Monday, November 30, 2009
ALL EYES ON DUBAI
ALL EYES ON DUBAI
The Economic Times, November 30, 2009, Page 1
Global banks, fund managers and central banks are fishing for new clues to take their next call on the citystate. Banks and stock exchanges in Dubai will reopen on Monday after an extended Eid holiday, but ministries and state-owned agencies will remain shut till December 6. The saving grace is that the UAE central bank said on Sunday that it will stand behind local and foreign banks that face losses from Dubai World. It also opened a new lending window for banks. But some questions linger, says Sugata Ghosh
Is there a chance that the financial crisis could boil over to banks?
Unlikely. Because all customer deposits in local and foreign banks in UAE are guaranteed by the government. This was done last year.
What happens to property buyers and realtors?
Many investors, including some HNIs from India, have booked properties in Dubai with a part-payment of 10-30%. This money may get stuck. New investors, looking to buy cheap, will find it difficult to get loans as most foreign banks will trim their exposure to not just Dubai, but the entire Gulf.
Will the virus spread to other markets?
There's already a concern over the inadequate capital of Chinese banks, Fitch downgrade of Mexico and a devaluation by Vietnam. Global investors and banks will now take a hard look at various emerging markets and also economies like Greece and Hungary. Also, there will be a question mark on other Dubai entities and bonds with quasi-sovereign support.
How are policymakers expected to respond?
Central banks and most governments will keep alive the stimulus created by pumping money post-Lehman collapse. They will try to figure out whether what happened in Dubai is just a tip of the iceberg. Mopping up liquidity and interest rate hikes may have to be delayed. Money will hunt safe assets and bubbles in some markets will grow bigger and bigger.
Bad news for India?
A lot depends on how things unfold. MFs may get less investments from Dubai NRIs while developers here are likely to see a demand slowdown. In the secondary market, sentiment would impact stocks. There may be a small opportunity for Indian professionals if Dubai companies decide to fire high-cost expats from the West.
But who will finally bail out Dubai? Abu Dhabi has said it may offer support on a case-by-case basis...
Investors will get some relief from the UAE central bank's statement. There will be more comfort if it promises to repay the Nakheel bonds that are coming up for repayment on December 14. Other forms of restructuring would mean losses for investors: bonds were trading at a discount of 50% and investors may have to forgo 40-50% of the principal amount.
MARKET MAY BUCK BLITZ
IF YOU HAPPEN TO BE A
contrarian investor, the best strategy perhaps would be to book profits on Monday. The widely-held sentiment in the stock market is that the debt crisis that unfolded in Dubai last week is unlikely to have a big impact on Indian equities, reports Santosh Nair from Mumbai.
MEET STARS NEXT DOOR
BUYING A VILLA IN DUBAI
is less expensive than buying an apartment in South Mumbai, reports Sachin Dave from Mumbai. And chances are that you will end up in the same neighbourhood as your favourite star as a couple of years ago, several Bollywood stars had reportedly made a beeline for Dubai properties.
Dubai may drive Re lower for a while
Dubai may drive Re lower for a while
The Economic Times, November 30, 2009, Page 9
Our Bureau MUMBAI
EVENTS in Dubai may drag rupee below 47-47.5 levels this even, even as relative safety of government bonds attract investors, treasury dealers said. The US Dollar Index, a gauge of the greenback’s value against six majors, rose as much as 1% on Friday, extending its rebound from a 15-month low. It has now strengthened for two straight days and is likely to resume its rise when global markets open on Monday, dealers said.
In fact, such has been the risk aversion among global currency traders that the yen hit its highest level in 14 years on the dollar and other higher-yielding currencies on Friday.
Dealers say the short-term rise in the dollar could possible dent the dollar carry trade and lead to its partial unwinding - a possibility that may lead share prices lower in the coming days. A currency carry trade is an investment strategy in which an investor borrows funds with a relatively low interest rate and uses the funds to purchase a different assets yielding a higher interest rate.
Ridham Desai, managing director, Morgan Stanley said in a recent report that one of the possibilities traders should prepare for is an appreciating dollar index, which can lead to a “detrimental effect on Indian equities.”
Dubai said on Wednesday it wanted creditors of state-owned Dubai World and its property subsidiary Nakheel, to agree to a restructuring of its debt.
Forward markets are already predicting that the rupee will weaken in the coming days. Onshore contracts indicate bets the rupee will trade at 46.77 against the dollar in a month, compared with expectations for a rate of 46.34 two days back. That for non-deliverableforwards (NDF) were quoting at 46.65 down from 46.13 two days ago.
Forwards are agreements in which assets are bought and sold at current prices for future delivery.
KN Dey, director at Basix Forex, a firm that advises corporates on Forex said traders will wait for more clarity to emerge on the Dubai crisis before drawing the knives for the rupee. Krishnan Ramachandran , the Dubai based CEO of Barjeel Geojit said the general expectation is that the Government of UAE will come out with a strong intent or statement of support for Dubai and its related business. This can then arrest the possible sell off that one can expect before the markets open on Monday, he added.
No Dubai impact on Indian economy: PMEAC
No Dubai impact on Indian economy: PMEAC
The Times of India, November 30, 2009, Page 17
TIMES NEWS NETWORK
New Delhi: Just before the release of economic data for the second quarter, Prime Minister's economic advisory council (PMEAC) chairman C Rangarajan said GDP growth is likely to be 6.1% in Q2 while expressing optimism that the target of 6.5% in 2009-10 was achievable.
GDP data for the second quarter is to be released on Monday. In previous quarter, growth rate was 6.1%, same as Rangarajan has projected for Q2. To achieve 6.5% growth in the entire fiscal, GDP needs to grow by at least 7% and above in the remaining two quarters.
The PMEAC chief, however, ruled out any impact of recent developments in Dubai on the country's economic activity. He said much of India's growth was driven by domestic demand and less on external factors. "The second quarter may reflect to some extent the impact on agriculture. Therefore, the growth rate may not necessarily exceed very much over 6.1% which we saw in the first quarter," Rangarajan said.
The PMEAC chairman said the panel's forecast of 6.5% for the year as a whole was still achievable backed by strong industrial and services growth. "They will be stronger in the second half and will make up for the impact of weak monsoon on agriculture in the third quarter," he added.
The government is likely to review its stand next month on the stimulus packages it had announced earlier to perk up the sluggish economy as pressure mounts on increasing decline in its revenues. The government would have a roadmap by December to consolidate its fiscal position over the next five years, FM Pranab Mukherjee said in Chandigarh.
Wait And Watch
Wait And Watch
The Times of India, November 30, 2009, Page 12
Don’t push panic buttons on the Dubai crisis
Dubai’s government-run investment firm, Dubai World, sought a “standstill” agreement last week to defer repayment on much of its $59 billion debt. This rocked global stock markets. The move now has national governments everywhere worried about the impact of the corporate debt default request. Is there cause for knee-jerk panic? Experts the world over seem to think not. They say Dubai is only the latest demonstration of the perils of overleveraged ambitions. The unravelling of what’s dubbed “the Dubai model” of breakneck speed development was waiting to happen. Indian authorities, on their part, recommend a calm assessment of Dubai’s possible fallout. This is wise.
Banks are checking their exposure levels, and so is industry. Our real estate firms are largely domestically driven, but even those with projects in Dubai don’t seem ruffled so far as their India operations go. So far, it appears that Dubai World’s debt woes could have a marginal fallout. While the conglomerate’s future plans in India may falter, existing projects may remain unscathed. Nonetheless, concern for around five million Indians living and working in the Gulf is understandable. They remit over $10 billion annually. Around 40 per cent of the UAE’s population is Indian, contributing over 10 per cent of incoming remittances. Yet if incomes of the families of immigrants and contracted workers dip, it’s worth recalling that money flow has been thinning for some time. Also, NRI deposits are more likely to be hit than remittances. Again, job contraction may occur, but migrant labourers have been coming home over the past year since most are employed in construction, a sector badly hit by the global recession.
The focus is also on investor confidence, and its possible domino effect in the form of capital outflows from emerging markets. Where India’s concerned, some amount of capital flight may actually facilitate a correction in Dalal Street, in light of a recent surge in FII inflows that raised eyebrows. But the prospect of big outflows looks unlikely. Dubai-based sovereign funds are not big buyers of Indian equities and other financial assets. Nor is there much Dubai-linked private stakeholding in listed Indian companies. So the bourses aren’t likely to be too rattled.
Finally, it’s improbable that Dubai World will be allowed to tank by Abu Dhabi, with all its oil money. With many of the developed world’s biggest banks surviving on government handouts, a bailout for a Middle Eastern government-owned investment fund would be unexceptionable. Minus the firm promise of a quick bailout, however, the markets could bet on a sovereign default. Today, sovereign debt’s piled up everywhere. One sovereign default may make bond holders and markets start doubting the repayment abilities of their debtors. That’s something global finance doesn’t need.
Dubai debt crisis will have limited impact
Dubai debt crisis will have limited impact
The Hindu Business Line, Nove 30, 2009, Page 2
Geojit BNP sees rise in NRI inflows in short-term.
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We see Abu Dhabi booming, while Dubai slowing down with a neutralising effect. After the global financial crisis we are seeing more Indian investors putting money in Indian assets than before. Hence, if there is any panic there will only be improvement in our business in the short-term. Mr C.J.George, CEO, Geojit BNP Paribas
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N.K.Kurup, Mumbai
Dubai's debt crisis has rattled markets across the world as the problem revived worries about the health of the global financial system. Although the exposure of Indian companies and banks to the Emirate is negligible, concerns linger about the fallout on the broader economy.
Dubai World, the investment conglomerate of the sheikhdom at the centre of the crisis, has a debt of $59 billion — a major component of Dubai's total debt of $80 billion.
Authorities from Dubai to New Delhi have tried to play down concerns, but there is fear a sovereign debt default - should it happen – could have a cascading effect on the global financial markets.
Broking firm Geojit BNP Paribas has a large presence in the United Arab Emirates. Its West Asian joint venture Barjeel Geojit Securities LLC is headquartered in Dubai. Mr C.J. George, CEO of the firm, spoke to Business Line on the likely impact of Dubai World's current debt trouble on Indian markets, NRI inflows and on his own business in the Emirates. Excerpts:
Dubai World's debt crisis impacted the Indian markets on Friday. Will it continue to haunt the Indian markets?
The panic reaction we saw during the opening of the market on Friday was on account of the absence of any firm indication from Gulf markets due to Eid holidays. International investors do not perhaps worry too much about the impact on Indian markets. India has never been bracketed with GCC countries in the past and, hence, there will be more mature reaction in equity markets in the days to come.
Do you expect major selling by FIIs in the Indian market?
