Thursday, December 31, 2009
Finance panel report suggests new path for fiscal prudence
Finance panel report suggests new path for fiscal prudence
Business Standard, December 31, 2009, Page 5
BS Reporter / New Delhi
The Thirteenth Finance Commission has suggested the path of fiscal consolidation and sharing of tax revenues between the Centre and the states, in its report submitted to President Pratibha Patil today.
The report has assessed the impact of the proposed goods and services tax (GST) on trade. It has also suggested steps to deal with the growing off-Budget expenditure, especially, oil bonds, the implications of environment and climate change, and ways to improve outcomes and outputs of public expenditure.
The report of the Thirteenth Finance Commission, headed by former finance secretary Vijay Kelkar, will be given by the President to the finance ministry, which will take it up with the Cabinet.
The recommendations of the report, which covers the period between 2010 and 2015, will be reflected in the Budget for 2010-11, Finance Minister Pranab Mukherjee said today on the sidelines of a function. “The report will be tabled in Parliament as per the system,” Mukherjee told reporters.
Currently, states and the Union Territories (UTs) get Rs 1.64 lakh crore a year, or around 30 per cent of the shareable taxes collected by the Centre. The total tax revenue of the government, which include shareable and non-shareable taxes, has been estimated at Rs 6,41,079 crore during 2009-10. The Twelfth Finance Commission had recommended that 30.5 per cent of the shareable central taxes should be shared among the states and the UTs.
The recommendations of Thirteenth Finance Commission assumes importance since the government has declared its intention to return to the path of fiscal prudence and an increase in devolution of revenue to the states could hit the Union government kitty further.
Earlier in the day, Kelkar and other members of the commission, including B K Chaturvedi, Indira Rajaraman, Atul Sarma and Sanjiv Misra, met the President and briefed her on the recommendations of the report. “We had been asked to suggest new path for fiscal consolidation...We have recommended the fiscal path for the next five years,” Kelkar told reporters.
The Commission, set up in November 2007, was asked to make recommendations on tax-related issues and look into a new Fiscal Responsibility and Budget Management roadmap.
The report was submitted a day before the extended tenure of the Finance Commission came to an end. Earlier, the report was to be submitted by October 31, 2009, but the Commission sought a three-month extension to submit it by December 31, 2009.
Business Standard, December 31, 2009, Page 5
BS Reporter / New Delhi
The Thirteenth Finance Commission has suggested the path of fiscal consolidation and sharing of tax revenues between the Centre and the states, in its report submitted to President Pratibha Patil today.
The report has assessed the impact of the proposed goods and services tax (GST) on trade. It has also suggested steps to deal with the growing off-Budget expenditure, especially, oil bonds, the implications of environment and climate change, and ways to improve outcomes and outputs of public expenditure.
The report of the Thirteenth Finance Commission, headed by former finance secretary Vijay Kelkar, will be given by the President to the finance ministry, which will take it up with the Cabinet.
The recommendations of the report, which covers the period between 2010 and 2015, will be reflected in the Budget for 2010-11, Finance Minister Pranab Mukherjee said today on the sidelines of a function. “The report will be tabled in Parliament as per the system,” Mukherjee told reporters.
Currently, states and the Union Territories (UTs) get Rs 1.64 lakh crore a year, or around 30 per cent of the shareable taxes collected by the Centre. The total tax revenue of the government, which include shareable and non-shareable taxes, has been estimated at Rs 6,41,079 crore during 2009-10. The Twelfth Finance Commission had recommended that 30.5 per cent of the shareable central taxes should be shared among the states and the UTs.
The recommendations of Thirteenth Finance Commission assumes importance since the government has declared its intention to return to the path of fiscal prudence and an increase in devolution of revenue to the states could hit the Union government kitty further.
Earlier in the day, Kelkar and other members of the commission, including B K Chaturvedi, Indira Rajaraman, Atul Sarma and Sanjiv Misra, met the President and briefed her on the recommendations of the report. “We had been asked to suggest new path for fiscal consolidation...We have recommended the fiscal path for the next five years,” Kelkar told reporters.
The Commission, set up in November 2007, was asked to make recommendations on tax-related issues and look into a new Fiscal Responsibility and Budget Management roadmap.
The report was submitted a day before the extended tenure of the Finance Commission came to an end. Earlier, the report was to be submitted by October 31, 2009, but the Commission sought a three-month extension to submit it by December 31, 2009.
Fiscal deficit can't be sustained for long: Pranab
Fiscal deficit can't be sustained for long: Pranab
The Hindu Business Line, December 31, 2009, Page 14
However, it is still too early to exit stimulus.
Our Bureau, New Delhi
Stating that the Indian economy cannot sustain a high fiscal deficit for very long, the Finance Minister, Mr Pranab Mukherjee, said on Wednesday that it is, however, still too early to pull out of the fiscal stimulus.
“We shall have to strike a balance between the requirement of the economy and also the capacity of the economy to bear this level of fiscal deficit and borrowing,” the Finance Minister said on the sidelines of a Corporation Bank event.
In December 2008 and later in February this year, the Government had cut its key duty rates, such as excise duty and service tax, in order to propel domestic demand and mitigate the adverse effect of the global slowdown on domestic industry. The excise duty was cut to 8 per cent from 14 per cent, while service tax was reduced to 10 per cent from 12 per cent. Burdened by a growing fiscal deficit due to extensive borrowing to meet the budgetary requirements, the Government has since been looking to exit the stimulus policy and bring its revenues closer to the earlier levels by maintaining fiscal discipline.
Cautioning that any hasty move in either direction could lead to bigger problems, Mr Mukherjee said, “Immediately coming out of (a) stimulus package, [an] exit policy might not be the best approach. There may be an adverse impact. The economy has suffered. We ended 2008-09 at a GDP growth rate of 6.7 per cent, but the price we had to pay was a high fiscal deficit at 6.8 per cent of GDP. I have said earlier that this was not sustainable – fiscal prudence is necessary, borrowing cannot go on indefinitely.”
Mr Mukherjee had earlier said that the GDP growth rate for the current fiscal could touch 7.75 per cent, moving onto a 9 per cent after two years. In 2008-09, the economy grew 6.7 per cent.
He further added that the Ministry is also working with the Reserve Bank of India (RBI) to ensure that the credit needs of private players are not elbowed out with the huge borrowing programme in the current fiscal. “Credit availability is important, surely it has to be improved,” he said.
No hike in interest rates
Speaking on the sidelines of the event, the Bank Chairman and Managing Director, Mr J. M. Garg, said that even if the repo rate or the cash reserve ratio (CRR) is raised, banks may not actually increase interest rates as they have to meet their credit off take targets.
“Key policy rates should have small quantum changes. RBI may marginally increase the CRR in January. However, in the next three months interest rates may not pick up … because there is enough liquidity in the system. Even if repo rates are changed, interest rates may not pick up,” he said.
The Hindu Business Line, December 31, 2009, Page 14
However, it is still too early to exit stimulus.
Our Bureau, New Delhi
Stating that the Indian economy cannot sustain a high fiscal deficit for very long, the Finance Minister, Mr Pranab Mukherjee, said on Wednesday that it is, however, still too early to pull out of the fiscal stimulus.
“We shall have to strike a balance between the requirement of the economy and also the capacity of the economy to bear this level of fiscal deficit and borrowing,” the Finance Minister said on the sidelines of a Corporation Bank event.
In December 2008 and later in February this year, the Government had cut its key duty rates, such as excise duty and service tax, in order to propel domestic demand and mitigate the adverse effect of the global slowdown on domestic industry. The excise duty was cut to 8 per cent from 14 per cent, while service tax was reduced to 10 per cent from 12 per cent. Burdened by a growing fiscal deficit due to extensive borrowing to meet the budgetary requirements, the Government has since been looking to exit the stimulus policy and bring its revenues closer to the earlier levels by maintaining fiscal discipline.
Cautioning that any hasty move in either direction could lead to bigger problems, Mr Mukherjee said, “Immediately coming out of (a) stimulus package, [an] exit policy might not be the best approach. There may be an adverse impact. The economy has suffered. We ended 2008-09 at a GDP growth rate of 6.7 per cent, but the price we had to pay was a high fiscal deficit at 6.8 per cent of GDP. I have said earlier that this was not sustainable – fiscal prudence is necessary, borrowing cannot go on indefinitely.”
Mr Mukherjee had earlier said that the GDP growth rate for the current fiscal could touch 7.75 per cent, moving onto a 9 per cent after two years. In 2008-09, the economy grew 6.7 per cent.
He further added that the Ministry is also working with the Reserve Bank of India (RBI) to ensure that the credit needs of private players are not elbowed out with the huge borrowing programme in the current fiscal. “Credit availability is important, surely it has to be improved,” he said.
No hike in interest rates
Speaking on the sidelines of the event, the Bank Chairman and Managing Director, Mr J. M. Garg, said that even if the repo rate or the cash reserve ratio (CRR) is raised, banks may not actually increase interest rates as they have to meet their credit off take targets.
“Key policy rates should have small quantum changes. RBI may marginally increase the CRR in January. However, in the next three months interest rates may not pick up … because there is enough liquidity in the system. Even if repo rates are changed, interest rates may not pick up,” he said.
BPTP plans to use one fourth of IPO funds for debt repayment
BPTP plans to use one fourth of IPO funds for debt repayment
Business Standard, December 31, 2009, Page 4
Raghavendra Kamath / Mumbai
Delhi-based property developer BPTP plans to use over one-fourth of its initial public issue (IPO) proceeds towards repayment and prepayment of debt taken by the company, according to the draft red herring prospectus (DRHP) filed by the company with capital markets regulator Sebi.
BPTP, promoted by first-generation entrepreneur Kabul Chawla, shot to fame for winning the country’s largest land deal last year in Noida for Rs 5,006 crore and later surrendering 75 per cent of the land to New Okhla Industrial Development Authority (Noida) due to the meltdown in property markets. The company retained 21 acres, for which it paid Rs 1,300 crore to the authority.
Out of the Rs 1,500 crore it plans to raise from capital markets, the company says it will use Rs 325 crore towards debt prepayment and repayment, Rs 459.4 crore to finance construction and development costs for its Park Elite Floors, another Rs 514.3 crore for payment of development charges to the government authorities and the rest for general corporate purposes.
The company has a total debt of Rs 1,084 crore on books against a net worth of Rs 1476.76 crore, which translates into a debt-equity ratio of 0.73:1. The Rs 325-crore loan was selected for prepayment as it carried a high interest rate of 14 per cent, sources in the know said.
BPTP’s profits closely reflect the ups and downs in the property markets in the last couple of years. While net profit jumped 18 per cent in the financial year 2008, BPTP saw a net loss of Rs 84.69 crore in the current year, mainly due to allotment money of Rs 123.94 crore and Rs 29.32 crore forgone on account of interest paid on delayed payments in the Noida deal. But the company again posted a net profit of Rs 83.2 crore in just three months ending June 30, 2009.
Citigroup Property Investors (CPI), which has a stake of 5.98 per cent in the company, and JPMorgan, which has 3.68 per cent, are likely to continue in BPTP as investors as they have a lock-in period of one year after the listing of shares, according to sources in the know. Though CPI wanted to exit its investment through the special purpose vehicle (SPV) route, it has put the plan on hold, sources said.
As of December 2, 2009, the company had 17 ongoing projects with a saleable area of 39.39 million square feet and 40 new upcoming projects of 57.14 million square feet. The company says it has launched four residential projects in the low-rise segment and sold 7,398 apartments between July 2008 and September 2009. The company has a total land bank of around 1,800 acres, of which 1,415 acres form a part of Project Parklands in Faridabad.
“Till the time they come up with a price band and percentage dilution in the IPO, it will be difficult to comment on the IPO. But the Rs 1,175 crore that the company plans to utilise for construction and development charges is a significant amount. It shows the company plans to launch a lot of projects,” says an analyst at a Mumbai-based brokerage on condition of anonymity.
Another analyst, who too declined to be identified, said the Rs 1,300 crore it paid for 21 acres was quite expensive in terms of current market conditions.
Business Standard, December 31, 2009, Page 4
Raghavendra Kamath / Mumbai
Delhi-based property developer BPTP plans to use over one-fourth of its initial public issue (IPO) proceeds towards repayment and prepayment of debt taken by the company, according to the draft red herring prospectus (DRHP) filed by the company with capital markets regulator Sebi.
BPTP, promoted by first-generation entrepreneur Kabul Chawla, shot to fame for winning the country’s largest land deal last year in Noida for Rs 5,006 crore and later surrendering 75 per cent of the land to New Okhla Industrial Development Authority (Noida) due to the meltdown in property markets. The company retained 21 acres, for which it paid Rs 1,300 crore to the authority.
Out of the Rs 1,500 crore it plans to raise from capital markets, the company says it will use Rs 325 crore towards debt prepayment and repayment, Rs 459.4 crore to finance construction and development costs for its Park Elite Floors, another Rs 514.3 crore for payment of development charges to the government authorities and the rest for general corporate purposes.
The company has a total debt of Rs 1,084 crore on books against a net worth of Rs 1476.76 crore, which translates into a debt-equity ratio of 0.73:1. The Rs 325-crore loan was selected for prepayment as it carried a high interest rate of 14 per cent, sources in the know said.
BPTP’s profits closely reflect the ups and downs in the property markets in the last couple of years. While net profit jumped 18 per cent in the financial year 2008, BPTP saw a net loss of Rs 84.69 crore in the current year, mainly due to allotment money of Rs 123.94 crore and Rs 29.32 crore forgone on account of interest paid on delayed payments in the Noida deal. But the company again posted a net profit of Rs 83.2 crore in just three months ending June 30, 2009.
Citigroup Property Investors (CPI), which has a stake of 5.98 per cent in the company, and JPMorgan, which has 3.68 per cent, are likely to continue in BPTP as investors as they have a lock-in period of one year after the listing of shares, according to sources in the know. Though CPI wanted to exit its investment through the special purpose vehicle (SPV) route, it has put the plan on hold, sources said.
As of December 2, 2009, the company had 17 ongoing projects with a saleable area of 39.39 million square feet and 40 new upcoming projects of 57.14 million square feet. The company says it has launched four residential projects in the low-rise segment and sold 7,398 apartments between July 2008 and September 2009. The company has a total land bank of around 1,800 acres, of which 1,415 acres form a part of Project Parklands in Faridabad.
“Till the time they come up with a price band and percentage dilution in the IPO, it will be difficult to comment on the IPO. But the Rs 1,175 crore that the company plans to utilise for construction and development charges is a significant amount. It shows the company plans to launch a lot of projects,” says an analyst at a Mumbai-based brokerage on condition of anonymity.
Another analyst, who too declined to be identified, said the Rs 1,300 crore it paid for 21 acres was quite expensive in terms of current market conditions.
