are expected to come to the board with a similar proposal. Reliance Industries-promoted Navi Mumbai SEZ Pvt Ltd is also planning to merge its notified zones in the Navi Mumbai area. “We were given five different land parcels; hence, we had to notify them separately," said a company source. An RIL spokesperson declined to comment.
The three adjacent Adani SEZs are situated near the Mundra Port which too has been promoted by the group. While two of these are multi-product zones, the third is apower SEZ. The combined area of the three SEZs is well over 6,000 hectares.
“The Board will discuss the proposal in its next meeting. Points that would come up for discussions include how to treat the processing and non-processing zones within the SEZs,” said a government official in the know.
According to SEZ rules, each zone needs to have a separate processing area for factories and units, as well as a non-processing area for houses, schools, hospitals and shopping arcades.
The three SEZs were notified separately as the Adani group bought the land in separate tranches. Moreover, a public utility road is present between the two multi-product zones. "There was a public utility road leading to an old port of Gujarat Maritime Board due to which there was aproblem of contiguity. Hence we had to apply for notification for two different SEZs," said an Adani group executive.
The Business Standard, January 29, 2009, p1
RITUPARNA BHUYAN & MAULIK PATHAK New Delhi/Ahmedabad, 28 January
For the first time since its inception in 2006, the Board of Approval on special economic zones (SEZs) in its next meeting in March will take up a proposal from adeveloper to merge these tax-free industrial enclaves for exports. The Adani group has sought the board’s approval to merge its three SEZs at Mundra in Gujarat. The merger will result in lesser expenses on infrastructure, utilities and administration.
Faced with a liquidity crunch, other developers too are expected to come to the board with a similar proposal. Reliance Industries-promoted Navi Mumbai SEZ Pvt Ltd is also planning to merge its notified zones in the Navi Mumbai area. “We were given five different land parcels; hence, we had to notify them separately," said a company source. An RIL spokesperson declined to comment.
The three adjacent Adani SEZs are situated near the Mundra Port which too has been promoted by the group. While two of these are multi-product zones, the third is apower SEZ. The combined area of the three SEZs is well over 6,000 hectares.
“The Board will discuss the proposal in its next meeting. Points that would come up for discussions include how to treat the processing and non-processing zones within the SEZs,” said a government official in the know.
According to SEZ rules, each zone needs to have a separate processing area for factories and units, as well as a non-processing area for houses, schools, hospitals and shopping arcades.
The three SEZs were notified separately as the Adani group bought the land in separate tranches. Moreover, a public utility road is present between the two multi-product zones. "There was a public utility road leading to an old port of Gujarat Maritime Board due to which there was aproblem of contiguity. Hence we had to apply for notification for two different SEZs," said an Adani group executive.
Indian FIs Pitch for Auditor Rotation
Indian FIs Pitch for Auditor Rotation
The Economic Times, January 29, 2009, p1
Abhinaba Das & Dev Chatterjee, ET Bureau
MUMBAI: Weeks after the Satyam saga exposed glaring lapses in auditing practices, Indian institutional investors are seeking a rotation of auditors to ensure that auditors don’t act in “collusion” with the company promoters.
The biggest local investor, Life Insurance Corporation, and the state-owned reinsurance firm, General Insurance Corporation, are asking companies, where they have significant stakes, to change their statutory auditors every three years to plug possible loopholes in the audit process. A directive to this effect is being sent out to the companies concerned.
“We are hopeful that rotation of auditors will help in preventing audit scams. The Satyam fiasco has been a big learning experience for all of us and we feel it’s time that companies change auditors periodically,” a senior insurance official told ET.
Price Waterhouse, the audit arm of PricewaterhouseCoopers, has come under the scanner after Satyam Computer Services promoter B Ramalinga Raju admitted to fudging the company’s accounts for several years. Price Waterhouse, which was the auditor for Satyam, has already sacked its two auditors S Gopalakrishnan and Srinivas Talluri, who are now in a Hyderabad jail, for signing the annual accounts which were based on forged documents. Price Waterhouse has also suspended the two partners.
With institutional investors making their stand clear, pressure will now mount on the Institute of Chartered Accountants of India (ICAI), the self-regulatory body for practising chartered accountants, to come out with guidelines to make rotation of auditors mandatory. At present, only banks are required to rotate auditors, appointed from among RBI-empanelled list of audit firms.
The official said many Indian companies retain their auditors for years, which results in “collusion” between the promoters and the bookkeepers.
Investor confidence in auditors has hit an all-time low following apprehensions that many accounting firms don’t do proper due diligence before vetting their clients’ financials. India Inc has been debating the issue of rotation of auditors for quite some time.
“Two years ago, there was a plan to effect rotation of auditors. But no action was taken,” a former ICAI office-bearer told ET, asking not to be quoted. Several calls made to ICAI president Ved Jain went unanswered.
The Economic Times, January 29, 2009, p1
Abhinaba Das & Dev Chatterjee, ET Bureau
MUMBAI: Weeks after the Satyam saga exposed glaring lapses in auditing practices, Indian institutional investors are seeking a rotation of auditors to ensure that auditors don’t act in “collusion” with the company promoters.
The biggest local investor, Life Insurance Corporation, and the state-owned reinsurance firm, General Insurance Corporation, are asking companies, where they have significant stakes, to change their statutory auditors every three years to plug possible loopholes in the audit process. A directive to this effect is being sent out to the companies concerned.
“We are hopeful that rotation of auditors will help in preventing audit scams. The Satyam fiasco has been a big learning experience for all of us and we feel it’s time that companies change auditors periodically,” a senior insurance official told ET.
Price Waterhouse, the audit arm of PricewaterhouseCoopers, has come under the scanner after Satyam Computer Services promoter B Ramalinga Raju admitted to fudging the company’s accounts for several years. Price Waterhouse, which was the auditor for Satyam, has already sacked its two auditors S Gopalakrishnan and Srinivas Talluri, who are now in a Hyderabad jail, for signing the annual accounts which were based on forged documents. Price Waterhouse has also suspended the two partners.
With institutional investors making their stand clear, pressure will now mount on the Institute of Chartered Accountants of India (ICAI), the self-regulatory body for practising chartered accountants, to come out with guidelines to make rotation of auditors mandatory. At present, only banks are required to rotate auditors, appointed from among RBI-empanelled list of audit firms.
The official said many Indian companies retain their auditors for years, which results in “collusion” between the promoters and the bookkeepers.
Investor confidence in auditors has hit an all-time low following apprehensions that many accounting firms don’t do proper due diligence before vetting their clients’ financials. India Inc has been debating the issue of rotation of auditors for quite some time.
“Two years ago, there was a plan to effect rotation of auditors. But no action was taken,” a former ICAI office-bearer told ET, asking not to be quoted. Several calls made to ICAI president Ved Jain went unanswered.
Kamal Nath at Davos: India story is intact
Kamal Nath at Davos: India story is intact
The Financial Express, January 29, 2009, Page 1
Economy Bureau
New Delhi, Jan 28
On Day One at Davos, CEOs quizzed Indian policymakers on Satyam, exchanged notes on the impact of the global economic downturn summed up by a report released by PricewaterhouseCoopers, while the consulting firm’s global CEO winged his way to India to assess the fallout from the IT firm’s case on its operations in the country.
The head of the Indian delegation, commerce & industry minister Kamal Nath, said the India story was far more broad-based than evident from the Satyam affair. He recalled the performance of the economy over the past decade to point out the huge investments from the US and Europe. Parrying questions on the Satyam scam, Nath said investors were not looking at the episode as a red flag. He said some 60% of Fortune 500 companies are invested in India due to the confidence they have in the country.
Nath also fielded queries about the World Bank ban on Wipro, the weakening of the country’s GDP growth and a possible pullout by FIIs. He said the ban was the outcome of a World Bank employee buying Wipro shares and not any wrongdoing by the IT firm. The minister insisted that India would not be hit as badly as other nations by the financial crisis.
In an interview with BBC Hardtalk, he said, “India’s growth story is based on domestic demand. It is not based on the export market entirely. We can continue to keep our domestic demand-driven growth.” On FIIs pulling out $13.5 billion from Indian stocks in 2008, Nath said it was “not because of India’s fundamentals or because India was no more attractive”.