One of the most significant outcomes of crisis-ridden global financial markets during the last two years has been a growing recognition of India's uniqueness. FIIs have a more balanced and knowledgeable view of India today than in 2008. Hence, there is unlikely to be major FII selling. If that happens, there are others waiting to buy.
Will the crisis impact the NRI inflows?
There will be increase in inflows in the short-term since NRIs may consider India as a safe haven than domestic bank deposits in UAE and perhaps GCC. However, any protracted crisis can lead to job losses and business closures with impact in the medium term. In the long term, Dubai will continue to attract talent from India apart from unskilled workers, as the city will continue to be the centre of a booming GCC as long as oil is a precious commodity and Dubai is a tax haven with modern infrastructure.
What will be the impact on Kerala given the number of people from the State employed in Dubai and other Gulf countries?
During the last one year we have seen some amount of job losses leading to the return of many NRIs from Kerala. However, as Abu Dhabi started massive construction projects, a large number of them have shifted base from Dubai to Abu Dhabi. Today construction workers are shifting to Saudi Arabia as well where there is a real estate boom driven by real residential demand.
I am of the view that the worst is over for Kerala, as the current crisis is likely to be managed between Dubai and the federal government. The UAE and GCC cannot afford to leave this debt restructuring unsuccessful particularly with ample resources in federal hands.
Is Dubai World's trouble just a trigger? Do you think it could lead to a major crisis? Will it escalate to other Emirates?
Fortunately, the real estate bubble was limited to the Emirate of Dubai only and, hence, I am of the view that this will be the end of crisis for Dubai. The other Emirates are relatively stronger in terms of debt obligations. GCC countries are in better shape today after the recovery in oil prices and, hence, Dubai will continue to retain the position as a global centre in the region leveraging the proximity of Indian sub- continent.
India will be to Dubai what China is to Singapore, unless “one day” Mumbai claims that position. In short, this debt crisis will have only sentimental impact on other GCC countries and limited impact on other Emirates. This observation is on the strong circumstantial evidence that the federal government of UAE will have to support Dubai as the domestic banks have a state guarantee.
How do you see it impacting your business in West Asia?
Barjeel Geojit has been operating in the UAE for the last eight years and the customer segment is predominantly Indian expatriates. We see Abu Dhabi booming, while Dubai slowing down with a neutralising effect. After the global financial crisis we are seeing more Indian investors putting money in Indian assets than before. Hence, if there is any panic there will only be improvement in our business in the short-term. However, in the unlikely event of this development leading to a protracted crisis and job losses at higher levels there will be an impact on our business too.
Will it lead to a liquidity crunch in the global economy, given the fact many central banks are planning to exit from accommodative monetary policy?
If this had happened a year ago it would have been perhaps disastrous than today as the amount involved can now be managed within GCC itself with the bounceback of oil. Moreover, the real estate bubble in Dubai was recognised by global financiers sufficiently long ago when the global real estate market started to crack. There is unlikely to be a second leg of liquidity crunch emanating from this event.
What do you make out of Dubai World's move?
Dubai World's move to restructure the debt should be seen as a genuine effort to restructure both debt and business since the announcement talked about just six month's “standstill” whereas the $60 billion consists of different maturities up to even 2014.
Currently, while the media around the world and international investors are showing panic there is relative calm and confidence internally, perhaps originating from the trust that finally it is a problem of the whole country and not of Dubai alone. Dubai has been growing on the strength of its capability to attract capital and talent globally and they know for sure that Dubai has to continue attracting these scarce resources to remain a vibrant non-oil economy surrounded by oil-rich countries.
Nevertheless, when the stock exchanges open for trading on Monday in Dubai, there will be selling pressure from global investors.
What in your view led to the current crisis?
On the strength of the oil boom in the region, Dubai one among seven emirates of UAE, has been positioning itself as a global centre for finance, trade and tourism due to negligible oil resources at home. During the early years of the current decade seeing growing demand for real estate, the Government started marketing housing projects offering 99 years of residence permit. Such a residence offer for investors in housing projects was neither denied by the Government nor approved. This led to an unprecedented boom in real estate, attracting rich investors from India, Russia, Europe and other places.
Both accounted and unaccounted global money started chasing real estate leading to even “day trading” in real estate.
There were even cases of buying in the morning and selling in the evening! Finally, when the global financial system cracked, the Dubai real estate bubble also crashed. The construction-driven economy was slowing down with highly leveraged projects. Dubai World, the real estate and infrastructure arm of the ruler of Dubai, was excessively leveraged during the boom years and when the demand disappeared had to catch up with debt repayments without positive internal cash flows.
While the boom in real estate collapsed, the federal government finally came out with a clarification that the buyers of real estate can only have six months renewable VISA in place of the highly publicised perception of 99 year's VISA. This was a bolt from the blue which was the last nail.
However, while Dubai was declining, Abu Dhabi, the cash-rich Capital city Emirate started booming on investment-driven by own capital. Abu Dhabi has been a lender of last resort for Dubai with vast oil resources and global financial investments of more than a trillion dollars. Abu Dhabi came out with a landmark announcement a year ago by declaring State guarantee on all bank deposits which led to calm in banking sector.
If Dubai announces any investor-friendly revision of VISA period, it can dramatically change the fortunes of domestic real estate market.
Dip in rentals boosts commercial realty mkt
Dip in rentals boosts commercial realty mkt
The Financial Express, November 30, 2009, Page 1
Mona Mehta, Mumbai
Following the correction in commercial realty rates in metros by 20% to 40%, top builders expect sales to improve by 50% in Q3 and Q4 of 2009-10. In the first two quarters of the fiscal, sales of office space rentals grew 10% to 15%.
To tap the growing opportunity, large builders in various metros are offering ready-to-possess offices, shops and commercial plots, and under-construction offices at 15% to 20% discount.
The correction in commercial real estate rates comes at a time when the general sentiment is buoyant. There is ample cash flow in the market. However, the correction in the office space rentals is 15%— lower than that of the residential real estate sector.
According to Harinder Dhillion, vice-president (marketing) of Delhi-based Raheja Builders, “New Delhi followed by Gurgaon and Noida have witnessed 15% increase in sales of commercial space since the second quarter of this fiscal. As a result, we are planning to offer price discounts of up to 10% to 15% on office space rentals through our commercial properties based in Gurgaon.”
Mumbai-based Royal Palms India has recently launched ready-to-possess offices, shops and commercial plots as well as under-construction offices for corporates at 3,999 per sq ft at Goregaon East, Mumbai. Royal Palms has a total of 4 lakh sq ft of office space/plots. Depending on the need of the buyer, the company can offer offices or buildings ranging from 400 sq ft to 80,000 sq ft.
Says Dilawar Nensey, joint MD, Royal Palms India, “The land on which these properties are located was acquired over 26 years ago at negligible cost and hence, even at these rates we will make reasonably good profit.”
Royal Palms has sold over 1,600 offices so far with top names like Topsgroup, Monarch having their business HQ at Royal Palms.
There are industry experts who believe that rentals do vary according to specific occupier profiles.
Says Pawan Swamy, managing director (markets, West India) of Jones Lang LaSalle Meghraj, “Office space rentals in the metros have corrected by up to 40%, which would mean that they are now back to the 2005-06 levels, which is when the economic up-cycle began.”
Bangalore-based real estate companies are looking to expand commercial properties in the city’s central business district. According to LS Vaidyanathan, executive director, Nitesh Estates, “Commercial office segment is another vertical we are looking to expand in the coming years. These are likely to come up predominantly in Bangalore ‘s central business district and in its surrounding areas.”
Dubai bubbles up humour mills
Dubai bubbles up humour mills
Business Standard, November 30, 2009, Page 16
Press Trust Of India / Dubai
‘The Sun Never Sets on Dubai World’, claims the logo of the state-owned conglomerate of the Gulf city government. That’s why it got burnt under towering debts.
This may not be funny for those who have actually burnt their fingers and much more in Dubai’s debt repayment crisis, but many others are finding humour in the problem being faced by the West Asian city.
This is just one of the many jokes that have started doing the rounds over the internet and through SMSes, poking fun at the tagline of Dubai World, the flaghip investment holding company of the Dubai government.
“True to our claim — The Sun Never Sets on Dubai World — our investment portfolio extends across 100 different cities in the world,” a banner continues to scream on the website of Dubai World, even as it has expressed its inability to pay in time $59 billion in debts and has sought time till at least May to meet these obligations.
The humour mills go a step further saying ‘Dubai is offering one celebrity free with each apartment purchased in its posh real estate properties’. Various realty projects like The Palm and The World, being developed on man-made islands have shot to fame with many celebrity purchasers, whose names have been extensively used to lure non-celeb buyers.
These include stars from Hollywood, Bollywood and sports. However, these celebrities are also said to be sitting on huge losses, as the value of these properties plunged sharply, first due to the global financial crisis and now with this latest crisis.
Another joke goes something like this — ‘How do you define optimism? It is a realtor building luxury apartments in Dubai and expecting it would be sold.’
The next talks about how the US was saved from the carnage when markets in almost all other countries witnessed tremors of Dubai crisis. ‘There is a new reason to celebrate Thanksgiving day— that is to thank Dubai for disclosing its crisis on this day when markets were closed in the US.
PS: Dubai and other Mid-East markets were also saved as they were also closed for Eid.’
Another joke says: ‘Dubai was building high-rise buildings in the middle of the sea (referring to projects like The Palm and The World). As recession made cement expensive and those working on projects were corrupt contractors from India, the bricks were put together only with sand and without cement. The result: All collapsed and even sand dunes were washed away.’
The humourists are also seeing cash-strapped airlines rushing to start flights on the long-neglected Kerala sector as a host of Malayalis could return to India soon.
There is also a new definition for Dubai: It’s a place visited by those with money to meet those with experience. At the end of the visit, they exchange their assets.
Another SMS asks: How many Arabs does it take for a deal? The answer is two — first to make the drawing of a building on sand and another to sell it before wind blows it away.
One about a person just back from Dubai asks the difference between a Dubai-return and a large pizza. The answer: A large pizza can feed a family of four.
And making you laugh at the cost of yet another Dubai- return quotes him as saying: “This crisis is worse than a divorce. I’ve lost half my net worth and I still have a wife.”
Economists project 6.6% GDP growth in second quarter
Economists project 6.6% GDP growth in second quarter
The Financial Express, November 30, 2009, Page 17
Press Trust of India, New Delhi
The Prime Minister's economic advisory panel expects the economy to grow by around 6.1% in the second quarter, the same as in the preceding three months, due to the impact of a weak monsoon on agriculture.
However, other economists peg the growth rate in the range of 6.2-6.6% against a healthy 7.7% in the corresponding period last fiscal. The data for the second quarter gross domestic product (GDP) growth will be released on Monday by the Central Statistical Organisation.
