Monday, August 10, 2009
RBI survey sees agriculture growth slowing down
RBI survey sees agriculture growth slowing down
The Hindu Business Line, August 9, 2009, Page 3
Industrial growth may touch 4.3% this fiscal.
Our Bureau, Mumbai
Agricultural growth in the current fiscal could slow down to 2.5 per cent from 3 per cent, according to the latest Survey of Professional Forecasters by the Reserve Bank of India.
The survey, released on Friday, says that industrial growth could increase to 4.3 per cent from 4.1 per cent and services could grow to 8.3 per cent from 7.5 per cent in 2009-10.
GDP growth
The eighth round of the survey also revised upwards GDP growth to 6.5 per cent, from 5.7 per cent in the last survey.
The Central Government fiscal deficit is placed at 6.8 per cent of GDP in 2009-10, unchanged from the previous survey.
Indicating an upward movement in interest rates, the survey revised upwards both reverse repo and repo rates.
According to the survey, repo rate could be at 5 per cent (4.5 per cent in the last survey) while reverse repo rate could be at 3.5 per cent (3 per cent).
Corporate sector
Profit growth of the corporate sector has been revised downwards to 7.5 per cent from 9 per cent. The growth in profit is expected to improve to 15 per cent in 2010-11, the survey said.
The highest chance has been assigned to wholesale inflation being in the range of 4-4.9 per cent in 2009-10 and 5-5.9 per cent in 2010-11.
On a long-term basis, the forecast for real GDP growth for the next five years is 7.5 per cent, which is revised upwards from 7 per cent. For the next 10 years, the GDP is expected to grow at 8 per cent (7.5 per cent).
SBI slashes home loan rates yet again
SBI slashes home loan rates yet again
Business Standard, August 8, 2009, Page 1
BS Reporter / Mumbai
The rate war in the home loan segment has just intensified, with the State Bank of India, the country’s largest bank, slashing rates today to attract customers across income segments.
It introduced a new scheme for borrowers up to Rs 5 lakh. In this Hi-Five Loan Scheme, the bank has offered an annual rate of 8 per cent for the first five years. Thereafter, the borrower has the option to choose between a floating rate of 2.75 per cent below the State Bank Advance Rate (SBAR) and a fixed rate of 1.25 per cent below SBAR.
Meanwhile, the limit on the Easy Home Loan scheme has been enhanced from Rs 30 lakh to Rs 50 lakh. For loans up to Rs 50 lakh, the lender will charge 8 per cent in the first year and it has reduced the second- and third-year rates from 9 per cent to 8.5 per cent. From the fourth year on, the conditions are the same as that in the Hi-Five Loan scheme.
For loans above Rs 50 lakh (Advantage Home Loan scheme), the new rates are 8 per cent (first year), 9 per cent (second and third years) and a floating rate of 1.75 per cent below SBAR or a fixed rate of 0.75 per cent below SBAR from the fourth year.
There will be no processing fees, free personal accident insurance and no levy on prepayment of loans if they are paid from the borrower’s own resources. Said P Nandakumaran, chief general manager, personal banking, SBI “We have taken the lead and expect others to be in step with us.”
Industry sources said with this cut, the bank’s rates look the most attractive among competitors. For those on the Easy Home Loan scheme, which targets the largest segment of borrowers of loans between Rs 5 lakh to Rs 50 lakh, the savings would be quite substantial.
A borrower would have paid an equated monthly instalment (EMI) of Rs 36,989 for a 20-year Rs 40 lakh loan at 9 per cent in the second and third years. At the rate of 8.5 per cent, his EMI would come down to Rs 34,712 — a monthly saving of Rs 1,277 and annual saving of Rs 15,324.
Industry experts said the new rates bring down SBI’s average yearly rate substantially. Given that the present SBAR is 11.75 per cent, the rates from the fourth year could be 9 per cent (2.75 per cent below SBAR) or even lower.
That means in the Easy Home Loan scheme, the new rate would be 8.76 per cent a year, down from 9.58 per cent a year (for a 20-year loan).
For a similar tenure and loans between Rs 15 lakh and Rs 30 lakh, HDFC’s average is 9 per cent and ICICI Bank’s is 9.25 per cent.