“(The pullout) is a tribute to the Indian financial governance sector that when they needed cash, the best way they could raise that cash was by selling Indian securities, not with a hit, but with a profit,” he said. Nath said the UPA government would, in the next couple of months, kick-start a $4-billion stimulus package for the infrastructure sector.
Meanwhile, to tackle the crisis at audit arm Price Waterhouse, whose India assurance leader Thoma Mathew stepped down and two of its partners were suspended in connection with the Rs 7,800-crore fraud, PricewaterhouseCoopers global CEO Samuel DiPiazza flew to India from Davos, where he was to attend the World Economic Forum.
The overall mood at the Swiss ski resort was one of gloom. Of the 1,100 CEOs polled by the PwC annual survey, only a fifth were confident that their firm’s revenue would show a growth in the next 12 months. This confidence level was the lowest in the seven-year-old survey. In a similar poll a year ago, half the polled CEOs were confident of revenue growth. A majority of CEOs this year said they expect some recovery only over the next three years.
The Financial Express, January 29, 2009, Page 1
Economy Bureau
New Delhi, Jan 28
On Day One at Davos, CEOs quizzed Indian policymakers on Satyam, exchanged notes on the impact of the global economic downturn summed up by a report released by PricewaterhouseCoopers, while the consulting firm’s global CEO winged his way to India to assess the fallout from the IT firm’s case on its operations in the country.
The head of the Indian delegation, commerce & industry minister Kamal Nath, said the India story was far more broad-based than evident from the Satyam affair. He recalled the performance of the economy over the past decade to point out the huge investments from the US and Europe. Parrying questions on the Satyam scam, Nath said investors were not looking at the episode as a red flag. He said some 60% of Fortune 500 companies are invested in India due to the confidence they have in the country.
Nath also fielded queries about the World Bank ban on Wipro, the weakening of the country’s GDP growth and a possible pullout by FIIs. He said the ban was the outcome of a World Bank employee buying Wipro shares and not any wrongdoing by the IT firm. The minister insisted that India would not be hit as badly as other nations by the financial crisis.
In an interview with BBC Hardtalk, he said, “India’s growth story is based on domestic demand. It is not based on the export market entirely. We can continue to keep our domestic demand-driven growth.” On FIIs pulling out $13.5 billion from Indian stocks in 2008, Nath said it was “not because of India’s fundamentals or because India was no more attractive”.
“(The pullout) is a tribute to the Indian financial governance sector that when they needed cash, the best way they could raise that cash was by selling Indian securities, not with a hit, but with a profit,” he said. Nath said the UPA government would, in the next couple of months, kick-start a $4-billion stimulus package for the infrastructure sector.
Meanwhile, to tackle the crisis at audit arm Price Waterhouse, whose India assurance leader Thoma Mathew stepped down and two of its partners were suspended in connection with the Rs 7,800-crore fraud, PricewaterhouseCoopers global CEO Samuel DiPiazza flew to India from Davos, where he was to attend the World Economic Forum.
The overall mood at the Swiss ski resort was one of gloom. Of the 1,100 CEOs polled by the PwC annual survey, only a fifth were confident that their firm’s revenue would show a growth in the next 12 months. This confidence level was the lowest in the seven-year-old survey. In a similar poll a year ago, half the polled CEOs were confident of revenue growth. A majority of CEOs this year said they expect some recovery only over the next three years.
Wednesday, January 28, 2009
RBI holds back rate cut
RBI holds back rate cut
HT Business, January 28, 2009, page 1
HT Correspondent, Mumbai, January 27: While the overall inflation number looks comfortable, the Reserve Bank of India fought shy of cutting benchmark policy interest rates further on Tuesday because the prices of sensitive food items are still not under control.
The RBI is worried about the increase in prices of primary articles, which is still in double digits, though the overall wholesale price-based inflation has dropped to 5.6 per cent from 13 per cent in August.
“In view of the divergent movement of various price indices and their components, and overall increase in global economic uncertainties, an assessment of underlying inflation for policy purposes becomes inherently complex,” said RBI governor Duvvuri Subbarao after he unveiled the third quarter policy review of the monetary policy.
“Given the enormity of the economic situation, the need is for systematic, calibrated and continuous rate cut signals,” said Abheek Barua, Chief Economist at HDFC Bank. “The RBI is being reactive and wants to respond to crisis and eventualities.”
Tushar Poddar, Economist at Goldman Sachs, echoed Barua’s views. “We think that more immediate action is necessary given the long lags with which monetary policy influences lending rates and overall activity, rather than wait for activity to deteriorate further,” Poddar said.
The current economic crisis is about growth and liquidity and going by the aggressive rate cuts since September 2008, inflation, or one component of it, should no longer be a concern.
“We think that the WPI (wholesale price indeed) and CPI (consumer price index) based inflation will fall significantly going forward and the RBI needs to take account of this. We still expect rate cuts before the end of 2008-09,” Goldman’s Poddar said.
The RBI has lowered its WPI target for end-March 2009 to 3 per cent from 7 per cent and cut GDP growth forecast for 2008-09 to 7 per cent, with a downward bias, from 7.50-8.0 per cent earlier.
India is suffering three shocks’
India is suffering three shocks’
HT Business, January 28, 2009, page 1
Amid expectations of continued monetary policy easing, the RBI Governor, D Subbarao on Tuesday kept all rates unchanged as he reviewed the monetary policy. The forecast for growth of the Indian economy in 2008-09 has been lowered to 7 per cent, with downward risks, from 7.50-8.0 per cent.
Subbarao’s views on what lies ahead:
How grave is the economic downturn globally and domestically?
This third quarter review of the monetary policy of the Reserve Bank is set in the context of a deteriorating global situation and heightened uncertainty about the global financial sector. The IMF, which puts out numbers for global growth, predicted a 2009 global growth of 3 per cent in October 2008, it was 2.2 per cent in November 2008, and I believe another number is going to come out day after tomorrow and there are some indications that could be substantially lower than the last one. That gives an indication of the velocity and the gravity of the downturn.
How is India affected?
India too has been affected in three ways—first is the exit of foreign equity that resulted in capital flow reversals and that put pressure on the exchange. Secondly through drying up of overseas bank credits for both Indian corporates and Indian banks, which shifted credit demand from external sources to the domestic ones. Lastly, exports were hit because of the deceleration of the global economy.
Have you taken any new initiative to help the economy?
Apart from the various conventional measures such as adjusting CRR, repo and reverse repo rates and some unconventional methods such as dollar swap facility for banks, we have introduced a new measure in consultation with the government of a special purpose vehicle for non-banking finance companies to the amount of Rs 25,000 crore. The liquidity situation has improved significantly following these measures taken by the RBI since September 2008.
Has RBI taken any measures to get banks to reduce their lending rates to the extent of the policy rate cuts?
HT Business, January 28, 2009, page 1
Amid expectations of continued monetary policy easing, the RBI Governor, D Subbarao on Tuesday kept all rates unchanged as he reviewed the monetary policy. The forecast for growth of the Indian economy in 2008-09 has been lowered to 7 per cent, with downward risks, from 7.50-8.0 per cent.
Subbarao’s views on what lies ahead:
How grave is the economic downturn globally and domestically?
This third quarter review of the monetary policy of the Reserve Bank is set in the context of a deteriorating global situation and heightened uncertainty about the global financial sector. The IMF, which puts out numbers for global growth, predicted a 2009 global growth of 3 per cent in October 2008, it was 2.2 per cent in November 2008, and I believe another number is going to come out day after tomorrow and there are some indications that could be substantially lower than the last one. That gives an indication of the velocity and the gravity of the downturn.
How is India affected?
India too has been affected in three ways—first is the exit of foreign equity that resulted in capital flow reversals and that put pressure on the exchange. Secondly through drying up of overseas bank credits for both Indian corporates and Indian banks, which shifted credit demand from external sources to the domestic ones. Lastly, exports were hit because of the deceleration of the global economy.
Have you taken any new initiative to help the economy?
Apart from the various conventional measures such as adjusting CRR, repo and reverse repo rates and some unconventional methods such as dollar swap facility for banks, we have introduced a new measure in consultation with the government of a special purpose vehicle for non-banking finance companies to the amount of Rs 25,000 crore. The liquidity situation has improved significantly following these measures taken by the RBI since September 2008.
Has RBI taken any measures to get banks to reduce their lending rates to the extent of the policy rate cuts?