“The second quarter may reflect to some extent the impact on agriculture. Therefore, the growth rate may not necessarily exceed very much over 6.1% which we saw in the first quarter...I think so, it will be around 6.1%," PM's Economic Advisory Council (PMEAC) chairman C Rangarajan said. If this happens, the PMEAC's projection of 6.5% growth rate in the current fiscal will require the economy to expand by around 7% in the second half of this fiscal. "We forecast 6.5% for the year as a whole... It will have to be around 7% (in the second half)," Rangarajan said.
He said industrial and services growth will be stronger in the second half and will make up for the impact of the weak monsoon on agriculture in the third quarter. However, HDFC Bank Economist Jyotinder Kaur said she expects the economy to grow by 6.6% in the second quarter mainly due to industrial growth. "But, agricultural growth is likely to shrink by 3.5-4%," she said.
With farm output contracting, rating agency Crisil principal economist DK Joshi expects the growth in the second quarter to be 6.2%. "In the second quarter, agriculture growth is expected to be negative while industry would grow at a higher rate. I expect Indian economy to grow by 6.2% in July-September period," he said.
Axis Bank economist Saugata Bhattacharya pegged the growth rate to be in the range of 6.2-6.4%. He also expects farm output to fall, by 4%, but industry to witness strong growth.
"Growth rate is likely to between 6.2% and 6.4% in the July-September period on the back of strong industrial growth, even as agriculture could register a de-growth of 4%," Bhattacharya said. Stimulus measures helped the economy post 6.1% growth rate in the first quarter of this fiscal, against 5.8% in the preceding two quarters.
In Chandigarh, finance minister Pranab Mukherjee said on Saturday that this could be construed as start of the recovery. Hit hard by global financial crisis, Indian economic growth rate slowed down to 6.7% last fiscal from a high of 9% in the preceding three years. Mukherjee said the economic growth is expected to be in the range of 6 to 7% in the current fiscal.
The Reserve Bank of India has pegged the economy to expand by 6% this fiscal.
More affordable houses, but not enough buyers
More affordable houses, but not enough buyers
Business Standard, November 30, 2009, Page 1
Raghavendra Kamath / Mumbai
After the euphoria, “affordable” realty developers are faced with the reality of excesses.
Consider this: In May this year, property developer Jaypee Greens put the sold-out sign within hours of launching its affordable project Aman on the Greater Noida expressway. The 3,000-odd apartments were priced at Rs 2,100 per square feet. Another Jaypee Group company, which was offering flats along the same expressway for Rs 4,500-6,000 a sqft, was finding the going tough.
Developers are now having to deal with a situation where they have to carry forward the stock as supply has far outstripped demand. As a result, in Hyderabad, almost two in every three sub-Rs 30 lakh apartments that came into the market in the 12 months ended October 2009 remained unsold. In Kolkata, Bangalore and Gurgaon, the situation is only marginally better with one in every two houses yet to find a buyer.
It’s an all-India trend. Data collated by real estate research firm PropEquity shows that developers who had rushed to launch affordable housing projects are sitting with over 40 per cent unsold stock.
While demand for sub-Rs 30 lakh apartments went up in Mumbai, Gurgaon, Noida, Thane, Bangalore, Kolkata, Hyderabad and Pune, supply grew at a faster pace as realtors rushed into the market to improve their cash flows at a time when there were few takers for upper-end dwelling units.
As a result, of the 105,637 units that entered the market between November 2008 and October 2009, only 57 per cent (60,464 apartments) found buyers, the PropEquity data revealed. In Hyderabad, where around 8,200 sub-Rs 30 lakh dwelling units entered the market during the 12 months ended October 2009, a little over a third of the stock found buyers.
In some cities, the unsold stock is so huge that it would take 4-16 months to sell the entire stock of housing units even if no new supply is added in the next couple of months. For example, Gurgaon, where the average absorption of units is 326 a month between August 2009 and October 2009, it would take at least 16 months to clear the stock. Kolkata would take eight months and Bangalore six months to clear their inventory.
The number of months is calculated by dividing the unsold stock at the end of October 2009 by average units sold in the last three months.
A number of property developers such as Unitech, Omaxe, Tata Housing, Puravankara, Lodha Developers and Ansal have announced projects in the sub-Rs 30 lakh category in the last one year following the economic downturn, coupled with fear of job losses and salary cuts that slowed sales of premium projects.
PropEquity founder and CEO Samir Jasuja said a lot of developers took the plunge as it was the only segment that was doing well. And since unit sizes were small, more houses were built in a given piece of land. Supply has overshot demand and, therefore, we are seeing a piling up of inventory,” said Jasuja.
Pankaj Kapoor, Chief Executive of Liases Foras, another real estate research firm, said in recent months many developers increased rates sensing signs of normalcy in the market. “The impact of the price rise has been in all segments, but since the sub-Rs 30 lakh segment was selling the most, sales were hit maximum in this segment,” said Kapoor.
HDFC Chairman Deepak Parekh agrees. “Products are selling wherever their developers are quoting realistic prices. But where prices have gone up sharply, they may be unable to sell,” he said. Parekh, however, felt the inventory pile-up may not be an all-India phenomenon since a company he knew could not get 100 apartments it wanted to buy in Mumbai recently.
That argument has many supporters. “There could be a long pipeline but good products at the right price always sell. We are getting very good response for our New Haven in Boisar,” said Brotin Banerjee, managing director and CEO of Tata Housing. The company has sold around 500 of the 1,500 apartments on offer since the project was launched in September, 2009. The apartments are in the Rs 12 lakh-25 lakh category.
But this is in sharp contrast to May 2009 when Tata Housing had managed to sell 1,500 apartments in the sub-Rs 6 lakh category in Boisar within a month of its launch.
Realty IPOs to feel the heat
Realty IPOs to feel the heat
Hindustan Times, November 30, 2009, Page 19
Domestic realty companies which are planning to tap the primary markets may not see a smooth sailing as the Dubai debt crisis is likely to undermine investor confidence in the sector.
As many as nine realty companies, including Emmar MGF, have filed their draft red herring prospectus (DRHP) with the market regulator SEBI aiming to raise about Rs 15,000 crore.
“It will not be surprising if some realty companies defer their share sale plan,” said Jagannadham Thunuguntla, equity head, SMC Capitals. “The Dubai debt crisis will not give any positive signal to investors in realty companies and IPOs of companies like Emmar MGF will face huge challenge.”
As per the DRHP filed with the SEBI, nine relators are planning to raise an estimated Rs 15,000 crore through the initial public offers (IPOs). This includes Emmar MGF’s Rs 4,000 crore issue, followed by Sahara Prime City (Rs 3,400 crore), Lodha Developers (Rs 2,700 crore), BPTP (Rs 2,000 crore), and Godrej Properties (Rs 500 crore).
“The realty IPOs will find it tough to sail through. Although investor confidence in the secondary markets have revived in the past six months, the primary markets are yet to witness such revival,” Unicon Financial Chief Executive Gajendra Nagpal said.
What should the Indian worker do?
What should the Indian worker do?
Hindustan Times, November 28, 2009, Page 25
Basit Rizvi (30 years) is a tensed man these days. He works for the SGB Group, an engineering company in Dubai, as a credit controller and is uncertain about the fate of his job. Although he earns around Rs 1 lakh (1,000 dirhams) per month, he spends Rs 35,000 on rent of his apartment, travel expenses, phone bills and food bills.
Basit also has to send money for his mother, wife and newly-born daughter, who are staying in Mumbai and has to pay for his flat in Kharghar on the outskirts of Mumbai. “I have to make the payment for the flat of Rs 40 lakh in 4 to 5 years depending on the progress of the construction.”
With chances that the Dubai crisis may turn bigger, lakhs of expats are uncertain about the fate of their jobs. According to estimates from the Indian Consulate General to the UAE, Venu Rajamony, in July, an estimated 1.5 million Indians are in UAE with 1.2 million of them in Dubai and Northern Emirates.
According to wealth advisors who manage portfolios of several Non Resident Indians from the Gulf countries, many of them are over leveraged. What this means is that they have borrowed to buy assets such as a house, car and other accessories.
In case you have an expat friend, pass on this advise given by certified financial planners.
“Those expats who have taken loans to buy a house, car or any other loan in Dubai should try their best to pay back their loans as punishments are severe in that land.
On the other hand, those who have invested in assets such as real estate in Dubai and Dubai’s equities should sell of these assets before the value of their assets fall,” said Gaurav Mashruwalla, a certified financial planner.
Here are some advises for NRIs, who are uncertain about their jobs.
Step 1: “Create a six months contingency fund so that in case you lose your job and have to return to India, the fund can take of critical expenses — expenses a person incurs every month such as equated monthly instalments (EMI), rent, insurance premium, grocery bills and phone bills,” said Jaideep Lunial, a certified financial planner.
Step 2: Stop all discretionary expenses such as shopping, leisure and casual expenses.
Step 3: If you have invested in Indian equities and systematic investment plans, encash them and shift to safe debt instruments such as bank fixed deposits.
Step 4: There are many banks offering schemes where the loanee does not have to pay an EMI and interest till he gets the possession of the flat. Also choose a bank that does not levy a pre-payment penalty.
Step5: “Buy a term insurance policy such that in case of an unfortunate event, all your liabilities, the one time expenses that the child will incur for education, marriage in addition to the monthly expenses of your family are taken care of. Your term insurance should be 25 times your annual income," said Ranjeet Mudholkar, principal advisor, Financial Planning Standard Board of India.
Realtors could be affected if the crisis persists
Realtors could be affected if the crisis persists
The Financial Express, November 30, 2009, Page 1
Mona Mehta , Rajat Guha, New Delhi/Mumbai
The Dubai financial crisis would largely bypass the Indian real estate sector for now. Only companies that have receivables from UAE-based buyers and under-developed projects in the emirate could be affected.
The industry looks confident. Most realty players FE spoke with said the crisis would only have a marginal impact on them, since their exposure to the Dubai market is relatively small. But some are worried that if the crisis lingers on, the overall weak sentiment could constrain the capacity of a few debt-ridden firms to roll over their loans.
Most real estate firms have been rolling over their debt since the global financial meltdown began last year. The country’s largest and second-largest real estate firms, DLF and Unitech, now have a net debt of about Rs 12,000 crore and Rs 6,659 crore, respectively, on their books.
Says Anuj Puri, country-head at consultancy firm, Jones Lang LaSalle Meghraj, “If the corporate debt default in Dubai turns into a sovereign default, there would be real economic issues, which may not only hit India but others also.”
The underlying fear perhaps explains the performance of the realty scrips on the bourses. On Friday, realty stocks like HDIL, Omaxe, DLF, Parsvnath, Indiabulls Real and Unitech were down 2-2.5% while the BSE realty index plummeted 7% in the intra-day session. The index later recovered and ended down 0.6%.