Canara Bank’s average rate is 9.67 per cent. The bank was the first one to offer a five-year fix rate. For the first year, it charged 8.25 per cent and 9.25 per cent in the next four years.
Competitors were non-committal. “We are not worried by SBI’s latest move because we are in a different space. Since July, we have been offering a scheme under which customers pay a fixed rate of 8.9 per cent for the first three years but can opt to shift to the floating rate at any time during that period. As far as
I know, no other institution offers customers this option,” R R Nair, Director and Chief Executive, LIC Housing Finance. A senior official from HDFC said, “ We cut rates recently. There are no plans to cut them further.”
Monsoon clouds direction of economy’s growth
Monsoon clouds direction of economy’s growth
The Hindu Business Line, August 8, 2009, Page 1
Rainfall deficit 25%; PM to review situation today.
M.R. Subramani, Chennai
Clouds of worry hover over the Indian economy as the monsoon continues to play truant.
Monsoon, which hit the Indian shores a week ahead of the scheduled date of June 1, has progressed in fits and starts. Till August 5, the deficit stood at 25 per cent with last week’s 66 per cent deficiency adding to the gloom.
Various experts across the country say monsoon’s progress in the next 10-15 days holds the key to agricultural output but an updated El Nino advisory from the US National Oceanic and Atmospheric Administration said that the prevailing El Nino is expected to strengthen and last through the winter. This further raises a question mark on how the monsoon will progress further.
The worry over the progress of the monsoon had its echo in the Finance Minister, Mr Pranab Mukherjee’s statement in Parliament.
He said he was unsure of the economy’s direction as other problems may arise from the adverse effects of scanty rainfall. “The Agriculture Minister is making an assessment. We are also making an assessment. But this (scanty rainfall) is a problem and we are trying to handle it,” Mr Mukherjee told the Lok Sabha during Question Hour.
Meanwhile, the Prime Minister, Dr Manmohan Singh, will be holding a meeting of the Chief Secretaries of various States on Saturday to tackle the situation.
Despite deficient monsoon, a Central Water Commission data showed that the water storage position in the 81 major reservoirs was higher by a percentage point compared with last year. As on Thursday, the storage level was 54.839 billion cubic metres (BCM) or 36 per cent of the full reservoir level of 151.768 BCM. Last year, the storage level was 35 per cent.
But the area of concern is the storage levels in the Ganga and Indus basins, which hold the key to a better rabi crop. Sowing for rabi will begin during October-November.
Cotton holds promise
According to reports from various States, crops such as paddy, groundnut, sugarcane could be affected.
Cotton is one crop that holds promise. States that are cause for worry are Bihar, Uttar Pradesh, Andhra Pradesh and Rajasthan.
Maharashtra and West Bengal are having their fingers crossed, hoping that monsoon could help improve the situation in the next fortnight. Madhya Pradesh, the soyabean hub of the country, seems to face less of a problem.
Karnataka and Gujarat are two States that have been totally unaffected by the erratic monsoon. In Karnataka, farmers are trying to take advantage of cash crops such as cereals, cotton, sugarcane, sunflower, groundnut and soyabean.
In Gujarat, better irrigation system through construction of check dams has come in handy, reducing farmers’ dependence on the vagaries of nature.
In Andhra Pradesh, at least three-fourths of the 1,100 mandals have reported deficit rainfall.
Monsoon uncertainty affected the stock markets for the second consecutive day with the Sensex dropping 2.28 per cent to 15,160.24.
(With inputs from Our Bureaus)
Pressure on interest rates likely in second half: Economists
Pressure on interest rates likely in second half: Economists
The Hindu Business Line, August 8, 2009, Page 6
Vinson Kurian, Thiruvananthapuram
The question now is when the lending rates would rise, and not whether. This is the view of the economists who took part in a random Business Line opinion poll.
Dr Dharmakirti Joshi, Director and Principal Economist at rating agency Crisil, said the sufficient liquidity in the system and low demand for funds suggest that there would be no immediate pressure on borrowing costs.
To prevent interest rates from going up in future, the Reserve Bank of India would have to keep accommodating the Government’s borrowing programme. But as growth picks up in the second half of the year and inflation too inches up, it will have to withdraw liquidity. This is when the borrowing programme will start biting and put pressure on borrowing costs.
