Wednesday, January 6, 2010
The need for planned cities
The need for planned cities – is the current size of cities justifiable in terms of greater efficiencies in production of goods, services and amenities offered to their residents? R Sridhar examines the issue
The Economic Times, January 6, 2010, Page 3 
The Economic Times, January 6, 2010, Page 3
Godrej Properties has a dream debut
Godrej Properties has a dream debut
Economic Times, January 6, 2010, Page 16
Stock Surges 9% To Close At Rs 535 On BSE; 20% Of Equity Traded On The First Day
Our Bureau MUMBAI
THE new year has begun on a positive note for new listings. After JSW Energy, yet another public issue — Godrej Properties — made its debut on bourses at a premium to the offer price on the back of good investor participation in trading of the shares.
This is unlike the response to some of the high-profile initial public offerings (IPO) last year that attracted huge subscription but failed to deliver positive returns on listing and subsequently. Godrej Properties shares saw heavy trading during initial trading hours, which lifted the share price to an intra-day high of 586.7. As the day progressed, the stock lost some ground to touch the day’s low of Rs 500 before ending with a gain of 9% at Rs 535 on BSE on Tuesday. The gains were supported by huge volumes as a total of 1.4 crore shares, or 20% of the company’s equity, changed hands both on BSE and NSE.
Analysts have positive views about the long-term prospects of Godrej Properties. The company could be a good long-term bet, because of its trustworthy management and the group’s credential to deliver quality products, they feel.
“The company is into affordable housing, for which there is a lot of demand. The segment still has enough potential for accommodating more and more large players,” said Mayank Shah, CEO, Anagram Capital. The business model of Godrej Properties is different from other players, as the company outsources a lot of work which helps it realise quick gains, he added.
Priced at Rs 490 a share, Godrej Properties IPO was subscribed four times on overall basis, although the retail portion was under-subscribed. The company plans to use the proceeds for new projects, debt repayment and for joint development projects.
The near-term outlook for the real estate sector, according to analysts, does not look as promising as in the past, as most of the positives have already been factored into prices, they feel. The sector is sensitive to changes in interest rates. So, any rise in rates won’t augur well for the sector. It would affect demand, putting pressure on prices and profit margins, feel analysts.
Economic Times, January 6, 2010, Page 16
Stock Surges 9% To Close At Rs 535 On BSE; 20% Of Equity Traded On The First Day
Our Bureau MUMBAI
THE new year has begun on a positive note for new listings. After JSW Energy, yet another public issue — Godrej Properties — made its debut on bourses at a premium to the offer price on the back of good investor participation in trading of the shares.
This is unlike the response to some of the high-profile initial public offerings (IPO) last year that attracted huge subscription but failed to deliver positive returns on listing and subsequently. Godrej Properties shares saw heavy trading during initial trading hours, which lifted the share price to an intra-day high of 586.7. As the day progressed, the stock lost some ground to touch the day’s low of Rs 500 before ending with a gain of 9% at Rs 535 on BSE on Tuesday. The gains were supported by huge volumes as a total of 1.4 crore shares, or 20% of the company’s equity, changed hands both on BSE and NSE.
Analysts have positive views about the long-term prospects of Godrej Properties. The company could be a good long-term bet, because of its trustworthy management and the group’s credential to deliver quality products, they feel.
“The company is into affordable housing, for which there is a lot of demand. The segment still has enough potential for accommodating more and more large players,” said Mayank Shah, CEO, Anagram Capital. The business model of Godrej Properties is different from other players, as the company outsources a lot of work which helps it realise quick gains, he added.
Priced at Rs 490 a share, Godrej Properties IPO was subscribed four times on overall basis, although the retail portion was under-subscribed. The company plans to use the proceeds for new projects, debt repayment and for joint development projects.
The near-term outlook for the real estate sector, according to analysts, does not look as promising as in the past, as most of the positives have already been factored into prices, they feel. The sector is sensitive to changes in interest rates. So, any rise in rates won’t augur well for the sector. It would affect demand, putting pressure on prices and profit margins, feel analysts.