Finance panel charts course to fiscal health
Finance panel charts course to fiscal health
The Economic Times, December 31, 2009, Page 9
Kelkar-Led Commission Proposes Hike In States’ Share Of Tax Revenues
Our Bureau NEW DELHI
THE Thirteenth Finance Commission submitted its report on Wednesday, recommending a five-year fiscal consolidation road map and a higher share for states in the tax revenues collected by the Centre over the next five years ending 2015.
The commission, chaired by former finance secretary Vijay Kelkar, has recommended a higher devolution to states from the current 30.5%, and a new methodology to deal with the off-budget expenditure, especially oil bonds.
“The recommendations (of the panel) will be reflected in the Budget,” finance minister Pranab Mukherjee told reporters, but declined to give details.
The government said it would table the report of the 13th Finance Commission in Parliament in due course.
The President constitutes the Finance Commission under Article 280 of the Constitution. The commission’s chief task is to recommend a formula for distribution of tax revenues between the Centre and the states and amongst the states themselves every five years.
Currently, the share of states and Union Territories in central taxes is 30.5% of the shareable taxes of the Centre. Mr Kelkar declined to give details on the revenue share. But a government official, who did not wish to be named, said it is proposed to be increased by about 2-3%.
The recommendations are unlikely to meet states’ expectations. State governments had asked for an increase in their share in the divisible pool of the central taxes to 50%. They had also demanded that all central surcharges and cesses be included in the divisible pool.
The recommendations are based on revenue neutral rates keeping 2008-09 as the base year. “Our assumption is revenue neutral. There will not be any impact as rates would be neutral, and the revenue of states and the Centre would be protected,” Mr Kelkar said.
The report, which will be made public only after it is tabled in Parliament, has refrained from recommending a rate for the proposed goods and services tax (GST). “There’s no recommendation on the tax structure. It’s on revenue sharing between the Centre and the states ... rates were not talked about, it’s the revenue sharing,” Mr Kelkar said.
The report will be given by the President to the finance ministry, which will take it up with the Cabinet. The Cabinet will then adopt the report after which it will be tabled in the Budget session of Parliament.
The commission’s suggestions, which will cover a five-year period starting from April 1, 2010, are not binding, but they are generally implemented by the government.
The shareable central taxes include corporation tax, income tax, wealth tax, Customs, excise duty and service tax. The taxes that are not shared with states include some cesses, like for education and road.
States are budgeted to get Rs 1.64 lakh crore as their share of taxes in the current fiscal, up only marginally from revised Rs 1.60 lakh crore in 2008-09.
Time not ripe to exit stimulus measures: FM
Time not ripe to exit stimulus measures: FM
The Economic Times, December 31, 2009, Page 9
NEW DELHI: India will have to strike a balance between the needs of the economy and urgency to improve government’s finances, finance minister Pranab Mukherjee said on Wednesday. The fiscal stimulus measures announced in the last financial year, which included cuts in indirect taxes such as excise duty and service tax and extra borrowings-funded increased expenditure, had boosted the slowing economy. The measures, however, pushed up fiscal deficit to 6.2% in the previous fiscal and a projected 6.8% in the current year—a 16-year high. The finance minister pointed out that it is too early to comment on the timing of the rollback of stimulus measures. “Exiting from the stimulus packages now may not be the correct approach because if the world economy collapses, the depression would be deeper,” Mr Mukherjee said.
The Economic Times, December 31, 2009, Page 9
NEW DELHI: India will have to strike a balance between the needs of the economy and urgency to improve government’s finances, finance minister Pranab Mukherjee said on Wednesday. The fiscal stimulus measures announced in the last financial year, which included cuts in indirect taxes such as excise duty and service tax and extra borrowings-funded increased expenditure, had boosted the slowing economy. The measures, however, pushed up fiscal deficit to 6.2% in the previous fiscal and a projected 6.8% in the current year—a 16-year high. The finance minister pointed out that it is too early to comment on the timing of the rollback of stimulus measures. “Exiting from the stimulus packages now may not be the correct approach because if the world economy collapses, the depression would be deeper,” Mr Mukherjee said.
Where are the skilled Indians?
Where are the skilled Indians?
The Economic Times, December 31, 2009, Page 12
The sooner we build quality educational institutions that can churn out professionals to help propel economic growth to 8-9%, the sooner we can eradicate illiteracy and poverty, says Neeraj Kaushal.
THERE are two prevalent perceptions about India in the west. On the one hand, people scoff at India’s failure to reduce poverty and illiteracy in a substantial manner even as many Asian countries have made successful strides into lowering both. On the other, there is widespread admiration, bordering on envy, about the nation’s immense pool of highly-skilled professionals who have become important players in the global economy. In the western view, there are two Indias: the Poor and Illiterate India, and India of its highly-skilled professionals.
It is the second India that is focus of this column. In the last two decades, the number of skilled Indian professionals working abroad has grown many times. Indians are the most educated ethnic group in the US and one of the richest too. A quarter of all H1B visas for professionals to work in the US are issued to Indians. Many industrialised countries like Canada, Germany, the UK, the US and Japan have been competing to attract skilled workers from India and other developing countries. India, along with other large emerging economies, has become a major source of skilled workforce for several industrialised countries.
Ironically, India does not have enough high-skilled professionals to fulfill its domestic needs. Years of brain drain may have played a tiny role in this. But the primary cause of skill shortage is the sudden surge in growth in the nation’s economy and increased investments in several sectors. Indeed, there is some evidence of the start of a reversal of brain drain in recent years as many professionals return to India after a stint abroad for better economic opportunities.
Yet, skill shortages remain acute in several areas. India may be a major source of talent for the global economy, it produces far less talent than what is required to meet the needs of its fast-expanding economy. Consider this: Indian engineering schools produce around 12,000 new civil engineers a year. The country needs at least 70,000 additional civil engineers to meet its massive infrastructure needs! Currently, Indian engineering schools produce civil engineers that meet just about a sixth of the industry’s additional needs. These shortages have become the biggest obstacle to investment in infrastructure.
Several factors explain this scarcity. During the 1990s, as the world economy was experiencing an internet boom, the demand for Indian IT engineers increased and salaries of IT professionals skyrocketed. Many were being hired by foreign companies even before they finished schooling. In response, students started opting for engineering courses in IT, communications and electronics, and the number opting for civil and mechanical engineering plummeted. Engineering colleges reacted to these changes in supply and demand by shutting down civil engineering departments and expanding or creating departments of communications, IT and electronics. Of the 1,700 engineering schools approved by the All India Council for Technical Education, only 200 offer civil engineering degrees today.
During most of the past two decades, a substantial proportion of the investment in the schools of engineering was to cater to the demand from the IT and communications industry, Indian as well as foreign. No one even considered that there would be demand resurgence in traditional fields of engineering such as mechanical or civil. Not many during the 1990s believed that the Indian economy would grow at 8-9% a year and the infrastructure sector would need to expand at 30% a year to sustain long-term growth. All this has changed with the government and the private sector investing billions in national highways, airports, railway stations, ports, commercial real estate and housing.
WITH growing prosperity, more people can now buy high-duty consumer durables including electronic goods, in turn, raising demand for mechanical and electrical engineers who can manufacture these goods. In 2007, Global Survey of Business Executives by McKinsey found that Indian executives were not very confident in finding suitable talent in India. The current year does not seem to be much different. There are shortages of doctors, nurses, scientists, pilots, and teachers in schools and colleges. And there are shortages of CEOs as well.
These shortages are a good sign. They indicate that the economy is growing. The shortages would encourage private and public sector investment in technical education; build schools and colleges across the country that will train professionals who will, in turn, modernise the Indian economy.
The Indian society has suffered a great deal from a criminal neglect of investment in human capital. The neglect has been at all levels: primary, secondary, tertiary and technical education. Currently, India’s colleges and universities enrol only 10% of the college-going population (aged 18-24 years) against 20% in China, over 15% among Asean countries and about 60% in the US. Raising college enrolment to 15%, the stated target of the 11th Five-Year Plan, would mean increasing the number of schools and colleges in the country by 50%.
The Indian higher education system suffers even more due to poor quality. As Prime Minister Manmohan Singh said two years ago, more than 60% of Indian universities and 90% of colleges are of belowaverage quality. More than three million students graduate every year from these universities, but only 10-15% are equipped with skills to start work. Among engineers who graduate, only a quarter have the skills to start work in a global standard industry. According to a World Bank report, India would suffer a shortfall of more than half in the skilled human resources needed to modernise its economy.
Education can be the next big area of economic growth in the country. Population dividend that everyone keeps talking about cannot be reaped unless we invest in people, train them to work in Indian companies that have global standards. Despite promises by the policy planners to raise investment in education to 6% of GDP, state and central governments together have spent less than 4% of GDP on education. The 11th Five-Year Plan has proposed a four-fold increase in investment in education. Anything less than that would mean further delays in eradicating illiteracy and poverty.
Tower of Babel | Too many government gurus confuse the market
Tower of Babel Too many government gurus confuse the market
Business Standard, December 31, 2009, Page 9
Business Standard / New Delhi
Economists are known to be a fairly harmless lot with a penchant for disagreeing with each other. This can be mildly annoying or simply amusing, depending on one’s perspective, and has given rise to a rather tame brand of “economist” jokes. But when the economists happen to belong to different agencies of the government and differ on their forecasts or their opinion on policy, the discord could have deeper consequences. Take the case of GDP growth forecasts for 2009-10. The Reserve Bank of India has a forecast of 6 per cent for the year. The Prime Minister’s Council of Economic Advisers (CEA) has an official forecast of 6.5 per cent, but recent statements by its chairman suggest that it could revise its forecast up to a range of 7-7.5 per cent. The deputy chairman of the Planning Commission believes that growth could be somewhat higher than 7 per cent. The mid-year review of the economy released by the finance ministry earlier this month forecasts growth at 7.75 per cent or more and the finance minister seems to believe that the economy will grow by 8 per cent.
One could argue that this difference is actually good for policy-making. Dissent rather than consensus creates awareness of the risks associated with policy choices and could make policy-making robust. The problem, however, is the fact that financial markets tend to take these forecasts quite seriously and base investment and trading decisions on them. They also, perhaps somewhat naively, expect the different agencies of the government to speak in a common voice. When the government appears to speak in a “babel” of voices instead, it confuses market participants, often leading to a rise in market volatility. The problem becomes even more acute when there are conflicting opinions on specific policy measures. The recent confusion in the government bond markets over the likely monetary response to food inflation is an example. Officials from both the finance ministry and the Reserve Bank of India have repeatedly emphasised that they view the current inflationary episode as essentially “supply-driven” and hurried monetary action would not have much impact. The chairman of the CEA on the other hand suggested a few days back that if food prices did not abate soon, an “early reversal” in monetary policy is warranted. This led to a sharp spike in bond yields. The 10-year bond yield (a commonly-used benchmark for the bond market), fearing an imminent rate hike, went up by almost a quarter of a percentage point in response to the CEA chairman’s statements. It settled down later as the monetary move did not come through and the fear abated. The global financial and economic environment remains fuzzy and financial markets have more than their fair share of risks and uncertainty to deal with. Government economic agencies might want to desist from adding to this with their cacophony of discordant views. This does not, of course, mean that there should be no difference of opinion between them. But it is perhaps best to keep these behind closed doors and present a more consistent view to the public.
Business Standard, December 31, 2009, Page 9
Business Standard / New Delhi
Economists are known to be a fairly harmless lot with a penchant for disagreeing with each other. This can be mildly annoying or simply amusing, depending on one’s perspective, and has given rise to a rather tame brand of “economist” jokes. But when the economists happen to belong to different agencies of the government and differ on their forecasts or their opinion on policy, the discord could have deeper consequences. Take the case of GDP growth forecasts for 2009-10. The Reserve Bank of India has a forecast of 6 per cent for the year. The Prime Minister’s Council of Economic Advisers (CEA) has an official forecast of 6.5 per cent, but recent statements by its chairman suggest that it could revise its forecast up to a range of 7-7.5 per cent. The deputy chairman of the Planning Commission believes that growth could be somewhat higher than 7 per cent. The mid-year review of the economy released by the finance ministry earlier this month forecasts growth at 7.75 per cent or more and the finance minister seems to believe that the economy will grow by 8 per cent.
One could argue that this difference is actually good for policy-making. Dissent rather than consensus creates awareness of the risks associated with policy choices and could make policy-making robust. The problem, however, is the fact that financial markets tend to take these forecasts quite seriously and base investment and trading decisions on them. They also, perhaps somewhat naively, expect the different agencies of the government to speak in a common voice. When the government appears to speak in a “babel” of voices instead, it confuses market participants, often leading to a rise in market volatility. The problem becomes even more acute when there are conflicting opinions on specific policy measures. The recent confusion in the government bond markets over the likely monetary response to food inflation is an example. Officials from both the finance ministry and the Reserve Bank of India have repeatedly emphasised that they view the current inflationary episode as essentially “supply-driven” and hurried monetary action would not have much impact. The chairman of the CEA on the other hand suggested a few days back that if food prices did not abate soon, an “early reversal” in monetary policy is warranted. This led to a sharp spike in bond yields. The 10-year bond yield (a commonly-used benchmark for the bond market), fearing an imminent rate hike, went up by almost a quarter of a percentage point in response to the CEA chairman’s statements. It settled down later as the monetary move did not come through and the fear abated. The global financial and economic environment remains fuzzy and financial markets have more than their fair share of risks and uncertainty to deal with. Government economic agencies might want to desist from adding to this with their cacophony of discordant views. This does not, of course, mean that there should be no difference of opinion between them. But it is perhaps best to keep these behind closed doors and present a more consistent view to the public.
Realty mutual funds, investment trusts to open up new channels of funding
Realty mutual funds, investment trusts to open up new channels of funding
The Financial Express, December 31, 2009, Page 6
Sajan C Kumar, Chennai
Initial public offerings (IPOs) in the near-term, real estate mutual funds (REMFs) and real estate investment trusts (REITs) in the medium-term are likely to emerge as new channels of real estate financing in the country. Property funds are also expected to enhance their activities in coming quarters.
The market capitalisation of country’s real estate firms, which equals to just 2.2% of the aggregate equity market capitalisation, far below than the 10-15% level found in advanced economies, is an indicator of the future potential, said Ramesh Nair, managing director (Chennai & Hyderabad), Jones Lang LaSalle Meghraj, a global realty consultancy firm.
According to estimates, the real estate sector will require an additional $3.66 billion to construct undertaken commercial projects and fulfil the unmet housing demand. While sources of funding have become scarce in the aftermath of the 2008 global financial crisis, there are some emerging channels, which are likely to help the sector continue its high-growth story.
With several real estate players having submitted red herring prospectus to the Sebi, a total of $3.31 billion is expected to be raised in coming months. Given that the Sebi has recently allowed anchor investors to participate in this fund-raising channel, IPOs can be an attractive vehicle to tap domestic as well as foreign institutional investment. Additionally, they provide a good exit option for most PE investors that have a short-term to medium-term investment horizon, Nair told FE.