UPWARD PRESSURE
Mr Siddhartha Sanyal, Economist at Edelweiss Securities, said that the large Government deficit is a clear upward pressure for interest rates.
Headline PLR may stay unchanged; but actual lending rates will possibly go up by around one per cent by March. Improved availability of equity capital and bank finance is the silver lining. Calibrated liquidity infusion through LAF (liquidity adjustment facility) and OMO (open market operations) within reasonable limits are effective contra-cyclical policy tools across countries under similar circumstances and should not be seen as negative, Mr Sanyal added.
REVERSING POLICY
Mr Indranil Sen Gupta, Economist, Bank of America-Merril Lynch, said that the RBI is most likely to reverse its easy money policy by January/April.
“We have revised our March 2010 WPI inflation forecast to 6.5 per cent (from 6.1 per cent), much higher than the RBI’s five per cent. But we do not expect the RBI – or any other central bank for that matter – to take chances with recovery at this stage.”
Gilts are likely to trade within a range in the near term but eventually weaken. Negatives come from a rising probability of a reversal in accommodative policies and rate hikes. Markets have partly priced in RBI tightening (as well as fiscal pressures).
“We believe that the lending rates have likely bottomed. At the same time, we expect the present soft lending rate regime to persist till second-half of 2010-11.
Interest rates may go up next year: DSP Merrill
Interest rates may go up next year: DSP Merrill
The Hindu Business Line, August 8, 2009, Page 10
RBI may turn focus on inflation.
Our Bureau, Mumbai
As the Indian economy starts to recover, the Reserve Bank of India might look at reversing the interest rate cuts over the last year, said Mr Jyotivardhan Jaipuria, Managing Director and Head of Research (India) at DSP Merrill Lynch.
“By April or June next year we can see some rate cuts as the economy would have started recovering by then. Interest rates here are close to bottom now. That will be when they will start focusing on inflation so that it does not go out of hand. Inflation will start rising by next year.”
If the monsoon continues to play spoilsport there may be a cut in India’s GDP ratings by 50-75 basis points.
DSP Merrill Lynch’s latest weekly report says India’s economy is expected to grow by 6.3 per cent in the current fiscal and 7.3 per cent in the next fiscal. “The monsoons are much lower than last year. This could lead to a fall in GDP. The Government will have to help out the farmers who will be affected by the weak monsoons by way of subsidies, which will put further pressure on our fiscal deficit,” said Mr Jaipuria.
According to the report, CPI Inflation currently at a negative 1.5 per cent, is expected to rise to 0.8 per cent by the end of FY09 and 5.5 per cent in FY10.
On the other hand, the run up in the stock markets this time is backed by liquidity and earnings, which is a good thing, said Mr Jaipuria.
“Liquidity is good globally; money is being taken out of the US and being pumped into emerging markets. The valuations are not very high here.”
Mr Stephen Corry, Director and Head of Investment Strategy at DSP Merrill Lynch, said one should look at investing in growth stocks in the emerging markets and in value names in the developed markets. “One should also look at high quality technology stocks and small-cap stocks in the emerging markets,” added Mr Corry.
The Hindu Business Line, August 8, 2009, Page 10
RBI may turn focus on inflation.
Our Bureau, Mumbai
As the Indian economy starts to recover, the Reserve Bank of India might look at reversing the interest rate cuts over the last year, said Mr Jyotivardhan Jaipuria, Managing Director and Head of Research (India) at DSP Merrill Lynch.
“By April or June next year we can see some rate cuts as the economy would have started recovering by then. Interest rates here are close to bottom now. That will be when they will start focusing on inflation so that it does not go out of hand. Inflation will start rising by next year.”
If the monsoon continues to play spoilsport there may be a cut in India’s GDP ratings by 50-75 basis points.
DSP Merrill Lynch’s latest weekly report says India’s economy is expected to grow by 6.3 per cent in the current fiscal and 7.3 per cent in the next fiscal. “The monsoons are much lower than last year. This could lead to a fall in GDP. The Government will have to help out the farmers who will be affected by the weak monsoons by way of subsidies, which will put further pressure on our fiscal deficit,” said Mr Jaipuria.