Godrej Properties does a star turn, lists at a premium
Godrej Properties does a star turn, lists at a premium
Hindu Business Line, January 6, 2010, Page 1
Our Bureau, Mumbai
Godrej Properties beat most of the recent IPO showings on the bourses, listing at a 4 per cent premium to its issue price and closing 9 per cent higher on Tuesday.
The scrip, whose issue price was Rs 490, listed at Rs 510 on the BSE and closed Tuesday at Rs 534.55.
Recent listings have had a subdued run, despite the hype generated ahead of their debut. Adani Power closed at its issue price of Rs 100. JSW Energy managed a gain of 0.75 per cent over its issue price, while NHPC was marginally better, logging a gain of 2 per cent over its issue price of Rs 36.
Mr Mehraboon J. Irani, Senior Vice-President (PMS), FCH Centrum Wealth Managers, said the Godrej Properties IPO was quite attractively priced and looked fairly valued with today's gain. With the economy just about looking up, property prices have seen improvement in the last six months. It is a good stock to buy with a long-term perspective, he said.
On the BSE, Godrej Properties touched a high of Rs 586.70 and a low of Rs 500 with the total traded value clocking Rs 290.11 crore. A total of 52,60,628 shares changed hands during the day. On the NSE, the stock opened at Rs 511, touched a high of Rs 586.80 and a low of Rs 502.15 before ending the day at Rs 536.05. The total value of shares traded was Rs 480.27 crore with 87,07,481 shares traded.
In December, Godrej Properties sold close to 9.43 million shares to raise Rs 469 crore. The issue was subscribed over four times. About 30 per cent of the IPO money would go towards servicing debt.
The company allotted 16,97,345 equity shares at Rs 530 per share, the top end of the issue price band, to four anchor investors — JF India Fund (8,72,365 shares), JF Eastern Smaller Companies Fund (1,80,453 shares), Ward Ferry Management (2,93,592 shares) and The Royal Bank of Scotland (3,50,935 shares) worth about Rs 90 crore.
Hindu Business Line, January 6, 2010, Page 1
Our Bureau, Mumbai
Godrej Properties beat most of the recent IPO showings on the bourses, listing at a 4 per cent premium to its issue price and closing 9 per cent higher on Tuesday.
The scrip, whose issue price was Rs 490, listed at Rs 510 on the BSE and closed Tuesday at Rs 534.55.
Recent listings have had a subdued run, despite the hype generated ahead of their debut. Adani Power closed at its issue price of Rs 100. JSW Energy managed a gain of 0.75 per cent over its issue price, while NHPC was marginally better, logging a gain of 2 per cent over its issue price of Rs 36.
Mr Mehraboon J. Irani, Senior Vice-President (PMS), FCH Centrum Wealth Managers, said the Godrej Properties IPO was quite attractively priced and looked fairly valued with today's gain. With the economy just about looking up, property prices have seen improvement in the last six months. It is a good stock to buy with a long-term perspective, he said.
On the BSE, Godrej Properties touched a high of Rs 586.70 and a low of Rs 500 with the total traded value clocking Rs 290.11 crore. A total of 52,60,628 shares changed hands during the day. On the NSE, the stock opened at Rs 511, touched a high of Rs 586.80 and a low of Rs 502.15 before ending the day at Rs 536.05. The total value of shares traded was Rs 480.27 crore with 87,07,481 shares traded.
In December, Godrej Properties sold close to 9.43 million shares to raise Rs 469 crore. The issue was subscribed over four times. About 30 per cent of the IPO money would go towards servicing debt.
The company allotted 16,97,345 equity shares at Rs 530 per share, the top end of the issue price band, to four anchor investors — JF India Fund (8,72,365 shares), JF Eastern Smaller Companies Fund (1,80,453 shares), Ward Ferry Management (2,93,592 shares) and The Royal Bank of Scotland (3,50,935 shares) worth about Rs 90 crore.
Godrej Prop lists at premium, stock ends 9 per cent up
Godrej Prop lists at premium, stock ends 9 per cent up
Hindustan Times, January 6, 2010, Page 21
Becoming the first real estate firm to list in two years, shares of Godrej Properties debuted on bourses at around 5 per cent premium over its issue price of Rs 490. The scrip gained 20 per cent to Rs 586.7 per share before ending the day over 9 per cent up at Rs 534.5 per share.