Many banks have reduced their lending rates and some are yet to follow suit. The policy leaves further scope for interest rates reduction by the banks. There is a view that bank credit has not expanded or is decelerating. But if you look at the numbers for the first week of January, you can note that bank credit has expanded slightly faster than at this time last year when the number was 22 per cent. On January 2 2009, the year-on-year growth figure stood at 23.9 per cent.
Haryana to develop two green cities
Haryana to develop two green cities
The Financial Express, January 28, 2009, Page 11
Preeti Parashar Chandigarh, Jan 27
There’s good news for the residents of Delhi suburbs Gurgaon and Faridabad—they who will witness the transition of their cities into green/solar cities within the next five years.
The state of Haryana has got in-principle approval to develop Gurgaon as a solar city by using renewable energy sources for power generation. The proposal for Faridabad has also been forwarded to the ministry of new and renewable energy for approval. The step is being taken in the wake of rising electricity demand—which has gone up by 15% over the last couple of years—in the major cities of the state. The ministry has already announced to spend close to Rs 30 crore (Rs 50 lakh per city) for development of 60 solar/green cities pan India during the eleventh Plan.
The government scheme is a step forward towards reducing the green house gas emissions and promoting renewable energy in the urban areas. As per the latest UN report one million people are moving to urban areas each week. It is estimated that around two-thirds of the world population will be living in cities by 2050. Cities like London, New York, Tokyo have achieved major reduction in carbon emissions by shifting to renewable energy. Now India is toeing the line by initiating the solar cities programme.
The ministry of new and renewable energy has granted in-principle approval to 15 other cities also to be developed into solar cities. These include Agra, Muradabad, Rajkot, Ganganagar, Nagpur, among others. A senior official of the Haryana renewable energy department told FE that the scheme would apply to cities with population between 5 lakh-50 lakh. “We are in the process of hiring a consultant to prepare the master plan for these cities. It is expected that the master plan will be ready within the next three months. The cities will be turned into green cities within five years. The master plan will gauge the total and sector wise demand for energy and supply for the next 10 years,” he said.
The master plan will set a goal of minimum 10% reduction in the projected total demand of conventional energy at the end of five years, which can be achieved through a combination of energy efficiency measures and enhancing supply from renewable energy sources.
The Financial Express, January 28, 2009, Page 11
Preeti Parashar Chandigarh, Jan 27
There’s good news for the residents of Delhi suburbs Gurgaon and Faridabad—they who will witness the transition of their cities into green/solar cities within the next five years.
The state of Haryana has got in-principle approval to develop Gurgaon as a solar city by using renewable energy sources for power generation. The proposal for Faridabad has also been forwarded to the ministry of new and renewable energy for approval. The step is being taken in the wake of rising electricity demand—which has gone up by 15% over the last couple of years—in the major cities of the state. The ministry has already announced to spend close to Rs 30 crore (Rs 50 lakh per city) for development of 60 solar/green cities pan India during the eleventh Plan.
The government scheme is a step forward towards reducing the green house gas emissions and promoting renewable energy in the urban areas. As per the latest UN report one million people are moving to urban areas each week. It is estimated that around two-thirds of the world population will be living in cities by 2050. Cities like London, New York, Tokyo have achieved major reduction in carbon emissions by shifting to renewable energy. Now India is toeing the line by initiating the solar cities programme.
The ministry of new and renewable energy has granted in-principle approval to 15 other cities also to be developed into solar cities. These include Agra, Muradabad, Rajkot, Ganganagar, Nagpur, among others. A senior official of the Haryana renewable energy department told FE that the scheme would apply to cities with population between 5 lakh-50 lakh. “We are in the process of hiring a consultant to prepare the master plan for these cities. It is expected that the master plan will be ready within the next three months. The cities will be turned into green cities within five years. The master plan will gauge the total and sector wise demand for energy and supply for the next 10 years,” he said.
The master plan will set a goal of minimum 10% reduction in the projected total demand of conventional energy at the end of five years, which can be achieved through a combination of energy efficiency measures and enhancing supply from renewable energy sources.
'There's scope for banks to cut rates'
'There's scope for banks to cut rates'
The Economic Times, January 28, 2009, Page 17
With no certainty on when the worst of the crisis will be behind us. For now, the central bank is maintaining a flexible stance. The governor D Subbarao, while refusing to take credit for the decline in inflation, is sticking to his objective of making money available at reasonable price. In a media interaction, the governor speaks about why he does not fear deflation despite the possibility of the wholesale price index moving into the negative territory.
What are the objectives of the latest monetary policy?
The current monetary policy review is set in times of increasing uncertainty, where IMF has been continuously bringing down its estimates for the global GDP. RBI has been mainly working with three principal objectives - ample rupee liquidity, comfortable dollar liquidity and monetary policy aimed at continued flow of credit to the economy. Till date, we have injected, or at least made available, more than Rs 4 lakh crore of liquidity through various measures.
But not all banks are cutting rates?
Transmission of monetary policy in the money and GSec markets has been effective, but the same in the credit market has been subdued. Most banks have reduced lending and deposit rates, but some have not. The latest RBI stance leaves a lot of scope for banks to adjust their lending rates, even for those that changed rates recently.
How badly is India affected in the global slowdown? Has it hurt bank credit?
Globalisation is a double edged sword. Although it has often helped India, the impact on the real and financial sector is mainly due to globalisation. India is much more integrated today than ten years ago, at the time of the Asian financial crisis. There is a view that bank credit is decelerating. But non-food credit has expanded faster (23.9%) than the same period last year (22%). So this view is not all that correct, but one must not exaggerate this piece of information. However, there has been a reduction in non-bank resources to commercial sector. Urban consumption is likely to fall from hereon, but rural consumption will hold up because there is no wealth effect here.
Is RBI pleased about inflation? Are inflation worries behind us?
Not withstanding the decline in the wholesale price index, we must note that inflation of primary articles is still in double digits. Inflation projection and inflation estimation is not just about looking at a WPI number. We look at CPI and inflation expectations too. However, the stance in the last few months has shifted from inflation to growth and priority has been to adjust moderation in growth.
The Economic Times, January 28, 2009, Page 17
With no certainty on when the worst of the crisis will be behind us. For now, the central bank is maintaining a flexible stance. The governor D Subbarao, while refusing to take credit for the decline in inflation, is sticking to his objective of making money available at reasonable price. In a media interaction, the governor speaks about why he does not fear deflation despite the possibility of the wholesale price index moving into the negative territory.
What are the objectives of the latest monetary policy?
The current monetary policy review is set in times of increasing uncertainty, where IMF has been continuously bringing down its estimates for the global GDP. RBI has been mainly working with three principal objectives - ample rupee liquidity, comfortable dollar liquidity and monetary policy aimed at continued flow of credit to the economy. Till date, we have injected, or at least made available, more than Rs 4 lakh crore of liquidity through various measures.
But not all banks are cutting rates?
Transmission of monetary policy in the money and GSec markets has been effective, but the same in the credit market has been subdued. Most banks have reduced lending and deposit rates, but some have not. The latest RBI stance leaves a lot of scope for banks to adjust their lending rates, even for those that changed rates recently.
How badly is India affected in the global slowdown? Has it hurt bank credit?
Globalisation is a double edged sword. Although it has often helped India, the impact on the real and financial sector is mainly due to globalisation. India is much more integrated today than ten years ago, at the time of the Asian financial crisis. There is a view that bank credit is decelerating. But non-food credit has expanded faster (23.9%) than the same period last year (22%). So this view is not all that correct, but one must not exaggerate this piece of information. However, there has been a reduction in non-bank resources to commercial sector. Urban consumption is likely to fall from hereon, but rural consumption will hold up because there is no wealth effect here.
Is RBI pleased about inflation? Are inflation worries behind us?
Not withstanding the decline in the wholesale price index, we must note that inflation of primary articles is still in double digits. Inflation projection and inflation estimation is not just about looking at a WPI number. We look at CPI and inflation expectations too. However, the stance in the last few months has shifted from inflation to growth and priority has been to adjust moderation in growth.
Let me repeat, we’ve not conquered inflation once and for all. Today we were having a meeting with bankers and one of them suggested it’s disturbing that inflation is coming down so fast. If it’s coming down so fast it is not because of structural reasons, but because of many other factors over which we have no control. We will continue to have concerns about inflation going forward. There is a possibility that there will negative WPI inflation too. But I do not see a prolonged deflation as in other developed markets or structural deflation. It may only be more of a statistic. Groucho Marx once said – never make a forecast, especially about the future. So we do not want to make any forecasts, we’ve learnt our lessons from the past.
