Real Estate Intellgence Service, Friday, August 28, 2009

Industrial output exceeds expectations, up 7% in July

Industrial output exceeds expectations, up 7% in July
Business Standard, August 28, 2009, Page 1

BS Reporter / New Delhi

The government today announced that industry output, as measured by the index of industrial production (IIP), grew 7 per cent in July, the same as the corresponding period in 2008, taking analysts by surprise as much for the magnitude of the growth as the early data release.

The announcement was made by Commerce and Industry Minister Anand Sharma while announcing the new foreign trade policy and was unexpected because the July IIP numbers were scheduled only in the second week of September.

Analysts were also expecting a sharp fall in IIP for July, given the meagre 1.8 per cent growth in the core sector, which accounts for 27 per cent of IIP, data for which was released yesterday. Although the IIP grew a steep 7.8 per cent in June, the figure was considered an aberration.

July's 7 per cent growth indicates that the decline in factory production has been arrested and adds to hopes of economic recovery.

Sharma attributed the 7 per cent growth to fiscal and monetary measures by the government and the Reserve Bank of India. “These measures have had a salutary effect on our economy,” he said.

The growth in IIP is estimated to have come from the double-digit growth in two-wheeler and car segments and consumer goods production. "While industry data for July is buoyant, with two-wheelers up 18.2 per cent, cars up 29.1 per cent, commercial vehicle up 5.1 per cent, we expect the July IIP to come lower at 5 per cent levels versus the surprisingly high 7.8 per cent reading in June," said Rohini Malkani, economist, Citi India, in a report yesterday.

The growth in output of consumer non-durables comprising items like cars and appliances was flat in June, even as the quarter production decline d 4.6 per cent. Overall consumer goods production rose 3.8 per cent in June, aided by a 15.5 per cent expansion in consumer durables output. Segregated figures for July were not available.

Reforms to continue, 8%-plus growth likely by 2010-11: FM

Reforms to continue, 8%-plus growth likely by 2010-11: FM
The Financial Express, August 28, 2009, Page 2

fe Bureaus, New Delhi

A day after the finance minister Pranab Mukherjee said the government had no more room for fiscal stimulus, he told industry that the Centre was working on economic reforms that will lead to greater mobilisation of resources. The minister also expressed hope that the economy could return to over 8% growth in 2010-11.

“There is a possibility (of over 8% growth) if there is no further adverse situation over which we have no control,” he said at a Ficci meeting on Wednesday.

Commenting on a road map for economic reforms, he said, “Economic reforms are a continuing process and have been going on since 1991. The Direct Taxes Code and the Goods and Services Tax (GST) are a part of tax reforms. Disinvestment and investment in critical sectors are part of economic reforms,” Mukherjee said.

The Centre would pursue reforms that would lead to greater mobilisation of resources in the financial sector, the minister said. These will include reforms in the corporate bond market, setting up an autonomous Debt Management Office (DMO) and a new Bankruptcy law.

The UPA with a larger mandate in its second term is expected to carry forward its agenda of economic reforms, which were stalled because of its Left allies. Apart from reforms in the banking sector, it is expected to table the Pension Fund Regulatory Development Bill and increase FDI in insurance to 49%. In the corporate debt market, it is expected to introduce repos or repurchase agreement, a transaction that allows a holder to sell a bond for a short period to another investor with an agreement to buy it back at a higher price at a later date. Presently, repos are allowed only in the government bond market.

Emphasising that the deviation from the fiscal deficit targets is ‘only temporary’, the minister also said the Centre would reduce both its fiscal and revenue deficit.

Trade policy’s first target is 15% export growth

Trade policy’s first target is 15% export growth
The Hindu Business Line, August 28, 2009, Page 1

Sharma not sure of ‘recovery’, sets $200-b figure by March 2011.

Our Bureau, New Delhi

Against persistent export contraction, the Government on Thursday announced a slew of relief measures for exporters.

These include incentives to capture 26 new markets in Africa and Latin America, duty-free import of capital goods for technological upgradation, dollar-denominated credit and doing away with application fees for grant of incentives under various export schemes.

Announcing the Foreign Trade Policy (FTP) for 2009-2014, the Commerce and Industry Minister, Mr Anand Sharma, however, refused to hazard a specific export target for this fiscal.