According to a study on emerging trends in real estate finance carried out by Jones Lang LaSalle Meghraj, REMFs and REITs have played an important role in institutionalising real estate investment in many countries. The essential difference between them is that while investment made by REITs are only permitted in income-generating physical real estate assets, REMFs can take exposure in securities of real estate companies as well. Currently, both of these vehicles remain a future prospect in India.
As per Sebi regulations, REMFs in India have to invest in direct ownership of real estate (that accrues rentals and capital appreciation), mortgage-backed securities and securities of companies dealing in the development of real estate. However, a minimum of 35% of net assets have to be invested in direct ownership, leaving an upper limit of 65% on security exposure by REMFs, says the study.
According to the study, real estate developers HDIL, HDFC, ICICI, L&T and Unitech are some of the players that have expressed interest in launching REMFs. While issues related to valuation and taxation are currently holding back this emerging vehicle, the government is expected to clear these uncertainties soon. Similarly, regarding REITs, many policy issues are yet to be resolved, and authorities concerned have yet to come up with clear regulations.
The study says there are challenges that must be addressed in order to bring about a smooth improvement in the sources of funding. Establishing a nodal real estate regulator will be a welcome step in enhancing transparency and making the sector more organised. Clarifications pertaining to taxation and valuation issues for existing REMF and REIT guidelines will also be expected in the coming quarters.
The Financial Express, December 31, 2009, Page 6
Sajan C Kumar, Chennai
Initial public offerings (IPOs) in the near-term, real estate mutual funds (REMFs) and real estate investment trusts (REITs) in the medium-term are likely to emerge as new channels of real estate financing in the country. Property funds are also expected to enhance their activities in coming quarters.
The market capitalisation of country’s real estate firms, which equals to just 2.2% of the aggregate equity market capitalisation, far below than the 10-15% level found in advanced economies, is an indicator of the future potential, said Ramesh Nair, managing director (Chennai & Hyderabad), Jones Lang LaSalle Meghraj, a global realty consultancy firm.
According to estimates, the real estate sector will require an additional $3.66 billion to construct undertaken commercial projects and fulfil the unmet housing demand. While sources of funding have become scarce in the aftermath of the 2008 global financial crisis, there are some emerging channels, which are likely to help the sector continue its high-growth story.
With several real estate players having submitted red herring prospectus to the Sebi, a total of $3.31 billion is expected to be raised in coming months. Given that the Sebi has recently allowed anchor investors to participate in this fund-raising channel, IPOs can be an attractive vehicle to tap domestic as well as foreign institutional investment. Additionally, they provide a good exit option for most PE investors that have a short-term to medium-term investment horizon, Nair told FE.
According to a study on emerging trends in real estate finance carried out by Jones Lang LaSalle Meghraj, REMFs and REITs have played an important role in institutionalising real estate investment in many countries. The essential difference between them is that while investment made by REITs are only permitted in income-generating physical real estate assets, REMFs can take exposure in securities of real estate companies as well. Currently, both of these vehicles remain a future prospect in India.
As per Sebi regulations, REMFs in India have to invest in direct ownership of real estate (that accrues rentals and capital appreciation), mortgage-backed securities and securities of companies dealing in the development of real estate. However, a minimum of 35% of net assets have to be invested in direct ownership, leaving an upper limit of 65% on security exposure by REMFs, says the study.
According to the study, real estate developers HDIL, HDFC, ICICI, L&T and Unitech are some of the players that have expressed interest in launching REMFs. While issues related to valuation and taxation are currently holding back this emerging vehicle, the government is expected to clear these uncertainties soon. Similarly, regarding REITs, many policy issues are yet to be resolved, and authorities concerned have yet to come up with clear regulations.
The study says there are challenges that must be addressed in order to bring about a smooth improvement in the sources of funding. Establishing a nodal real estate regulator will be a welcome step in enhancing transparency and making the sector more organised. Clarifications pertaining to taxation and valuation issues for existing REMF and REIT guidelines will also be expected in the coming quarters.
MCA wants India Inc to set aside part of budget for CSR
MCA wants India Inc to set aside part of budget for CSR
The Financial Express, December 31, 2009, Page 11
Neha Pal, New Delhi
“Companies should allocate a specific amount in their budget for corporate social responsibilty activities that may be related to profits after tax, cost of planned CSR activities and any other suitable parameter,” according to a ministry of corporate affairs report on voluntary corporate social responsibilities.
The report suggests that the corporate social responsibility (CSR) policy of the business entity should provide for an implementation strategy that should include identification of projects, time schedule and monitoring, setting measurable physical targets with time-frame, organisational mechanism and responsibilities.
“Companies may partner with local authorities, business associations and non-government organisations. They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development,” says the report.
The report further suggests that companies may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected projects from time to time. To share experiences and network with other organisations the company should engage with well established and recognised programmes or platforms which encourage responsible business practices and CSR activities. This would help companies improve on their CSR strategies and effectively project the image of being socially responsible.
The report also says that the companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports and other communication media.
As per the report, companies should respect the interests and be responsive to all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large and create value for all of them. They should develop a mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
The Financial Express, December 31, 2009, Page 11
Neha Pal, New Delhi
“Companies should allocate a specific amount in their budget for corporate social responsibilty activities that may be related to profits after tax, cost of planned CSR activities and any other suitable parameter,” according to a ministry of corporate affairs report on voluntary corporate social responsibilities.
The report suggests that the corporate social responsibility (CSR) policy of the business entity should provide for an implementation strategy that should include identification of projects, time schedule and monitoring, setting measurable physical targets with time-frame, organisational mechanism and responsibilities.
“Companies may partner with local authorities, business associations and non-government organisations. They may influence the supply chain for CSR initiative and motivate employees for voluntary effort for social development,” says the report.
The report further suggests that companies may evolve a system of need assessment and impact assessment while undertaking CSR activities in a particular area. Independent evaluation may also be undertaken for selected projects from time to time. To share experiences and network with other organisations the company should engage with well established and recognised programmes or platforms which encourage responsible business practices and CSR activities. This would help companies improve on their CSR strategies and effectively project the image of being socially responsible.
The report also says that the companies should disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their website, annual reports and other communication media.
As per the report, companies should respect the interests and be responsive to all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large and create value for all of them. They should develop a mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur.
Roadmap for CSR initiatives
Roadmap for CSR initiatives
The Hindu Business Line, December 31, 2009, Page 7
--------------------------------------------------------------------------------
The Ministry of Corporate Affairs has brought out guidelines that identify six core elements as essential to any CSR policy.
--------------------------------------------------------------------------------
The CSR guidelines exhort companies to function ethically.
Mohan R. Lavi
A company recruiting a candidate stated that it was looking for a responsible person, to which the candidate replied that he was the perfect fit as in all his previous organisations whenever something went wrong he was held responsible.
A series of corporate slip-ups over the past 6-7 years have forced regulators to draw up a series of corporate governance measures which were basically rule-based. None of these however tackled the intent behind the slip-up — a wanton desire to mislead shareholders and, thereby, society.
The Ministry of Corporate Affairs (MCA), at the conclusion of the India Governance Week, has come out with Corporate Social Responsibility Voluntary Guidelines 2009 as a partner to its Corporate Governance Guidelines 2009.
Corporate Social Responsibility
The Guidelines open well by stating that each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals.
The policy should be framed with the participation of executives at various levels and be approved by the board. Six core elements have been identified as essential to any CSR policy — care for all stakeholders, ethical functioning, respect for workers' rights and welfare, respect for human rights, respect for environment and activities for social and inclusive development.
Care for all stakeholders is meant to respect the interests of and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large, etc., and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur. Ethical functioning is meant to be that their governance systems should be underpinned by ethics, transparency and accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive. Also, companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party. Companies should take measures to check and prevent pollution recycle, manage and reduce waste, manage natural resources in a sustainable manner and ensure optimal use of resources such as land and water, proactively respond to the challenges of climate change by adopting cleaner production methods, and promote efficient use of energy and environment friendly technologies.
Finally, the guidelines state what was perceived to be CSR till date — depending on their core competency and business interest — companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include education, skill building for livelihood of people, health, cultural and social welfare, etc., particularly targeting at disadvantaged sections of society.
Implementation Guidance
The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organisational mechanism and responsibilities, time schedules and monitoring.
Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter. Companies are also advised to network with other companies on CSR initiatives and disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their Web site, annual reports, and other communication media.
A spate of corporate governance guidelines over the past few years have prescribed rules for entities to follow — the CSR guidelines exhort companies to think and act good. Together, they should be a force to reckon with in the years to come.
The Hindu Business Line, December 31, 2009, Page 7
--------------------------------------------------------------------------------
The Ministry of Corporate Affairs has brought out guidelines that identify six core elements as essential to any CSR policy.
--------------------------------------------------------------------------------
The CSR guidelines exhort companies to function ethically.
Mohan R. Lavi
A company recruiting a candidate stated that it was looking for a responsible person, to which the candidate replied that he was the perfect fit as in all his previous organisations whenever something went wrong he was held responsible.
A series of corporate slip-ups over the past 6-7 years have forced regulators to draw up a series of corporate governance measures which were basically rule-based. None of these however tackled the intent behind the slip-up — a wanton desire to mislead shareholders and, thereby, society.
The Ministry of Corporate Affairs (MCA), at the conclusion of the India Governance Week, has come out with Corporate Social Responsibility Voluntary Guidelines 2009 as a partner to its Corporate Governance Guidelines 2009.
Corporate Social Responsibility
The Guidelines open well by stating that each business entity should formulate a CSR policy to guide its strategic planning and provide a roadmap for its CSR initiatives, which should be an integral part of overall business policy and aligned with its business goals.
The policy should be framed with the participation of executives at various levels and be approved by the board. Six core elements have been identified as essential to any CSR policy — care for all stakeholders, ethical functioning, respect for workers' rights and welfare, respect for human rights, respect for environment and activities for social and inclusive development.
Care for all stakeholders is meant to respect the interests of and be responsive towards all stakeholders, including shareholders, employees, customers, suppliers, project affected people, society at large, etc., and create value for all of them. They should develop mechanism to actively engage with all stakeholders, inform them of inherent risks and mitigate them where they occur. Ethical functioning is meant to be that their governance systems should be underpinned by ethics, transparency and accountability. They should not engage in business practices that are abusive, unfair, corrupt or anti-competitive. Also, companies should provide a workplace environment that is safe, hygienic and humane and which upholds the dignity of employees. They should provide all employees with access to training and development of necessary skills for career advancement, on an equal and non-discriminatory basis.
Companies should respect human rights for all and avoid complicity with human rights abuses by them or by third party. Companies should take measures to check and prevent pollution recycle, manage and reduce waste, manage natural resources in a sustainable manner and ensure optimal use of resources such as land and water, proactively respond to the challenges of climate change by adopting cleaner production methods, and promote efficient use of energy and environment friendly technologies.
Finally, the guidelines state what was perceived to be CSR till date — depending on their core competency and business interest — companies should undertake activities for economic and social development of communities and geographical areas, particularly in the vicinity of their operations. These could include education, skill building for livelihood of people, health, cultural and social welfare, etc., particularly targeting at disadvantaged sections of society.
Implementation Guidance
The CSR policy of the business entity should provide for an implementation strategy which should include identification of projects/activities, setting measurable physical targets with timeframe, organisational mechanism and responsibilities, time schedules and monitoring.
Companies should allocate specific amount in their budgets for CSR activities. This amount may be related to profits after tax, cost of planned CSR activities or any other suitable parameter. Companies are also advised to network with other companies on CSR initiatives and disseminate information on CSR policy, activities and progress in a structured manner to all their stakeholders and the public at large through their Web site, annual reports, and other communication media.
A spate of corporate governance guidelines over the past few years have prescribed rules for entities to follow — the CSR guidelines exhort companies to think and act good. Together, they should be a force to reckon with in the years to come.
Retail realty yet to recover fully
Retail realty yet to recover fully
The Economic Times, December 31, 2009, Page 24
PTI MUMBAI
INDIAN retailers may be rejoicing at better sales in the October-December festive season, but a full recovery of the retail real estate sector still hinges on availability of spaces at competitive rates and improvement in consumption, global consultant C B Richard Ellis has said.
“The retail sector will take some time to fully recover, depending on the economic growth or improvement in domestic consumption, consumer sentiment and availability of retail space at competitive costs,” CB Richard Ellis (South Asia) chairman and managing director Anshuman Magazine said in a statement here on Wednesday.
Improving consumer sentiment and competitive retail rentals had, however, resulted in the sector “ambling towards better activity levels, especially in Tier I cities”, he added.
The global real estate consultancy firm also expects an oversupply of new office spaces across the country, which will keep rentals flat in 2010 despite positive indicators that demand for commercial real estate was improving.
“On the office market front, demand is expected to improve although the rentals are expected to remain flat in the medium term due to the forecasted large supply of office space,” Magazine said.
The year 2010 may, however, see “some sustainability in the residential market as activity levels have improved,” he said.
Prices for residential, retail and commercial real estate across the country plummeted in 2009 as a global economic meltdown and tight liquidity froze demand.
Residential sales declined significantly and demand for office spaces saw a substantial drop, triggering a decline in rentals and postponement or cancellation of projects, while retail real estate was also significantly impacted.
However, each of these three segments have witnessed an improvement since the previous year as reduction in prices, softening of interest rates and an improvement in the economic sentiments led buyers back to the market, the consultancy firm said.
MIXED FORECAST
Improving consumer sentiment and competitive retail rentals resulted in the sector ambling towards better activity levels, especially in Tier I cities
On the office market front, demand is expected to improve but global consultant C B Richard Ellis expects rentals to be flat in 2010 on back of oversupply of office spaces.
The Economic Times, December 31, 2009, Page 24
PTI MUMBAI
INDIAN retailers may be rejoicing at better sales in the October-December festive season, but a full recovery of the retail real estate sector still hinges on availability of spaces at competitive rates and improvement in consumption, global consultant C B Richard Ellis has said.
“The retail sector will take some time to fully recover, depending on the economic growth or improvement in domestic consumption, consumer sentiment and availability of retail space at competitive costs,” CB Richard Ellis (South Asia) chairman and managing director Anshuman Magazine said in a statement here on Wednesday.
Improving consumer sentiment and competitive retail rentals had, however, resulted in the sector “ambling towards better activity levels, especially in Tier I cities”, he added.
The global real estate consultancy firm also expects an oversupply of new office spaces across the country, which will keep rentals flat in 2010 despite positive indicators that demand for commercial real estate was improving.
“On the office market front, demand is expected to improve although the rentals are expected to remain flat in the medium term due to the forecasted large supply of office space,” Magazine said.
The year 2010 may, however, see “some sustainability in the residential market as activity levels have improved,” he said.
Prices for residential, retail and commercial real estate across the country plummeted in 2009 as a global economic meltdown and tight liquidity froze demand.
Residential sales declined significantly and demand for office spaces saw a substantial drop, triggering a decline in rentals and postponement or cancellation of projects, while retail real estate was also significantly impacted.
However, each of these three segments have witnessed an improvement since the previous year as reduction in prices, softening of interest rates and an improvement in the economic sentiments led buyers back to the market, the consultancy firm said.