For the record, both DLF and Unitech said they are insulated from the crisis as they have no exposure to the Dubai real estate market.
“We have no Dubai exposure. Our projects with the Nakheel group and Limitless stand stalled. These projects never took off due to land acquisition problems there, so there is no impact,” a DLF spokesperson said. “The Indian property market is very robust and largely dominated by internal demand. So there will be no adverse impact on us,” added DLF executive director Rajiv Talwar.
Unitech’s MD Sanjay Chandra made a similar assertion, “There is nothing much to worry about our company as we are completely insulated from the Dubai crisis”.
Some analysts apprehend that the Dubai crisis may delay Emaar MGF’s plan to list in India. Dubai’s largest realty player Emaar has suffered major losses because of the liquidity crunch. This may have a bearing on its Indian JV partner, Emaar MGF.
Emaar MGF, a joint venture between Indian realty company MGF and UAE’s Emaar Properties, is among the many Indian property firms planning a listing. It has filed the draft red-herring prospectus with market regulator Sebi to raise about $830 million, about half the amount it had planned to raise in 2008 from an aborted IPO.
However, a company statement said, “Our business and funding plans are on track”.
Pranab Datta, vice-chairman & managing director, Knight Frank, feels real estate companies with unfinished projects should focus on completing their projects on schedule to avoid adverse consequences.
Delhi-based Omaxe, which has a presence in Dubai, is likely to exit its two real estate projects there. “We will soon decide on exiting the Dubai realty projects. We had planned a Rs 2,850-crore investment in Dubai. We have already paid Rs 50 crore to Nakheel as the first installment and may seek a refund if we exit the Dubai project,” chairman Rohtas Goel said. Omaxe, he added, was yet to receive land possession from Nakheel.
Dubai has borrowed a $80 billion in the last four years in a bid to transform itself into a global financial hub. But the property prices there slumped buy a half from their 2008 peak. Analysts had warned that Dubai’s real estate market was not sustainable in the long-term, since it was not driven by end-user demand.
Re rise imminent on strong macro figures, say experts
Re rise imminent on strong macro figures, say experts
The Economic Times, November 30, 2009, Page 9
Anto Antony NEW DELHI
WITH interest rates ruling near zero in most of the developed world, investors’ search for higher returns has seen hoards of them rushing to emerging markets, triggering a sharp appreciation in currencies and stock prices.
Although the rupee had slipped marginally to Rs 46.56/$ on Friday as foreign institutional investors (FIIs) took money out of Indian markets due to jitters following the Dubai crisis, it is expected to strengthen in medium term. “The markets are likely to get over the nervousness by the end of the week and appreciation of rupee is expected to continue due to strong macro fundamentals like growth and low balance of payments,” said Ananth Narayan, head of Standard Chartered’s money market operation in South Asia.
FII inflows into the country in the calendar year till November have crossed $16 billion, compared with the annual inflow of $20 billion seen in 2007. The year 2008 saw foreign institutions turning net sellers to the tune of $9.36 billion.
Further strengthening of the Asian currencies would also depend on their dependence on exports, as Asian central banks of export-reliant economies have repeatedly intervened to check appreciation to maintain export competitiveness.
Forex market-makers points out that India’s strong fundamentals and narrowing trade deficit is lending solid footing to country’s currency. Movement in eurodollar currency pair — euro has been appreciating against dollar — is also lending traction to the rupee.
The United States is, however, trying to talk the dollar up. “We recognise of course that given the very important role of US in the global economy, the important role the dollar plays in the system, that we bear a special responsibility for being a source of stability and strength for the global economy,” US Treasury Secretary Timothy Geithner told a press conference in Singapore a fortnight ago after a meeting of Asia-Pacific finance ministers.
A negative growth surprise in India, imposition of capital inflow measures in the emerging economies, or a growth surprise in the US could compel the Federal Reserve to tighten the interest rates suddenly checking rupee appreciation. China adopting a flexible currency regime could give the regional currencies a leg up. “The revaluation of Chinese yuan against the dollar is expected, but the timing and extent of appreciation is not clear. This move will trigger a rally in other Asian currencies against dollar including rupee. Given the negative outlook for dollar in the near term with EUR/USD target at 1.55, further rupee appreciation is just a matter of time,” said J Moses Harding, Head of Global Markets Group at Indus Ind Bank said.
Medium and large size exporters with strong treasuries in place are expected to survive this patch of depreciating dollar. Medium-sized Mumbai-based textile exporter Alok industries, which will exports goods worth close to Rs 1,500 crore this year, is confident of coming out unscathed from the depreciating dollar.
According to Alok CFO Sunil Khandelwal, companies that has been importing from India or other manufacturing hubs will not find it viable to change their sourcing model in line with short-term swings in dollar. But the movement in yuan, which is pegged to dollar, remains a matter of concern.
With the Chinese yuan — that moves in tandem with dollar — depreciating against other currencies China could steal demand from other emerging economies.
3 developers seek to walk out on SEZs
3 developers seek to walk out on SEZs
The Economic Times, November 30, 2009, Page 9
Amiti Sen NEW DELHI
THREE large notified special economic zones or SEZs have requested the government to allow them to abandon their projects, suggesting that the slowdown has taken a toll on the investments in these model enclaves envisaged to give a push to industrial growth.
The government does not yet see this as a worrying sign or set back in attempts to created worldclass industrial infrastructure.
Essar’s engineering SEZ in Hazira, Royal Palms IT/ITeS SEZ in Mumbai and SNP Infrastructure’s IT/ITeS SEZ in Tamil Nadu have expressed their inability to go ahead with their projects, citing poor market conditions.
The requests will be considered at the December 15 meeting of the board of approval, government body that approves proposals for setting up of the enclaves that are eligible for substantial tax concessions.
All three have cited `global slowdown a nd market conditions’’ as reasons for their wish to exit the projects, a commerce department official, who did not wish to be named, told ET.
The number of notified projects, projects that have the final go-ahead to start development and setting up of units therein, which developers are seeking to withdraw has now gone up to twelve.
Earlier, developers including real estate major DLF and Rahejas had put in requests for de-notification of some of their SEZs.
“It is true that there are some developers who do not find it viable to carry on with their projects because of the economic slowdown. But, at the same time, the government is also receiving requests for setting up new projects and exports from the zones is on the rise,” the official added.
The board of approval has received eight new requests for setting up SEZs which includes projects from L&T and Sterlite Industries and three requests for conversion of in-principal approval to formal approvals, which happen when developers have managed to acquire land.
A number of developers also want to hold on to their project approvals and wait for the economy to improve before making investments.
Requests from as many as eleven SEZ developers, including Korean steel giant Posco, IndiaBulls infrastructure and Reliance Haryana for grant of a third extension to the approval given to their projects in Orissa, Raigarh and Gurgaon, respectively, will also be considered by the board of approval.
A total of 16 developers have asked for the first extension of formal approvals given to their projects.
The validity of an approval given to a SEZ project is for one year and the SEZ rules provide for grant of two extensions of twelve months each. “While granting the first extension will not be a problem, the board has to examine under what circumstances projects can be given a third extension,” the official said.
The Economic Times, November 30, 2009, Page 9
Amiti Sen NEW DELHI
THREE large notified special economic zones or SEZs have requested the government to allow them to abandon their projects, suggesting that the slowdown has taken a toll on the investments in these model enclaves envisaged to give a push to industrial growth.
The government does not yet see this as a worrying sign or set back in attempts to created worldclass industrial infrastructure.
Essar’s engineering SEZ in Hazira, Royal Palms IT/ITeS SEZ in Mumbai and SNP Infrastructure’s IT/ITeS SEZ in Tamil Nadu have expressed their inability to go ahead with their projects, citing poor market conditions.
The requests will be considered at the December 15 meeting of the board of approval, government body that approves proposals for setting up of the enclaves that are eligible for substantial tax concessions.
All three have cited `global slowdown a nd market conditions’’ as reasons for their wish to exit the projects, a commerce department official, who did not wish to be named, told ET.
The number of notified projects, projects that have the final go-ahead to start development and setting up of units therein, which developers are seeking to withdraw has now gone up to twelve.
Earlier, developers including real estate major DLF and Rahejas had put in requests for de-notification of some of their SEZs.
“It is true that there are some developers who do not find it viable to carry on with their projects because of the economic slowdown. But, at the same time, the government is also receiving requests for setting up new projects and exports from the zones is on the rise,” the official added.
The board of approval has received eight new requests for setting up SEZs which includes projects from L&T and Sterlite Industries and three requests for conversion of in-principal approval to formal approvals, which happen when developers have managed to acquire land.
A number of developers also want to hold on to their project approvals and wait for the economy to improve before making investments.
Requests from as many as eleven SEZ developers, including Korean steel giant Posco, IndiaBulls infrastructure and Reliance Haryana for grant of a third extension to the approval given to their projects in Orissa, Raigarh and Gurgaon, respectively, will also be considered by the board of approval.
A total of 16 developers have asked for the first extension of formal approvals given to their projects.
The validity of an approval given to a SEZ project is for one year and the SEZ rules provide for grant of two extensions of twelve months each. “While granting the first extension will not be a problem, the board has to examine under what circumstances projects can be given a third extension,” the official said.
Friday, November 27, 2009
Sensex falls 344 pts on global cues
Sensex falls 344 pts on global cues
Business Standard, November 27, 2009, Section II, Page 1
BS Reporter / Mumbai
Derivatives expiry, higher food inflation and lower earnings also weigh on indices.
Indian stock indices tumbled as investors booked profit in banks, FMCG and real estate stocks today, the expiry day for November derivatives.
The Bombay Stock Exchange (BSE) Sensitive Index, or Sensex, had a flat start at 17,199.05 on the back of weak global cues. The index exhibited lacklustre movement till late-morning trades. Then, taking cues from Asian markets, which were battered badly, the index began to extend losses.
The Shanghai Composite Index slumped 3.62 per cent on fear of government intervention to arrest surging asset prices while the Jakarta Composite Index slipped 2.76 per cent.
Heavy selling due to derivatives’ unwinding and weak cues from European markets further dampened the sentiment in late-noon deals. The Sensex plunged to a low of 16,809 and finally closed at 16,854.93, down 344 points, or 2 per cent. The NSE Nifty settled at 5,005.55, down 102.60 points.
Shares of Reliance Industries were in focus as they were trading ex-bonus for the first day today. The company had announced bonus shares in the ratio of 1:1 in early October, for which November 27 was set as the record date. The stock closed at Rs 1,065, down nearly 3 per cent on adjusted prices.