According to the report, CPI Inflation currently at a negative 1.5 per cent, is expected to rise to 0.8 per cent by the end of FY09 and 5.5 per cent in FY10.
On the other hand, the run up in the stock markets this time is backed by liquidity and earnings, which is a good thing, said Mr Jaipuria.
“Liquidity is good globally; money is being taken out of the US and being pumped into emerging markets. The valuations are not very high here.”
Mr Stephen Corry, Director and Head of Investment Strategy at DSP Merrill Lynch, said one should look at investing in growth stocks in the emerging markets and in value names in the developed markets. “One should also look at high quality technology stocks and small-cap stocks in the emerging markets,” added Mr Corry.
RBI wants to regulate housing finance firms
RBI wants to regulate housing finance firms
Business Standard, August 10, 2009, Page 1
Anindita Dey / Mumbai
The Reserve Bank of India (RBI) has added a rider for offloading its stake in the National Housing Bank (NHB) to the government by suggesting it handle the regulation, licensing and supervision of housing companies to provide banks and housing finance companies a level playing field.
Housing finance companies are currently regulated by NHB, which is, in turn, regulated by RBI. NHB is wholly-owned by RBI.
Sources close to the developments said the government is yet to take a decision on the suggestion since RBI's proposal has met with some opposition. Ownership of NHB will give the government greater say in the boards of housing finance institutions and flexibility to issue directions to meet its priority sector credit objectives.
RBI sources said the need for regulating housing companies arise because they do not have prudential guidelines or risk-linked capital limits to which banks, which come under the central bank's purview, are subject.
“There is clearly a regulatory arbitrage here. Housing is a priority sector, so many entities are getting into this business by floating housing companies and thereby skirting RBI's stringent prudential guidelines," said a source.
Sources said NHB was set up in 1987-1988 when the sub-group on housing finance for the Seventh Five Year Plan (1985-90) had identified non-availability of long-term finance for individual households. Banks at that time did not lend much for housing. The situation has changed and the old rules should not apply, the sources said.
RBI thinks NHB should be involved in more developmental work in the housing sector like refinancing companies for rural housing, mortgage financing and advising the government on meeting the country’s housing needs.
The government is reportedly likely to buy RBI’s stake in the National Bank for Agriculture and Rural Development (Nabard) and NHB by December this year, for which the Budget had earmarked Rs 1,542 crore (Rs 1,100 crore for Nabard and Rs 442 crore for NHB).
RBI holds about 72.5 per cent in Nabard and the government holds the rest.
Compelling need for real estate regulator: Parekh
Compelling need for real estate regulator: Parekh
Business Standard, August 10, 2009, Page 6
Press Trust Of India / Mumbai
Housing Development Finance Corporation (HDFC) chairman Deepak Parekh has said there is a compelling need to have real estate regulators at state level to deal with issues concerning the housing sector.
“There is a compelling need for state level real estate regulators,” Parekh said in an annual report of the company sent to shareholders.
Discussing various aspects of real estate, he added, “It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator”.
According to Parekh, regulators’ role would be to monitor the affordable housing agenda, promote real estate reforms, ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud.
Referring to the affordable housing, he observed that affordable housing is not about box-sized , budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure.
“Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place”, Parekh added.
About challenges being faced in rural housing, he said challenges of rural housing are vastly different from urban housing and key reform like permitting the mortgage of agricultural land for residential purpose was needed.
Parekh also criticised the tendency of state housing boards to make profits by selling lands.
He said,”many housing boards have shifted their focus to merely selling land for profit and sitting on cash surpluses. Such profits should be mandatorily ring fenced and deployed only for affordable housing”.
There is need for realty regulators in states: Parekh
There is need for realty regulators in states: Parekh
The Economic Times, August 10, 2009, Page 15
PTI MUMBAI
HOUSING Development Finance Corporation (HDFC) chairman Deepak Parekh has said there is a compelling need to have real estate regulators at state level to deal with issues concerning the housing sector. “There is a compelling need for state-level real estate regulators,” Parekh said in an annual report of the company sent to shareholders.