Godrej Properties has listed over 6.98 crore shares on bourses raising around Rs 462 crore from the market. The company would be using the IPO proceeds to acquire land, construction of projects and repayment of loans.
The company currently focuses on residential, commercial and township developments. “We see strong demand for affordable homes in the country. We want to tap this opportunity,” said Adi Godrej Chairman of Godrej Group.
The positive market reaction to realty stock is sure to boost morale of nearly 16 realty firms looking to enter the primary market. Having suffered hugely during slowdown, realty firms are planning to make the most of improving economy and investor sentiments by entering primary market.
Hindustan Times, January 6, 2010, Page 21
Becoming the first real estate firm to list in two years, shares of Godrej Properties debuted on bourses at around 5 per cent premium over its issue price of Rs 490. The scrip gained 20 per cent to Rs 586.7 per share before ending the day over 9 per cent up at Rs 534.5 per share.
Godrej Properties has listed over 6.98 crore shares on bourses raising around Rs 462 crore from the market. The company would be using the IPO proceeds to acquire land, construction of projects and repayment of loans.
The company currently focuses on residential, commercial and township developments. “We see strong demand for affordable homes in the country. We want to tap this opportunity,” said Adi Godrej Chairman of Godrej Group.
The positive market reaction to realty stock is sure to boost morale of nearly 16 realty firms looking to enter the primary market. Having suffered hugely during slowdown, realty firms are planning to make the most of improving economy and investor sentiments by entering primary market.
Godrej Properties surges on debut
Godrej Properties surges on debut
Business Standard, January 6, 2010, Section II, Page 1
first listing by a realty firm in two years brings cheer to the real estate sector
MUMBAI: Shares of Godrej Properties surged nearly 20 per cent after listing at a 5.05 per cent premium on its debut on Tuesday, in a first listing by any property firm in over two years. ( Watch )
The strong start would serve to cheer realty firms that had till recently been hard-pressed to raise funds for projects. At least 16 Indian developers have filed papers for public offers since September, looking to raise a total of about $6 billion.
Godrej Properties, a unit of Godrej Industries, had raised about $100 million through its initial public offering of 9.4 million shares, which was subscribed four times. The firm had fixed its issue price at the lower end of Rs 490-530 range.
The share touched a high of Rs 586.70 during the day, after having opened at Rs 514.75.
"They got an advantage of Godrej brand name and also Mumbai market, which is one of the better-placed markets in the country in the property sector," said Jigar Shah, senior vice president, Kim Eng Securities, adding it was supported by markets trading at 20-month highs.
The firm's debut followed a series of weak starts, mainly by power firms such as Adani Power and NHPC. On Monday another power firm, JSW Energy, closed at a small premium on its market debut.
However, Shah said, the stock is "expensive" at these levels, with 58 times its price-earning ratio for FY10 and four times its book value.
Property developers have once again queued up to raise funds through public offers as key markets such as Mumbai and Delhi have seen a return of demand for homes in the last few months, and a massive stockmarket rally since March has boosted share-sale plans of cash-strapped Indian real estate firms.
Godrej Properties plans to use the proceeds from the initial public offer for new projects, debt repayment and for joint development of projects.
About Rs 2.03 billion will be used for land acquisition, Rs 750 million for construction and Rs 1.72 billion to cut debt.
The firm hopes to benefit from a demand-push in the cost-effective housing segment in the country.
"We feel that affordable housing will take off strongly as a business in India and we are very committed to a strong play in affordable housing in Godrej Properties," Adi Godrej, chairman, Godrej group, said.
Business Standard, January 6, 2010, Section II, Page 1
first listing by a realty firm in two years brings cheer to the real estate sector
MUMBAI: Shares of Godrej Properties surged nearly 20 per cent after listing at a 5.05 per cent premium on its debut on Tuesday, in a first listing by any property firm in over two years. ( Watch )
The strong start would serve to cheer realty firms that had till recently been hard-pressed to raise funds for projects. At least 16 Indian developers have filed papers for public offers since September, looking to raise a total of about $6 billion.