All sectoral indices exhibited weakness. The Bankex shed 2.64 per cent, the oil & gas index slipped 2.3 per cent and the realty index was down 2.11 per cent.
The market breadth was negative. Out of 2,817 shares traded, 1,877 (66.63 per cent) declined and 864 (30.67 per cent) advanced on the BSE. ICICI Bank was among the major losers on the BSE, down 3.74 per cent. Tata Steel slumped 3.34 per cent after the company reported a net loss of Rs 2,719.80 crore.
Mahindra & Mahindra (3.1 per cent) and State Bank of India (3.01 per cent) were some of the prominent draggers. ITC, Maruti, Reliance Infrastructure, HDFC Bank, Wipro, TCS and DLF declined 2-3 per cent.
Hindustan Unilever, Sun Pharma , ACC and Hero Honda were marginal gainers (up about 0.5 per cent).
Other stocks in which major movement took place were EIH, which strengthened on news that ITC is mulling a counter offer or a stake sale. It closed up 4.5 per cent. Mahindra Satyam, which opened 8 per cent lower for the fourth consecutive day on concerns that losses due to the alleged fraud might stretch further, erased its losses to end 2.5 per cent higher at Rs 93.
Tata Steel topped the value charts, clocking a turnover of Rs 252.33 crore, and IFCI saw 12.12 million shares change hands on the BSE.
“The weakness is attributed to the F&O expiry day,” said Bhavin Desai, manager, derivatives, Motilal Oswal Financial Services. Desai said the market had been cautious since last week. He expects cement to do well because of the build-up through the month.
Bhavin sees the Nifty moving in the band of 4,900-5,200 in the December series.
Sensex dips below 17,000 on global cues, talk of check on FII flows
Sensex dips below 17,000 on global cues, talk of check on FII flows
The Hindu Business Line, November 27, 2009, Page 1
Chinese, European markets weak; heavy selling in pivotals.
Our Bureau, Mumbai
Market indices fell sharply due to heavy selling pressure as signs of weakness in the international financial markets surfaced again. The Sensex slipped below the 17,000-mark on Thursday.
The benchmark index tanked 2 per cent, shedding over 340 points. It touched the day’s high at 17,202, and a low of 16,808 before closing at 16,854. The broader Nifty too fell over 2 per cent, but managed to keep its head above the 5,000-mark, to close at 5,005.
Concerns over debt repayment delays by a Dubai government-owned investment company made global markets nervous.
“This also led to selling pressure in India,” said Mr Gopal Agrawal, Senior Fund Manager, Mirae Asset AMC.
Also, there was some amount of profit booking as investors unwound positions due to the expiry of futures and options today, he said.
P-notes check
Brokers said the selling pressure was due to various reasons, including news that the Government has called for checking Foreign Institutional Investment flows through Participatory-Notes.
“A lot of money comes into Indian stocks from free and unregulated markets through the P-Note route,” said a broker.
On Thursday, FIIS were net sellers for Rs 70 crore; domestic institutions were net buyers of equity for Rs 150 crore, according to data on the NSE.
FII activity has been lacklustre over the last few trading sessions, said brokers.
Brokers said that Indian stocks also slid owing to negative cues from the Chinese market where banking stocks fell sharply. Asian markets too were weak; the Hang Seng was down 1.75 per cent, Nikkei fell by 0.62 per cent.
Concerns arose globally after a Government-owned investment company in Dubai asked for six more months for repaying its debts. Dubai World is asking creditors if it can postpone its forthcoming payments until May next year.
European markets were trading weak with the key benchmark indices in the UK, France and Germany down in the range of 1.86 per cent and 2.05 per cent.
There was heavy selling in the index heavyweights including Reliance Industries, which went ex-bonus today, said another broker.
From the announcement date of the bonus to the record date there had been heavy buying in RIL, he added. In fact the stock had moved up during the past couple of days due to this, he added.
Major losers
The major losers on the BSE included Reliance Industries (4.5 per cent)post bonus, ICICI Bank (3.47 per cent), Tata Steel (3.34 per cent), Mahindra & Mahindra (3.10 per cent), SBI (3.01 per cent).
All this negative news means that confidence is dwindling as even the Asian countries are in trouble, said Mr Vishwas Agarwal, an independent analyst. Mutual funds were not very active, but some selling was noticed due to redemption fears, said a broker.
They were exiting capital goods, engineering and real estate stocks and increasing their exposure to energy, pharma, IT and financial sector stocks, said Mr Agrawal.
Retail participation
Retail investors on the other hand were either not participating in the markets or were booking losses. There was almost no retail activity, said a broker.
“I did not participate in the market today as it was F&O expiry,” said Mr Ajay Patel, a retail investor. “I would rather wait for the markets to set a trend in the coming days and then decide on my investments,” he added.
Govt land reforms report says SEZ concept enormously destructive
Govt land reforms report says SEZ concept enormously destructive
Business Standard, November 27, 2009, Page 12
Sreelatha Menon / New Delhi
Special Economic Zones are nothing but special exemption zones and there is no reason to exempt these from all law. Hence, scrap these, is the recommendation of the Committee on Land Reforms and Agrarian Relations set up by the Union government to advise it on issues ranging from land reforms and land acquisition to measures to stop conversion of farm lands.
It says the SEZs should be scrapped in the interest of both ecology and food security. While the loss of revenue in the form of taxes as well as its effect on agricultural production are not being studied, the law is silent on the ecological and environmental concerns of areas thse would apply to, the committee says.
According to the SEZ Act, 2005, there is no upper limit for land acquisition by state governments. It also allows acquisition of wasteland and single-crop land, putting negative impact on common property resources like land, forest and water bodies. The committee cites the Raigarh SEZ which Reliance wishes to develop in Maharashtra on 12,000 hectares of land cultivated by tribals for decades.
It also questions the claims of investments for SEZs. It says the projected investment in 63 SEZs is Rs 166,785 crore. It says Rs 67,500 crore is accounted for just by one 10 sq km multi-product SEZ in Kakinada. Locationally, 92 per cent of this proposed investment is in Andhra Pradesh and Gujarat (46 per cent each). The proposed investment in units is therefore extremely skewed.
It also challenges the claim about the SEZs being a new avenue of job generation, saying the information available about proposed direct employment for 110 SEZs is a total of 2.14 million. Of this, 61 per cent is in the IT/ITeS sector, exceeding the entire current employment in that sector. And, 85 per cent of this proposed employment is in just five states, with 40 per cent in Andhra Pradesh alone.
The 200,00 hectares proposed to go for SEZs is, says the report, predominantly agricultural and typically multi-cropped land, capable of producing close to one million tonnes of foodgrain. And, that close to 114,000 farming households (each household comprising five members) and an additional 82,000 farm-worker families will be displaced. That means a million people face eviction.
Almost 80 per cent of the agricultural population owns only about 17 per cent of the total agriculture land, making them near-landless farmers. Far more families and communities depend on a piece of land (for work, grazing) than those who simply own it, it notes. It also questioned the procedure to value the land taken over. It further points out that it is not bound by environmental laws and the EIA notification, 2006, issued by the ministry of environment, leaves out SEZs.
Moreover, the SEZ developer and units would also be exempted from taxes levied by the local bodies. It further says the SEZ Act of various states gives a blank cheque to the water requirement for the zones. For example, the Gujarat Act says, “The SEZ developers will be granted approval for development of water supply and distribution system to ensure the provision of adequate water supply for SEZ units.” It has given examples of the diversion proposed from hydro projects for SEZs, and for other major industrial projects coming up on acquired land, such as Posco mammoth steel project in Orissa — the daily water requirement, it says, is 286 million litres per day, to be procured from the Jobra barrage on the Mahanadi, from the upstream Hirakud dam. There is already an agitation against reservation of water from the Hirakud dam for industrial purposes, the report notes.
Property firesale possible as Dubai stares down default
Property firesale possible as Dubai stares down default
The Economic Times, November 27, 2009, Page 8
Sinead Cruise LONDON
THE DUBAI government could be forced to hold a firesale of its international real estate if creditors to two of its flagship companies reject proposals to put near-term debt obligations on ice until May 2010.
International property advisers are bracing for a potential slew of instructions to revalue and sell trophy assets owned by Dubai World and its many property-owning units as the emirate struggles to shrink its $59 billion debt pile.
“We do expect the Dubai government to step up efforts to raise capital via real estate sales, and sales of their UK assets in particular,” James Lewis, a member of the Gulf capital markets team at property consultant Knight Frank told Reuters.
Lewis said Dubai had a better chance of denting its massive financial liabilities if it raided its group portfolio, which comprises international landmarks such as the Grand Buildings close to London’s Trafalgar Square, the Mandarin Oriental hotel in New York and the Victoria & Albert Waterfront complex in Cape Town, South Africa.
“The simple supply and demand imbalance (in Dubai) is horrific, which begs the question of why you would want to buy commercial and residential property there if you couldn’t be sure of letting it,” Lewis said. “Some of their properties are interesting and in the fullness of time will look very clever. But they will have to sell their better stock, no one is in the market to buy the poorer grade kit. International assets on the other hand will move,” he added.
Average commercial real estate prices in the UK have risen 3.2% in the three months to end-October as investors chase property bargains offering higher yields than bonds or cash deposits.
“With the capital flooding London right now, there’s probably no better place to sell property if you had to raise some quick money,” Alistair Hilton, a partner at property consultant Cushman & Wakefield said.—Reuters
GMR in talks with PEs to raise $450 m from airport biz stake
GMR in talks with PEs to raise $450 m from airport biz stake
The Economic Times, November 27, 2009, Page 35
Mohit Bhalla ET NOW
INFRASTRUCTURE conglomerate GMR group is in talks with private equity funds 3i Investments and Macquarie-SBI Infrastructure to raise $450 million in GMR Airport Holdings, a person familiar with the company’s plans told ET NOW.
GMR wants to sell a minority stake in the airport subsidiary to raise cash for investments in infrastructure and power. The airports business, which includes the Hyderabad and Delhi airports, account for 45% of the group’s revenues.
A spokesperson for GMR said in an emailed statement to ET NOW that as a corporation they pursue various options for raising funds and cannot comment on this specific query. Fiona McDonald, a spokesperson for Macquarie Group in Singapore termed the queries from ET NOW as market speculation. Emailed queries to Jennifer Letki, a spokesperson for 3i Investments in London, elicited a similar response.
GMR’s Group chief financial officer, A Subbarao, said in a media statement two days ago that the company plans to invest $650 million in its various businesses over the next two years. He also said that the company was talking to various private equity investors for buying stake in its infrastructure and power businesses.
According to information available on its website, the London-headquartered 3i Investments manages a portfolio of $920 million in investments in India across media, automotives, construction, power, ports and manufacturing amongst others. Amongst its major investments is a $272 million investment in Adani Power.