Discussing various aspects of real estate, he said, "It would be a missed opportunity if the government were not able to lay out an institutional framework for a real estate regulator".
According to Parekh, regulators' role would be to monitor the affordable housing agenda, promote real estate reforms, ensure transparency especially by mandating that flats be sold only on carpet area and act as a platform to protect buyers from real estate fraud.
Referring to the affordable housing, Parekh observed that affordable housing is not about box-sized , budget homes in far-flung places where there is no connectivity to work places and little surrounding infrastructure. "Affordable housing has to be able to cut across all income segments and has to make economic sense in terms of proximity to work place", he said.
About challenges being faced in rural housing, he sid challenges of rural housing are vastly different from urban housing and key reform like permitting the mortgage of agricultural land for residential purpose was needed. Parekh has also criticised tendency of state housing boards to make profits by selling lands.
Realtors building up hopes of revival on sequential rise in Q1 profit
Realtors building up hopes of revival on sequential rise in Q1 profit
The Hindu Business Line, August 8, 2009, Page 4
Moumita Bakshi Chatterjee, New Delhi
Even as the sales and profitability of real estate companies continue to trail the year-ago levels by a huge margin, for some realtors at least the first quarter earnings have provided a glimmer of hope. Builders such as DLF Ltd, Sobha Developers, Parsvnath and HDIL have managed a sequential rise in net profit or revenue in the just-concluded quarter, bolstering the industry’s claims that there is a change in sentiment and that demand is beginning to pick up.
The talk of recovery is clearly in the air. “We are seeing a better offtake in demand for housing loans and the real estate activity in specific cities has risen marginally, thanks to the focus on low- and mid-income housing,” says Mr Kapil Wadhawan, Chairman of Dewan Housing Finance Corporation, whose first quarter loan disbursements at Rs 774 crore was 63 per cent higher than the year-ago period.
Loan schemes
A senior SBI official said that attractive loan schemes, combined with the price correctionand new launches in the affordable category, had helped. “The monthly disbursements are good, and we have been making extra efforts to market the loan products… Overall, we have been targeting Rs 1,500 crore sanctions a month, and we have exceeded the target,” said the retail banking official. SBI had set a benchmark in February when it announced an eight per cent interest rate for the first year, for housing loans up to Rs 30 lakh.
Sustaining momentum
But analysts are waiting to see if the property transaction volumes can be sustained over the next six-nine months. “The coming months will be critical in determining the fate of the real estate industry. There was a pent-up demand in the market which fuelled the sales in the first quarter. The question is, can that momentum be sustained,” says Mr Shailesh Kanani, an analyst with Angel Broking.
Even now the buyer interest is limited to the residential space, that too ‘affordable’ housing, and the analysts feel that a similar uptick in commercial real estate — which continues to face an oversupply situation — could still be a few quarters away. Moreover, the second quarter of the fiscal is generally seen to be weaker owing to monsoons and Shradh period, when buying or selling of property is considered inauspicious by the Hindus.
But builders such as DLF feel that the first quarter marked a positive start to FY10 with the “worst behind”. In a recent call with investors, the DLF Vice-Chairman, Mr Rajiv Singh, said that business had stabilised and there were signs of recovery. “Real estate will come back in 6-12 months where it had left off… There are enquiries in the commercial space but we are six months away from seeing the enquiries convert into transactions. In the malls, the customer traffic is up and by end of 2009, retailers will start committing to growth option,” he said.
Higher PAT
For DLF, on a quarter-on-quarter basis, both net profit and revenue jumped up 149 per cent and 29 per cent respectively. DLF’s smaller rivals such as Parsvnath, Sobha Developers and HDIL too posted a higher PAT quarter-on-quarter, although the profitability on year-on-year basis tanked for all these companies. Last week, Delhi-based Parsvnath Developers registered over 81 per cent year-on- year fall in its consolidated net profit for the first quarter ended June 2009 to Rs 13.81 crore. The total revenue also declined 69.3 per cent year-on-year to Rs 115.29 crore. But, quarter on quarter, the PAT at Rs 13.81 crore reflected a 19 per cent rise compared with the fourth quarter of FY09 (January-March). Revenues increased nearly five-times on a quarter-on-quarter basis; the total revenue was Rs 24.09 crore in the fourth quarter.