Godrej Properties, a unit of Godrej Industries, had raised about $100 million through its initial public offering of 9.4 million shares, which was subscribed four times. The firm had fixed its issue price at the lower end of Rs 490-530 range.
The share touched a high of Rs 586.70 during the day, after having opened at Rs 514.75.
"They got an advantage of Godrej brand name and also Mumbai market, which is one of the better-placed markets in the country in the property sector," said Jigar Shah, senior vice president, Kim Eng Securities, adding it was supported by markets trading at 20-month highs.
The firm's debut followed a series of weak starts, mainly by power firms such as Adani Power and NHPC. On Monday another power firm, JSW Energy, closed at a small premium on its market debut.
However, Shah said, the stock is "expensive" at these levels, with 58 times its price-earning ratio for FY10 and four times its book value.
Property developers have once again queued up to raise funds through public offers as key markets such as Mumbai and Delhi have seen a return of demand for homes in the last few months, and a massive stockmarket rally since March has boosted share-sale plans of cash-strapped Indian real estate firms.
Godrej Properties plans to use the proceeds from the initial public offer for new projects, debt repayment and for joint development of projects.
About Rs 2.03 billion will be used for land acquisition, Rs 750 million for construction and Rs 1.72 billion to cut debt.
The firm hopes to benefit from a demand-push in the cost-effective housing segment in the country.
"We feel that affordable housing will take off strongly as a business in India and we are very committed to a strong play in affordable housing in Godrej Properties," Adi Godrej, chairman, Godrej group, said.
India Inc seeks stimulus at least for six months
India Inc seeks stimulus at least for six months
Economic Times, January 6, 2010, Page 17
Our Bureau NEW DELHI
CAPTAINS of Indian industry, who met the finance minister Pranab Mukherjee on Tuesday as part of pre-budget drill, sought continuation of stimulus packages for at least next six months, implementation of goods & services tax (GST) as planned besides checking the fiscal deficit, to help India post a robust economic growth in the coming fiscal.
The industrialists, who were present at the meeting in the Capital, said the finance minister was receptive to suggestions and assured that the government will take suitable measures to boost economic growth. Last year the government came out with three fiscal stimulus packages to provide a boost to domestic production and pull the economy from the downturn.
The meeting that lasted for more than two hours was attended by the presidents of industry associations CII, Ficci and Assocham besides industrialists like Mahindra & Mahindra chairman Anand Mahindra, Videocon Group chairman Venugopal Dhoot, Raymond chief Gautam Singhania, Tulsi Tanti of Suzlon and Nasscom president Som Mittal among others.
During the meeting, industry associations pointed their fears that GST may not be implemented on its scheduled date of April 1, 2010. “GST is going to be the biggest reform ever seen in fiscal and financial regime,” said CII president Venu Srinivasan. He said that even if there are flaws in GST, it should be implemented at the earliest and the government should take corrective measures on the way.
Moreover, India Inc jointly sought for continuation of stimulus packages that have helped the companies fight slowdown so far. “The stimulus should continue for another six months at least considering that economic recovery was fragile last year,” said Assocham president Swati Piramal.
Adds Ficci president Harshpati Singhania, “Customs duty should be maintained at the current level to help export led industries as the global recovery is still slow.”
Corporate India also asked the government to expedite the divestment process, cut corporate tax besides extending incentives to exporters and small and medium enterprises (SMEs), to fuel India’s economic growth.
India Inc feels that while the green shoots of recovery were seen sprouting in India faster than in most parts of the world, it is essential to remain cautious to ensure India attains 9% growth.
“The FM was hopeful that India’s economic growth will reach 8% in the current quarter and further increase to 9% in the coming financial year,” Mr Dhoot said.
Economic Times, January 6, 2010, Page 17
Our Bureau NEW DELHI
CAPTAINS of Indian industry, who met the finance minister Pranab Mukherjee on Tuesday as part of pre-budget drill, sought continuation of stimulus packages for at least next six months, implementation of goods & services tax (GST) as planned besides checking the fiscal deficit, to help India post a robust economic growth in the coming fiscal.