Other Investments include stakes in International Tractors, OOH Media, Krishnapatnam Port Company and Vijai Electricals. 3i also closed out a $1.2 billion India Infrastructure fund in April 2008 of which it has already deployed $330 million.
Macquarie and SBI announced the launch of their $1billion infrastructure fund in April this year. GMR Infrastructure leads a consortium that is rebuilding the New Delhi airport, has developed the international airport at Hyderabad in southern India, and also holds a 40% stake at the second airport at Istanbul in Turkey.
The company has also signed a Memorandum of Understanding (MoU) with the government of Maldives for preparing a feasibility study for a new airport project there and is also bidding for the privatization of the existing airport project in that country.
Realty rebound on cards with over 3 lakh houses to come up by 2011
Realty rebound on cards with over 3 lakh houses to come up by 2011
The Financial Express, November 27, 2009, Page 12
fe Bureaus, Chennai
Leading independent global property consultancy, Knight Frank India, said its latest research on the country’s residential market found that 3,67,000 housing units will be available by 2011, across seven Indian cities of which 25% will come up in the National Capital Region (NCR) alone. The NCR will be the largest contributor with 92,202 housing units equating to 160.16 million sq ft of fresh supply of residential space followed by Mumbai with 72,906 units equating to approximately 80.61 million sq.ft by the end of 2011.
With the resurgence witnessed in the global economy, particularly the real estate sector, Knight Frank’s report further said 75% of the present and future residential supply will focus on the 2 and 3-BHK housing units being built. The report closely examines potential residential supply across several key cities by the end of 2011.
“Our research has shown that during the slump there has been a price correction across several cities from 10% to as much as 40%. Since March 2009, residential property prices have again increased by 10% to 30%, but this phenomenon is limited to cities like Mumbai and Bengaluru. It is not a countrywide phenomenon. Many developers are targeting the mid-income group in key metros with housing units that are priced to suit their needs,” said Gulam Zia, national director, research and advisory services, Knight Frank India.
Commenting on the residential research report, Anand Narayanan, national director, residential agency, Knight Frank India said, “Our research has revealed several interesting trends with regard to the residential sector. One of the most important trends emerging is the increased focus of developers on 2 and 3-BHK housing units from the 4 and 5-BHK and penthouses witnessed few years back.”
Customer loyalty a thing of the past
Customer loyalty a thing of the past
The Financial Express, November 27, 2009, Page 12
fe Bureaus, Thiruvananthapuram
Customer loyalty is dead, long live cluster loyalty! This was the conclusion arrived at during UST Global’s Retail Razzmatazz. It has also been seen that clients are no longer faithful to particular brand because of a loyalty incentive, since other brands of similar products or services may offer same services too.
An airline’s loyalty scores or a bank’s fancy credit card add-ons, to cite examples, tempt the client to keep returning to the same brand only when they are the only ones offering this kind of an incentive. “Research has shown that customer loyalty is dead”, says Harish Bijjor, brand expert and CEO, Harish Bijoor Consults Inc, Bangalore, while speaking at the UST Global’s Retail Razzmatazz in Thiruvananthapuram, which had customer loyalty as its theme.
Bijoor also argued that there could be a new trend called `cluster loyalty’, where the client is faithful to a select cluster of brands, which offer him the best experience. An airlines multiple interfaces with a client from one airport to the next could perhaps be an outsourced portion of the service that could cause the airline brand to fall off the client’s favoured cluster.
UST Global, a leading provider of end-to-end IT services and solutions for the Global 1000 market, held second annual Retail Razzmatazz with a week of concurrent events. According to Arun Narayanan, COO, UST Global, Retail Week provides a robust platform for discussion and learning, on both strategic and tactical levels. The theme being customer loyalty, the event presented a comprehensive view of the 2010 consumer who shops, spends, and thinks differently than in the past.
Marsha Blakeslee, GM, Industry Practices, UST Global spoke on the opportunities before social media to enhance customer loyalty in retail and the opportunities for IT players like UST in emerging markets like India. Arun Gupta, Group CIO, Shoppers Stop, said, “IT should demystify itself and become more ubiquitous to make its presence felt to the customer. It should seep unassumingly into the daily lives of people to ensure its longevity.”
Realty may see no FDI lock-in
Realty may see no FDI lock-in
The Times of India, November 27, 2009, Page 25
Pradeep Thakur & Sanjay Dutta, TNN, NEW DELHI
The commerce ministry has moved a proposal to remove the condition of the minimum lock-in period for repatriation of FDI in construction industry. According to a note circulated among pertinent ministries for their comments, the move is aimed at further easing FDI flow in construction of housing projects, hotels and townships etc.
The proposal is to remove the clause that bars such investors from repatriating their investments before three years from completion of minimum capitalisation of a project. The government had put the lock-in clause while allowing 100% FDI in the sector in 2005. The Press Note 2, which had notified permission for 100% FDI, however, said an investor could be permitted to exit earlier with prior approval of the FIPB.
The commerce ministry’s proposal is expected to spur overseas funds flow into real estate and infrastructure projects. Both these areas are experiencing funds crunch and many housing projects have either stalled or failed to take off as investors closed their purse-strings in the wake of the slowdown.
A revival in this sector is expected to have a multiplier effect on the economy and create jobs for not only unskilled and skilled workers such as labourers and artisans but also for engineers and architects etc. who are involved in developing real estate projects. A resumption of construction development is also expected to boost manufacturing sector by raising demand for such items as steel and cement.
At present, 100% FDI is allowed in the sector under the automatic route in townships, housing, built-up infrastructure and construction-development projects that include housing and commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure.
The FDI permision is subject to a minimum capitalization of $10 million for wholly-owned subsidiaries and $5 million for joint ventures with Indian partners. The foreign investor has to bring in the money within six months of setting shop here. Besides, norms also stipulate that at least half of the project must be developed within a period of five years from the date of obtaining all statutory clearances. An investor is also not allowed to sell undeveloped plots.
Projects with FDI also need to adhere to some other conditions. For serviced housing plots, the project has to be spread over a minimum land area of 10 hectares.
The Times of India, November 27, 2009, Page 25
Pradeep Thakur & Sanjay Dutta, TNN, NEW DELHI
The commerce ministry has moved a proposal to remove the condition of the minimum lock-in period for repatriation of FDI in construction industry. According to a note circulated among pertinent ministries for their comments, the move is aimed at further easing FDI flow in construction of housing projects, hotels and townships etc.
The proposal is to remove the clause that bars such investors from repatriating their investments before three years from completion of minimum capitalisation of a project. The government had put the lock-in clause while allowing 100% FDI in the sector in 2005. The Press Note 2, which had notified permission for 100% FDI, however, said an investor could be permitted to exit earlier with prior approval of the FIPB.
The commerce ministry’s proposal is expected to spur overseas funds flow into real estate and infrastructure projects. Both these areas are experiencing funds crunch and many housing projects have either stalled or failed to take off as investors closed their purse-strings in the wake of the slowdown.
A revival in this sector is expected to have a multiplier effect on the economy and create jobs for not only unskilled and skilled workers such as labourers and artisans but also for engineers and architects etc. who are involved in developing real estate projects. A resumption of construction development is also expected to boost manufacturing sector by raising demand for such items as steel and cement.
At present, 100% FDI is allowed in the sector under the automatic route in townships, housing, built-up infrastructure and construction-development projects that include housing and commercial premises, hotels, resorts, hospitals, educational institutions, recreational facilities, city and regional level infrastructure.
The FDI permision is subject to a minimum capitalization of $10 million for wholly-owned subsidiaries and $5 million for joint ventures with Indian partners. The foreign investor has to bring in the money within six months of setting shop here. Besides, norms also stipulate that at least half of the project must be developed within a period of five years from the date of obtaining all statutory clearances. An investor is also not allowed to sell undeveloped plots.
Projects with FDI also need to adhere to some other conditions. For serviced housing plots, the project has to be spread over a minimum land area of 10 hectares.
Thursday, November 26, 2009
Finance panel for 12% GST
Finance panel for 12% GST
The Financial Express, November 26, 2009, Page 1
KG Narendranath, New Delhi
The proposed goods & services tax (GST) could turn out to be a far more benign impost than anyone expected. In what would amount to a radical tax reform, the 13th Finance Commission is understood to have arrived at a revenue-neutral rate of around 12%, at least 4 percentage points lower than what most believed the combined Centre-state rate would be.
According to official sources, in a technical paper the commission is going to release shortly, it would also recommend a substantial broadening of the tax base by including hitherto untaxed—but potentially high-revenue—areas like real estate deals, high-end education and healthcare services. If the proposals are accepted, India Inc’s tax liability will see a major dip.
In the commission’s ideal model, GST would subsume taxes on petroleum and alcohol, both of which states want to keep outside the new comprehensive, multi-point tax on value added. Levies on petroleum account for a third of the tax revenues of both the Centre and states. The commission, headed by Vijay Kelkar, even wants the beedi industry, which forms a large chunk of the domestic tobacco sector, to be brought under GST.
The commission’s mandate is to recommend a formula for fiscal resource distribution between the Centre and states, as well as states inter se. It is, therefore, bound to have a decisive say in finalising the GST structure, which is integral to the fiscal resource transfer policy. In fact, the commission has drawn inputs from senior finance ministry officials to prepare the technical paper.
The Centre and states continue to disagree on the structure and modalities of GST, with the former keen to use the new tax as a reform tool. So, by releasing the technical paper, the commission would help the Centre turn the table on the empowered committee of state finance ministers, which recently published a GST discussion paper that most analysts said reflected a compromise.
Real estate transactions now attract only stamp duty at the output level, whereas the output incurs input taxes like Vat on construction material and service tax on specified work contracts. “In most countries where a GST/Vat system exists, sale of property is taxed like any other transaction. All input taxes are recouped by taxpayers, except the final consumer, as credit,” said E&Y partner Harishanker Subramaniam.
The empowered committee’s model not only leaves many contentious questions unresolved, but also defeats the purpose of capturing most supply chains under GST to avoid a tax on tax. The Centre wants the two GST components--central and state--to apply on roughly the same base.
The committee’s discussion paper did not agree with this, and proposed that the threshold for goods be retained at the current level of Rs 1.5 crore for central GST and that a much lower threshold of Rs 10 lakh for both goods and services be applicable for state GST.
Another point of discord is the number of rates. While the Centre wants a single rate for all transactions on goods or services, the states have pitched for multiple rates by differentiating between goods and services, and also amongst various goods.
States have almost agreed on a lower 5% rate for merit goods, but are arguing for the higher standard rate to be 9%. Currently, items that constitute about half the state Vat base are taxed at a lower 4% and this comprises a large number of industrial inputs.
