Thursday, April 30, 2009
Core sectors rebound to hit 6-mth high growth of 2.9%
Core sectors rebound to hit 6-mth high growth of 2.9%
The Economic Times, April 30, 2009, Page 7
The economy is firmly on the recovery track. Infrastructure growth, which was lagging for the past six months, has bounced back. ICRA has forecast a 7.5% growth for FY10 while Mastercard sees a revival in H2
Our Bureau NEW DELHI
CORE sector growth is back on track. The index for six core industries—crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel—has turned in a growth of 2.9% in March 2009 over March last year. This has been the highest growth rate in the last six months, and higher than the average of 2.7% for 2008-09 as a whole.
Economists pointed out that a recovery might be round the corner. “These are some positive signals. Benign cues from the global economy might add to the speed of recovery. But I will wait for another couple of months before taking a call on the strength of the recovery,” said DK Joshi, principal economist at ratings agency CRISIL.
The biggest surprise in the basket of core sectors was electricity generation, which touched a 13-month high. ”The availability of coal has improved and the units that were commissioned last year are working well, resulting in higher generation of power,” said Central Electricity Authority chairman Rakesh Nath. G
iving further strength to Cabinet secretary KM Chandrashekar’s assessment that the economy is beginning to respond to the booster shots administered by the government, cement production surged 10.1% in March. JK Cement group executive president RG Bagla said, “Increased government spending on infrastructure led to higher demand for cement in March.”
Coal production grew 5.2% in the year and showed a cumulative growth of 8.1% for the fiscal. Annual growth in finished carbon steel production contracted 2.6% in March, raising concerns. But this is expected to pick up in the coming months. According to Naveen Vohra, partner at Ernst & Young, steel consumption and production is expected to pick up. ”Demand in the auto sector has also started looking up on the back of a marginal improvement in the credit situation,” he added. The steel industry staged a smart recovery in the first three months of 2009 on account of a revival in the auto, rural infrastructure and housing sectors, and is expected to gather further momentum hereon.
Petroleum refinery products recovered to grow 3.3%— the highest in last 5 months—while the drop in crude oil production recovered from a low of 8.1% in January to 2.3% in March.
The Economic Times, April 30, 2009, Page 7
The economy is firmly on the recovery track. Infrastructure growth, which was lagging for the past six months, has bounced back. ICRA has forecast a 7.5% growth for FY10 while Mastercard sees a revival in H2
Our Bureau NEW DELHI
CORE sector growth is back on track. The index for six core industries—crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel—has turned in a growth of 2.9% in March 2009 over March last year. This has been the highest growth rate in the last six months, and higher than the average of 2.7% for 2008-09 as a whole.
Economists pointed out that a recovery might be round the corner. “These are some positive signals. Benign cues from the global economy might add to the speed of recovery. But I will wait for another couple of months before taking a call on the strength of the recovery,” said DK Joshi, principal economist at ratings agency CRISIL.
The biggest surprise in the basket of core sectors was electricity generation, which touched a 13-month high. ”The availability of coal has improved and the units that were commissioned last year are working well, resulting in higher generation of power,” said Central Electricity Authority chairman Rakesh Nath. G
iving further strength to Cabinet secretary KM Chandrashekar’s assessment that the economy is beginning to respond to the booster shots administered by the government, cement production surged 10.1% in March. JK Cement group executive president RG Bagla said, “Increased government spending on infrastructure led to higher demand for cement in March.”Coal production grew 5.2% in the year and showed a cumulative growth of 8.1% for the fiscal. Annual growth in finished carbon steel production contracted 2.6% in March, raising concerns. But this is expected to pick up in the coming months. According to Naveen Vohra, partner at Ernst & Young, steel consumption and production is expected to pick up. ”Demand in the auto sector has also started looking up on the back of a marginal improvement in the credit situation,” he added. The steel industry staged a smart recovery in the first three months of 2009 on account of a revival in the auto, rural infrastructure and housing sectors, and is expected to gather further momentum hereon.