The industrialists, who were present at the meeting in the Capital, said the finance minister was receptive to suggestions and assured that the government will take suitable measures to boost economic growth. Last year the government came out with three fiscal stimulus packages to provide a boost to domestic production and pull the economy from the downturn.
The meeting that lasted for more than two hours was attended by the presidents of industry associations CII, Ficci and Assocham besides industrialists like Mahindra & Mahindra chairman Anand Mahindra, Videocon Group chairman Venugopal Dhoot, Raymond chief Gautam Singhania, Tulsi Tanti of Suzlon and Nasscom president Som Mittal among others.
During the meeting, industry associations pointed their fears that GST may not be implemented on its scheduled date of April 1, 2010. “GST is going to be the biggest reform ever seen in fiscal and financial regime,” said CII president Venu Srinivasan. He said that even if there are flaws in GST, it should be implemented at the earliest and the government should take corrective measures on the way.
Moreover, India Inc jointly sought for continuation of stimulus packages that have helped the companies fight slowdown so far. “The stimulus should continue for another six months at least considering that economic recovery was fragile last year,” said Assocham president Swati Piramal.
Adds Ficci president Harshpati Singhania, “Customs duty should be maintained at the current level to help export led industries as the global recovery is still slow.”
Corporate India also asked the government to expedite the divestment process, cut corporate tax besides extending incentives to exporters and small and medium enterprises (SMEs), to fuel India’s economic growth.
India Inc feels that while the green shoots of recovery were seen sprouting in India faster than in most parts of the world, it is essential to remain cautious to ensure India attains 9% growth.
“The FM was hopeful that India’s economic growth will reach 8% in the current quarter and further increase to 9% in the coming financial year,” Mr Dhoot said.
India Inc makes strong pitch for continuance of stimulus package
India Inc makes strong pitch for continuance of stimulus package
Hindu Business Line, January 6, 2010, Page 18
Economic recovery still ‘fragile'; time not ripe for monetary tightening.
Our Bureau, New Delhi
Corporate India has made a fervent plea to the Union Finance Minister, Mr Pranab Mukherjee, to continue with the existing fiscal stimulus at least till September as the economic recovery was still ‘fragile' and that a low base effect was exaggerating growth in some sectors.
The unanimous and collective pressure from captains of industry could tilt the scale in favour of retention of the fiscal stimulus beyond April even as policymakers had earlier dropped strong hints that the exit could begin in the upcoming Budget through reversal of indirect tax cuts.
“We have all together requested the Finance Minister to continue with the fiscal stimulus package as the economic recovery is still fragile,” Ms Swati Piramal, Assocham President, told reporters at North Block after pre-Budget meeting of industrialists with Mr Mukherjee and senior Finance Ministry officials.
At the meeting, India Inc also stressed that time was not ripe for monetary tightening and submitted that food inflation was more on account of supply side constraints.
On the fiscal stimulus issue, the Confederation of Indian Industry (CII) President, Mr Venu Srinivasan, said that the Government could consider withdrawal at the time of introduction of the proposed goods and services tax (GST).
“We are still seeing low base effect exaggerate growth. Of course, there is real growth. But we would like the finance minister to wait and see how it goes and withdraw the fiscal stimulus in calibrated manner. We want GST to be introduced as early as possible,” Mr Srinivasan said.
The Federation of Indian Chambers of Commerce and Industry (FICCI) President, Mr Harsh Pati Singhania, said that investments are yet to pick up although there are signs of economic recovery.
“Our suggestion was stimulus should be continued at least for the first two quarters of the next fiscal,” Mr Singhania said.
FICCI has also urged the Finance Minister to maintain the peak customs duty at the current level of 10 per cent.
Asked about export sector, Mr Singhania told Business Line that the chamber has made a case for reintroduction of tax exemption on export profits (Sec 80HHC benefits).
Besides raising issues such as the cascading effect of dividend distribution tax, India Inc has also urged the Finance Minister not to go ahead with the proposed levy of minimum alternate tax (MAT) on gross asset basis under the new Direct Taxes Code.