“Even though economists are talking of emergence of ‘green shoots’, I remain hesitant to hazard a guess on the nature and extent of this recovery,” he said, adding that “we would like to achieve an annual export growth of 15 per cent over 2010-11 with an annual export target of $200 billion by March 2011.”

The Minister said the Government would take stock of the situation in March 2011, halfway through the series, and may even reset the targets. He said the Government could give suitable support to certain specific sectors in the mid-term review as the situation warrants.

In one of the many innovative steps, the Government decided to set up a Directorate of Trade Remedy Measures to support industry and exporters, especially from the small and medium enterprises sector, in availing themselves of their rights through trade remedy instruments such as anti-dumping, safeguard and countervailing (anti-subsidy) duties.

Mr Sharma said due to the global slowdown, some countries have resorted to protectionist measures posing barrier to free trade, which has aggravated the problem for Indian exporters.

The Government’s short-term goal through the policy was to reverse the declining trend of exports and to provide additional support, especially to the employment-intensive sectors such as textiles, handloom, leather, handicrafts, gems and jewellery as well as the plantation that have been hit badly by recession in the developed world.

The Minister said the duty refund scheme (Duty Entitlement Passbook Scheme) will stay till December 2010, while income-tax holiday for export-oriented units will continue till March 2011.

The Government has also decided to constitute a committee comprising the Finance Secretary, the Commerce Secretary and the Chairman of the Indian Banks’ Association that would meet periodically to ensure that dollar credit needs of exporters are met in a timely manner. In a bid to bring down transaction cost and institutional bottlenecks, over the next few years, additional ports/locations would be enabled on the Electronic Data Interchange. Besides, an Inter-Ministerial Committee has been established to serve as a single window mechanism for resolution of trade-related grievances.

Weak monsoon could stoke inflation, dampen growth: RBI

Weak monsoon could stoke inflation, dampen growth: RBI
The Hindu Business Line, August 28, 2009, Page 1

Our Bureau, Mumbai

The Reserve Bank of India on Thursday set the alarm bells ringing that a deficient monsoon could affect the inflation outlook for the country more than growth prospects for the economy.

It also underscored the fact that large borrowing programmes (the Centre’s budgeted gross market borrowing in FY-2010 is Rs 4,91,044 crore) and a high fiscal deficit (the estimate for FY-10 is 6.8 per cent of GDP) could worsen the actual inflation situation over time, while also putting upward pressure on interest rates.

Trends in global commodity prices in the first quarter of 2009-10, according to the RBI’s annual report for 2008-09, indicate that an upside risk to inflation could persist from a rebound in global commodity prices ahead of the global recovery.

“Increase in minimum support price that may be seen as a measure to support farmers in a below monsoon year, could stoke inflation,” the report warned.

The first quarter review of the Monetary Policy revised the inflation projection for the end of the year to 5 per cent from 4 per cent projected in April and placed the GDP growth at ‘6 per cent with an upward bias’.

Rainfall deficiency during the kharif season could affect the growth and inflation outlook, besides rural disposable income. Despite positive growth and signs of recovery in the first quarter of 2009-10, the growth outlook for the industrial sector remains mixed, the report said.

The RBI is faced with the dilemma with regard to its Monetary Policy stance — while monetary tightening will result in weakening of recovery impulses, an easy Monetary Policy stance could stoke inflation in the future.

“A major challenge for the RBI is to deal with the unpleasant combination of subdued growth with emerging risk of high inflation, which poses a complex dilemma on the appropriate stance of the Monetary Policy,” the report said.

RBI’s 6% growth vision crystal clear

RBI’s 6% growth vision crystal clear
The Economic Times, August 28, 2009, Page 11

Our Bureau MUMBAI

THE Reserve Bank of India (RBI) has held on to its 6% growth target despite a weak monsoon on the grounds that the economic impact of the drought would not be as bad as expected. However, the poor rains would push up food prices in the short term and add to inflationary pressures.

RBI has stuck to its GDP target even after at least a dozen research reports by banks and broking houses scaled down forecasts for the fiscal based on the rain failure in large parts of India.