Petroleum refinery products recovered to grow 3.3%— the highest in last 5 months—while the drop in crude oil production recovered from a low of 8.1% in January to 2.3% in March.
ICRA pegs growth at 6.5-7.5% for FY10
ICRA pegs growth at 6.5-7.5% for FY10
The Economic Times, April 30, 2009, Page 7
Reuters NEW DELHI
THE Indian economy is likely to grow 6.5-7.5% in FY10, if the global economy comes out of the slump later this year and as government stimulus starts working, rating agency ICRA said in a report.
Last week, the Reserve Bank of India (RBI) forecast a 6% expansion in Asia’s third-largest economy but private analysts have pegged growth lower than that, as uncertainties linger across the globe even after a raft of rate cuts and fiscal stimulus measures.
“It is our view that the Indian economy will likely grow by 7% plus/minus 0.5% in the fiscal year 2009-10,” it said. “This is based on the assessment that the US economy will start to show signs of growth in the third quarter of 2009, which will strengthen overall global activity.” ICRA also assumes a normal monsoon and a “coherent and supportive” policy from the next government at the Centre. ICRA said India’s economic growth could be a modest 6.5% in the first half of FY10, with a 4% expansion in industrial output and close to a 9% growth in services sectors. The economy could later accelerate to a 7.5% growth in the second half of FY10, it added.
Earlier, the government estimated gross domestic product to have grown 7.1% in FY09, slowing from 9% or more in the previous three years as high borrowing costs and later a global slump trimmed output. Prime Minister Manmohan Singh has, however, reiterated FY09 growth could fall short of 7% after final figures are collated.
The Economic Times, April 30, 2009, Page 7
Reuters NEW DELHI
THE Indian economy is likely to grow 6.5-7.5% in FY10, if the global economy comes out of the slump later this year and as government stimulus starts working, rating agency ICRA said in a report.
Last week, the Reserve Bank of India (RBI) forecast a 6% expansion in Asia’s third-largest economy but private analysts have pegged growth lower than that, as uncertainties linger across the globe even after a raft of rate cuts and fiscal stimulus measures.
“It is our view that the Indian economy will likely grow by 7% plus/minus 0.5% in the fiscal year 2009-10,” it said. “This is based on the assessment that the US economy will start to show signs of growth in the third quarter of 2009, which will strengthen overall global activity.” ICRA also assumes a normal monsoon and a “coherent and supportive” policy from the next government at the Centre. ICRA said India’s economic growth could be a modest 6.5% in the first half of FY10, with a 4% expansion in industrial output and close to a 9% growth in services sectors. The economy could later accelerate to a 7.5% growth in the second half of FY10, it added.
Earlier, the government estimated gross domestic product to have grown 7.1% in FY09, slowing from 9% or more in the previous three years as high borrowing costs and later a global slump trimmed output. Prime Minister Manmohan Singh has, however, reiterated FY09 growth could fall short of 7% after final figures are collated.
Economy to recover by 2nd half: Mastercard
Economy to recover by 2nd half: Mastercard
The Economic Times, April 30, 2009, Page 7
Our Bureau MUMBAI
INDIA’S economy will revive by the second half this year driven by a series of rate cuts by the Reserve Bank of India (RBI), a recovery in the Chinese economy, and strong growth in the outsourcing sector in the post-crisis period. “The spate of rate cuts will have a lag effect on the Indian economy and subsequently the country should witness healthy growth in 2010-11. Even China is rebounding faster than expected. These factors will fuel the recovery process of the Indian economy,” said MasterCard Worldwide economic advisor Yuwa Hedrick Wong.
A study by MasterCard shows that the policy rate in India has been higher than in China between 2000 and 2008, proving better quality of investments in India. This is because RBI has been vigilant in controlling inflation and the setting of commercial interest rates in India is more market-driven. Real interest rates in India, as a result, are more consistent with market conditions. However, the impact of the global credit crisis on India has been felt through capital flows, which turned negative as early as February 2008 despite the country’s low dependency on exports. Even remittances by Indian workers overseas, especially in Gulf Council Countries (GCC), shrank, affecting the country indirectly, the study stated.