Sources said with the finance commission proposals to be out soon, states might strategically defer making any recommendations on rates to March 2010 or beyond.
Meanwhile, the Commission on Centre-State Relations, headed by Justice Madan Mohan Punchhi, is also looking into the need and relevance of separate taxes on production and sales of goods & services subsequent to the introduction of the Vat regime.
Asset-liability mismatch, a hitch in core sector lending: Subbarao
Asset-liability mismatch, a hitch in core sector lending: Subbarao
The Hindu Business Line, November 26, 2009, Page 6
Banks must hone their skills in appraisal, risk management.
Our Bureau, Mumbai
The asset-liability mismatch is a problem with bank financing to the infrastructure sector. Such loans typically require long-term funding, and deposits of banks are relatively short-term, said Dr D. Subbarao, Governor, Reserve Bank of India.
“This huge and growing demand of infrastructure finance will have to be met even as banks wrestle with expanding their traditional banking services. Apart from finding the resources, banks will also need to hone their skills in appraisal and management of risks inherent in infrastructure financing,” Dr Subbarao said, while addressing a banking conference organised by the Indian Merchants’ Chamber, here on Wednesday.
The Eleventh Five-Year Plan has targeted cumulative infrastructure investment of Rs 20 lakh crore. “Almost one half of this investment is to be funded through debt, and as much as 43 per cent of this total debt requirement (21 per cent of overall planned investment) is planned to be financed by banks,” he said.
High Operating costs
Stressing that banks have a lot of scope to increase efficiency, Dr Subbarao said that the intermediation cost in India is still high due to high operating costs.
“Banks will have to constantly reinvent business models and design products and services demanded by a rapidly growing and diversifying economy. Also, higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk will raise banks’ funding costs, even as they try to improve efficiency,” he said.
He pointed out that resources are not being utilised in an efficient manner by banks.
“Non-interest sources of income constitute a very small share in total income of banks in India. Although overall efficiency and productivity have improved, resources are not being utilised in the most efficient manner.” He said there is a degree of stickiness and non-transparency in bank lending rates.
Challenge
The challenge for Indian banks is to reduce costs and pass on the benefits to both depositors and lenders.
Dr Subbarao said that making banking ‘boring’ is neither a cure to the ills that the banking system was plagued with before the crisis nor an appropriate path for the future of banking. “Banking has to evolve, grow and innovate in response to the developments in financial markets and institutions. The excitement lies in responding to the challenges that this growth brings. He was referring to the views expressed by some economists that making banking boring (banks to do only traditional business of accepting deposits and providing credit and the whole business is regulated) will help prevent financial crisis.
He also referred to the remarks of the former RBI Governor, Dr Y.V. Reddy, calling for ‘back to basics’ in banking urging banks to focus on lending to real sectors of the economy, particularly agriculture and the small and medium industries.
Job market back on sunny pitch, Q2 sees 5 lakh opportunities
Job market back on sunny pitch, Q2 sees 5 lakh opportunities
The Financial Express, November 26, 2009, Page 3
fe Bureaus, New Delhi
The smiles are back in the sectors that were worst hit by the global slowdown last year. Almost 5 lakh jobs have been created in the second quarter of 2009-10 (July to September) as per a report by the labour bureau on the effect of economic slowdown on employment in India.
Significantly, though the bureau’s study was limited to units in 8 affected sectors in 11 states, overall employment in these sectors has risen by 1.51 lakh since September 2008.
The latest quarter’s numbers are in stark contrast to the 4.91 lakh job losses reported by the Bureau in its first quick survey after the Lehman Brothers’ collapse for the period of October to December 2008. The latest quarter’s job accretions also constitute a major reversal from the 1.71 lakh job losses reported in previous quarter of April to June 2009.
While the employment spurt between July and September 2009 can be buttressed by India’s improving factory output numbers in recent months, the latest report holds a good omen on the exports front where growth still remains negative. As many as 2.04 lakh of the 5 lakh total jobs created in the quarter are in exporting units.
“In the earlier quick employment quarterly surveys, the results show that the export oriented units were the most affected and major job losses were registered. During the current survey, employment in export oriented units is showing signs of recovery with an increase in all the sectors, except leather,” the Bureau’s report notes.
In fact, prospects for exporters of gems and jewellery and handloom and powerloom products seem particularly bright.
All the 15,000 jobs added in the handloom sector and 75% of the 58,000 jobs added in gems are in exporting units. Ironically, textiles was the worst-hit in the previous quarter, with 1.52 lakh employees eased out.
Overall, the maximum job creation has been seen in textiles and metals, which employed 3.18 lakh and 65,000 workers, respectively, between July and September 2009.
The only sector that reported a decline – leather – had seen a spurt in employment in the quarter from April to June.
The decline in leather sector jobs is attributed to the monsoon season as production typically slows down.
Construction equipment industry bets big on infrastructure spend
Construction equipment industry bets big on infrastructure spend
The Hindu Business Line, November 25, 2009, Page 15
Our Bureau, Bangalore
The construction equipment industry opened its showpiece event on Wednesday on the note that it was on a high-growth phase and would nearly treble to $15 billion (about Rs 75,000 crore) by 2015.
The growth was driven by the unprecedented public spend on infrastructure, Mr Vipin Sondhi, CEO of JCB India, and Chairman of the fifth two-yearly edition of EXCON, said.
The Union Minister for Road Transport, Mr Kamal Nath, said on the sidelines of the event that he would meet the the World Bank President, Mr Robert Zoellick, visiting on December 2, to discuss a $3-billion soft loan (nearly Rs 14,000 crore) for widening 6,300 km of national highways.
His Ministry had set a target of achieving 20 km of roads a day by March 2010, which would need Rs 2 lakh crore for 20,000 km of roads, Mr Nath said after inaugurating the event. The five-day trade fair is co-hosted by CII.
The domestic industry was a small part of the $100-billion global industry, However, all eyes are trained on us as the country is doing well economically, said Mr Ranaveer Sinha, Chairman, Indian Earth-moving & Construction Industry Association Ltd. India with its cost advantage, can also be the manufacturing base for equipment, components and design.
Mr Sinha said the construction equipment industry had to find solutions to reduce mishaps and emissions. “We have to move towards hybrids and battery operated vehicles,” Mr Sinha said.
Another issue was the import of used equipment, which needs to be regulated so that India “does not become a graveyard for yellow metal,” he said.
He said the huge Government investments in building infrastructure would drastically change the industry in the next decade.
Mr Sondhi said a year ago, this industry’s sales had plummeted 40 per cent during the third quarter, but had recovered sharply on Government stimulus.
This year, the event has grown 60 per cent in pavilion space to 1.6 lakh sqm and 55 per cent by participation to 456 exhibitors, Mr Sondhi said.
Mr C.R. Swaminathan, Chairman, CII-South, said the industry had entered a phase of quantum growth. With a work force of 31 million, it was the second largest employer after farming.
Check unplanned farm conversion, says panel
Check unplanned farm conversion, says panel
Business Standard, November 26, 2009, Page 5
Sreelatha Menon / New Delhi
The rapid conversion of agricultural land for non-agricultural uses is not the best way to food security. That is what the government-appointed panel on land reforms and agrarian relations says in its report, currently under the consideration of Prime Minister Manmohan Singh. It blames the conversion both on absence of land use policies, “opening up of economy’’ and also on the non-remunerative nature of farming.
The committee links the uncontrolled conversion to social unrest in Nandigram in Bengal and Kalinganagar in Orissa, where cultivated land was being sought for industrial purposes against the wishes of the local community.
It traces the fall in agricultural production to the beginning of economic reforms and cites a study to show growth in foodgrain production at three per cent annually in the decade ending in 1993 and at a mere 0.67 per cent annually in the decade ending 2005.
It says the remedy is to have a proper land use plan. It cites Karnataka as the ideal and cites its land use plans as worthy of emulation for the rest of the country, both at the national state and village levels. These plans should be based on present situation and future needs, it says.
“At the national level, securing food for 1.1 billion people is becoming a huge challenge for policy makers. Half of the world’s hungry population lives in India and feeding them requires at least 170 hectares of agriculture land. In a recent move to increase availability of foodgrain in the country, the government curbed food export,’’ it observes.
It further says the people most affected due to conversion are the tribals and other marginalised groups whose livelihoods are dependent on agriculture. Apart from large-scale conversion of their agriculture land, there are far more families that work as agricultural labourers whose livelihoods are threatened. Tribals and other groups already displaced still have not been provided any or adequate compensation.
An estimated 40 million people (of which nearly 40 percent are tribals and 25 per cent dalits) have lost their land since 1950 on account of displacement due to large development projects.They still await compensation and rehabilitation. This situation is aggravating due to addition of more number of people in this ‘inhumane’ category every year. These people are immensely dissatisfied with government’s apathy towards them, it says.
The report credits widespread social unrest to these factors and says inequitable distribution of benefits from the new land use, quantity of compensation not commensurate with market value, and social tradeoffs like rehabilitation not being done properly are leading to immense dissatisfaction among project-affected people.
“This is leading to gruesome social unrest, as witnessed in Nandigram and Singur in West Bengal and Kalinga Nagar, Orissa, where many people were killed. Such violence can escalate and spread in other parts of the country, too, if project-affected people are not properly consulted and compensated, it says. It also blames the decreasing incentive from agriculture as one of the major causes for the conversion. The total national income coming from the agriculture sector in 1951 was 55 per cent, whereas in 2003, it was merely 24 per cent.
It says more and more farmers every year are abandoning agriculture as their primary source of livelihood. Moreover, farmers are also become severely indebted to practice agriculture. More than 60 per cent of the surveyed households in Karnataka in the NSSO Situation Assessment Survey of Farmers, 2003, showed that they owed an average of Rs18, 000 each.
It says the foremost step to deal with the conversion issue is to make the agriculture sector more viable and profitable. So, addressing the concerns of the agriculture sector is imperative.
Finally, a more credible WPI
Finally, a more credible WPI
The Economic Times, November 26, 2009, Page 13
Tina Edwin, ET Bureau
The statistics ministry and the office of the economic adviser attached to the commerce and industry ministry finally got their way about a month ago (October 20) with the Union Cabinet agreeing to allow monthly release of the wholesale price index (WPI), the chief measure of inflation in the country.
As a compromise between those favouring and opposing monthly release of data, it was decided to continue with weekly reporting for two components of the index: primary products and fuel. And, the price data for the manufacturing sector was to be reported on a monthly basis.
A reasonable decision given that weekly data on primary products and fuel group experienced frequent volatility. Also, collecting data for these items is easier: weekly data on primary products is mostly sourced from mandis.
Similarly, as energy sector is dominated by government-owned companies and prices continue to be largely regulated, getting data of the fuel group is not difficult either. In contrast, getting regular data flow from the manufacturing sector was difficult.