MIXED FORECAST
Improving consumer sentiment and competitive retail rentals resulted in the sector ambling towards better activity levels, especially in Tier I cities
On the office market front, demand is expected to improve but global consultant C B Richard Ellis expects rentals to be flat in 2010 on back of oversupply of office spaces.
Wednesday, December 30, 2009
No rate hike for six months: SBI
No rate hike for six months: SBI
The Times of India, December 30, 2009, Page 21
Surplus Liquidity, Low Credit Offtake Will Force Banks Not To Up Interest
TIMES NEWS NETWORK
New Delhi: India Inc can rejoice. State Bank of India chairman OP Bhatt on Tuesday indicated that there will be no increase in interest rates for next six months despite inflationary pressure.
As inflation is rising, the speculation is rife that RBI might take measures to tighten the money supply, leading to hardening of interest rates, in its review of monetary policy in January. As the global economy is still in the grip of recession, industry captains feel that any hike in interest rates will affect the economic recovery in India.
Bhatt said there was surplus liquidity in the system and credit offtake was slowly picking up. This situation of liquidity surplus will force banks not to increase interest rates. Because of this surplus liquidity, banks have cut deposits rates. But they are not cutting the lending rates due to slow credit offtake, despite the speculation that RBI can increase key rates (repo or reverse repo) to contain inflation.
In the eight months of the current financial year till December 4, while the deposits with the commercial banks rose by 3,69,535 crore, credit offtake was only Rs 1,44,151 crore. This forced the banks to park around Rs 100,000 crore with the RBI at reverse repo rate of 3.25%.
When the interest rate condition was benign, SBI had cut its lending rates, particularly home loan rate. Bhatt claimed that the 8% interest rate on home loan announced by SBI had helped reviving real estate market. The buyers have started coming back and cement and steel sectors have also started improving, he said. In fact, SBI’s decision to cut the rates forced other banks to follow suit, he added.
Bhatt does not think Indian economy had been affected by global recession. ‘‘The recession did not hit India the way it had affected European countries last year. There was only a slowdown in the growth rate which came down to 7% from 9%,” he said.
Replying to a question on withdrawal of stimulus package by the government in the prevailing situation, Bhatt said it should not be taken back but ‘phased out’ in staggered manner.
Referring to the ongoing merger process of SBI associate banks, Bhatt said SBI is a major stakeholder in SBI associate banks like State Bank of Saurashtra and State Bank of Indore. “In fact, we did not have less than 75% stake in any of these banks and owned 100% in State Bank of Hyderabad and State Bank of Patiala which were with us for the last 50 to 60 years,” he said.
State Bank of Saurashtra has merged while process was on in regard to State Bank of Indore, Bhatt said. The merger would improve SBI in terms of efficiency in operation, release of capital.
RBI hints at tighter money supply
Bangalore: Concerned over the spiralling food prices, the Reserve Bank has indicated at tightening money supply to contain the rising inflation pressures.
“Effective assessment of the inflation process, and using monetary policy actions at the right time would be critical to enhance the effectiveness of the inflation management policy,” RBI deputy governor Shyamala Gopinath said. She further said there is a risk of high inflation in essential commodities affecting inflation expectations over time and give rise to generalised inflation. “Given the dominance of food price inflation in shaping the overall course of the inflation path, the policy challenge is to address the supply constraints,” Gopinath added.
The food inflation was nearly 19% last week while the overall wholesale price inflation rose to 4.78% in November compared to 1.34% in October. PTI
Economy to grow 7.5%: Rangarajan
Economy to grow 7.5%: Rangarajan
The Times of India, December 30, 2009, Page 21
Hyderabad: Indian economy will grow between 7% and 7.5% during the current financial year despite poor performance of the agriculture sector on account of drought and floods, said PMEAC chairman C Rangarajan.
“The economy will grow between 7% and 7.5% overall but agricultural growth may fall by 1% to 2%,” Prime Minister’s Economic Advisory Council (PMEAC) chief said. Flagging food inflation as a major concern, he said, “agricultural growth rate should not fall below 4% for food security as 60% of the population are in rural areas.” Although the economy did well during second quarter recording a growth of 7.9%, the output of agriculture and allied sector slipped to below 1%.
Referring to the impact of the widespread drought and devastating floods on the farm sector, Rangarajan said., rice output might decline by 13 million tonnes. However, he hoped, the rabi crop) would to some extent make up for shortfall in kharif crop). PTI
GDP growth may be 7-7.5% this fiscal, says Rangarajan
GDP growth may be 7-7.5% this fiscal, says Rangarajan
The Hindu Business Line, December 20, 2009, Page 4
Agriculture may show negative growth.
Our Bureau, Hyderabad
Dr C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister, on Tuesday forecast the GDP to grow at 7 to 7.5 per cent this fiscal, signalling an improvement in the domestic economic climate.
Speaking at a meet on ‘Challenges before the Indian Economy' here today, he cautioned that agriculture could show a negative growth of 1-2 per cent, while the industrial and services sectors are projected to grow at 8.6 per cent and 8.7 per cent respectively.
Dr. Rangarajan also noted with concern the rising food inflation, which is at an 11-month high now, stating that the task ahead was to check food inflation.
He advocated a two-pronged strategy that included improving supplies by issuing out part of the foodgrain reserves through the PDS and importing certain additional foodgrain.
He indicated that the Reserve Bank of India could look at raising the CRR to suck out excess liquidity from the system, even though the central bank may watch the price movements for some more time before taking any decision on rate hike.
“I am not saying that a rise in the CRR is imminent,'' he said adding that the supply position of the food products and the seasonal decline in prices would also be factors in deciding the tools to deal with inflation.
Dr Rangarajan said the challenge next year would be to bring down fiscal deficit by 1-1.5 percentage points of the GDP. Agricultural growth should not be allowed to fall below four per cent, as a decline in growth by even one to two percentage points would translate into a significant shortfall in food production. Low yields and power shortage were the major challenges before increasing farm productivity.
In the long run, he felt that if there were to be a consistent growth of four per cent in agriculture and nine per cent in industrial and services sectors over the next two decades, India could be propelled into the club of developed nations.
He also called for prudence to improve the fiscal situation, identifying the root cause for the recent global economic crisis as proliferation of derivative products.
“The lesson to be learnt from the crisis is that all segments of the market need to be regulated,” he pointed out.
Deposit-based banking was more prudent than the practice of short-term borrowing from capital markets by banks, he felt.
Demand for mall space yet to pick up as retailers go cautious
Demand for mall space yet to pick up as retailers go cautious
The Economic Times, December 30, 2009, Page 21
Markets In NCR, Bangalore & Mumbai Record 53% To 40% Fall In Rentals In Q4
Ravi Teja Sharma NEW DELHI
THE year 2009 has been bad for the real estate sector, particularly the retail sector. While residential real estate picked up in the last two quarters, retail is still seeing very low demand. According to a report by Cushman & Wakefield, of the 44 malls proposed at the beginning of Q1 2009, just about 18 were delivered by the year end. A number of developers postponed mall projects in 2009 but with a revival of demand in the end of the year, 2010 is expected to see a number of mall projects getting back on track.
“The outlook for the retail sector in 2010 is looking brighter. The festive season has been good and has seen a lot more footfalls. As the market picks up, there will be a revival of demand for retail spaces again,” says Rajeev Talwar, executive director at DLF. Year 2009 saw fresh supply of 5.7 million sq ft of mall space. Approximately 9 million sq ft of mall space was deferred to the future, which is a reduction of 60%. Almost 80% of new mall space in Bangalore was postponed which meant the city saw a vacancy of only 3%.
“I see retailers being cautiously optimistic in 2010. They will expand but with caution unlike earlier,” says Jaideep Wahi, director, retail agency, Cushman & Wakefield. Most large developers had postponed their projects as it was hard for them to lease retail space, he says. In the early part of 2009, developers also faced a credit crunch which slowed down mall plans.
This slowdown in mall construction need not be viewed as a negative. The slowdown has helped in maintaining a good supply demand equation, especially for markets which were staring at an oversupply situation.
Delhi-based developer Omaxe launched its mall in Patiala a month back and the response has been good, says Omaxe CMD Rohtas Goel. The company though had decided to postpone its 1.5 million sq ft mall Connaught Place in Greater Noida because of lack of demand in 2009. “The retail segment is seeing renewed demand over the last 4-5 months. We are seeing new leasing activity start at our mall in Greater Noida where construction will start in early 2010,” Mr Goel adds.
Across the major cities, rentals hardly saw any upward movement since the markets crashed late 2008. Mall as well as main street rentals (except a few locations) continued to remain below the average rental rates of Q4 2008, says the report.
Some micro markets in the NCR, Bangalore and Mumbai saw a 53% to 40% decline in rentals in Q4 2009 over the same period last year. Bangalore’s prominent high streets (Brigade Road and Commercial Street) were the only micro markets to post an approximate 10% rise in rentals over last year, indicating the existing demand for premium retail precincts over emerging locations in the city.
Of the 5.7 million sq ft of fresh mall supply in 2009, the largest share of the supply — 1.8 million sq ft came up in Mumbai, followed by Hyderabad (1.1 million sq ft) and the NCR (0.9 million sq ft). Kolkata saw fresh supply of 0.7 million sq ft.
Retailers are now very cautious about signing up new space. “It has been a learning for both developers and retailers. The retailer is now asking a lot more questions and is very cautious,” says V Muhammad Ali, head, mall operations, Forum, Prestige Group’s mall division. They area asking questions about the location, about anchor tenants. Ali recalls that during the boom time, no one was asking these questions. “LoI’s were being signed at conferences at that time.”
The Economic Times, December 30, 2009, Page 21
Markets In NCR, Bangalore & Mumbai Record 53% To 40% Fall In Rentals In Q4
Ravi Teja Sharma NEW DELHI
THE year 2009 has been bad for the real estate sector, particularly the retail sector. While residential real estate picked up in the last two quarters, retail is still seeing very low demand. According to a report by Cushman & Wakefield, of the 44 malls proposed at the beginning of Q1 2009, just about 18 were delivered by the year end. A number of developers postponed mall projects in 2009 but with a revival of demand in the end of the year, 2010 is expected to see a number of mall projects getting back on track.
“The outlook for the retail sector in 2010 is looking brighter. The festive season has been good and has seen a lot more footfalls. As the market picks up, there will be a revival of demand for retail spaces again,” says Rajeev Talwar, executive director at DLF. Year 2009 saw fresh supply of 5.7 million sq ft of mall space. Approximately 9 million sq ft of mall space was deferred to the future, which is a reduction of 60%. Almost 80% of new mall space in Bangalore was postponed which meant the city saw a vacancy of only 3%.
“I see retailers being cautiously optimistic in 2010. They will expand but with caution unlike earlier,” says Jaideep Wahi, director, retail agency, Cushman & Wakefield. Most large developers had postponed their projects as it was hard for them to lease retail space, he says. In the early part of 2009, developers also faced a credit crunch which slowed down mall plans.
This slowdown in mall construction need not be viewed as a negative. The slowdown has helped in maintaining a good supply demand equation, especially for markets which were staring at an oversupply situation.
Delhi-based developer Omaxe launched its mall in Patiala a month back and the response has been good, says Omaxe CMD Rohtas Goel. The company though had decided to postpone its 1.5 million sq ft mall Connaught Place in Greater Noida because of lack of demand in 2009. “The retail segment is seeing renewed demand over the last 4-5 months. We are seeing new leasing activity start at our mall in Greater Noida where construction will start in early 2010,” Mr Goel adds.
Across the major cities, rentals hardly saw any upward movement since the markets crashed late 2008. Mall as well as main street rentals (except a few locations) continued to remain below the average rental rates of Q4 2008, says the report.
Some micro markets in the NCR, Bangalore and Mumbai saw a 53% to 40% decline in rentals in Q4 2009 over the same period last year. Bangalore’s prominent high streets (Brigade Road and Commercial Street) were the only micro markets to post an approximate 10% rise in rentals over last year, indicating the existing demand for premium retail precincts over emerging locations in the city.
Of the 5.7 million sq ft of fresh mall supply in 2009, the largest share of the supply — 1.8 million sq ft came up in Mumbai, followed by Hyderabad (1.1 million sq ft) and the NCR (0.9 million sq ft). Kolkata saw fresh supply of 0.7 million sq ft.
Retailers are now very cautious about signing up new space. “It has been a learning for both developers and retailers. The retailer is now asking a lot more questions and is very cautious,” says V Muhammad Ali, head, mall operations, Forum, Prestige Group’s mall division. They area asking questions about the location, about anchor tenants. Ali recalls that during the boom time, no one was asking these questions. “LoI’s were being signed at conferences at that time.”
Growth-inflation to determine RBI's future action, says Gopinath
Growth-inflation to determine RBI's future action, says Gopinath
Business Standard, December 30, 2009, Section II, Page 3
BS Reporter / Mumbai
Concerned over food inflation spreading to other sectors through adverse expectations, Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath has said the near-term policy challenges will depend on the evolving growth-inflation outcome that supports shifting the focus of the policy to managing recovery and containing inflation.
“RBI has already started the first phase of ‘exit’ in its October 2009 policy statement, though primarily in terms of signaling the stance rather than affecting liquidity conditions or interest rates. The evolving growth-inflation conditions will dictate the future course of action by RBI,” Gopinath said in Bangalore on Monday.
Headline inflation for November shot up to 4.8 per cent, mainly driven by food prices, as compared to 1.3 per cent in the previous month. Food inflation was 19.8 per cent in November.
During the second quarter review of the annual policy, the central bank revised its inflation forecast to 6.5 per cent with an upward bias, above its comfort level of 5 per cent.
“Given the dominance of the food price inflation in shaping the overall course of the inflation path, the policy challenge is to address supply constraints. Since supply shocks take time to taper off, there is risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalised inflation,” RBI said.
On the growth front, though there are positive indicators like strong performance of the infrastructure sector and industrial recovery, the central bank has expressed concern over the deceleration of private consumption and investment demand, besides a deficient south-west monsoon. Continuous fall in non-food credit growth and negative growth in consumer durables and credit cards, suggesting possible continuation of deceleration in private consumption, were the downside risk for economic growth, RBI said.
Though bank credit growth fell to 11 per cent as on December 4, from 26.3 per cent an year ago, RBI says credit may pick up in the remaining period of the financial year.
“With the economy posting strong growth in the second quarter of the year, credit demand could be expected to pick up, which has already started in the recent fortnights,” Gopinath said.
RBI also said there was a growing perception that India might experience surges in capital inflows again because of easy global liquidity conditions and superior growth prospects.
“Once the recovery gains further strength and sustainability in India, return to the fiscal consolidation path will be critical to contain the constraints to the high growth path. With revival in demand for credit from the private sector, the significance of fiscal consolidation will become more apparent,” she said.