Industrialists who attended the meeting include Mr Anand Mahindra, Vice-Chairman and Managing Director, Mahindra & Mahindra; Mr Ashwin Dani, Vice-Chairman and Managing Director, Asian Paints Ltd; Mr Gautam Singhania, Chairman and Managing Director of Raymond; Mr Venugopal Dhoot, Chairman, Videocon Group, and Mr Tulsi Tanti, Chairman and Managing Director, Suzlon Energy.
Hindu Business Line, January 6, 2010, Page 18
Economic recovery still ‘fragile'; time not ripe for monetary tightening.
Our Bureau, New Delhi
Corporate India has made a fervent plea to the Union Finance Minister, Mr Pranab Mukherjee, to continue with the existing fiscal stimulus at least till September as the economic recovery was still ‘fragile' and that a low base effect was exaggerating growth in some sectors.
The unanimous and collective pressure from captains of industry could tilt the scale in favour of retention of the fiscal stimulus beyond April even as policymakers had earlier dropped strong hints that the exit could begin in the upcoming Budget through reversal of indirect tax cuts.
“We have all together requested the Finance Minister to continue with the fiscal stimulus package as the economic recovery is still fragile,” Ms Swati Piramal, Assocham President, told reporters at North Block after pre-Budget meeting of industrialists with Mr Mukherjee and senior Finance Ministry officials.
At the meeting, India Inc also stressed that time was not ripe for monetary tightening and submitted that food inflation was more on account of supply side constraints.
On the fiscal stimulus issue, the Confederation of Indian Industry (CII) President, Mr Venu Srinivasan, said that the Government could consider withdrawal at the time of introduction of the proposed goods and services tax (GST).
“We are still seeing low base effect exaggerate growth. Of course, there is real growth. But we would like the finance minister to wait and see how it goes and withdraw the fiscal stimulus in calibrated manner. We want GST to be introduced as early as possible,” Mr Srinivasan said.
The Federation of Indian Chambers of Commerce and Industry (FICCI) President, Mr Harsh Pati Singhania, said that investments are yet to pick up although there are signs of economic recovery.
“Our suggestion was stimulus should be continued at least for the first two quarters of the next fiscal,” Mr Singhania said.
FICCI has also urged the Finance Minister to maintain the peak customs duty at the current level of 10 per cent.
Asked about export sector, Mr Singhania told Business Line that the chamber has made a case for reintroduction of tax exemption on export profits (Sec 80HHC benefits).
Besides raising issues such as the cascading effect of dividend distribution tax, India Inc has also urged the Finance Minister not to go ahead with the proposed levy of minimum alternate tax (MAT) on gross asset basis under the new Direct Taxes Code.
Industrialists who attended the meeting include Mr Anand Mahindra, Vice-Chairman and Managing Director, Mahindra & Mahindra; Mr Ashwin Dani, Vice-Chairman and Managing Director, Asian Paints Ltd; Mr Gautam Singhania, Chairman and Managing Director of Raymond; Mr Venugopal Dhoot, Chairman, Videocon Group, and Mr Tulsi Tanti, Chairman and Managing Director, Suzlon Energy.
Stimulus should stay: India Inc
Stimulus should stay: India Inc
Times of India, January 6, 2010, Page 27
TNN, NEW DELHI
Top corporates and representatives of all the major industry associations, including Ficci, CII and Assocham, have urged finance minister Pranab Mukherjee that the stimulus package should continue for at least six more months, now that there are clear signs of economic recovery.
The FM's pre-budget meeting with corporate honchos — including Ficci president Harshpati Singhania, Videocon's VN Dhoot, M&M's Anand Mahindra, Tulsi Tanti of Suzlon, Ashwin Dani of Asian Paints and Swati Piramal of Assocham — on Tuesday unanimously held that tax sops announced by the government last year should continue for the time being.
After the meeting, Singhania told reporters that the industry urged the FM to bring down the Minimum Alternate Tax (MAT) from 15% to 10% as the effective rate for a MAT paying company and a regular tax paying company is about the same because of lower deduction for depreciation on book profits etc. MAT is no longer the minimum alternate tax, he said, adding that when a company is amalgamated or demerged, credit benefit of MAT should be available to the amalgamated company.