Industry unhappy with RBI decision
Industry unhappy with RBI decision
The Economic Times, January 28, 2009, Page 19
Our Bureau NEW DELHI
INDIA Inc has expressed disappointment over the RBI’s move to maintain key policy rates in its quarterly monetary policy review. Captains of industry and chambers have stated the central bank should have brought down rates by at least another 100 basis points to reverse the process of slowdown.
Inflation is already down to around 5%, so the reverse repo rate at which it absorbs cash from the system should be slashed to 1%,” TVS managing director Venu Srinivasan said. “Otherwise, banks will find it more profitable to park their money with RBI, rather than lend,” he added.
Industry body CII said: “Given the fact that inflation is correcting more rapidly than expected and industry and the economy as a whole is facing a slowdown, the RBI could have used this opportunity to cut key interest rates further.” The chamber said there’s still no sign of reversal in the fortunes of the manufacturing sector. “This might have an impact on employment, unless fresh measures are taken to offset the decline in domestic demand. Credit availability for the small scale sector remains a major concern,” CII added.
Ficci said RBI has held back its activism in further pruning the repo and reverse repo rates. “By RBI’s own admission, inflation is expected to moderate to 3% by March this year, this was clearly a window of opportunity.” It urged the RBI to give a further signal to banks which still remain risk-averse in lending to corporates. “Demand creation and liquidity are still an issue, and will remain so until rates are further moderated,” said Assocham president Sajjan Jindal.
The Economic Times, January 28, 2009, Page 19
Our Bureau NEW DELHI
INDIA Inc has expressed disappointment over the RBI’s move to maintain key policy rates in its quarterly monetary policy review. Captains of industry and chambers have stated the central bank should have brought down rates by at least another 100 basis points to reverse the process of slowdown.
Inflation is already down to around 5%, so the reverse repo rate at which it absorbs cash from the system should be slashed to 1%,” TVS managing director Venu Srinivasan said. “Otherwise, banks will find it more profitable to park their money with RBI, rather than lend,” he added.
Industry body CII said: “Given the fact that inflation is correcting more rapidly than expected and industry and the economy as a whole is facing a slowdown, the RBI could have used this opportunity to cut key interest rates further.” The chamber said there’s still no sign of reversal in the fortunes of the manufacturing sector. “This might have an impact on employment, unless fresh measures are taken to offset the decline in domestic demand. Credit availability for the small scale sector remains a major concern,” CII added.
Ficci said RBI has held back its activism in further pruning the repo and reverse repo rates. “By RBI’s own admission, inflation is expected to moderate to 3% by March this year, this was clearly a window of opportunity.” It urged the RBI to give a further signal to banks which still remain risk-averse in lending to corporates. “Demand creation and liquidity are still an issue, and will remain so until rates are further moderated,” said Assocham president Sajjan Jindal.
Subbarao reserves ammunition
Subbarao reserves ammunition
The Hindu Business Line, January 28, 2009, page 8
Third Quarter Review of Monetary Policy 2008-09.
-------------------------------------------------------------------------------------------------
The RBI has taken the right decision not to make any changes in the key policy rates, since what has been done in the last three months is substantial and it takes time for the effects to be felt, says A. SESHAN.
-------------------------------------------------------------------------------------------------
The Reserve Bank of India (RBI) has preferred not to make any changes in the key policy rates. This is an appropriate stand since what has been done in the last three months is substantial and it takes time for the effects to be felt before further measures are initiated.
The growth of Gross Domestic Product (GDP) in 2008-09 is now brought down to 7 per cent with a downward bias. Considering that it was 7.8 per cent in the first half of 2008-09, it will have to be 6.28 per cent in the second half. This appears doubtful going by the recent statistics on industrial production and exports.
The RBI acknowledges that it too is in a bind when it says that monetary ammunition has been nearly exhausted in many countries.
The indicative growth projection in the total flow of credit to the commercial sector from all sources by the end of the year is raised from 20 per cent to 24 per cent. Going by the trend so far, it is a moot point whether much can be achieved in the remaining weeks.
INFLATION
The RBI’s prediction of inflation at less than 3 per cent by the end of the year is somewhat optimistic. A further reduction can be achieved if the government cuts the administered prices of petroleum products such as diesel. But how much would bringing down the prices of essentials, even after reckoning with their inter-industry effects, help?
The RBI is, of course, cognisant of the double-digit inflation revealed by various versions of the Consumer Price Index (CPI). Here the hope is that the reduction in input prices will bring down commodity prices and the decline in Wholesale Price Index (WPI) will have a lagged effect on the CPI.
In the first place, so far as agriculture is concerned, there is no reduction in the price of a major input, namely fertilisers. Second, whether WPI influences CPI or vice-versa or it is a mutual two-way relationship is yet to be conclusively determined despite the battery of causality tests employed by econometricians for the purpose.
It is surprising that experts of the RBI have fallen for the naive and meaningless reference to the ‘base effect’ of the previous year. Does one fight inflation with the help of such a concept?
It would mean that the high inflation observed a few months ago was a blessing in disguise as it would have a favourable ‘base effect’ next year!
This ‘effect’ is an arithmetical explanation, not an economic one. The total amount of additional liquidity released during the recent period is Rs 4,28,000 crore, including the money unwound (Rs 40,000 crore) through a reduction in the Statutory Liquidity Ratio. With a fall in growth rate and money supply target increasing from 16.5 per cent to 19 per cent, where will all the additional funds go except to raise nominal incomes through inflation?
BACKGROUND DOCUMENT
The document Macroeconomic and Monetary Developments — Third Quarter Review 2008-09 provides an authoritative background for an assessment of the latest policy stance of the Bank. There are two outstanding features that deserve to be mentioned.
Besides being transparent, objective and plain-speaking, it has reference to money multiplier in the context of the changes in cash reserve ratio. This is a good beginning. In future, its actual value can be compared with the theoretical one and variations thereof can be explained.
There is, however, a need to incorporate a reference to the other equally famous income multiplier, associated with Keynes. It is the multiple impact of the initial expenditure on the growth of the GDP.
In fact, the stimulus packages announced by the Government in the area of spending and tax cuts are posited on this multiplier in combating the decline in the growth rate of the economy. So it is imperative to know its value to have some idea about the expected result of the measures.
Valerie Ramey finds from historical US data that the multiplier for public spending is not large in that country: $1 in public spending raises GDP by only $1.4 (Identifying Government Spending Shocks: It’s all in the timing, University of California, San Diego, June 2008) Hence, the expected large-size impact on the US economy due to the massive stimulus packages of the Federal Government has been questioned. Second, there is a detailed description of liquidity in the economy beyond what was covered in the earlier documents.
Incidentally, the Government appointed a committee under the leadership of the Finance Secretary to examine the liquidity problem that prevailed a few months ago. The Report has not yet been published.
The current thinking is that there is little fiscal space left for further stimuli and it is the job of the monetary authorities to take over. This is contrary to conventional Keynesian thinking.
The central bank can flood the economy and reduce rates drastically. But if the environment and expectations are not favourable for businessmen to demand additional credit, the extra liquidity makes a round trip and ends in reverse repo operations with the RBI, as is happening now.
STATE FINANCES
Another point is the role of the States in tackling the present crisis for which not much attention has been given either by the authorities or observers.
A few days ago, the finances of State governments were reported to have made a remarkable improvement with a few exceptions, as brought out by an excellent analysis of the RBI staff (State Finances — A Study of Budgets of 2008-09). It indicated the scope for stimulus packages of State governments.
However, the background document of the RBI puts a damper on this welcome development. It says that the revenue surpluses of States envisaged in their budgets may not materialise due to subsequent developments.
(The author is a former officer-in-charge of the Department of Economic Analysis and Policy, RBI. blfeedback@thehindu.co.in)
The Hindu Business Line, January 28, 2009, page 8
Third Quarter Review of Monetary Policy 2008-09.
-------------------------------------------------------------------------------------------------
The RBI has taken the right decision not to make any changes in the key policy rates, since what has been done in the last three months is substantial and it takes time for the effects to be felt, says A. SESHAN.