“One needs to recognise the progress on effective diversification of Indian agriculture towards horticulture, livestock and fisheries and their rising share in total output of the agricultural sector,” RBI said in its annual report, which was released on Thursday. The central bank added that cereals, pulses and oilseeds grown during the kharif season account for only 20% of total farm output.

“Since the presentation of the policy statement, while the extent of rainfall deficiency associated with southwest monsoon has increased, the IIP figures for June show 2009 show a significant recovery in industrial output,” the central bank said in its annual report. The RBI has also said that the index of industrial production has also showed an improvement.

In another positive, RBI also expects capital flows to India to increase due to better medium-term growth and faster recovery prospects even as capital flows to overall emerging markets declined during the year. “Early indications for the first quarter of 2009-10 suggest that NRI deposits, FII portfolio inflows and inward FDI flows have generally been strong, as against the net capital outflows witnessed in the last two quarters of 2008-09,” the central bank said.

Though optimistic on growth, RBI has warned that price pressures are already being felt with the wholesale price index moving up by 4 percentage points over the March’09 levels. Although inflation as measured by the year-on-year movement of the wholesale price index is still negative, RBI said that is a statistical phenomenon with the base effect running out in October’09. The central bank also appears to be concerned over the high level of consumer price inflation for agriculture workers, which is around 13%.

GROWTH REMEDY

RBI's prescription for the economy
Reduce non-plan expenditure More liberal FDI policies to bring in technology and productivity Introduce govt-funded scheme for potential entrepreneurs Link petroleum product prices to international prices Augment grain procurement for food security CPI (Urban) to be used for measuring inflation Link no. of schemes an MF can float to the net owned funds Bank-led mobile banking more appropriate for India

Core sector disappoints

Core sector disappoints
The Economic Times, August 28, 2009, Page 14

It Could Impact Broader Economy

THE July numbers for infrastructure sector performance have delivered a small blow to rising expectation of a quick turnaround in economic growth. The core sectors, key drivers of economic activity, grew a disappointing 1.8% year-on-year (y-o-y) in July 2009, after a robust 6.8% y-oy expansion in June. Prima facie the slower growth was due to the lower output of the petroleum refinery sector, with production declining 14.4% during the month owing to maintenance shutdown at the Reliance Industries plant. But performance of sectors such as electricity did not particularly inspire confidence. Electricity generation, critical to keep industries running and pumpsets operating in farmlands, grew only 3.3%, y-o-y, in July. But the output declined for two consecutive months, as rains played truant. Coal output looked good during the month under review, rising 9.7%, but the sector reported decline in three of the four months this fiscal. Similarly, the growth of cement industries, rising 10.6%, gives the impression that construction activity has recovered. Here too, output declined monthon-month after a robust performance in March 2009 and the argument that it is in line with the trend seen during this period of the year offers little consolation.

The sub-optimal output of some infrastructure sectors such as electricity is telling on industrial performance. In many states huge power cuts are hurting production. Industrial units have stopped working as the power situation worsens. Elsewhere, the agriculture sector bears the brunt of low availability of power. If such lackadaisical performance persists in the critical core sectors of the economy, there could be more damage to the incipient recovery in growth experienced over the past few months. That should not be allowed to happen. Immediate short-term steps are required to reduce the gaps in infrastructure and prevent a fresh crisis. Growth is, anyway, already threatened by the deficient monsoon this year. Contraction in agriculture will hurt other sectors, as rural demand for various goods and services will decline. In this scenario, it is necessary that critical infrastructure sectors put up a strong performance.

RBI tightens housing project funding norm

RBI tightens housing project funding norm
Business Standard, August 28, 2009, Section II, Page 3

BS Reporter, Mumbai

The Reserve Bank of India (RBI) has extended the terms and conditions for banks to provide funds to housing /development projects following a recent judgment of the Bombay High Court.

As per the revised norm, the terms and conditions on which a loan for a housing project may be sanctioned should include the name of the bank to which the property is mortgaged. The developer should also indicate in their brochures that a no objection certificate/ permission of the mortgagee bank for sale of flats/ property could be furnished to the bank if required. The RBI has also directed that money should not be released by banks unless these terms and conditions were met by the developer.

Home sales, durable orders fuel US economy recovery hopes

Home sales, durable orders fuel US economy recovery hopes
The Financial Express, August 28, 2009, Page 18

Reuters, Washington

Sales of new US homes hit their highest level in 10 months in July and orders for long-lasting manufactured goods surged, offering fresh evidence a modest economic recovery was taking shape.