Business Standard, December 30, 2009, Section II, Page 3
BS Reporter / Mumbai
Concerned over food inflation spreading to other sectors through adverse expectations, Reserve Bank of India (RBI) Deputy Governor Shyamala Gopinath has said the near-term policy challenges will depend on the evolving growth-inflation outcome that supports shifting the focus of the policy to managing recovery and containing inflation.
“RBI has already started the first phase of ‘exit’ in its October 2009 policy statement, though primarily in terms of signaling the stance rather than affecting liquidity conditions or interest rates. The evolving growth-inflation conditions will dictate the future course of action by RBI,” Gopinath said in Bangalore on Monday.
Headline inflation for November shot up to 4.8 per cent, mainly driven by food prices, as compared to 1.3 per cent in the previous month. Food inflation was 19.8 per cent in November.
During the second quarter review of the annual policy, the central bank revised its inflation forecast to 6.5 per cent with an upward bias, above its comfort level of 5 per cent.
“Given the dominance of the food price inflation in shaping the overall course of the inflation path, the policy challenge is to address supply constraints. Since supply shocks take time to taper off, there is risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalised inflation,” RBI said.
On the growth front, though there are positive indicators like strong performance of the infrastructure sector and industrial recovery, the central bank has expressed concern over the deceleration of private consumption and investment demand, besides a deficient south-west monsoon. Continuous fall in non-food credit growth and negative growth in consumer durables and credit cards, suggesting possible continuation of deceleration in private consumption, were the downside risk for economic growth, RBI said.
Though bank credit growth fell to 11 per cent as on December 4, from 26.3 per cent an year ago, RBI says credit may pick up in the remaining period of the financial year.
“With the economy posting strong growth in the second quarter of the year, credit demand could be expected to pick up, which has already started in the recent fortnights,” Gopinath said.
RBI also said there was a growing perception that India might experience surges in capital inflows again because of easy global liquidity conditions and superior growth prospects.
“Once the recovery gains further strength and sustainability in India, return to the fiscal consolidation path will be critical to contain the constraints to the high growth path. With revival in demand for credit from the private sector, the significance of fiscal consolidation will become more apparent,” she said.
Infrastructure will remain the top sector in 2010
Infrastructure will remain the top sector in 2010
Business Standard, December 30, 2009, Section II, Page 2
Q&A: Anil Ahuja
3i is a global private equity fund based out of UK and invests across buyouts, growth capital and infrastructure deals. It has a $1.2 billion India dedicated infrastructure fund which has made investments in Soma Enterprises and Adani Power. Anil Ahuja leads 3i’s investment teams across Asia, working with 3i’s local business heads in China, Singapore and India.
How do you see the fund raising scenario in 2010?
Fund raising activity will be more selective. It will be better in 2010 compared to what we saw in 2008-09. LPs will be lot more careful in allocating capital to first time funds. Established funds will have their task easier as LPs will feel more comfortable with funds having a track record. Number of funds that get allocations from LPs is going to come down significantly as it is very difficult for them to keep a tab on 100 fund managers. So, they will choose 10 or 15 fund managers whom they want to get involved with. This might make things easier for established funds but extremely difficult for new funds.
What will be the focus sectors?
Infrastructure will remain the top sector in 2010 as well. Financial Services, consumer and healthcare will see increased focus from private equity players. Financial Services is an interesting sector but difficult to find deals. With a savings rate of 35 per cent, we have already witnessed the remarkable growth of mutual fund and insurance industry. Much of the financial services space in India is listed where valuation becomes an issue. Within Infrastructure, power, roads, ports and airports are attractive. However, there is lot of frenzy in the power sector and people will wait to see returns on existing investments before making new one.
Will exits be easier next year?
Exits were an issue in 2008-09 but I do not see it being a problem in 2010. There is a market now for practically everything that can be sold and hence I see more exits in 2010. Most of the exits next year will be done through IPOs rather than strategic sales as markets remain bullish.
What are the challenges that private equity funds are likely to face next year?
Valuation is a major challenge that private equity funds are facing and will continue to do so. Markets have bounced back to pretty much 2007 levels. At the same time sustainability of global growth story is not intact right now. So, there will be some sort of cautious approach from private equity funds. The other challenge that I see is retaining good people. An important part for retention is carried interest and as carried interest gets wiped out, incentive to stay with the fund is much lower. So we will see lot of job hopping. For new players, holding on to their team will be difficult.
RBI focus shifts from growth to inflation worries
RBI focus shifts from growth to inflation worries
Hindustan Times, December 30, 2009, Page 23
A month before the scheduled policy review by the Reserve Bank of India (RBI), Deputy Governor Shyamala Gopinath said that the focus of the central bank is on managing the recovery and on containment of inflation rather than fostering growth.
Speaking at Bangalore Chamber of Industry & Commerce on Monday, Shyamala Gopinath said, “The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation.”
Given the dominance of food price inflation in shaping overall course of inflation, the RBI policy would be towards addressing supply constraints. “Since supply shocks take time to taper off, there is a risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalised inflation.”
When prices go beyond a level and the government cannot control it, the RBI is expected to contain it by increasing interest rates. “Containing inflation is more important than ensuring higher rate of growth. It is a good thing that the RBI has hinted at containing food inflation,” said Shirin Bagga, Economist, Boston Analytics. “Food prices need to come down, which would translate into money flowing into the economy through investments and other channels.”
The comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, who said the January policy review would focus both on growth and inflation, instead of only growth.
Hindustan Times, December 30, 2009, Page 23
A month before the scheduled policy review by the Reserve Bank of India (RBI), Deputy Governor Shyamala Gopinath said that the focus of the central bank is on managing the recovery and on containment of inflation rather than fostering growth.
Speaking at Bangalore Chamber of Industry & Commerce on Monday, Shyamala Gopinath said, “The near-term policy challenges are clearly conditioned by the evolving growth-inflation outcome that supports shifting the balance of policy focus on managing the recovery and on containment of inflation.”
Given the dominance of food price inflation in shaping overall course of inflation, the RBI policy would be towards addressing supply constraints. “Since supply shocks take time to taper off, there is a risk that high inflation in essential commodities could affect inflation expectations over time and give rise to generalised inflation.”
When prices go beyond a level and the government cannot control it, the RBI is expected to contain it by increasing interest rates. “Containing inflation is more important than ensuring higher rate of growth. It is a good thing that the RBI has hinted at containing food inflation,” said Shirin Bagga, Economist, Boston Analytics. “Food prices need to come down, which would translate into money flowing into the economy through investments and other channels.”
The comments follow those from fellow Deputy Governor Subir Gokarn on Thursday, who said the January policy review would focus both on growth and inflation, instead of only growth.
Villa projects back in lexicon of developers
Villa projects back in lexicon of developers
Business Standard, December 30, 2009, Page 3
Raghavendra Kamath / Mumbai
Unitech, Jaypee Greens to launch new projects in the segment.
Villa and bungalow projects are back on the agenda of property developers as demand for premium homes picks up. Though villas were popular with the affluent during the boom years of 2004-07, the economic slowdown saw many premium projects put on hold due to diminishing demand.
Large developers such as Unitech, Parsvnath and Jaypee Greens, which had shifted focus to mid-income housing in the range of Rs 20 lakh to Rs 60 lakh to beat the slowdown, have all launched villa projects in the last two months to tap demand for such properties.
Unitech, the country’s second-largest property developer, which launched its luxury villas ‘Alder Grove’ in Gurgaon last month, has already sold out all its 50 villas. Prices started from Rs 1.25 crore per villa.
After selling the first phase, the company has put the second phase of Alder Grove on sale, where villas are priced upwards of Rs 1.7 crore. Now, the company is exploring villa projects in other parts of the country, sensing renewed demand for such projects.
Jaypee Greens, a unit of Jaiprakash Associates, launched Jaypee Greens Sports City, including villas and town homes, on the Yamuna Expressway in Gautam Budh Nagar, this month.
Says R Nagaraju, head of corporate planning, Unitech: “In the last couple of years, there were no new launches in this segment. We felt there was a big gap and thought of launching the project to tap the demand. Within a month of launching it, we were proved right. Now we have launched the second phase.”
Adds Neetal Narang, assistant general manager, corporate communication, Delhi-based Parsvnath Developers: “All our residential projects have villas and penthouses. Though the sale of such properties went down during the slowdown, now they are in recovery mode. People are coming back to us with enquiries.”
According to property consultants in Delhi, prices of villas in the secondary market have also increased 20-30 per cent in South Delhi in the last couple of months due to renewed demand.
“Buyers thought it was the right time to buy such properties as prices corrected significantly. In South Delhi itself, there is enormous demand for villas in second sale,” says Raminder Grover, CEO, Homebay Residential, a unit of property consultancy Jones Lang LaSalle Meghraj.
In Mumbai, several small developers are marketing villas on the peripheries of Mumbai, pitching them as ‘second homes’. Villas, priced at Rs 25-35 lakh, are coming up at Kasara, Karjat and Shahpur — about 70-100 km from Mumbai.
“When markets go down, such projects are first to go down. But when markets go up, they are the ones that move faster than others. Villas are an important portfolio for us and we want to take it across different geographies,” says R Karthik, senior vice- president (marketing), Lodha Group, which is developing Lodha Goldcrest — a ‘by invitation only’ villa project in Lonavala, a two-hour drive from Mumbai. The cost for each villa is Rs 3.5 crore.
“We have many such projects under planning,” Karthik says.
Consultants say lower land prices and availability of large tracts of land in these localities are inducing developers to launch villa projects. While land price ranges from Rs 100 to Rs 500 a square ft in places such as Kasara and Karjat, a square ft of land costs Rs 3,000 to Rs 20,000 in Mumbai.
This leads to better margins for developers. While realty projects in Mumbai carry a margin of 25-35 per cent, those on peripheries carry 35-40 per cent margin due to lower land prices.
But not everybody is enthused. Rajeev Talwar, executive director at DLF, the country’s largest developer, says the company will continue to focus on apartments rather than villas and bungalows.
“The days of selling per square yard are gone. We can derive more value in apartments by selling per square ft,” Talwar says.
Adds Sunil Bajaj, a property consultant: “The reliability of many of the villa projects on Mumbai’s peripheries is doubtful. In many cases, they were only photographs and not real projects when buyers seriously looked at the projects.”
IRDA may widen infra definition
IRDA may widen infra definition
Business Standard, December 30, 2009, Page 1
Manojit Saha / Mumbai
Insurance companies intend to invest in more sectors
The Insurance Regulatory Development Authority (Irda) is likely to broaden the definition of infrastructure to include more sectors. The move, being discussed with insurance companies, is aimed at enabling insurers to get access to more papers to invest in and diversify their portfolio.
Under the existing guidelines, life insurance companies can invest up to 15 per cent of their investible corpus in papers issued by power, roads, ports, dams, housing and construction companies or projects. In addition, life insurers had to invest at least half of their investible surplus in government securities, while 35 per cent could be allocated for investment in other instruments, including equities. The norms for unit-linked plans that account for 90 per cent of the sales, however, permit investors to allocate the entire money in equities.
While the definition covered sectors other than core infrastructure, companies said that there was inadequate availability of papers. For instance, against a target of Rs 4,000 crore, National Highways Authority of India has raised only Rs 520 crore so far. During the last financial year, the highways construction agency raised Rs 1,630 crore, as against the annual target of Rs 3,000 crore.
Rural Electrification Corporation, the other large company which depends on debt, has raised Rs 18,000 crore so far this year, as against Rs 14,800 crore during 2008-09, a senior company executive said.
Last year, the market expanded as India Infrastructure Finance Company raised Rs 10,000 crore by issuing tax-free bonds. But given its inability to deploy the funds so far, the company is unlikely to tap the market for a similar issue this year.
During the current financial year, life insurance companies are expected to earn a premium income of Rs 2,55,000 crore, as against Rs 2,10,000 crore during the last financial year. This includes the renewal premium income as well as income emanating from sale of new policies.
In an interview last week, ICICI Prudential Life Insurance Managing Director and CEO V Vaidyanathan told Business Standard that the industry could generate an annual premium income of Rs 8,00,000 by the end of the next decade. With higher funds flow, company executives said, the availability of infrastructure sector papers also needed to expand at the same pace.
A senior executive at a large private sector insurance company said that the demand to widen the definition was made by companies that did not fall within the purview of the existing classification. The government has forwarded the proposal to Irda, which in turn has approached insurers to seek their comments.
“Since there are not many bonds available, it will be a good idea to broaden the scope. Investment in sectors such as cement, steel and engineering, which also contribute to the development of infrastructure can be included in the definition,” said the chief executive officer of a life insurance company.
The present norms allow investment to be treated as infrastructure sector exposure if the company involved owns a project, but is not responsible for building it. Insurers are now suggesting that engineering, procurement and construction companies and others such as Larsen & Toubro and Bharat Heavy Electricals Ltd (Bhel), which are involved in development of a project, should be included in the new definition.
Also, the insurance regulator mandated that 75 per cent of the infrastructure investment should be made in AAA-rated bonds. Insurance company executives said that this restricted their flexibility in selecting the bonds and companies in which they could invest.
Recently, banks approached the government for allowing them to float tax-free infrastructure bonds to access low-cost resources for the long term. At present, only infrastructure companies are allowed to float tax-free bonds.
Business Standard, December 30, 2009, Page 1
Manojit Saha / Mumbai
Insurance companies intend to invest in more sectors
The Insurance Regulatory Development Authority (Irda) is likely to broaden the definition of infrastructure to include more sectors. The move, being discussed with insurance companies, is aimed at enabling insurers to get access to more papers to invest in and diversify their portfolio.
Under the existing guidelines, life insurance companies can invest up to 15 per cent of their investible corpus in papers issued by power, roads, ports, dams, housing and construction companies or projects. In addition, life insurers had to invest at least half of their investible surplus in government securities, while 35 per cent could be allocated for investment in other instruments, including equities. The norms for unit-linked plans that account for 90 per cent of the sales, however, permit investors to allocate the entire money in equities.
While the definition covered sectors other than core infrastructure, companies said that there was inadequate availability of papers. For instance, against a target of Rs 4,000 crore, National Highways Authority of India has raised only Rs 520 crore so far. During the last financial year, the highways construction agency raised Rs 1,630 crore, as against the annual target of Rs 3,000 crore.
Rural Electrification Corporation, the other large company which depends on debt, has raised Rs 18,000 crore so far this year, as against Rs 14,800 crore during 2008-09, a senior company executive said.
Last year, the market expanded as India Infrastructure Finance Company raised Rs 10,000 crore by issuing tax-free bonds. But given its inability to deploy the funds so far, the company is unlikely to tap the market for a similar issue this year.
During the current financial year, life insurance companies are expected to earn a premium income of Rs 2,55,000 crore, as against Rs 2,10,000 crore during the last financial year. This includes the renewal premium income as well as income emanating from sale of new policies.
In an interview last week, ICICI Prudential Life Insurance Managing Director and CEO V Vaidyanathan told Business Standard that the industry could generate an annual premium income of Rs 8,00,000 by the end of the next decade. With higher funds flow, company executives said, the availability of infrastructure sector papers also needed to expand at the same pace.