-------------------------------------------------------------------------------------------------
The Reserve Bank of India (RBI) has preferred not to make any changes in the key policy rates. This is an appropriate stand since what has been done in the last three months is substantial and it takes time for the effects to be felt before further measures are initiated.
The growth of Gross Domestic Product (GDP) in 2008-09 is now brought down to 7 per cent with a downward bias. Considering that it was 7.8 per cent in the first half of 2008-09, it will have to be 6.28 per cent in the second half. This appears doubtful going by the recent statistics on industrial production and exports.
The RBI acknowledges that it too is in a bind when it says that monetary ammunition has been nearly exhausted in many countries.
The indicative growth projection in the total flow of credit to the commercial sector from all sources by the end of the year is raised from 20 per cent to 24 per cent. Going by the trend so far, it is a moot point whether much can be achieved in the remaining weeks.
INFLATION
The RBI’s prediction of inflation at less than 3 per cent by the end of the year is somewhat optimistic. A further reduction can be achieved if the government cuts the administered prices of petroleum products such as diesel. But how much would bringing down the prices of essentials, even after reckoning with their inter-industry effects, help?
The RBI is, of course, cognisant of the double-digit inflation revealed by various versions of the Consumer Price Index (CPI). Here the hope is that the reduction in input prices will bring down commodity prices and the decline in Wholesale Price Index (WPI) will have a lagged effect on the CPI.
In the first place, so far as agriculture is concerned, there is no reduction in the price of a major input, namely fertilisers. Second, whether WPI influences CPI or vice-versa or it is a mutual two-way relationship is yet to be conclusively determined despite the battery of causality tests employed by econometricians for the purpose.
It is surprising that experts of the RBI have fallen for the naive and meaningless reference to the ‘base effect’ of the previous year. Does one fight inflation with the help of such a concept?
It would mean that the high inflation observed a few months ago was a blessing in disguise as it would have a favourable ‘base effect’ next year!
This ‘effect’ is an arithmetical explanation, not an economic one. The total amount of additional liquidity released during the recent period is Rs 4,28,000 crore, including the money unwound (Rs 40,000 crore) through a reduction in the Statutory Liquidity Ratio. With a fall in growth rate and money supply target increasing from 16.5 per cent to 19 per cent, where will all the additional funds go except to raise nominal incomes through inflation?
BACKGROUND DOCUMENT
The document Macroeconomic and Monetary Developments — Third Quarter Review 2008-09 provides an authoritative background for an assessment of the latest policy stance of the Bank. There are two outstanding features that deserve to be mentioned.
Besides being transparent, objective and plain-speaking, it has reference to money multiplier in the context of the changes in cash reserve ratio. This is a good beginning. In future, its actual value can be compared with the theoretical one and variations thereof can be explained.
There is, however, a need to incorporate a reference to the other equally famous income multiplier, associated with Keynes. It is the multiple impact of the initial expenditure on the growth of the GDP.
In fact, the stimulus packages announced by the Government in the area of spending and tax cuts are posited on this multiplier in combating the decline in the growth rate of the economy. So it is imperative to know its value to have some idea about the expected result of the measures.
Valerie Ramey finds from historical US data that the multiplier for public spending is not large in that country: $1 in public spending raises GDP by only $1.4 (Identifying Government Spending Shocks: It’s all in the timing, University of California, San Diego, June 2008) Hence, the expected large-size impact on the US economy due to the massive stimulus packages of the Federal Government has been questioned. Second, there is a detailed description of liquidity in the economy beyond what was covered in the earlier documents.
Incidentally, the Government appointed a committee under the leadership of the Finance Secretary to examine the liquidity problem that prevailed a few months ago. The Report has not yet been published.
The current thinking is that there is little fiscal space left for further stimuli and it is the job of the monetary authorities to take over. This is contrary to conventional Keynesian thinking.
The central bank can flood the economy and reduce rates drastically. But if the environment and expectations are not favourable for businessmen to demand additional credit, the extra liquidity makes a round trip and ends in reverse repo operations with the RBI, as is happening now.
STATE FINANCES
Another point is the role of the States in tackling the present crisis for which not much attention has been given either by the authorities or observers.
A few days ago, the finances of State governments were reported to have made a remarkable improvement with a few exceptions, as brought out by an excellent analysis of the RBI staff (State Finances — A Study of Budgets of 2008-09). It indicated the scope for stimulus packages of State governments.
However, the background document of the RBI puts a damper on this welcome development. It says that the revenue surpluses of States envisaged in their budgets may not materialise due to subsequent developments.
(The author is a former officer-in-charge of the Department of Economic Analysis and Policy, RBI. blfeedback@thehindu.co.in)
Tuesday, January 27, 2009
Delhi malls cut rental in demand slump
Delhi malls cut rental in demand slump
HT Business, 27th January 2009, page 19
Major mall developers in the National Capital Region have cut rentals by at least 15 per cent to prevent retailers from exiting malls, industry executives say. Unitech has cut the rentals of its one million square feet mall 'The Great India Place' (TGIP), which is the largest mall in India.
Sachin Sachdeva, head of retail operations at TGIP said the current rentals are Rs. 350 (per square foot per month) for ground floor, Rs.
250 for first floor and Rs. 125 second floor, down 15 to 20 per cent from their peaks.
"Of the total 280 stores, nearly 20 are empty," he said. A large property brokerage firm owner said that the vacancy level could be higher, at nearly 20 percent.
Executives at DLF, Parsvnath and Omaxe admit to a decline in both rentals and occupancy levels. "The retail rentals have come down by 20 to 25 percent.
However, there is further scope for correction of prices by at least 15 to 25 percent," said Arvind Singhal, chairman of retail consulting firm KSA Technopak. The situation for Ambience Mall on the Gurgaon highway is worse.
A senior mall executive in the premises said nearly 160 out of total 360 stores are empty. "Revenues expected by developers and retailers did not match expectations and hence there is a re-alignment in rentals," said Rajneesh Mahajan, retail head at consultancy firm Cushman and amp; Wakefield.
Realtors look to barter deals
Realtors look to barter deals
HT Business, 27th January 2009, page 19
With credit turning tight and buyers disappearing, real estate firms are experimenting with barter — a transaction where goods or services are directly exchanged for other goods and/or services — without the use of money.
The New Delhi-based AEZ Group has invited proposals from manufacturers and suppliers of materials and equipment like steel, aluminium, elevators, escalators and generator sets for barter against ownership of property.
“We need material for construction and suppliers need to dispose off their surplus stock that they may have ordered on commitment of the developer,” said Shrey S Aaren, director, AEZ Group. “This made us go in for barter proposals. We have received more than 100 queries so far.”
It could be a win-win situation for both, the developer and the supplier, said Hemant Shah, chairman, Akruti Nirman. “The developer can help the supplier dispose off his surplus stock and the supplier the developer’s real estate. It offers a way out of the (current) logjam. We are open to such schemes.”
Such deals could also help improve profitability in a sluggish market. “It is one of the innovative ways of improving your profit margins,” said Anshuman Magazine, managing director, CB Richard Ellis, a real estate consultancy. “I think the trend is bound to increase. It is important that the location of the project is good and the property has been valued right.”
On the other side, Abhishek Somany, joint managing director, Somany Ceramics, is open to such deals. “If we were to go into something like this, the category of the builder and the location of the property will be important,” he said. “Besides, we would prefer a commercial space barter to a residential space as that would enable us to use the office or godown space.”
For barter system to work, it is necessary that suppliers have the cash flow and are willing to find value in such deals, said Sanjeev Srivastava, managing director, Assotech. It is likely to be more successful in case of manufacturers of elevators and escalators where the suppliers have a long-term involvement with the developer, he said.
Crisis hits home, auto, personal loan portfolios of foreign banks in India
Crisis hits home, auto, personal loan portfolios of foreign banks in India
Financial Express, Jan 27, 2009, Page No. 2
Financial Express, Jan 27, 2009, Page No. 2
New DelhiThe deepening financial crisis and ballooning losses at global banks have forced major foreign banks in India to either stop or significantly reduce the amount of various loans including home, personal and car loans given to retail customers. While HSBC has shut its home loan operations, Standard Chartered, Citibank and ABN Amro have drastically pruned fresh home loans to customers, banking industry sources said, which was confirmed by a visit to branches of the four banks by FE reporters.