It also indicated that prices of services such as management consulting, legal, computer consulting, healthcare and education were rising in the US despite the recession there. This implies severe supply constraints in such services. At the same time, India’s IT outsourcing sector is best positioned to supply, the study noted. “In spite of the increasingly shrill political rhetoric of protectionism, service outsourcing will become more of a necessity than a nice-to-have option for many American businesses once they have survived the global crisis.”
The Economic Times, April 30, 2009, Page 7
Our Bureau MUMBAI
INDIA’S economy will revive by the second half this year driven by a series of rate cuts by the Reserve Bank of India (RBI), a recovery in the Chinese economy, and strong growth in the outsourcing sector in the post-crisis period. “The spate of rate cuts will have a lag effect on the Indian economy and subsequently the country should witness healthy growth in 2010-11. Even China is rebounding faster than expected. These factors will fuel the recovery process of the Indian economy,” said MasterCard Worldwide economic advisor Yuwa Hedrick Wong.
A study by MasterCard shows that the policy rate in India has been higher than in China between 2000 and 2008, proving better quality of investments in India. This is because RBI has been vigilant in controlling inflation and the setting of commercial interest rates in India is more market-driven. Real interest rates in India, as a result, are more consistent with market conditions. However, the impact of the global credit crisis on India has been felt through capital flows, which turned negative as early as February 2008 despite the country’s low dependency on exports. Even remittances by Indian workers overseas, especially in Gulf Council Countries (GCC), shrank, affecting the country indirectly, the study stated.
It also indicated that prices of services such as management consulting, legal, computer consulting, healthcare and education were rising in the US despite the recession there. This implies severe supply constraints in such services. At the same time, India’s IT outsourcing sector is best positioned to supply, the study noted. “In spite of the increasingly shrill political rhetoric of protectionism, service outsourcing will become more of a necessity than a nice-to-have option for many American businesses once they have survived the global crisis.”
US housing still has a way to fall
US housing still has a way to fall
Business Standard, April 30, 2009, Money & Markets, Section II, Page 1
Robert Cyran
Is the US housing market approaching bottom? The rate of decline in US house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities. That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.
Better isn’t synonymous with good. The decline is less dramatic than January’s 2.6% fall, but it’s still an awful figure. Prices have fallen 18.8% over the past year, according to the index.
But let’s be optimistic and say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that’s to say a 2.1% decline instead of a 2.6%). Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower – worse than the baseline case under the stress tests.
And while the idea that price falls are moderating makes sense – prices cannot fall to zero – the evidence they are is feeble.
ONE month doesn’t make a trend, even for a journalist or desperate realtor. Spring is also the busiest time for selling homes, so prices tend to be a bit stickier than they are at other times of the year. Finally, the worst declines in February predominantly took place in cities where prices have fallen the most. For example, home prices in Phoenix have already fallen by more than half from their peak. They fell another 4.5% in February, according to Case-Shiller. That seems to point to a trend that hasn’t yet petered out. Home prices will eventually reach bottom. But it’s not yet in view.
Business Standard, April 30, 2009, Money & Markets, Section II, Page 1
Robert Cyran
Is the US housing market approaching bottom? The rate of decline in US house prices moderated in February. Prices fell 2.1%, according to the Case-Shiller composite index of ten cities. That sounds like great news for housing-hobbled banks. After all, real estate prices are a key factor in the stress tests the biggest banks are undergoing, right? Not so fast.
Better isn’t synonymous with good. The decline is less dramatic than January’s 2.6% fall, but it’s still an awful figure. Prices have fallen 18.8% over the past year, according to the index.