A senior executive at a large private sector insurance company said that the demand to widen the definition was made by companies that did not fall within the purview of the existing classification. The government has forwarded the proposal to Irda, which in turn has approached insurers to seek their comments.
“Since there are not many bonds available, it will be a good idea to broaden the scope. Investment in sectors such as cement, steel and engineering, which also contribute to the development of infrastructure can be included in the definition,” said the chief executive officer of a life insurance company.
The present norms allow investment to be treated as infrastructure sector exposure if the company involved owns a project, but is not responsible for building it. Insurers are now suggesting that engineering, procurement and construction companies and others such as Larsen & Toubro and Bharat Heavy Electricals Ltd (Bhel), which are involved in development of a project, should be included in the new definition.
Also, the insurance regulator mandated that 75 per cent of the infrastructure investment should be made in AAA-rated bonds. Insurance company executives said that this restricted their flexibility in selecting the bonds and companies in which they could invest.
Recently, banks approached the government for allowing them to float tax-free infrastructure bonds to access low-cost resources for the long term. At present, only infrastructure companies are allowed to float tax-free bonds.
Japan to make Sahara’s Aamby a green city
Japan to make Sahara’s Aamby a green city
The Times of India, December 30, 2009, Page 21
TIMES NEWS NETWORK
New Delhi: Sahara group’s Aamby Valley township project near Mumbai will turn into an eco-friendly one with the help of Japanese government. Japanese prime minister Yikio Hatoyama met Sahara group chairman Subrata Roy on Tuesday to discuss ways to make the Aamby Valley project, spread over 10,000 acre, an environment and energy-efficient city. Aamby valley is one of the two cities selected by the Japanese government (another in China) to develop as model eco-friendly cities for the world.
Talking to TOI, Roy said that in the meeting with Hatoyama, they discussed details of Japan’s initiatives on environment and converting Aamby Valley City into an energy-efficient project with cooperation. Roy said the group has been in discussion with the Japanese government for quite some time. Recently a delegation of Sahara Group had gone to Japan to finalise details of the cooperation.
Roy hoped that the company will soon be able to sign a detailed agreement with the Japanese government. A delegation of Japanese ministers and senior officials is likely to visit India early next month. It is understood that the agreement would be signed during the visit of the delegation.
The cooperation will lead to not only efficient use of energy but also its generation through renewable sources like wind and solar. It will also provide technology to recycle water and other wastes to reduce the carbon dioxide emission from the city.
Aamby Valley City is a premium housing project located on the Mumbai-Lonavala expressway. The township has been developed away from the hustle and bustle of cities in green surroundings. A senior official said because of its location and quality of environment, Japanese government has selected it to develop as a eco-friendly city.
The Times of India, December 30, 2009, Page 21
TIMES NEWS NETWORK
New Delhi: Sahara group’s Aamby Valley township project near Mumbai will turn into an eco-friendly one with the help of Japanese government. Japanese prime minister Yikio Hatoyama met Sahara group chairman Subrata Roy on Tuesday to discuss ways to make the Aamby Valley project, spread over 10,000 acre, an environment and energy-efficient city. Aamby valley is one of the two cities selected by the Japanese government (another in China) to develop as model eco-friendly cities for the world.
Talking to TOI, Roy said that in the meeting with Hatoyama, they discussed details of Japan’s initiatives on environment and converting Aamby Valley City into an energy-efficient project with cooperation. Roy said the group has been in discussion with the Japanese government for quite some time. Recently a delegation of Sahara Group had gone to Japan to finalise details of the cooperation.
Roy hoped that the company will soon be able to sign a detailed agreement with the Japanese government. A delegation of Japanese ministers and senior officials is likely to visit India early next month. It is understood that the agreement would be signed during the visit of the delegation.
The cooperation will lead to not only efficient use of energy but also its generation through renewable sources like wind and solar. It will also provide technology to recycle water and other wastes to reduce the carbon dioxide emission from the city.
Aamby Valley City is a premium housing project located on the Mumbai-Lonavala expressway. The township has been developed away from the hustle and bustle of cities in green surroundings. A senior official said because of its location and quality of environment, Japanese government has selected it to develop as a eco-friendly city.
Tuesday, December 29, 2009
India, Japan sign agreements on Rs 360-kcr DMIC project
India, Japan sign agreements on Rs 360-kcr DMIC project
The Economic Times, December 29, 2009, Page 7
Our Bureau NEW DELHI
INDIA and Japan signed two agreements on Monday for implementing the ambitious Rs 3,60,000-crore Delhi-Mumbai Industrial Corridor (DMIC) project that seeks to create integrated investment regions and industrial areas across six states. The agreements include collaborating in the development of eco cities, that is cities that are environmentally and ecologically sustainable, along the corridor and setting up of a project development fund to undertake activities like master planning and feasibility studies, preparing project reports and obtaining approvals and bid process management for projects.
“DMIC is an important project and Japan has been an important partner in India’s development journey,” commerce and industry minister Anand Sharma said after the agreements were signed.
The Delhi-Mumbai Industrial Corridor Development Cooperation signed a memorandum of understanding with Jetro (in cooperation with Japan Bank for International Cooperation) for facilitating collaboration between Japanese and Indian companies from environment-related sectors and providing expertise in development and promotion of DMIC projects, including model eco cities or smart community initiatives at various locations in the DMIC region.
The DMIC project development fund will be set up with equal contribution from the governments of India and Japan. India has approved a grant of Rs 330 crore (approximately $75 million) as the country’s contribution. The Japanese component of $75 million is being provided in the form of untied loan from JBIC.
Bidding for the early-bird projects — around 24 identified by five states — is likely to begin in four-five month, DMICDC CEO and MD Amitabh Kant said. Most of the infrastructure work connected to the industrial corridor will be executed in PPP format. The DMIC, which is conceived to be developed as a global manufacturing and trading hub with emphasis on expanding the manufacturing and services base, will pass through Delhi, Rajasthan, UP and Maharashtra, Haryana and Gujarat.
The Economic Times, December 29, 2009, Page 7
Our Bureau NEW DELHI
INDIA and Japan signed two agreements on Monday for implementing the ambitious Rs 3,60,000-crore Delhi-Mumbai Industrial Corridor (DMIC) project that seeks to create integrated investment regions and industrial areas across six states. The agreements include collaborating in the development of eco cities, that is cities that are environmentally and ecologically sustainable, along the corridor and setting up of a project development fund to undertake activities like master planning and feasibility studies, preparing project reports and obtaining approvals and bid process management for projects.
“DMIC is an important project and Japan has been an important partner in India’s development journey,” commerce and industry minister Anand Sharma said after the agreements were signed.
The Delhi-Mumbai Industrial Corridor Development Cooperation signed a memorandum of understanding with Jetro (in cooperation with Japan Bank for International Cooperation) for facilitating collaboration between Japanese and Indian companies from environment-related sectors and providing expertise in development and promotion of DMIC projects, including model eco cities or smart community initiatives at various locations in the DMIC region.
The DMIC project development fund will be set up with equal contribution from the governments of India and Japan. India has approved a grant of Rs 330 crore (approximately $75 million) as the country’s contribution. The Japanese component of $75 million is being provided in the form of untied loan from JBIC.
Bidding for the early-bird projects — around 24 identified by five states — is likely to begin in four-five month, DMICDC CEO and MD Amitabh Kant said. Most of the infrastructure work connected to the industrial corridor will be executed in PPP format. The DMIC, which is conceived to be developed as a global manufacturing and trading hub with emphasis on expanding the manufacturing and services base, will pass through Delhi, Rajasthan, UP and Maharashtra, Haryana and Gujarat.
Delhi-Mumbai industrial corridor gets Japan’s push
Delhi-Mumbai industrial corridor gets Japan’s push
Hindustan Times, HT Business, December 29, 2009, Page 23
The ambitious Delhi-Mumbai Industrial Corridor (DMIC) has received major boost with India and Japan inking an agreement to set up a project development fund.
The initial size of the Fund will be Rs 1,000 Crore (about $212 milion). Both the Japanese and Indian governments contribute equally.
The fund will initially finance the preparation of overall development and feasibility studies for the 1483 km DMIC.
The corridor would include six mega investment regions of 200 square kilometers each and will run through seven states – Delhi, Uttar Pradesh, Haryana, Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.
Each investment region would have a combination of production units, public utilities, logistics, environmental protection facilities, residential areas, social infrastructure and administrative services.
The first phase of the project is likely to be completed by 2012 with an estimated $90 billion ( Rs 4,23,000 crore) to be invested to develop infrastructure in the investment regions.
An official said the government would invite bids soon.
“This is the right time to invite bids. The sentiment is positive domestically as well as internationally,” said the official.
“The project is almost mapped on paper. Perspective plans are being firmed up.”
The six specifically delineated investment regions planned for manufacturing facilities for domestic and export led production along with associated services and infrastructure.
The minimum processing area in these regions will be about 40 per cent of the total designated area, which may or may not be contiguous.
In addition to the investment regions, the DMIC will also have six industrial areas of 100 square km each. A steering authority, headed by the Finance Minister, is overseeing the project.
A corporate entity, Delhi Mumbai Industrial Corridor Development Corporation has been set up to undertake planning of the project, development of its various components, coordinating with all stakeholders, monitoring of implementation and raising all finances.
The corridor will have a 4,000 mw power plant, three greenfield ports and six airports. It will also link 10 cities with population of more than 1 million. It will built along a dedicated rail freight corridor, and once commissioned, will reduce the Delhi-Mumbai transit time from 60 hours to 36 hours.
The corridor, spread across 2,700 km with an additional 5,000 km of feeder lines connecting Mumbai to West Bengal.
Hindustan Times, HT Business, December 29, 2009, Page 23
The ambitious Delhi-Mumbai Industrial Corridor (DMIC) has received major boost with India and Japan inking an agreement to set up a project development fund.
The initial size of the Fund will be Rs 1,000 Crore (about $212 milion). Both the Japanese and Indian governments contribute equally.
The fund will initially finance the preparation of overall development and feasibility studies for the 1483 km DMIC.
The corridor would include six mega investment regions of 200 square kilometers each and will run through seven states – Delhi, Uttar Pradesh, Haryana, Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.
Each investment region would have a combination of production units, public utilities, logistics, environmental protection facilities, residential areas, social infrastructure and administrative services.
The first phase of the project is likely to be completed by 2012 with an estimated $90 billion ( Rs 4,23,000 crore) to be invested to develop infrastructure in the investment regions.
An official said the government would invite bids soon.
“This is the right time to invite bids. The sentiment is positive domestically as well as internationally,” said the official.
“The project is almost mapped on paper. Perspective plans are being firmed up.”
The six specifically delineated investment regions planned for manufacturing facilities for domestic and export led production along with associated services and infrastructure.
The minimum processing area in these regions will be about 40 per cent of the total designated area, which may or may not be contiguous.
In addition to the investment regions, the DMIC will also have six industrial areas of 100 square km each. A steering authority, headed by the Finance Minister, is overseeing the project.
A corporate entity, Delhi Mumbai Industrial Corridor Development Corporation has been set up to undertake planning of the project, development of its various components, coordinating with all stakeholders, monitoring of implementation and raising all finances.
The corridor will have a 4,000 mw power plant, three greenfield ports and six airports. It will also link 10 cities with population of more than 1 million. It will built along a dedicated rail freight corridor, and once commissioned, will reduce the Delhi-Mumbai transit time from 60 hours to 36 hours.
The corridor, spread across 2,700 km with an additional 5,000 km of feeder lines connecting Mumbai to West Bengal.
US to grow 3.5% next year, its best since ’04
US to grow 3.5% next year, its best since ’04
The Economic Times, December 29, 2009, Page 19
Timothy R Homan & Bob Willis WASHINGTON
THE US economy next year will turn in its best performance since 2004, as spending perks up and companies increase investment and hiring, said Dean Maki, the most-accurate forecaster in a Bloomberg News survey.
The world’s largest economy will expand 3.5% in 2010, according to Maki, the chief US economist at Barclays Capital in New York. The rebound in stocks and rising incomes will prompt Americans to do what they do best — consume, said Maki, a former economist at the Federal Reserve. Faced with dwindling inventories and growing demand, companies will soon become confident the expansion will be sustained, he said. Household spending “will pick up steam as we move into the second half of 2010,” said Maki. “The overall picture for 2010 will be an economy growing rapidly enough to bring down the unemployment rate” to an average of 9.6%.
Maki, who specialised in researching household finances at the Fed from 1995-2000, said the economic recovery thiss time will be similar to past rebounds. Maki holds a doctorate in economics from Stanford University near Palo Alto, California. —Bloomberg
Punjab to set up IT park at Rajpura
Punjab to set up IT park at Rajpura
The Financial Express, December 29, 2009, Page 11
fe Bureau, Chandigarh
In a major decision, the Punjab government has decided to establish a self-contained integrated Information Technology and knowledge industry park spread over an area of 1,276 acre at Rajpura. A decision to this effect was taken at a high level meeting chaired by Punjab chief minister, Parkash Singh Badal here on Monday.
Badal gave in-principle approval for acquisition of common land in contiguity of six villages in Sehra, Pabra, Sehri, Takhtu Majra, Akri and Akar in one go for the setting up of the prestigious industrial park for IT and IT enabled services industry.
It was informed at the meeting that the upcoming industrial park would house the companies operating in business process outsourcing (BPO), knowledge process outsourcing (KPO), legal process outsourcing and engineering process outsourcing. Besides software companies, software testing companies etc, hardware manufacturing companies, multimedia, graphic, animation and gaming industry, eAdvertising, eMarketing and ePublishing houses, consultancy firms and education & training institutions etc would also come up in the IT park.
The chief minister asked the Punjab Information and Communication Technology Corporation Limited which was the nodal agency to implement this project to engage the services of some renowned international consultant for designing and developing the project and suggested to invite a global tender for seeking expression of interest from the interested consultants.
Briefing the chief minister about the prospects of the IT park, principal secretary industries and commerce, SS Channy informed the project would be developed in a phased manner with residential and social infrastructure facilities such as healthcare, recreation, health clubs and hotels.
He said that efficient and reliable power, water, waste management and technology facilities would be provided to the prospective entrepreneurs. A comprehensive network of logistic system encompassing road, rail and air linkages would be ensured besides adequate focus on security and disaster management systems.
It had also been proposed to install internet tower with satellite connectivity for direct software export and communication and WiMax technology for high speed wireless connectivity in SEZ. Exhibition centers including IT-BPO and international trade facilitation centre would also be set up there.
The chief secretary, SC Agrawal informed the CM that this project would involve a huge investment and be developed through a special purpose vehicle to ensure its expeditious implementation as discussed in the IT infrastructure task force under his chairmanship.
The Financial Express, December 29, 2009, Page 11
fe Bureau, Chandigarh
In a major decision, the Punjab government has decided to establish a self-contained integrated Information Technology and knowledge industry park spread over an area of 1,276 acre at Rajpura. A decision to this effect was taken at a high level meeting chaired by Punjab chief minister, Parkash Singh Badal here on Monday.