Sobha Developers saw its first quarter net profit and revenue rise 76.3 per cent and 16 per cent respectively over the previous quarter (Q4 FY09). In the case of HDIL, the net profit for the quarter ended June 2009, was 73.6 per cent higher than the last sequential quarter.
Commercial realty could revive in the next two quarters
Commercial realty could revive in the next two quarters
The Financial Express, August 8, 2009, Page 4
Mona Mehta
After filing draft red herring prospectus (DRHP) with the Sebi for an initial public offering (IPO) through which the company plans to sell 9.4 million equity shares constituting 13.5% of its paid up capital, Godrej Properties has now outlined the vision for construction and launch of forthcoming projects. Milind Korde, managing director of Godrej Properties Limited, spoke to FE's Mona Mehta on the green shoots in the realty sector and the development of townships. Excerpts:
Now that market conditions are improving, when do you foresee revival of the real estate sector?
Residential real estate sector has started seeing marginal revival in terms of inquiries turning into sales during the fiscal first quarter, as compared to 100% dip in demand the sector witnessed during Q3 and Q4 of last financial year. Commercial real estate sector could see a revival in the next two quarters as compared to 25% dip in demand in Q2 2008-09. Demand from commercial IT sector has not yet picked up. In the next six to 12 months, depending on inflation a marginal rise in real estate prices is expected. We are planning to launch five to six new residential projects and two commercial projects in the next six to nine months.
Ninety-seven percent of Mumbai’s population is in need of affordable housing. Is Godrej Properties looking to enter this segment?
Not really. This is because margins in affordable housing are less in comparison to developing regular homes for end-buyers. We do not believe in compromising with the quality of homes that we offer to customers and most of the apartments on offer would be mainly two and three BHK apartments in metros. As for ‘affordable housing’, we are currently talking to various landowners in major metros toe valuate possibility of joint ventures with them on a profit and revenue sharing model. This could make our properties affordable to end-buyers.
How is Godrej Properties planning to broad base its business model?
We are going to focus on development of townships across India. To start with, we are eyeing Ahmedabad, Chennai and Chandigarh to develop township projects. We are awaiting approvals of new guidelines being formulated by the government that will benefit long-term developers developing townships.
What are the major challenges companies are facing in the real estate industry?
Since this budget did not really meet up with builders’ expectations, we are finding it difficult to pass on price benefit to customers. Even though interest rates on home loans have reduced and banks are stuffed with sufficient funds, it might still take about two quarters for actual sales conversion to happen.
This year and next will be tough for IT & BPO
This year and next will be tough for IT & BPO
The Financial Express, August 10, 2009
Rachana Khanzode
The Indian IT and BPO industry has been going through a rough patch in the recent past. Going ahead too, this year and the next will be difficult years for the industry, says Noshir Kaka, director and global leader for outsourcing and offshoring practice, McKinsey & Company. In an interview with FE’s Rachana Khanzode, he says the Indian IT and BPO industry needs to focus on new business models that target new business areas. Excerpts:
When do you expect a sustainable recovery for the Indian IT and BPO industry?
The rapid decline that the economy witnessed at the end of last year and early this year has come to a halt. But it is still too early to say that we are out of the woods. The governments across the globe have taken appropriate steps. But whether it is sustainable and would these steps push the economy out of slowdown is what one needs to wait and watch. So, at the moment, sustainable recovery is still far away. For the BPO industry, 2009 and 2010 are going to be difficult years. Though large clients have declined their volumes, we have still seen net incremental growth and that needs to be maintained. Nasscom’s prediction of 4-7% growth is decent enough at the moment.
What steps is the industry taking to face the global slowdown?
The decisions in the outsourcing and offshoring industry are based on individual companies. For instance, one set of banks want to hold on to the business initiatives till they stablise, while the others feel it is the right time to bring transformation in their business models. So, the industry is basically rebalancing portfolio by re-looking at the current clients and improving the cost structure.
Companies have also started looking at diversifying into new areas like healthcare. They are looking at end-to-end transformational deals and are taking strategic leaps by also acquiring captive units. These steps would have taken 4-5 years in a normal course of time, but now, they are taking a lot more risks and advantage of the opportunities.