Largely because the office of the economic adviser (OEA) depended on voluntary reporting by the manufacturing sector, populated mostly by the private sector, and small and medium enterprises. Many units would not file reports for weeks together, their contention being that there was no change in prices.
Of course, there have been instances when price changes were also reported with much lag, affecting the quality of data published. So, it was routine for the OEA to use the last reported data for the purpose of constructing the price index. For the OEA to follow up with manufacturing enterprises on a weekly basis was impossible: it simply did not have the adequate manpower.
Thus, it is not surprising that, overall, just about 18-20% of the items in the WPI basket were revised on a weekly basis.
Consequently, the revised data that was published eight weeks after the provisional numbers saw significant changes. Needless to say, often, the provisional numbers looked very different from the revised numbers and sometimes even led to unwarranted policy reaction.
It was to improve the quality data and policy response that the statistics ministry and OEA have been pushing for monthly reporting of the WPI data over the past year. Monthly reporting of WPI would have enabled the OEA to capture changes in prices of at least 60% of the items in the basket, as the officials would get enough time to follow up with business.
The working group for revision of the WPI set up under the chairmanship of Planning Commission member Prof Abhijit Sen had earlier recommended in its report that the WPI should be reported on a monthly basis. In any case, the norm across the world is to report inflation data on a monthly basis and most countries use consumer price index (CPI) as the primary measure of inflation in the economy.
India has been an outlier, not only does it use wholesale price as the primary measure but also reporting it on a weekly basis.
Sure, India has several CPIs that are released on a monthly basis — for industrial workers, for rural workers and for agricultural workers and the now-discontinued index for urban non-manual employees — but no comprehensive index covering the entire population. Work on introducing a comprehensive CPI for urban areas and for rural areas is underway.
Introduction of a combined CPI may take another two years, while CPI for urban areas (CPI-U) may be introduced next year.
The switch over to monthly reporting was delayed due to reservations of the finance ministry as well as the Reserve Bank of India, both responsible for anchoring inflation expectations as well as ensuring sustained economic growth.
They felt that monthly release of data would delay policy response, especially when prices were rising fast. One could argue that weekly data would have been made available to the finance ministry and the RBI on a selective basis for this purpose.
But bindings under the IMF’s Special Data Dissemination Standard (SDDS) does not allow signatory organisations to make such releases — much like the norms for dissemination of information by listed companies. Data on important macro indicators have to be made available to all users simultaneously.
This explains why the government chose the middle path, of releasing price data for primary commodities and fuel on weekly basis and manufacturing price data on monthly basis.
The real improvement in the quality of data in the sense of capturing price movements in the economy better may become visible only when the government shifts to the new series of WPI along with a change in the base year to 2004-05 from the current 1993-94.
This is expected to happen only in the new financial year. Shifting to the new series will mean more items that form the consumption basket will be counted and many items in the current series that have no or low demand would be weeded out.
The new series will comprise nearly 1,000 items compared to 435 in the current series. At the end of the day, the quality of the price index will depend on the response the OEA gets from businesses.
The Economic Times, November 26, 2009, Page 13
Tina Edwin, ET Bureau
The statistics ministry and the office of the economic adviser attached to the commerce and industry ministry finally got their way about a month ago (October 20) with the Union Cabinet agreeing to allow monthly release of the wholesale price index (WPI), the chief measure of inflation in the country.
As a compromise between those favouring and opposing monthly release of data, it was decided to continue with weekly reporting for two components of the index: primary products and fuel. And, the price data for the manufacturing sector was to be reported on a monthly basis.
A reasonable decision given that weekly data on primary products and fuel group experienced frequent volatility. Also, collecting data for these items is easier: weekly data on primary products is mostly sourced from mandis.
Similarly, as energy sector is dominated by government-owned companies and prices continue to be largely regulated, getting data of the fuel group is not difficult either. In contrast, getting regular data flow from the manufacturing sector was difficult.
Largely because the office of the economic adviser (OEA) depended on voluntary reporting by the manufacturing sector, populated mostly by the private sector, and small and medium enterprises. Many units would not file reports for weeks together, their contention being that there was no change in prices.
Of course, there have been instances when price changes were also reported with much lag, affecting the quality of data published. So, it was routine for the OEA to use the last reported data for the purpose of constructing the price index. For the OEA to follow up with manufacturing enterprises on a weekly basis was impossible: it simply did not have the adequate manpower.
Thus, it is not surprising that, overall, just about 18-20% of the items in the WPI basket were revised on a weekly basis.
Consequently, the revised data that was published eight weeks after the provisional numbers saw significant changes. Needless to say, often, the provisional numbers looked very different from the revised numbers and sometimes even led to unwarranted policy reaction.
It was to improve the quality data and policy response that the statistics ministry and OEA have been pushing for monthly reporting of the WPI data over the past year. Monthly reporting of WPI would have enabled the OEA to capture changes in prices of at least 60% of the items in the basket, as the officials would get enough time to follow up with business.
The working group for revision of the WPI set up under the chairmanship of Planning Commission member Prof Abhijit Sen had earlier recommended in its report that the WPI should be reported on a monthly basis. In any case, the norm across the world is to report inflation data on a monthly basis and most countries use consumer price index (CPI) as the primary measure of inflation in the economy.
India has been an outlier, not only does it use wholesale price as the primary measure but also reporting it on a weekly basis.
Sure, India has several CPIs that are released on a monthly basis — for industrial workers, for rural workers and for agricultural workers and the now-discontinued index for urban non-manual employees — but no comprehensive index covering the entire population. Work on introducing a comprehensive CPI for urban areas and for rural areas is underway.
Introduction of a combined CPI may take another two years, while CPI for urban areas (CPI-U) may be introduced next year.
The switch over to monthly reporting was delayed due to reservations of the finance ministry as well as the Reserve Bank of India, both responsible for anchoring inflation expectations as well as ensuring sustained economic growth.
They felt that monthly release of data would delay policy response, especially when prices were rising fast. One could argue that weekly data would have been made available to the finance ministry and the RBI on a selective basis for this purpose.
But bindings under the IMF’s Special Data Dissemination Standard (SDDS) does not allow signatory organisations to make such releases — much like the norms for dissemination of information by listed companies. Data on important macro indicators have to be made available to all users simultaneously.
This explains why the government chose the middle path, of releasing price data for primary commodities and fuel on weekly basis and manufacturing price data on monthly basis.
The real improvement in the quality of data in the sense of capturing price movements in the economy better may become visible only when the government shifts to the new series of WPI along with a change in the base year to 2004-05 from the current 1993-94.
This is expected to happen only in the new financial year. Shifting to the new series will mean more items that form the consumption basket will be counted and many items in the current series that have no or low demand would be weeded out.
The new series will comprise nearly 1,000 items compared to 435 in the current series. At the end of the day, the quality of the price index will depend on the response the OEA gets from businesses.
Wednesday, November 25, 2009
U.S. Q3 economic growth revised downwards
U.S. Q3 economic growth revised downwards
Business Standard, November 25, 2009, Page 13
WASHINGTON (Reuters)
The U.S. economy grew more slowly than first thought in the third quarter, but a fifth month of gains in house prices in September and an improvement in consumer morale signaled the anemic recovery was intact.
In its second estimate of third quarter gross domestic product published on Tuesday, the Commerce Department said the economy expanded at a 2.8 percent annual rate, probably ending the most painful U.S. recession in 70 years.
It was slower than the previous estimate of 3.5 percent but still the fastest pace since the third quarter of 2007, reflecting government fiscal stimulus. The new estimate was slightly below expectations for a growth rate of 2.9 percent.
That helped to push stocks on Wall Street lower as investors shrugged off two other reports showing house prices maintained their gains in September and consumers were a bit more optimistic this month, despite high unemployment.
"We are still on the right path and a double-dip (recession) is not on the cards," said Jonathan Basile, an economist at Credit Suisse in New York.
With federal programs the main force behind the recovery, some economists are wary of risks of a double-dip recession -- a scenario where output perks up briefly only to fall again when government support ends.
Minutes of the Federal Reserve's policy meeting early this month released on Tuesday showed officials at the U.S. central bank viewed the recovery as durable, although they expected unemployment to rise further.
The Fed cut interest rates to near zero last December and has committed to keep them low for an extended period to aid the recovery that officials said would continue at a slow pace relative to historical experience.
Economists expect the U.S. unemployment rate to climb from its current 26-1/2 year high of 10.2 percent. President Barack Obama is under to pressure to find ways to spur job growth without unduly fueling an already record budget deficit.
The return to growth in the July-September period, after four straight quarters of declining output, followed a 0.7 percent contraction in the April-June period.
Output was constrained by consumer spending that was not as robust as first thought. Strong imports and weak investment in commercial buildings also held back growth.
But corporate profits surged as businesses raised output even as they were cutting payrolls.
U.S. DEMAND SATED BY IMPORTS
In another sign of stability in a sector that was at the heart of the recession, the Standard & Poor's/Case-Shiller index of home prices in 20 metropolitan areas rose 0.3 percent in September. Analysts said a tax credit for first time homebuyers helped support the market.
An index published by the U.S. Federal Housing Finance Agency found prices unchanged in September.
Separately, the Conference Board's index of consumer attitudes increased slightly to 49.5 in November from 48.7 in October. That compared to market expectations of 53.1.
Rebounds in U.S. property sectors and consumer confidence are prerequisites for a sustainable economic recovery.
Tuesday's GDP data showed imports into the United States were revised higher, showing more domestic demand was sated by overseas production. Imports jumped at 20.8 percent annual rate, the biggest gain since the second quarter of 1985, instead of 16.4 percent.
The rise in imports eclipsed a strong recovery in exports, thanks to a weak U.S. dollar, leaving a wider trade gap that took off just over half a percentage point from GDP.
"Both (exports and imports) grew very strongly and indicated that global trade was returning to normal. Further small increases in the net trade deficit are expected and will be a drag on future GDP growth," said Brian Fabbri, chief North America economist at BNP Paribas in New York.
For a graphic on real GDP and the dollar
A drop in the construction of nonresidential structures also restrained growth in the last quarter. Commercial building activity dropped at a 15.1 percent pace rather than 9 percent, as previously reported, highlighting the problems in commercial real estate.
It shaved just over half a percentage point off GDP growth. Consumer spending, which normally accounts for more than two-thirds of U.S. economic activity, rose at a 2.9 percent rate, instead of the 3.4 percent pace reported last month.
It was the biggest rise since the first quarter of 2007 and represented a turnaround from a 0.9 percent second quarter fall. Businesses also reduced inventories at a slightly faster rate than had been anticipated.
While that revision trimmed third quarter GDP growth, analysts said it helps lay the groundwork for future production.
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