Deteriorating credit conditions, rising bad debts and losses have led to a sort of a temporary halt in retail loan disbursements by these banks. While public sector banks increased lending this year, private and foreign banks have reduced credit. Credit growth of foreign banks operating in India has almost halved to 16.9% as on January 2, 2009 from 30.7% as on January 4, 2008, as per RBI data released in the third quarter review of macroeconomic and monetary policy on Monday. Public sector banks lending grew by 28.6% as on January 2, 2009, up from 19.8% last year, whereas, credit growth of private banks fell to 11.8% as on January 2, 2009 from 24.2% a year ago, the RBI data showed.
The US banks are unable to lend after suffering losses of nearly $700 billion since the start of crisis in the sub prime mortgage market 18 months ago. Indian banks too have reduced credit disbursals after facing intermittent liquidity shortages. After contracting by Rs 1,157 crore in December, the non- food credit slightly rose to Rs 11,961 crore for the fortnight ended January 2, according to RBI data. Gross non performing assets of banks in India could hit 4.7% of total loans by fiscal end 2.3% currently, a note by financial services firm Antique Finance Ltd said.
HSBC and Standard Chartered have stopped providing personal and car loans, while Citibank has stopped personal loans to new customers, executives at these banks’ branches in Delhi said. Standard Chartered has expanded its ‘negative list’ of cities wherein the bank is not granting any loans. Interestingly, Ghaziabad is part of this negative list and bank executives refused to finance any property in most of the NCR region, including the ‘laldora’ areas of Delhi that have now been regularised.
A home loan executive said this list has been there for the last 2-3 years, but it has now been expanded. “We are going slower because of the financial crisis,” he said. When FE visited an ABN Amro bank as loan seekers last Monday, two branch executives did not directly deny home loan but said they would arrange for a call in the evening. The bank had not called since then. One of these executives said on further questioning on Wednesday it would be extremely difficult to arrange for a home loan.
A Citibank branch executive, however, said on Thursday the bank was willing to provide home loan at 11.75% rate and up to 80% of the property value. The bank has stopped personal loans to new customers and car loans are available only for the Maruti brand, the executive said. Calls and e-mails to these banks did not elicit response. Standard Chartered spokesperson did not respond to a questionnaire despite repeated attempts over the past two weeks. “We will be unable to respond to the queries, as we are currently in close season (till announcement of Group results in first week of March),” said a HSBC spokesperson. FE could not reach ABN Amro bank.
A Citibank spokesperson said the queries have become outdated in light of the restructuring at the bank. She did not respond on whether retail loans operations have been shut at Citibank. Citi, the US-based parent company, last Friday jettisoned its financial supermarket model to minimise losses that stood at $8.29 billion in the fourth quarter. It is splitting the company into two entities, Citicorp and Citi Holdings, to retain good assets including the global bank and to offload bad assets in future. Citi Financial, whose business in India includes home loans, personal loans and investment products, has posted a net loss of Rs 268.6 crore during the first three quarters of 2008.
While the new administration in the US is pushing to complete the bank rescue plan, the financial losses in the country may reach $3.6 trillion, New York University Professor Nouriel Roubini said at a conference in Dubai on Wednesday. The banks that have funds to lend are parking them in gilt securities for the fear of rising bad debts.
DLF raises funds and repays part of it to MF
DLF raises funds and repays part of it to MF
Times of India, Jan 26, 2009, page no. 28
At a time when a host of real estate companies are finding it difficult to raise money to pay off their debts, K P Singh controlled DLF recently raised about Rs 900 crore. But the story doesn’t end with the fund raising. The Gurgaon-based real estate conglomerate then used part of the proceeds to repay about Rs 300 crore to a large mutual fund house, that too even before the due date. In boom times, many real estate companies had issued paper to raise funds for their projects. And they had found ready investors in the mutual funds, which had readily bought into the story of ever-rising property prices. At a time when many of these real estate companies are trying hard to keep their head above water, several mutual fund houses are still on the edge, mainly because of their legacy investments in real estate papers. Therefore, the move by DLF must have come as a surprise bonanza for some fund managers. Hopefully, other realty companies are looking at the DLF example.
Flight to the suburbs
Flight to the suburbs
HT Estates, Jan 24, 2009, Page No. 1
Welcome to the wave of great great migration. Better infrastructure, proximity to the workplace, parking facilities, wide green expanses and the overall cost analysis - all of these are luring many Delhiites to the suburbs. It is, therefore, not surprising that the outskirts of the Capital are fast developing as new residential corridors.
If the recently released real estate price index by the National Housing Bank (NHB) is anything to go by, prices in South Extension, Vasant Vihar and other posh localities in Delhi, rose at a much lesser rate than places located in the Capital's outskirts. Several reasons may have fuelled this pattern. The primary one is that posh localities in Delhi have already witnessed optimum growth and are almost saturated when compared to new property stock in the outskirts of the city The second. reason is that the city too has expanded and created new infrastructure, connectivity and fresh employment opportunities, forcing people to move to the fringes. B g e h m , I sscs i g roe e ot According to Pankaj Renjhen, Managing Director of the North Indian operations, JLLM, "Suburban development is all about growth of the city, it's all about providing economic stimulus to that city which has grown outwardly Suburban housing is typically cheaper and bigger housing development since the availability of land is more. In the US the bigger houses are typically located in the suburbs." Therefore, it is the need for a larger home, more open space and peace, that is forcing people from posh localities in Delhi to shift base to the NCR. The other socioeconomic factors include proximity to the workplace, better security and infrastructure and the quality of real estate such as a golf course related development.
Often these homes in the outskirts start as an investment and gradually develop into first homes as the area develops and becomes habitable, points out Renjhen. Cagn huignes hnigosn ed Concurs Anshul Jain, CEO - India, DTZ International Property Advisors, earlier the demand pull towards parts of NCR came from people aspiring for upmarket premium residential spaces, amidst all modern amenities ¬provisioned within well-developed gated and self-sustainable communities. Heavy concentration of commercial activity in these regions has been another factor contributing to this migratory trend; driven by the housing needs of the young professionals wanting to stay closer to their work places.
One, therefore, has people moving to homes in either Gurgaon or Greater Noida overlooking golf courses -the perfect greens. Points out Rita Dixit, ED of Jaiprakash Associate Ltd (JAL), real estate division, "Several buyers from posh Delhi localities have bought properties in our Greater Noida golf property. Our loft and studio apartments are also immensely popular with the avid golfers’: group," she adds. vandana.ramnani@ hindustantimes.com
HT Estates, Jan 24, 2009, Page No. 1
Welcome to the wave of great great migration. Better infrastructure, proximity to the workplace, parking facilities, wide green expanses and the overall cost analysis - all of these are luring many Delhiites to the suburbs. It is, therefore, not surprising that the outskirts of the Capital are fast developing as new residential corridors.
If the recently released real estate price index by the National Housing Bank (NHB) is anything to go by, prices in South Extension, Vasant Vihar and other posh localities in Delhi, rose at a much lesser rate than places located in the Capital's outskirts. Several reasons may have fuelled this pattern. The primary one is that posh localities in Delhi have already witnessed optimum growth and are almost saturated when compared to new property stock in the outskirts of the city The second. reason is that the city too has expanded and created new infrastructure, connectivity and fresh employment opportunities, forcing people to move to the fringes. B g e h m , I sscs i g roe e ot According to Pankaj Renjhen, Managing Director of the North Indian operations, JLLM, "Suburban development is all about growth of the city, it's all about providing economic stimulus to that city which has grown outwardly Suburban housing is typically cheaper and bigger housing development since the availability of land is more. In the US the bigger houses are typically located in the suburbs." Therefore, it is the need for a larger home, more open space and peace, that is forcing people from posh localities in Delhi to shift base to the NCR. The other socioeconomic factors include proximity to the workplace, better security and infrastructure and the quality of real estate such as a golf course related development.
Often these homes in the outskirts start as an investment and gradually develop into first homes as the area develops and becomes habitable, points out Renjhen. Cagn huignes hnigosn ed Concurs Anshul Jain, CEO - India, DTZ International Property Advisors, earlier the demand pull towards parts of NCR came from people aspiring for upmarket premium residential spaces, amidst all modern amenities ¬provisioned within well-developed gated and self-sustainable communities. Heavy concentration of commercial activity in these regions has been another factor contributing to this migratory trend; driven by the housing needs of the young professionals wanting to stay closer to their work places.