Badal gave in-principle approval for acquisition of common land in contiguity of six villages in Sehra, Pabra, Sehri, Takhtu Majra, Akri and Akar in one go for the setting up of the prestigious industrial park for IT and IT enabled services industry.
It was informed at the meeting that the upcoming industrial park would house the companies operating in business process outsourcing (BPO), knowledge process outsourcing (KPO), legal process outsourcing and engineering process outsourcing. Besides software companies, software testing companies etc, hardware manufacturing companies, multimedia, graphic, animation and gaming industry, eAdvertising, eMarketing and ePublishing houses, consultancy firms and education & training institutions etc would also come up in the IT park.
The chief minister asked the Punjab Information and Communication Technology Corporation Limited which was the nodal agency to implement this project to engage the services of some renowned international consultant for designing and developing the project and suggested to invite a global tender for seeking expression of interest from the interested consultants.
Briefing the chief minister about the prospects of the IT park, principal secretary industries and commerce, SS Channy informed the project would be developed in a phased manner with residential and social infrastructure facilities such as healthcare, recreation, health clubs and hotels.
He said that efficient and reliable power, water, waste management and technology facilities would be provided to the prospective entrepreneurs. A comprehensive network of logistic system encompassing road, rail and air linkages would be ensured besides adequate focus on security and disaster management systems.
It had also been proposed to install internet tower with satellite connectivity for direct software export and communication and WiMax technology for high speed wireless connectivity in SEZ. Exhibition centers including IT-BPO and international trade facilitation centre would also be set up there.
The chief secretary, SC Agrawal informed the CM that this project would involve a huge investment and be developed through a special purpose vehicle to ensure its expeditious implementation as discussed in the IT infrastructure task force under his chairmanship.
FII fund flows set to top 2007 levels
FII fund flows set to top 2007 levels
Mint, December 29, 2009, Page 1
$17.13 billion of FII funds have already been pumped into India till 24 DecAnirudh LaskarMumbai: The year 2009 began with a whimper but has ended with a bang, at least as far as portfolio investments by foreign institutional investors, or FIIs, into the Indian stock market go.
Foreign money moves markets in India, and the huge FII inflows after March inevitably helped equity prices bounce back from their panic-stricken lows. FIIs have already pumped in $17.13 billion (around Rs80,000 crore) till 24 December and they are on course to surpass the levels seen in 2007, at the height of the bull market. This gush of money in 2009 comes after FIIs sucked out $12.18 billion in 2008 by selling Indian shares, the most in 15 years, in the aftermath of the global financial meltdown after the collapse of investment bank Lehman Brothers Holdings Inc. FIIs continued to head for exits in January and February as well.
Market experts expect strong inflows to continue in 2010, as the Indian economy outperforms most other national economies. The huge capital needs of Indian companies as they try to repair balance sheets and fund capacity additions with money raised from share sales are also expected to act as magnets for foreign equity investors.
“India has recovered faster than other emerging markets. As long as the Western economies do not call for an exit from the stimuli packages and the pressure on the local currency is kept under control, there will not be any significant change in FII inflows during 2010,” said Ullal Ravindra Bhat, managing director of the Indian arm of Dalton Strategic Partnership Llp, a global fund registered as an FII in India.
FIIs have invested at least $72.39 billion in India since 1993, when the government opened the doors to foreign portfolio capital.
However, foreign investors may be a bit watchful in the first quarter of 2010 as they figure out how soon the government and the Reserve Bank of India will withdraw the accommodative policies put in place to keep growth on track during the global economic collapse at the end of 2008. A growth revival and renewed inflation make tighter monetary and fiscal policies very likely in 2010.
According to a report by Deutsche Bank AG, India Outlook 2010, “…Wholesale Price Index inflation could readily exceed 7% by the second quarter. So far the central bank has refrained from tightening monetary policy as the economic recovery has been at a nascent stage, but we expect liquidity tightening measures from January onward and rate hikes from April onward.”
A report by Citigroup Global Markets cautions against two polar risks. “A bout of risk aversion triggered by negative global events could lead to a fast reversal of such flows and is the key risk to our positive stance... Conversely, a strong positive catalyst could attract large inflows, which can trigger a liquidity-driven rally and take markets into an overvaluation zone.”
Even as the existing FIIs stepped up investments into India, new players came to sniff out opportunities in 2009, which saw 110 new FII registrations and 432 new FII sub-accounts.
“Money will chase growth. The FIIs are confident about domestic growth and the abundant liquidity for money market instruments. Also, a lot of this FII money will be absorbed by IPOs and QIPs during the coming year,” added Bhat. IPOs are initial public offers and QIPs are qualified institutional placements.
The good times may roll on, but there is an important difference in the way FII money has come into India in 2007 and 2009—a difference that may offer some clues about 2010. While a majority of FII inflows came via participatory notes, or PNs, till 2007, fund managers have opted for the sub-account route in 2009.
Till 2007, FIIs were mostly using the PNs, derivatives used by foreign funds not registered in India to trade local shares while the actual investors remained anonymous. Capital market regulator Securities and Exchange Board of India (Sebi) had banned PNs in October 2007, amid concerns that volatile foreign exchange inflows were fuelling an asset bubble.
A year later, the credit freeze forced the regulator to lift the ban as part of its efforts to keep capital within India.
But foreign investors now prefer to park their funds through the sub-account route as there is an uncertainty whether Sebi will continue to allow FIIs to issue PNs or not.
A sub-account, an actively managed investment book, is run in the name of registered FIIs, but managed by separate fund managers.
From the peak of 55.7% in June 2007, PNs now account for 16.5% of total assets managed by FIIs in October 2009. This proportion has remained almost constant since January, despite the surge in FII inflows.
Meanwhile, according to a report by Citigroup Global Markets, a combination of external factors such as global liquidity, a weak dollar and higher risk appetite coupled with the domestic story of higher growth and interest rates sets the environment for a continuation of dollar inflows in 2010.
Teaser rates a marketing gimmick
Teaser rates a marketing gimmick
Mint, December 29, 2009, Page 1
The confidence in the real estate sector is not yet back, people feel that prices will keep going up
Tamal Bandyopadhyay
Mumbai: Deepak Parekh, chairman of India’s oldest and biggest mortgage firm Housing Development Finance Corp. Ltd, or HDFC, does not see demand picking up for commercial real estate in the near future, with the action continuing to be in the residential space where there is a huge shortage. The prices of residential property in some parts of the country have almost returned to the 2007 levels after a slump and may go up further, depending on the demand-supply gap in a particular market, but cannot rise hugely from the current level as there will be resistance from buyers. “The builders will try (to raise prices) but...they won’t get the buyers if they do it,” Parekh said.
Consumer first: HDFC’s Deepak Parekh says India should have a regulator for the real estate sector. Abhijit Bhatlekar/MintAccording to him, consumer confidence has not yet returned. One way of restoring this could be the creation of a real estate regulator.
In an interview on Monday, Parekh, 65, who will step down from the executive chairman’s post later this week, said India should have a regulator for the real estate sector who can classify developers, evaluate and grade them. He also said a real estate regulator would be concerned about home loan products in which a borrower pays 8% or 8.25% for the first two years and the rates are revised subsequently. If interest rates go up substantially after two years, it will create problems for individual home-owners. “To some extent, we are playing with fire,” he said. Edited excerpts:
The euphoria of 2007 seems to be coming back to the real estate sector. Do you see any bubble being formed?
I don’t see (that). I think the foreign investors have learnt a lesson. Today there is universal acceptability, and even developers agree that the demand for IT (information technology), commercial real estate, retail and shopping malls, SEZs (special economic zones) and industrial parks is a thing of the past.
At HDFC, we have taken a decision that we will not fund any developer who is building any of these because there is a huge amount of surplus space.
I know readymade, state-of the-art buildings across cities in India (that) have no tenants. The new owner of Satyam Computer Services Ltd (now branded Mahindra Satyam) has moved out of Bangalore and Chennai and gone to Hyderabad because there is a lot of surplus space (in Hyderabad). So all the space that Satyam was occupying in Bangalore and Chennai—a few lakh sq. ft—is now vacant.
At the national level, in Gurgaon, Mumbai...everywhere, offices are ready but vacant and unleased.
What about residential property?
The action is in this space. There is a huge shortage. In India, every family wants to own a house and every family wants to upgrade over a period of time. There is huge demand in this segment and, according to me, this will continue for the next 10 years.
The prices will continue to increase, depending on demand and supply. If more land is given in the city and more developers start constructing, then prices won’t go up.
Can there be a huge price rise?
There will be resistance. The builders will try, but if they want to sell their stock, they should not go for a hike as they won’t get the buyers.
Why aren’t the foreign investors coming in large numbers now?
Three years ago, the Reserve Bank of India (RBI), knowing well that a bubble was being created, prohibited banks and housing finance companies to lend for land.
We could not fund any land. The guidelines were very clear that we had to get the commencement certificate before we could lend money. The commencement certificate is the last document a developer gets before he starts digging. At that stage, real estate was hot. Foreigners had no exposure in real estate in India and they showed huge, huge amount of interest, as if there was no tomorrow.
My estimate is at that stage, around $20-25 billion (Rs93,600 crore-Rs1.17 trillion) came into the country through private equity, QIPs (qualified institutional placements), AIM (Alternative Investment Market, an offshoot of the London Stock Exchange that allows smaller companies to float shares with a more flexible regulatory system) listing, foreign currency convertible bonds, structured finance, debt in the garb of equity—whichever way you look at it.
The money has come for land (buying) and land prices have come down. The foreign investors have learnt the hard way. They have lost money. I would say that those who funded land have lost nothing less than 30%.
But even now some of the real estate firms are raising money from QIPs.
Very few of them. Look at Godrej (Properties Ltd). One of the best names in India. Every one expected their equity issue to be 30 times subscribed, but it has been subscribed only four times. So, there is hesitancy among investors. I was surprised; I thought it would be minimum 10 times subscribed.
There is caution; people are concerned about real estate. The confidence is not yet back and people feel that prices will keep going up.
How do you bring back the confidence? Will the creation of a real estate regulator help?
I have been always advocating that we need a regulator in real estate. It’s the largest purchase any family makes. You try to buy a house in any part of India and see the problems and the sleepless nights you would need to spend.
It’s a very complex subject—you can lose money very easily; you can get gypped very easily; your money can get stuck for a long period as the developers may take two, three, four years extra to complete the project. Then, there are other issues: the specifications, quality may differ. All kinds of things can happen.
Why can’t we have a regulator who classifies developers, evaluates them, grades them? We need to bring in some code of ethics.
You advise the government on many policy issues. Why isn’t this happening?
It’s a state subject. It’s very difficult to introduce something at the Centre and then get it to filter down to the state level. We need to do something on the lines of the power sector, which is a state subject. The Central government recommended the splitting of transmission, generation and distribution of power. Many states have complied and many haven’t.
More and more states are complying with it, but it takes a long time. Most of the states now have got regulatory body for the sector at the state level—the state electricity regulatory commission. The tariff cannot be increased unless the regulator agrees.
Low-cost housing is the buzzword now.
Affordable housing is the buzzword. We need affordable housing in India because the demand is in that category. In Mumbai, the demand is not for flats that cost Rs10 crore but those that cost Rs25-30 lakh.
Our land policies are wrong; They have not been changed. Land is the biggest hindrance—it’s the largest component when it comes to the cost of a house. The land laws will have to be amended. Either you allow the developers to go for higher FSI (floor space index, the ratio of total floor space to plot size). You have to make the cost of land more affordable.
Many home loan lenders are now offering loans cheap for the first two years, enticing borrowers. But if the rates go up substantially after two years, won’t there be a problem as many borrowers may not have the capacity to service loans at higher rates?
It’s not a very healthy way of lending. It can create problem, as you said, in future, particularly if the rates shoot up.
Today what we are saying is, if it’s 8% or 8.25% for the first two years, the rate will be 9% afterwards and so the gap is very little. Suppose interest rates in India shoot up in the next three years, then what will happen? These are all floating rate loans and fixed only for first two years. So, 8% interest will become 12% or even more. Then, the gap will be too much and it’s a problem for the individual home-owners.
To some extent, we are playing with fire, but it’s a marketing gimmick. It’s a tool—I always say it’s a teaser rate—to get a customer attracted towards you. Financial innovation doesn’t take time; if one does it, everyone copies. It can be done in 24 hours.
Now most banks have this product.
If a regulator were there, he would have been concerned about it.
You see seeds of a problem in such loans?
Yes, if interest rates go up in the future.
But aren’t you also offering this?
We are appraising these cases today as if the borrowers need to pay more than 9% and not 8.25%. Because that’s where the rates will be after two years. A borrower’s affordability or repaying capacity is gauged today at a higher interest rate. We are building that buffer today, but if 9% or so becomes 12.5%, then there is no buffer.
Your plan has all along been to position HDFC as the GE Capital of India. Any plan to merge the bank with the parent or any different structure for the group?
We have taken cognizance of whatever opportunities existed in the financial sector in the last few years. Rather than remaining a purely housing finance company, we expanded into practically all areas of finance—banking, mortgages, asset management, insurance, property fund, stock-broking… everywhere. We are the only conglomerate in India where the housing finance company is the holding company of the group. In most cases, the bank is the holding company.
RBI was going to come out with some norms for holding companies, but that has been delayed. When it comes out with the norms, we will explore opportunities.
Today we feel that the two large firms of the group, the parent and the bank, are both growing well. Both have good top-line and bottom-line growth and very low non-performing assets—probably among the lowest in the industry. We don’t have excessive stuff and there is no problem whatsoever. At this stage, I think, it’s better for us to continue the way we have been growing in the past.
I think consolidation has to happen in Indian banking sector. We have a large number of small banks and we need a small number of large banks. We need to see how it impacts us. I am still around as chairman.
You can go for a reverse merger and make the bank the holding company.
We can do any type of things but we would prefer to wait and see what the regulator has in mind. I am simply making a point that we do not see the need for it.
When do you plan to take your insurance firms and the asset management company to market?
Sometime in early 2011.
How critical is banking consolidation?
The global financial crisis was caused by banks. We should not be in a desperate hurry to reform the banking sector.
We have been reasonably unscathed by the subprime crisis and credit has to be given to the regulatory bodies for their conservative approach all these years, which has helped all of us.
There is no urgent need for consolidation. In its own time, RBI will come out with something. We don’t need to be in a hurry.
Should foreign banks be allowed a larger play in India?
I feel foreign banks play an important role. We are part of the global community. If we follow the reciprocity method—if I give you one branch, you must give me one branch—I don’t see enough Indian banks wanting to open a large number of branches overseas.
It’s not easy to open 100 branches in US and make money. You may use it as an argument but which Indian bank has that kind of reserves, capital, manpower to go and open many branches in the US, even if they get permission?