But let’s be optimistic and say the moderation continues, with prices gradually approaching a bottom. The improvement was half of one percent in February (that’s to say a 2.1% decline instead of a 2.6%). Now assume the rate of decline slows to a quarter of a percent in March and continues this trajectory. At the end of the year, prices would be 19% lower – worse than the baseline case under the stress tests.
And while the idea that price falls are moderating makes sense – prices cannot fall to zero – the evidence they are is feeble.
ONE month doesn’t make a trend, even for a journalist or desperate realtor. Spring is also the busiest time for selling homes, so prices tend to be a bit stickier than they are at other times of the year. Finally, the worst declines in February predominantly took place in cities where prices have fallen the most. For example, home prices in Phoenix have already fallen by more than half from their peak. They fell another 4.5% in February, according to Case-Shiller. That seems to point to a trend that hasn’t yet petered out. Home prices will eventually reach bottom. But it’s not yet in view.
US growth slumps to 5-decade low
US growth slumps to 5-decade low
The Financial Express, April 30, 2009, Page 1
Washington: The US economy plunged again in the first quarter, capping its worst performance in five decades, reflecting a record slump in inventories and further declines in housing. GDP dropped at a 6.1% annual pace after contracting at a 6.3% rate in the last three months of 2008, the commerce department said on Wednesday.
The performance marks the weakest six months since 1957-58. Smaller stockpiles may set the stage for a return to growth in the second half of the year amid signs Fed efforts to reduce borrowing costs and unclog lending are starting to pay off.
The Financial Express, April 30, 2009, Page 1
Washington: The US economy plunged again in the first quarter, capping its worst performance in five decades, reflecting a record slump in inventories and further declines in housing. GDP dropped at a 6.1% annual pace after contracting at a 6.3% rate in the last three months of 2008, the commerce department said on Wednesday.
The performance marks the weakest six months since 1957-58. Smaller stockpiles may set the stage for a return to growth in the second half of the year amid signs Fed efforts to reduce borrowing costs and unclog lending are starting to pay off.
Zoom Developers back in Vizhinjam port bid
Zoom Developers back in Vizhinjam port bid
The Financial Express, April 30, 2009, Page 2
fe Bureau
Thiruvananthapuram: Kerala Cabinet on Wednesday decided to include the bid of Zoom Developers for participating in the tender process of the Rs 5,348-crore Vizhinjam port project, which is slated to come up on a BOT basis. This is in deference to the Supreme Court verdict on Zoom Developers’ petition. “The letter given by Lanco Kondapally will be under consideration, till Zoom Developers’ bid is also examined. This is the State Government’s directive to the Bid Evaluation Committee,” Chief Minister VS Achuthanandan told reporters after a meeting of the State Cabinet here.
However, no deadline has been fixed for vetting the bids submitted by the companies including Zoom Developers and Lanco Kondapally. After getting the Central clearances, Kerala Government had awarded the contract to Lanco. Zoom Developers had promptly challenged this award dragging Kerala Government to court for rejecting its bid.
Congress-led Opposition United Democratic Front (UDF) had alleged that Zoom was kept out of participation, despite it offering to pay the government Rs 447 crore after ten years of operations. Lanco, they pointed out, offered only Rs 115 crore for the same period. On Tuesday,the State Secretariat of the main ruling party CPI(M) had directed the Government to re-examine Zoom’s bid.
Vizhinjam port project, set on world’s deepest natural port location at 24 metre depth, is envisaged to handle 4.1 million containers annually. Built close to a busy international shipping route, the proposed port is to be handed over to Kerala Government after the 30 years once the concession period is over.
Kerala Cabinet, which met here, also approved the guidelines for starting IT parks in private sector in the state. A minimum of 30,000 sq feet land was necessary for starting an IT park, according to the State’s IT policy. As much as 70% of the land available must be used for IT-related purposes, Chief Minister, who holds the IT portfolio, said.