One, therefore, has people moving to homes in either Gurgaon or Greater Noida overlooking golf courses -the perfect greens. Points out Rita Dixit, ED of Jaiprakash Associate Ltd (JAL), real estate division, "Several buyers from posh Delhi localities have bought properties in our Greater Noida golf property. Our loft and studio apartments are also immensely popular with the avid golfers’: group," she adds. vandana.ramnani@ hindustantimes.com
‘Model realty regulator Act soon for States’
‘Model realty regulator Act soon for States’
The Hindu Business Line, Jan 24, 2009, Page 17
The Centre will soon bring a model Act to facilitate states to create a real estate regulator, a move aimed at checking unscrupulous elements in the property sector and keeping prices at a reasonable level.
"Based on the recommendations of the various stakeholders, including the States, the government has decided to put a model real estate regulator Act in place," Minister of State for Housing and Urban Poverty Alleviation Kumari Selja said at a realty conference.
"This was a demand which was there not only from the consumers but also from the real estate sector," she added.
The objective of such a model act is that the regulator would not only see land acquisition and development process, but also ensure that prices do not go beyond a level and to check unscrupulous elements in the sector like fly-by-night operators and brokers, the minister said.
Stating that states have endorsed the creation of such a model act in a recent meeting of State Housing Ministers, Selja said her ministry would bring out the model act at the earliest for states to follow.
"States must enact their own law for state regulator. Thats why we will come up with model act," she said, assuring that the model act would be prepared after consulting all the stakeholders.
She also clarified that there is no contradiction with the similar proposal of Urban Development Ministry to bring regulatory body for realty sector. "What urban development ministry is proposing is for Delhi. What we are doing is a model act for the whole country to follow.".
Selja expressed confidence that States would follow the model act and bring a regulator for property sector.
Selja also asked the developers to build affordable houses as there is a huge untapped demand in that segment. She emphasised that the government has announced several measures to boost the housing sector, but asked the industry to respond by lowering the profit margins.
"Today there is a lot of gap between demand and supply. The demand is from the common man and the supply is only for the high-end. The sector needs to take a look and get into the sector where the demand is," Selja said.
For developing affordable houses, she said there is a need to reduce the cost of land and construction, besides cutting on the profit margins.
"It is desirable to evolve a new framework of partnership between government agencies and private sector to supply affordable housing into the market," she suggested.
Selja noted that it was becoming very difficult for anybody to afford a good house as prices were going through the roofs. The realty sector has been hit hard as it was building high-end projects, she pointed out.
The minister also highlighted that housing construction sector has found an important place in the two stimulus package as the sector has multiplier effect on the economy.
She said the government has recently announced interest subsidy scheme for housing the urban poor. The scheme is aimed at providing cheap loans to urban poor who have a plot but do not have funds to undertake construction. An interest subsidy of 5 per cent would be given for loans of Rs 1 lakh for EWS and LIG taken during 11th plan.
The National Housing Bank and Housing and Urban Development Corporation Ltd will be the nodal agencies for disbursement of the subsidy and monitoring the progress.
"Under this ambitious scheme, interest subsidy of Rs 1,100 crore is expected to leverage institutional finance of Rs 3,870 crores for beneficiaries over the next four years," she said.
India has no better friend, partner than US, says Obama
India has no better friend, partner than US, says Obama
Financial Express, January 27, 2009, page 3
Washington Greeting India on the occasion of the country’s 60th Republic Day, US President Barack Obama said Indians have no better friend and partner than the people of the United States.
“As the Indian people celebrate Republic Day all across India, they should know that they have no better friend and partner than the people of the United States,” Obama said.
Obama, who calls India as a natural ally of the US and seeks inspiration from Mahatma Gandhi, in a message said: “It is our shared values that form the bedrock of a robust relationship across peoples and governments.
“Those values and ideals provide the strength that enables us to meet any challenge, particularly from those who use violence to try to undermine our free and open societies.”
As Indians and people of Indian origin in the US and around the world celebrate Republic Day on January 26, Obama said: “I send the warmest greetings of the American people to the people of India. Together, we celebrate our shared belief in democracy, liberty, pluralism and religious tolerance.”
Referring to the new bonhomie of relationships between India and the US in the last one decade, the US President said the two nations have built broad and vibrant partnerships in every field of human endeavor.
“Our rapidly growing and deepening friendship with India offers benefits to all the world’s citizens as our scientists solve environmental challenges together, our doctors discover new medicines, our engineers advance our societies, our entrepreneurs generate prosperity, our educators lay the foundation for our future generations, and our governments work together to advance peace, prosperity, and stability around the globe,” he said.
Financial Express, January 27, 2009, page 3
Washington Greeting India on the occasion of the country’s 60th Republic Day, US President Barack Obama said Indians have no better friend and partner than the people of the United States.
“As the Indian people celebrate Republic Day all across India, they should know that they have no better friend and partner than the people of the United States,” Obama said.
Obama, who calls India as a natural ally of the US and seeks inspiration from Mahatma Gandhi, in a message said: “It is our shared values that form the bedrock of a robust relationship across peoples and governments.
“Those values and ideals provide the strength that enables us to meet any challenge, particularly from those who use violence to try to undermine our free and open societies.”
As Indians and people of Indian origin in the US and around the world celebrate Republic Day on January 26, Obama said: “I send the warmest greetings of the American people to the people of India. Together, we celebrate our shared belief in democracy, liberty, pluralism and religious tolerance.”
Referring to the new bonhomie of relationships between India and the US in the last one decade, the US President said the two nations have built broad and vibrant partnerships in every field of human endeavor.
“Our rapidly growing and deepening friendship with India offers benefits to all the world’s citizens as our scientists solve environmental challenges together, our doctors discover new medicines, our engineers advance our societies, our entrepreneurs generate prosperity, our educators lay the foundation for our future generations, and our governments work together to advance peace, prosperity, and stability around the globe,” he said.
Friday, January 23, 2009
Banks, FIs step up property buys
Banks, FIs step up property buys
Business Standard, Section II, page 3
ANIRUDH LASKAR Mumbai, 22 January
With real estate prices moving southwards, several banks and financial institutions are buying their own properties and shifting from rented and leased premises.
While the country’s largest financial institution, Life Insurance Corporation of India (LIC), has already bought land and built-up properties during this financial year, the country’s thrid largest private lender Axis Bank is scouting for up to 5,00,000 square feet of space in areas such as Bandra-Kurla Complex (BKC), Worli and Parel.
“Property prices have fallen to attractive levels now.
As we intend to expand our network, we will buy our own properties instead of taking commercial spaces on rent or lease. During the first half of this year, we have bought properties worth over Rs 511 crore across different cities,” said LIC Managing Director Thomas Mathew T.
According to brokers, real estate prices in the country’s commercial hub have fallen 30-40 per cent in the last one year. “ Land at BKC is now available at just Rs 30,000 a square feet now from Rs 40,000- 50,000 a year back. At Worli and Parel, properties are mostly sold on the basis of down-payment. If a buyer agrees to pay within a week or so after identifying a property, the seller offers lower rates. So far, these areas were being mostly offered on lease or rent,” said Mehta, who deals in real estate in Mumbai.
“We have been planning to buy an office space of 3,50,000 -5,00,000 square feet somewhere in BKC or Worli. As the real estate prices have come down significantly, it is the right time to buy our own property for expanding further, instead of looking for lease and rent options. We are close to finalising such a commercial space,” said a senior executive at Axis Bank.
In November last year, foreign lender Standard Chartered Bank had bought about 250,000 square feet of space in BKC for Rs 750 crore. Standard Chartered purchased the property from PD Developers at around Rs 30,000 a square feet, a rate which is over 30 per cent lower as compared to Rs 45,000 about a year back.
LIC intends to buy land and properties worth Rs 1,000 crore this financial year to accommodate its upcoming new branch offices.
The insurer, which currently has 2048 branches and 108 divisional offices, plans to open 500 new satellite offices this year.
LIC intends to buy land and properties worth Rs 1,000 crore this financial year
Axis Bank is scouting for 5,00,000 square feet of space in Bandra-Kurla Complex, Worli and Parel.