Should the industry start looking at new business models?
The industry has been managing the current business model quite well by focusing on the offshoring component. However, it needs to look at new business models, as there is an 80% incremental opportunity in the next 12 years in the new areas. These are servicing China, the public sector across the globe and small and medium businesses effectively. The addressable market in these areas itself is $250 million by 2020. Another area is Japan, which, in the long term, is definitely in favour of outsourcing. Japan will drop about 9 million working people in the next 12 years and that will create a large opportunity to outsource work.
What are the other challenges that the industry is facing?
The industry still faces challenges in terms of the supply side, with only 12-14% of our graduates being employable. Also, a lot of work in the industry is the replication of what has been already done. We need to look at new product and services areas, and create products for markets that may not be very large at the moment but will eventually pick up. The industry also seeks free trade movements with countries they work with and expect a favourable political and regulatory environment.
Policy grey area short circuits power plants within SEZs
Policy grey area short circuits power plants within SEZs
The Financial Express, August 10, 2009
Rituparna Bhuyan, New Delhi
Six months after the Centre released new norms for power plants within Special Economic Zones (SEZs)—in a bid to attract greater investments—three existing SEZ power plants with a cumulative generation capacity of over 760 mw have slipped into the policy grey area. The affected power plants include a 720-mw plant set up at Reliance Industries’ SEZ at Jamnagar.
The Jamnagar SEZ, along with Moser Baer India Ltd and Abhijeet MADC Nagpur Energy Pvt Ltd, has approached the Board of Approvals (BoA) under the commerce ministry for clarification on the status of their power plants. Although the plants got a green signal from authorities earlier, they don’t fit into the new guidelines for power plants in SEZs notified in February.
As per the new guidelines, three types of power plants are allowed inside the tax-free zones. For one, power plants built outside the core processing area of an SEZ are eligible for tax sops for construction but not for operational running expenses.
A power plant is also allowed within the processing area if it is set up as a separate unit within the SEZ or if the entire SEZ is dedicated for power generation alone. Such power plants within SEZs would enjoy tax incentives for both construction and running costs.
But the three plants under question have been constructed by the co-developer of the projects and are based in the processing area of the SEZs. As a result, they do not fall under any of the categories of power plants mentioned in the new norms.
The BoA, headed by commerce secretary Rahul Khullar, may take a call on this in its meeting slated for August 11. While two of these plants are operational, permission to build the third one was given as late as January this year, about a month before the new guidelines were released.
The biggest power plant amongst the three, 720 mw, was constructed by Reliance Utilities Ltd (RUL) in the processing area of the Jamnagar SEZ refinery. RUL had partnered the lead developer of the SEZ, Reliance Jamnagar Infrastructure Limited, and has availed tax benefits for building the power plant as well as procuring routine supplies.
The plant’s existential dilemma was first discussed at the level of the development commissioner of Kandla SEZ—the nodal officer responsible for SEZs in and around Gujarat. The commissioner had noted that the power plant is in the processing area and has been constructed by a co-developer, therefore, couldn’t be allowed under the new norms. An alternative idea—designating the plant as non-processing area to comply with the February diktat—was also unacceptable as SEZ norms require the processing area to be contiguous.
Moser Baer India Ltd’s (MBIL) 15-mw power plant in its Greater Noida SEZ has similar problems. Set up inside the processing area, the power plant started generating power in June 2008. Within the zone, the present requirement of power is about 5–6 mw.
The plant has been buying duty-free furnace oil to generate electricity, part of which it supplies to an adjacent export oriented unit (EoU) manufacturing optical medical products, also owned by MBIL.
Moser Baer needs to get fresh clearances to retain the tax sops on power consumables and continue its sales to the EoU — both of which need a fundamental clarification on treatment of such power plants under the new norms.
Abhijeet MADC Nagpur Energy Pvt. Ltd (AMNEPL), a co-developer in the Maharashtra Airport Development Company Ltd (MADC) SEZ in Nagpur, is seeking a similar clarification for their 25-mw power plant. MADC is a Maharastra government company in charge of developing the multi-modal international hub airport in Nagpur. The nod for the plant was given on 29 January.