The Cabinet also decided to celebrate the third anniversary of the LDF government’s rule by launching welfare and development works. Achuthandan said that the Rs 2 per kilo rice scheme for BPL families would be inaugurated, in the State capital, on May 18. In other districts, the scheme would be effective from May 19.
The Financial Express, April 30, 2009, Page 2
fe Bureau
Thiruvananthapuram: Kerala Cabinet on Wednesday decided to include the bid of Zoom Developers for participating in the tender process of the Rs 5,348-crore Vizhinjam port project, which is slated to come up on a BOT basis. This is in deference to the Supreme Court verdict on Zoom Developers’ petition. “The letter given by Lanco Kondapally will be under consideration, till Zoom Developers’ bid is also examined. This is the State Government’s directive to the Bid Evaluation Committee,” Chief Minister VS Achuthanandan told reporters after a meeting of the State Cabinet here.
However, no deadline has been fixed for vetting the bids submitted by the companies including Zoom Developers and Lanco Kondapally. After getting the Central clearances, Kerala Government had awarded the contract to Lanco. Zoom Developers had promptly challenged this award dragging Kerala Government to court for rejecting its bid.
Congress-led Opposition United Democratic Front (UDF) had alleged that Zoom was kept out of participation, despite it offering to pay the government Rs 447 crore after ten years of operations. Lanco, they pointed out, offered only Rs 115 crore for the same period. On Tuesday,the State Secretariat of the main ruling party CPI(M) had directed the Government to re-examine Zoom’s bid.
Vizhinjam port project, set on world’s deepest natural port location at 24 metre depth, is envisaged to handle 4.1 million containers annually. Built close to a busy international shipping route, the proposed port is to be handed over to Kerala Government after the 30 years once the concession period is over.
Kerala Cabinet, which met here, also approved the guidelines for starting IT parks in private sector in the state. A minimum of 30,000 sq feet land was necessary for starting an IT park, according to the State’s IT policy. As much as 70% of the land available must be used for IT-related purposes, Chief Minister, who holds the IT portfolio, said.
The Cabinet also decided to celebrate the third anniversary of the LDF government’s rule by launching welfare and development works. Achuthandan said that the Rs 2 per kilo rice scheme for BPL families would be inaugurated, in the State capital, on May 18. In other districts, the scheme would be effective from May 19.
Stimulus results in Apr-May: Montek
Stimulus results in Apr-May: Montek
The Financial Express, April 30, 2009, Page 2
Press Trust of India, New Delhi
Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday said the stimulus packages to revive the economy would start showing results in the data for April-May and definite signs of recovery would become manifest in the second half of the fiscal.
“By April-May we should begin to see the impact but the data (are) not with me ... I am quite sure the stimulus will impact but we need to see the hard numbers,” he said while talking to reporters here.
In order to boost the economy facing the heat of the global financial meltdown, the government came out with a stimulus package on December 7 and followed up with more steps in January and February.
As per indications from industry, Ahluwalia said, “There are signs of recovery in different segments but industry-wise numbers are still to come.” “In the second half of this year you’ll see distinct signs of recovery,” he added.
The country, Ahluwalia had said earlier in Washington, was expected to record a gross domestic product growth rate of 6% this fiscal, and more next fiscal with likely recovery in the global economy.
On the issue of further cuts in interest rates by the RBI, he said there is always scope. “There is always (a scope for further rate cuts). All these matters should be looked at by the Reserve Bank on a day-to-day basis ... so I don’t want to make comments on this,” he said.Earlier on April 21, the RBI had cut its key short-term borrowing and lending rates by 25 basis points.
The Financial Express, April 30, 2009, Page 2
Press Trust of India, New Delhi
Planning Commission deputy chairman Montek Singh Ahluwalia on Wednesday said the stimulus packages to revive the economy would start showing results in the data for April-May and definite signs of recovery would become manifest in the second half of the fiscal.
“By April-May we should begin to see the impact but the data (are) not with me ... I am quite sure the stimulus will impact but we need to see the hard numbers,” he said while talking to reporters here.