Don’t forget that some of the foreign banks have been in India for more than 100 years. They have been playing an important role in India and I don’t see any harm in allowing them to expand their role in India in a proper format.
Now that you will guide HDFC as a non-executive chairman, is there anything you plan to do differently?
No. I wish I can detach myself a little bit. It’s difficult when you’re in the driver’s seat for so many years.
Anything different on the personal front?
I want to take it easy for a few months. I have a large amount of paper work which I would need to do in the office. I have stored these papers all these years. I will need to go through all my old files and destroy some of them. It will take me a few months to do all that. I have not yet made up my mind about life after that.
Anything else you would like to mention that I should have asked you?
No, bahut ho gaya.
Mint, December 29, 2009, Page 1
The confidence in the real estate sector is not yet back, people feel that prices will keep going up
Tamal Bandyopadhyay
Mumbai: Deepak Parekh, chairman of India’s oldest and biggest mortgage firm Housing Development Finance Corp. Ltd, or HDFC, does not see demand picking up for commercial real estate in the near future, with the action continuing to be in the residential space where there is a huge shortage. The prices of residential property in some parts of the country have almost returned to the 2007 levels after a slump and may go up further, depending on the demand-supply gap in a particular market, but cannot rise hugely from the current level as there will be resistance from buyers. “The builders will try (to raise prices) but...they won’t get the buyers if they do it,” Parekh said.
Consumer first: HDFC’s Deepak Parekh says India should have a regulator for the real estate sector. Abhijit Bhatlekar/MintAccording to him, consumer confidence has not yet returned. One way of restoring this could be the creation of a real estate regulator.
In an interview on Monday, Parekh, 65, who will step down from the executive chairman’s post later this week, said India should have a regulator for the real estate sector who can classify developers, evaluate and grade them. He also said a real estate regulator would be concerned about home loan products in which a borrower pays 8% or 8.25% for the first two years and the rates are revised subsequently. If interest rates go up substantially after two years, it will create problems for individual home-owners. “To some extent, we are playing with fire,” he said. Edited excerpts:
The euphoria of 2007 seems to be coming back to the real estate sector. Do you see any bubble being formed?
I don’t see (that). I think the foreign investors have learnt a lesson. Today there is universal acceptability, and even developers agree that the demand for IT (information technology), commercial real estate, retail and shopping malls, SEZs (special economic zones) and industrial parks is a thing of the past.
At HDFC, we have taken a decision that we will not fund any developer who is building any of these because there is a huge amount of surplus space.
I know readymade, state-of the-art buildings across cities in India (that) have no tenants. The new owner of Satyam Computer Services Ltd (now branded Mahindra Satyam) has moved out of Bangalore and Chennai and gone to Hyderabad because there is a lot of surplus space (in Hyderabad). So all the space that Satyam was occupying in Bangalore and Chennai—a few lakh sq. ft—is now vacant.
At the national level, in Gurgaon, Mumbai...everywhere, offices are ready but vacant and unleased.
What about residential property?
The action is in this space. There is a huge shortage. In India, every family wants to own a house and every family wants to upgrade over a period of time. There is huge demand in this segment and, according to me, this will continue for the next 10 years.
The prices will continue to increase, depending on demand and supply. If more land is given in the city and more developers start constructing, then prices won’t go up.
Can there be a huge price rise?
There will be resistance. The builders will try, but if they want to sell their stock, they should not go for a hike as they won’t get the buyers.
Why aren’t the foreign investors coming in large numbers now?
Three years ago, the Reserve Bank of India (RBI), knowing well that a bubble was being created, prohibited banks and housing finance companies to lend for land.
We could not fund any land. The guidelines were very clear that we had to get the commencement certificate before we could lend money. The commencement certificate is the last document a developer gets before he starts digging. At that stage, real estate was hot. Foreigners had no exposure in real estate in India and they showed huge, huge amount of interest, as if there was no tomorrow.
My estimate is at that stage, around $20-25 billion (Rs93,600 crore-Rs1.17 trillion) came into the country through private equity, QIPs (qualified institutional placements), AIM (Alternative Investment Market, an offshoot of the London Stock Exchange that allows smaller companies to float shares with a more flexible regulatory system) listing, foreign currency convertible bonds, structured finance, debt in the garb of equity—whichever way you look at it.
The money has come for land (buying) and land prices have come down. The foreign investors have learnt the hard way. They have lost money. I would say that those who funded land have lost nothing less than 30%.
But even now some of the real estate firms are raising money from QIPs.
Very few of them. Look at Godrej (Properties Ltd). One of the best names in India. Every one expected their equity issue to be 30 times subscribed, but it has been subscribed only four times. So, there is hesitancy among investors. I was surprised; I thought it would be minimum 10 times subscribed.
There is caution; people are concerned about real estate. The confidence is not yet back and people feel that prices will keep going up.
How do you bring back the confidence? Will the creation of a real estate regulator help?
I have been always advocating that we need a regulator in real estate. It’s the largest purchase any family makes. You try to buy a house in any part of India and see the problems and the sleepless nights you would need to spend.
It’s a very complex subject—you can lose money very easily; you can get gypped very easily; your money can get stuck for a long period as the developers may take two, three, four years extra to complete the project. Then, there are other issues: the specifications, quality may differ. All kinds of things can happen.
Why can’t we have a regulator who classifies developers, evaluates them, grades them? We need to bring in some code of ethics.
You advise the government on many policy issues. Why isn’t this happening?
It’s a state subject. It’s very difficult to introduce something at the Centre and then get it to filter down to the state level. We need to do something on the lines of the power sector, which is a state subject. The Central government recommended the splitting of transmission, generation and distribution of power. Many states have complied and many haven’t.
More and more states are complying with it, but it takes a long time. Most of the states now have got regulatory body for the sector at the state level—the state electricity regulatory commission. The tariff cannot be increased unless the regulator agrees.
Low-cost housing is the buzzword now.
Affordable housing is the buzzword. We need affordable housing in India because the demand is in that category. In Mumbai, the demand is not for flats that cost Rs10 crore but those that cost Rs25-30 lakh.
Our land policies are wrong; They have not been changed. Land is the biggest hindrance—it’s the largest component when it comes to the cost of a house. The land laws will have to be amended. Either you allow the developers to go for higher FSI (floor space index, the ratio of total floor space to plot size). You have to make the cost of land more affordable.
Many home loan lenders are now offering loans cheap for the first two years, enticing borrowers. But if the rates go up substantially after two years, won’t there be a problem as many borrowers may not have the capacity to service loans at higher rates?
It’s not a very healthy way of lending. It can create problem, as you said, in future, particularly if the rates shoot up.
Today what we are saying is, if it’s 8% or 8.25% for the first two years, the rate will be 9% afterwards and so the gap is very little. Suppose interest rates in India shoot up in the next three years, then what will happen? These are all floating rate loans and fixed only for first two years. So, 8% interest will become 12% or even more. Then, the gap will be too much and it’s a problem for the individual home-owners.
To some extent, we are playing with fire, but it’s a marketing gimmick. It’s a tool—I always say it’s a teaser rate—to get a customer attracted towards you. Financial innovation doesn’t take time; if one does it, everyone copies. It can be done in 24 hours.
Now most banks have this product.
If a regulator were there, he would have been concerned about it.
You see seeds of a problem in such loans?
Yes, if interest rates go up in the future.
But aren’t you also offering this?
We are appraising these cases today as if the borrowers need to pay more than 9% and not 8.25%. Because that’s where the rates will be after two years. A borrower’s affordability or repaying capacity is gauged today at a higher interest rate. We are building that buffer today, but if 9% or so becomes 12.5%, then there is no buffer.
Your plan has all along been to position HDFC as the GE Capital of India. Any plan to merge the bank with the parent or any different structure for the group?
We have taken cognizance of whatever opportunities existed in the financial sector in the last few years. Rather than remaining a purely housing finance company, we expanded into practically all areas of finance—banking, mortgages, asset management, insurance, property fund, stock-broking… everywhere. We are the only conglomerate in India where the housing finance company is the holding company of the group. In most cases, the bank is the holding company.
RBI was going to come out with some norms for holding companies, but that has been delayed. When it comes out with the norms, we will explore opportunities.
Today we feel that the two large firms of the group, the parent and the bank, are both growing well. Both have good top-line and bottom-line growth and very low non-performing assets—probably among the lowest in the industry. We don’t have excessive stuff and there is no problem whatsoever. At this stage, I think, it’s better for us to continue the way we have been growing in the past.
I think consolidation has to happen in Indian banking sector. We have a large number of small banks and we need a small number of large banks. We need to see how it impacts us. I am still around as chairman.
You can go for a reverse merger and make the bank the holding company.
We can do any type of things but we would prefer to wait and see what the regulator has in mind. I am simply making a point that we do not see the need for it.
When do you plan to take your insurance firms and the asset management company to market?
Sometime in early 2011.
How critical is banking consolidation?
The global financial crisis was caused by banks. We should not be in a desperate hurry to reform the banking sector.
We have been reasonably unscathed by the subprime crisis and credit has to be given to the regulatory bodies for their conservative approach all these years, which has helped all of us.
There is no urgent need for consolidation. In its own time, RBI will come out with something. We don’t need to be in a hurry.
Should foreign banks be allowed a larger play in India?
I feel foreign banks play an important role. We are part of the global community. If we follow the reciprocity method—if I give you one branch, you must give me one branch—I don’t see enough Indian banks wanting to open a large number of branches overseas.
It’s not easy to open 100 branches in US and make money. You may use it as an argument but which Indian bank has that kind of reserves, capital, manpower to go and open many branches in the US, even if they get permission?
Don’t forget that some of the foreign banks have been in India for more than 100 years. They have been playing an important role in India and I don’t see any harm in allowing them to expand their role in India in a proper format.
Now that you will guide HDFC as a non-executive chairman, is there anything you plan to do differently?
No. I wish I can detach myself a little bit. It’s difficult when you’re in the driver’s seat for so many years.
Anything different on the personal front?
I want to take it easy for a few months. I have a large amount of paper work which I would need to do in the office. I have stored these papers all these years. I will need to go through all my old files and destroy some of them. It will take me a few months to do all that. I have not yet made up my mind about life after that.
Anything else you would like to mention that I should have asked you?
No, bahut ho gaya.
Unitech’s $700-m FCCB plan hits regulatory wall
Unitech’s $700-m FCCB plan hits regulatory wall
The Economic Times, December 29, 2009, Page 1
Deepshikha Sikarwar & Arun Kumar NEW DELHI
UNITECH’S plan to raise $700 million through foreign currency convertible bonds (FCCBs) has run into trouble, with the finance ministry and Reserve Bank of India (RBI) objecting to the developer’s request to exempt it from a three-year lock-in clause applicable to such investments in construction.
Unitech is looking overseas to lower the overall cost of debt, at around 13%, though it said the FCCB money would be used to develop a township. India’s second-largest realtor had argued that as FCCBs are convertible instruments, they should be treated as debt till the time of conversion and they would be issued to portfolio investors.
FCCBs are bonds that allow the bondholder to redeem them after the maturity period or convert them into equity at a pre-determined price. Until then, they carry a nominal rate of interest.
Despite the reservations of RBI and the ministry, the Foreign Investment Promotion Board (FIPB)—the nodal agency for foreign investments—will take a final call on the issue at its next meeting, said a government official privy to the development. A Unitech spokesman had no comment on the development.
The department of industrial policy and promotion (Dipp), the key government body responsible for framing foreign investment policy, had supported Unitech’s proposal. It suggested a waiver of the lock-in in a letter to the finance ministry.
Foreign direct investment (FDI) in construction is allowed through the automatic route, but with riders. The government had imposed the lock-in in real estate to prevent an asset bubble.
Unitech raising fund
EARLY last year, the reserve Bank of India wanted the sector to be removed from the automatic route and investments be routed through FIPB.
But in January, realty companies were allowed to raise funds through external commercial borrowings for specific projects as part of the government’s stimulus measures, reversing a blanket ban on such borrowings imposed in May 2007.
If Unitech were to get FIPB’s approval, this would be the first case of a realtor being allowed to raise funds through the FCCB route.
The company had sought FIPB’s permission in March to raise Rs 5,000 crore through global depository receipts (GDRs), but deferred its plan due to the mandatory lock-in.
Unitech has been on a fund-raising spree this year, mopping up $900 million (Rs 4,000 crore) through two rounds of qualified institutional placements. In June, Unitech raised $575 million at Rs 82 per share. In March, it raised $325 million at Rs 38.50 per share. Part of these funds has been used to cut debts, which were at Rs 12,000 crore not so long ago.
The Unitech scrip closed at Rs 82 per share on December 24. At this price, the company has a market capitalisation of Rs 19,600 crore.
The Economic Times, December 29, 2009, Page 1
Deepshikha Sikarwar & Arun Kumar NEW DELHI
UNITECH’S plan to raise $700 million through foreign currency convertible bonds (FCCBs) has run into trouble, with the finance ministry and Reserve Bank of India (RBI) objecting to the developer’s request to exempt it from a three-year lock-in clause applicable to such investments in construction.
Unitech is looking overseas to lower the overall cost of debt, at around 13%, though it said the FCCB money would be used to develop a township. India’s second-largest realtor had argued that as FCCBs are convertible instruments, they should be treated as debt till the time of conversion and they would be issued to portfolio investors.
FCCBs are bonds that allow the bondholder to redeem them after the maturity period or convert them into equity at a pre-determined price. Until then, they carry a nominal rate of interest.
Despite the reservations of RBI and the ministry, the Foreign Investment Promotion Board (FIPB)—the nodal agency for foreign investments—will take a final call on the issue at its next meeting, said a government official privy to the development. A Unitech spokesman had no comment on the development.
The department of industrial policy and promotion (Dipp), the key government body responsible for framing foreign investment policy, had supported Unitech’s proposal. It suggested a waiver of the lock-in in a letter to the finance ministry.
Foreign direct investment (FDI) in construction is allowed through the automatic route, but with riders. The government had imposed the lock-in in real estate to prevent an asset bubble.
Unitech raising fund
EARLY last year, the reserve Bank of India wanted the sector to be removed from the automatic route and investments be routed through FIPB.
But in January, realty companies were allowed to raise funds through external commercial borrowings for specific projects as part of the government’s stimulus measures, reversing a blanket ban on such borrowings imposed in May 2007.
If Unitech were to get FIPB’s approval, this would be the first case of a realtor being allowed to raise funds through the FCCB route.
The company had sought FIPB’s permission in March to raise Rs 5,000 crore through global depository receipts (GDRs), but deferred its plan due to the mandatory lock-in.
Unitech has been on a fund-raising spree this year, mopping up $900 million (Rs 4,000 crore) through two rounds of qualified institutional placements. In June, Unitech raised $575 million at Rs 82 per share. In March, it raised $325 million at Rs 38.50 per share. Part of these funds has been used to cut debts, which were at Rs 12,000 crore not so long ago.
The Unitech scrip closed at Rs 82 per share on December 24. At this price, the company has a market capitalisation of Rs 19,600 crore.
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