The commerce department on Wednesday said sales of new single-family homes rose 9.6% from June to an annual pace of 433,000 units, the highest rate since September.

It was the biggest gain since February 2005 and it reduced the supply of unsold homes on the market to its lowest level in more than 16 years, another sign that housing activity had stabilised after a three-year slump.

A report showing mortgage applications rising for a second straight week, with demand for refinancing loans reading their highest level since early June, suggested home sales are still rising. “The recovery in the housing market is very much under way,” said Michelle Meyer, an economist at Barclays Capital in New York.

In a third report, the commerce department said a surge in demand for aircraft pushed orders for U.S.-made durable goods up 4.9% last month, the largest advance in two years.

“Big-ticket items are displaying very normal recovery patterns, signaling that the early phase of this recovery may be stronger than people are anticipating. It doesn’t mean it will be sustained,” said Stephen Gallagher, chief US economist at Societe Generale in New York.

The data was the latest hinting that the US economy’s worst slump in 70 years was over or close to it, though analysts cautioned that recovery will be hobbled by sluggish consumer demand, owing to high unemployment.

Highlighting the tight squeeze on households, a survey showed Americans will cut their travel plans for the summer-ending Labour Day holiday dramatically this year to save money.

Despite the encouraging economic data, US stocks ended flat, pausing after strong gains earlier this week. US government bond prices rose modestly.

Atlanta Federal Reserve Bank Dennis Lockhart said the economy was in the early stages of recovery, but cautioned that it would be a while before unemployment started to fall.

While the housing sector appears to be recovering from a three-year slump, there are fears it could falter if a government tax credit of up to $8,000 for first-time home buyers is not extended. The credit is due to expire at the end of November. “After the credit expires, sales, starts, and prices will take a hit. The big unknown is how big this hit will be,” said Patrick Newport, a US economist at IHS Global Insight in Lexington, Massachusetts. The inventory of new homes available for sale fell 3.2% to 271,000 units in July, the lowest since March 1993. At July’s sales pace, that would be a 7.5-month supply, the lowest since April 2007.

ICICI cuts home loan rates to remain competitive

ICICI cuts home loan rates to remain competitive
Business Standard, August 28, 2009, Section II, Page 3

BS Reporter / Mumbai

Joining the battle being fought in the market for mortgages, India’s second-largest lender, ICICI Bank, has cut rates for home loans from August 20.

Accordingly, the rate for home loans up to Rs 20 lakh will now be 8.75 per cent, while loans between Rs 20-50 lakh will be charged 9.25 per cent. For loans above Rs 50 lakh, the rate has been fixed at 9.75 per cent. Earlier, loans below Rs 30 lakh were charged 9.25 per cent while the rate for loans above Rs 30 lakh was 9.75 per cent.

The battle in the home-loan market was sparked by the country’s largest lender, State Bank of India (SBI), which announced a competitive package early this month. Now, loans from SBI are available for 8 per cent for the first year and 8-9 per cent for the next two years depending on the size of the scheme.

RATE CHART- (%)
Proposed rate
Up to Rs 20 lakh - 8.75
Rs 20-50 lakh - 9.25
Above Rs 50 lakh - 9.75
Earlier
Below Rs 30 lakh 9.25
Above Rs 30 lakh 9.75

Two weeks ago, India’s largest mortgage lender, Housing Development and Finance Corporation (HDFC), reworked its interest rate slabs, resulting in a 50 basis points (bps) cut to 9 per cent for loans of Rs 30-50 lakh. In mid-July, HDFC had cut interest rates on loans of up to Rs 15 lakh by 50 basis points to 8.75 per cent.

The last mortgage player to cut home-loan rates was LIC Housing Finance. The country’s second-largest mortgage player cut floating rates by 50 bps from 9.25 per cent to 8.75 per cent for loans of Rs 30-75 lakh.

ICICI Bank, which has seen high losses on its unsecured loans portfolio, has indicated that it wants to continue growing its mortgage and auto loans portfolios.

As of June 30, 2009, the lender’s outstanding housing loans portfolio was Rs 53,472 crore.