In order to boost the economy facing the heat of the global financial meltdown, the government came out with a stimulus package on December 7 and followed up with more steps in January and February.
As per indications from industry, Ahluwalia said, “There are signs of recovery in different segments but industry-wise numbers are still to come.” “In the second half of this year you’ll see distinct signs of recovery,” he added.
The country, Ahluwalia had said earlier in Washington, was expected to record a gross domestic product growth rate of 6% this fiscal, and more next fiscal with likely recovery in the global economy.
On the issue of further cuts in interest rates by the RBI, he said there is always scope. “There is always (a scope for further rate cuts). All these matters should be looked at by the Reserve Bank on a day-to-day basis ... so I don’t want to make comments on this,” he said.Earlier on April 21, the RBI had cut its key short-term borrowing and lending rates by 25 basis points.
Nano solution to housing shortage
Nano solution to housing shortage
The Financial Express, April 30, 2009, Page 7
Bimal Jalan, former RBI governor and Rajya Sabha MP, is planning to do a Nano on rural housing. He is bringing together private banks, National Housing Bank, developers and the government to establish a new structure of ‘build-and-go’ homes. Jalan said the new model would work on the lines of the PCOs that changed the way India communicates. In an interview with Sunny Verma & Subhomoy Bhattacharjee of FE , Jalan also said that Indian economy has hit the bottom and GDP growth will be at least 6% this fiscal.
Is the threat of a looming slowdown behind us now?
I think so. I think the general consensus is that the rates of decline have become lower than after September. Now the feeling is that it won’t be as bad, the housing demand is picking up and our situation was not that bad anyway. I hope our growth rate in the worst circumstances will be 5-6%. The government is talking about a little better—it can’t go much more down. Just as there is a peak, there is a bottom. We have hit the bottom.
RBI has said the BPLR system has become irrelevant. What could be an alternative?
The alternative is that BPLR should mean what is says, which can fluctuate 50-100 basis points upward or downward. But you can’t, say, have a prime lending rate and then give 400 basis points higher or below. Your BPLR should be more transparent. So when you are going to a bank as a household borrower or as a corporate sector, you can say that I am a prime borrower and this is the rate and this is what it should mean. It should be somewhere at the bottom.
Your interest in rural housing?
When I was the president of NCAER(1998-2008), we thought a study based on field work should be done on rural housing. That’s how I got involved. This is the interesting thing about NCAER. Very few organisations do sample surveys. This study is based on actual ground level work. From our wider perspective, it is of equal importance because there is a social aspect to Indira Awas Yojna and many other such policies. There is also a banking policy with loans below 4% for certain amount of housing. Government and everybody are interested in rural housing as 65% of our population is in rural areas. If you provide for rural housing, for example infrastructure is very important, it becomes an extremely important input to increase rural employment. That’s how this started.
What is the plan?
I have had preliminary discussion with the NCAER, National Housing Bank, HDFC etc to see in what way we can improve access. The next step is how to accomplish this? This requires a lot of thought. I have been in touch with S Sridhar (former CMD of NHB, currently CMD of Central Bank of India). There are two three things that we need to do together. One is to follow the PCO (public call office) model. In many countries like Mexico and South Africa, you have similar build-and-go houses. The idea is to minimise inventory.
How will the PCO model work?
Say at every ten kilometers there is a ‘home depot’ or housing centre, whatever name one decides. These are just concepts at the moment. There are two-three designs. These are linked with the help of government and NHB, as well and all the banks involved in providing finance. The housing models are available, then we also decide what is the material required for different kinds of housing. And let’s imagine a farmer, he just walks in (to this home depot), there is a franchisee of (such housing). Just think of a concept where there is a one stop shop for housing and somebody walks in, there are 4-5 designs with different level of costs, requiring Rs 2,000 per month to Rs 7,000 per month. You chose the kind of housing that you need. It is built with all pre-fabricated material, not necessarily cement or anything, and it is supplied just-in-time. This happens in the US, in Mexico. There will be an agency that will construct these houses. So the concept is that you bring together so far as the inventories are concerned just-in-time.