Standard Chartered Bank had bought 250,000 square feet of space in BKC for Rs 750 crore
SCOUTING FOR LAND
Unitech seeks nod for $1b GDRs
Unitech seeks nod for $1b GDRs
Economic Times, page 8
Promoter Stake Drops 7% to 67.4% in Three Months
Sanjeev Choudhary & Chaitali Chakravarty NEW DELHI
INDIA’S second-largest listed realty company, Unitech, has sought government approval to float global depository receipts (GDR) to raise a maximum of Rs 5,000 crore ($1 billion). If the company were to successfully raise the entire amount using GDR pricing formula, as per Unitech’s application, promoter stake could get reduced to 36.7%. Promoter stake in Unitech has already dropped 7% to 67.4% in the three months to December ‘08. A Mumbai-based real estate analyst, who did not want to be named, said the decline in promoter stake was probably due to sale of pledged shares by financial institutions, which had lent to the promoters. It is widely believed, although not verified, that promoters have much more shares pledged with lenders. Unitech didn’t comment on stake decline or shares pledged with lenders. Unitech’s shares fell 3.4% to Rs 28.30 on Thursday. Unitech earlier announced that the company’s board had approved, on December 22, the issuance of fresh securities to raise Rs 5,000 crore through fresh issuance of securities, including equity shares, convertible preference shares or debentures, GDR and ADR. Now it is believed to have decided to go ahead with a GDR issue. GDRs are shares issued in overseas market to persons who are not residents of India. As per Unitech’s application to foreign investment promotion board (FIPB), the nodal body clearing foreign investment in India, the firm is planning to issue over 40 crore GDRs at a price of Rs 36.78 - calculated as per GDR scheme. The GDR issue will reduce promoter’s stake to 36.71% from 67.45% as of December 31, 2008. Postinvestment, GDRs would comprise 45.57% of total shareholding. Analysts are sceptical about Unitech’s ability to get enough investors to subscribe to the company’s GDRs, given the poor state of markets globally. Unitech’s portfolio of assets, one-tenth of which comprises non-FDI compliant projects, might come as a hurdle for speedy government approval. The company has given an undertaking that GDR proceeds will be used only in the FDI-compliant projects, but it’s unlikely that the government will allow Unitech to induct FDI, without asking it to hive off non-FDI compliant projects. Recently, the government rejected Gurgaon-based Vatika group’s proposal to retain non-FDI compliant assets post-FDI infusion. Real estate developers seek to retain such assets in a bid to keep a higher valuation for the company. Unitech on Monday claimed that it has been able to reduce its debt obligation due by March ‘09 to Rs 600 crore from Rs 2,500 crore through repayment and roll-over. sanjeev.choudhary@timesgroup.com
COMMERCIAL RENTALS DROP
COMMERCIAL RENTALS DROP
Economic Times, ET Realty, p1
With the liquidity crunch, not only have the prices of commercial spaces gone down, there has also been a major dip in demand. ET Realty explores
Rajarshi Bhattacharjee
Companies, which had deferred expansion plans in Delhi and the National Capital Region (NCR) owing to high property prices, can now think of going ahead. Rentals for office and commercial space are on a downhill move following decline in activity levels in the market. According to fourth quarter report (2008) of CB Richard Ellis, rental values have reduced by around 11 percent and capital values have depreciated by 13 percent in the Central Business District (CBD), as compared to quarter one of 2008. "As compared to the previous quarter, rentals of business spaces in Nehru Place have dropped by 20 percent. Markets of Jasola and Saket have also witnessed a decrease of 8 percent in rental values. Capital values, however witnessed a drop of approx 13 to 14 percent in both the markets," states CB Richard Ellis in its latest report. Peripheral markets of Gurgaon and Noida also witnessed a drop of approx 12 and 16 percent respectively in the last quarter, as compared to quarter three of 2008. The decisive factors determining fluctuation in price and demand of commercial spaces have been the closing down of expansion plans by companies and the liquidity crunch. Speaking over the recent dip in demand, Naveen Luthra, Vice-President and Business Head, MagicBricks.com informs, "Most companies from the US plan six months in advance. This decision for further rentals has been deferred from the benchmark December 2008 to March 2009. The spill-over effect of this will be felt within the next 4 to 6 months. By August-September 2009, the effect of slowdown is more likely to be evident." Infact, the CBD witnessed a reversal of trend in the year 2008 as compared to previous year when leasing activity was in a growth phase. No major transaction was concluded in the micro market this year apart from a few smaller space take ups. The upcoming Civic Centre project and redevelopment of railway land is expected to add new supply to CBD after a fairly long time. Another approx 70,000 sq ft is likely to come in the market when an existing building is expected to be renovated and available for leasing. Commercial spaces in Nehru Place maintained status-quo with no new supply and no leasing of Grade-A spaces. Large spaces in Saket, which were initially planned for single users have now been offered for lease. Bulk of leasing activity in Delhi has been concentrated in Jasola District Centre which has quality supply and comparatively lower rentals. Gurgaon has also been slow on leasing for both IT as well as commercial office spaces. Most of the projects have been delayed and few others are awaiting completion certificate. Gurgaon micro market currently has an estimated vacancy of around 11 percent. Noida continues to have abundant competitively priced IT supply but caters mostly to mid and lower level IT companies and has witnessed a vacancy of around 20 percent. "The Indian organised retail sector grew at 25 percent in 2007. Anticipating the growth of retail sector at above 35 percent in the coming years, developers had announced big retail projects. However, owing to economic slowdown, the growth of the retail sector has come down to 15 percent in 2008, resulting in developers deferring their projects for 12-24 months. Lack of funds leading to construction delays has resulted in slow absorption of retail space in malls and other commercial spaces," says VK Jindal, Chairman & Managing Director, SVP Group. Anshuman Magazine, Chairman & Managing Director, CB Richard Ellis, South Asia says, "Unlike the trends noticed in the past few years, fresh commitments and pre-leasing of underconstruction developments, have seen a drop. The next few months are likely to be a time of subdued demand in the short term. However the government's economic stimulus package and attempts by the US to revive the economy are expected to eventually improve activity levels in the market."
Truckers’ strike pushes inflation up to 5.6%
Truckers’ strike pushes inflation up to 5.6%
Economic Times, 23rd January 2009
Economic Times, 23rd January 2009
The hardening of food prices on the back of the recent truckers’ strike brought a halt to the 10-week downward trend in inflation. Wholesale prices for the week ended January 10 inflated by 5.6%. In the previous week, prices inflated by 5.24%, and by 4.36% in the corresponding week last year. Economists say this is a temporary blip and expect the inflation rate to fall to near-zero in a couple of months.
Second relief window soon for realty sector, Economic Times, 23rd January 2008
Second relief window soon for realty sector
Economic Times, 23rd January 2008, Page 15
Rajat Guha NEW DELHI
THE government is considering a second relief package for the real estate and housing sector, which is crumbling under liquidity crisis and a slowdown in demand. Apart from giving real estate an infrastructure status, the measures being looked at include reduction in interest rates from 9.25% to 7.5% for home loans up to Rs 30 lakh, an official in the department of industrial policy and promotion (DIPP) has said. The ministry may also consider a proposal for doubling of income tax rebate on home loan interest to Rs 3 lakh from Rs 1.5 lakh and raising of income tax exemption on rentals from 30% to 50%. Finance secretary Arun Ramanathan is learnt to be finalising a note on required measures for easing liquidity in the housing and real estate sector for the consideration of the Committee of Secretaries (CoS). “The finance ministry is considering demands of the real estate industry which could not translate into reality in the first fiscal package of the government,” a senior DIPP official told ET. The official added that in the meeting of the CoS on economic crisis, held last month, Mr Ramanathan had pointed out that the recommendations made by real estate industry body Confederation of Real Estate Developer’s Associations of India for stimulating the real estate sector, including the housing sector, need to be considered. The recommendations made by the association were forwarded by the urban development ministry to the CoS. Cabinet secretary KM Chandrashekhar had observed that construction activities need to be stimulated as this sector has considerable employment potential. The first stimulus package had left realtors unhappy. They complained that the existing stock of unsold homes cost much more than Rs 20 lakh, so that the interest rate concession on loans up to Rs 20 lakh would not help their sale. Public sector banks are now offering homes loans up to Rs 5 lakh at a rate of 8.5% and up to Rs 20 lakh at 9.25%. Urban development minister Jaipal Reddy has also urged Prime Minister Manmohan Singh for taking steps to rev up the real estate sector. He sought an equal commitment from the sector in the form of pricecuts. “The commitment from the realty sector may include lowering of prices for houses and more and more investments in affordable housing,” Mr Reddy had written to the PM.
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