AMNEPL had approached MADC — developer of the zone — to demarcate the power plant as a non-processing area to comply with the new SEZ norms. But MADC maintained that this was not possible. Hence, the matter has been put before the BoA.
While the development of most SEZs has slowed, thanks to the credit crunch, setting up and operating power plants within SEZs are considered lucrative business propositions. Power from these zones can be supplied to industrial units outside, subject to conditions like payment of duty and maintaining positive net foreign exchange position of the SEZ power plants.
The Financial Express, August 10, 2009
Rituparna Bhuyan, New Delhi
Six months after the Centre released new norms for power plants within Special Economic Zones (SEZs)—in a bid to attract greater investments—three existing SEZ power plants with a cumulative generation capacity of over 760 mw have slipped into the policy grey area. The affected power plants include a 720-mw plant set up at Reliance Industries’ SEZ at Jamnagar.
The Jamnagar SEZ, along with Moser Baer India Ltd and Abhijeet MADC Nagpur Energy Pvt Ltd, has approached the Board of Approvals (BoA) under the commerce ministry for clarification on the status of their power plants. Although the plants got a green signal from authorities earlier, they don’t fit into the new guidelines for power plants in SEZs notified in February.
As per the new guidelines, three types of power plants are allowed inside the tax-free zones. For one, power plants built outside the core processing area of an SEZ are eligible for tax sops for construction but not for operational running expenses.
A power plant is also allowed within the processing area if it is set up as a separate unit within the SEZ or if the entire SEZ is dedicated for power generation alone. Such power plants within SEZs would enjoy tax incentives for both construction and running costs.
But the three plants under question have been constructed by the co-developer of the projects and are based in the processing area of the SEZs. As a result, they do not fall under any of the categories of power plants mentioned in the new norms.
The BoA, headed by commerce secretary Rahul Khullar, may take a call on this in its meeting slated for August 11. While two of these plants are operational, permission to build the third one was given as late as January this year, about a month before the new guidelines were released.
The biggest power plant amongst the three, 720 mw, was constructed by Reliance Utilities Ltd (RUL) in the processing area of the Jamnagar SEZ refinery. RUL had partnered the lead developer of the SEZ, Reliance Jamnagar Infrastructure Limited, and has availed tax benefits for building the power plant as well as procuring routine supplies.
The plant’s existential dilemma was first discussed at the level of the development commissioner of Kandla SEZ—the nodal officer responsible for SEZs in and around Gujarat. The commissioner had noted that the power plant is in the processing area and has been constructed by a co-developer, therefore, couldn’t be allowed under the new norms. An alternative idea—designating the plant as non-processing area to comply with the February diktat—was also unacceptable as SEZ norms require the processing area to be contiguous.
Moser Baer India Ltd’s (MBIL) 15-mw power plant in its Greater Noida SEZ has similar problems. Set up inside the processing area, the power plant started generating power in June 2008. Within the zone, the present requirement of power is about 5–6 mw.
The plant has been buying duty-free furnace oil to generate electricity, part of which it supplies to an adjacent export oriented unit (EoU) manufacturing optical medical products, also owned by MBIL.
Moser Baer needs to get fresh clearances to retain the tax sops on power consumables and continue its sales to the EoU — both of which need a fundamental clarification on treatment of such power plants under the new norms.
Abhijeet MADC Nagpur Energy Pvt. Ltd (AMNEPL), a co-developer in the Maharashtra Airport Development Company Ltd (MADC) SEZ in Nagpur, is seeking a similar clarification for their 25-mw power plant. MADC is a Maharastra government company in charge of developing the multi-modal international hub airport in Nagpur. The nod for the plant was given on 29 January.
AMNEPL had approached MADC — developer of the zone — to demarcate the power plant as a non-processing area to comply with the new SEZ norms. But MADC maintained that this was not possible. Hence, the matter has been put before the BoA.
While the development of most SEZs has slowed, thanks to the credit crunch, setting up and operating power plants within SEZs are considered lucrative business propositions. Power from these zones can be supplied to industrial units outside, subject to conditions like payment of duty and maintaining positive net foreign exchange position of the SEZ power plants.
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