Will this idea work?
You take Nano. Why is Nano so exciting? Who would have thought you can produce a competitive design worked out up to the marketing standards. They have done it.
Will these places work as the franchisee arms of the banks?
Not necessarily. That has to be worked out. There will be agents’ shops, also like PCOs. Everything will be brought together in some way, just as your insurance agents are deposit mobilisers for the banks.
Will it require any changes in the Banking Regulation Act or other Acts to permit such a structure?
Very minor. If they are required, they should be brought together. I think it’s more of a concept that has to be actually franchised like insurance policy, health insurance. You have the agent come to your house and give the policy; you pay your premium. There is no subsidy involved.
So the buyer has own his land on which a house will be built?
Yes, of course. But if they don’t have the land, then they can find a place where they can buy the house. Or they can do collective housing. These are all concepts, which have to be worked on. But there is tremendous scope because the pre-fabrication technology has come and we already have these concepts whereby by minimising inventories, and with lower costs, you can minimise the need for architects and so on. Somebody can put it all together and give you a house.
Some time back, NHB has mooted the idea of a Rs 1 lakh house.
We are working on it. The idea is to put it together, to give some traction and to show that it can be done. And it cannot be done in any bureaucratic way. I mean it has to be done through mobilising the resources that we have in rural areas for supply of materials, which can be used by the constructor under the supervision of somebody who knows about them.
But what is the incentive for developers to come forward for this idea?
Why should anybody sell anything? What was the incentive for a person who became an agent of a PCO? It (pricing of houses) would be ‘cost plus’. The idea is to minimise the cost and maximise durability.
Wouldn’t it be a very thin margin game?
For demand there is no problem, as long as there is demand for rural housing. We have estimated that the demand is pretty high and most of the concerned people have their own land or plots.
Can a single agency deliver the kind of rural housing needed in India?
Now we have the National Housing Bank. Earlier NHB was part of the Reserve Bank of India. NHB now is a separate agency and at the moment it doesn’t have the kind of resources which are required. If there is enough will, and everybody is now talking about demand for rural housing, and this can be pooled together and NHB—or those kinds of agencies—can initiate this even on a trial basis, I am sure that everything will come together.
What sort of investment would such a project involve?
I have no idea. On 13th (May), we are launching a discussion.
The Financial Express, April 30, 2009, Page 7
Bimal Jalan, former RBI governor and Rajya Sabha MP, is planning to do a Nano on rural housing. He is bringing together private banks, National Housing Bank, developers and the government to establish a new structure of ‘build-and-go’ homes. Jalan said the new model would work on the lines of the PCOs that changed the way India communicates. In an interview with Sunny Verma & Subhomoy Bhattacharjee of FE , Jalan also said that Indian economy has hit the bottom and GDP growth will be at least 6% this fiscal.
Is the threat of a looming slowdown behind us now?
I think so. I think the general consensus is that the rates of decline have become lower than after September. Now the feeling is that it won’t be as bad, the housing demand is picking up and our situation was not that bad anyway. I hope our growth rate in the worst circumstances will be 5-6%. The government is talking about a little better—it can’t go much more down. Just as there is a peak, there is a bottom. We have hit the bottom.
RBI has said the BPLR system has become irrelevant. What could be an alternative?
The alternative is that BPLR should mean what is says, which can fluctuate 50-100 basis points upward or downward. But you can’t, say, have a prime lending rate and then give 400 basis points higher or below. Your BPLR should be more transparent. So when you are going to a bank as a household borrower or as a corporate sector, you can say that I am a prime borrower and this is the rate and this is what it should mean. It should be somewhere at the bottom.
Your interest in rural housing?
When I was the president of NCAER(1998-2008), we thought a study based on field work should be done on rural housing. That’s how I got involved. This is the interesting thing about NCAER. Very few organisations do sample surveys. This study is based on actual ground level work. From our wider perspective, it is of equal importance because there is a social aspect to Indira Awas Yojna and many other such policies. There is also a banking policy with loans below 4% for certain amount of housing. Government and everybody are interested in rural housing as 65% of our population is in rural areas. If you provide for rural housing, for example infrastructure is very important, it becomes an extremely important input to increase rural employment. That’s how this started.
What is the plan?
I have had preliminary discussion with the NCAER, National Housing Bank, HDFC etc to see in what way we can improve access. The next step is how to accomplish this? This requires a lot of thought. I have been in touch with S Sridhar (former CMD of NHB, currently CMD of Central Bank of India). There are two three things that we need to do together. One is to follow the PCO (public call office) model. In many countries like Mexico and South Africa, you have similar build-and-go houses. The idea is to minimise inventory.
How will the PCO model work?
Say at every ten kilometers there is a ‘home depot’ or housing centre, whatever name one decides. These are just concepts at the moment. There are two-three designs. These are linked with the help of government and NHB, as well and all the banks involved in providing finance. The housing models are available, then we also decide what is the material required for different kinds of housing. And let’s imagine a farmer, he just walks in (to this home depot), there is a franchisee of (such housing). Just think of a concept where there is a one stop shop for housing and somebody walks in, there are 4-5 designs with different level of costs, requiring Rs 2,000 per month to Rs 7,000 per month. You chose the kind of housing that you need. It is built with all pre-fabricated material, not necessarily cement or anything, and it is supplied just-in-time. This happens in the US, in Mexico. There will be an agency that will construct these houses. So the concept is that you bring together so far as the inventories are concerned just-in-time.
Will this idea work?
You take Nano. Why is Nano so exciting? Who would have thought you can produce a competitive design worked out up to the marketing standards. They have done it.
Will these places work as the franchisee arms of the banks?
Not necessarily. That has to be worked out. There will be agents’ shops, also like PCOs. Everything will be brought together in some way, just as your insurance agents are deposit mobilisers for the banks.
Will it require any changes in the Banking Regulation Act or other Acts to permit such a structure?
Very minor. If they are required, they should be brought together. I think it’s more of a concept that has to be actually franchised like insurance policy, health insurance. You have the agent come to your house and give the policy; you pay your premium. There is no subsidy involved.
So the buyer has own his land on which a house will be built?
Yes, of course. But if they don’t have the land, then they can find a place where they can buy the house. Or they can do collective housing. These are all concepts, which have to be worked on. But there is tremendous scope because the pre-fabrication technology has come and we already have these concepts whereby by minimising inventories, and with lower costs, you can minimise the need for architects and so on. Somebody can put it all together and give you a house.
Some time back, NHB has mooted the idea of a Rs 1 lakh house.
We are working on it. The idea is to put it together, to give some traction and to show that it can be done. And it cannot be done in any bureaucratic way. I mean it has to be done through mobilising the resources that we have in rural areas for supply of materials, which can be used by the constructor under the supervision of somebody who knows about them.
But what is the incentive for developers to come forward for this idea?
Why should anybody sell anything? What was the incentive for a person who became an agent of a PCO? It (pricing of houses) would be ‘cost plus’. The idea is to minimise the cost and maximise durability.
Wouldn’t it be a very thin margin game?
For demand there is no problem, as long as there is demand for rural housing. We have estimated that the demand is pretty high and most of the concerned people have their own land or plots.
Can a single agency deliver the kind of rural housing needed in India?
Now we have the National Housing Bank. Earlier NHB was part of the Reserve Bank of India. NHB now is a separate agency and at the moment it doesn’t have the kind of resources which are required. If there is enough will, and everybody is now talking about demand for rural housing, and this can be pooled together and NHB—or those kinds of agencies—can initiate this even on a trial basis, I am sure that everything will come together.
What sort of investment would such a project involve?
I have no idea. On 13th (May), we are launching a discussion.
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