"The stimulus package should not be suddenly withdrawn but should be gradually phased out as the industry is just coming out of the recession and inflation rate has already increased significantly during December 2009," a statement from Assocham said.
The industry leaders also impressed upon the Pranab Mukherjee to empower the middle class by giving them more tax sops on personal income tax. It was suggested that the tax rate of 30.9%, inclusive of 3% education cess, on income of Rs 5 lakh and above be reduced to 30%.
All corporates were in favour of introducing indirect tax reforms through Goods and Services Tax.
Times of India, January 6, 2010, Page 27
TNN, NEW DELHI
Top corporates and representatives of all the major industry associations, including Ficci, CII and Assocham, have urged finance minister Pranab Mukherjee that the stimulus package should continue for at least six more months, now that there are clear signs of economic recovery.
The FM's pre-budget meeting with corporate honchos — including Ficci president Harshpati Singhania, Videocon's VN Dhoot, M&M's Anand Mahindra, Tulsi Tanti of Suzlon, Ashwin Dani of Asian Paints and Swati Piramal of Assocham — on Tuesday unanimously held that tax sops announced by the government last year should continue for the time being.
After the meeting, Singhania told reporters that the industry urged the FM to bring down the Minimum Alternate Tax (MAT) from 15% to 10% as the effective rate for a MAT paying company and a regular tax paying company is about the same because of lower deduction for depreciation on book profits etc. MAT is no longer the minimum alternate tax, he said, adding that when a company is amalgamated or demerged, credit benefit of MAT should be available to the amalgamated company.
"The stimulus package should not be suddenly withdrawn but should be gradually phased out as the industry is just coming out of the recession and inflation rate has already increased significantly during December 2009," a statement from Assocham said.
The industry leaders also impressed upon the Pranab Mukherjee to empower the middle class by giving them more tax sops on personal income tax. It was suggested that the tax rate of 30.9%, inclusive of 3% education cess, on income of Rs 5 lakh and above be reduced to 30%.
All corporates were in favour of introducing indirect tax reforms through Goods and Services Tax.
Don’t roll back stimulus, please: India Inc to FM
Don’t roll back stimulus, please: India Inc to FM
Hindustan Times, January 6, 2010, Page 21
Amid green shoots of economic recovery, business leaders on Tuesday urged Finance Minister Pranab Mukherjee to continue with the stimulus package pushed by the government last year to counter the effects of a downturn.
The minister, who met representatives of industry chambers including Confederation on Indian Industry, Ficci and Assocham, kickstarted the customary pre-budget meetings in the backdrop of an industrial revival coupled with anxieties over the prospects of tax hikes by a government trying to curb its deficit.
Some pushed for disinvestments to check the deficit, rather than measures that could hurt them.
The GDP growth rate for the second quarter of the current fiscal stood at 7.9 per cent, exceeding expectations. The government, in its mid year review, has projected a growth rate of 7.75 per cent for 2009-10.
Harshpati Singhania, president, Ficci said a tightening of the monetary policy to contain food price inflation could hinder growth while adversely impacting the industrial sector.
“We feel that fiscal sops must continue at this point. The GDP numbers (of 7.9 per cent for the second quarter) are driven by the stimulus packages,” Singhania said, adding that the possibility of exit should be reviewed only after September.
Assocham said a continuation of the stimulus package in 2010-11 would be critical for growth and recovery after which it could be phased out gradually. Swati Piramal, president, Assocham said that fiscal deficit can be partly contained through an expeditious disinvestment process.
The industry bodies also urged the minister to roll back the minimum alternate tax (MAT) to 10 per cent from 15 per cent. At present, companies pay 15 per cent MAT on book profits. The government hiked MAT from 10 per cent to 15 per cent in the last budget.
Ficci has also stressed the need to incentivise investments.
Hindustan Times, January 6, 2010, Page 21
Amid green shoots of economic recovery, business leaders on Tuesday urged Finance Minister Pranab Mukherjee to continue with the stimulus package pushed by the government last year to counter the effects of a downturn.
The minister, who met representatives of industry chambers including Confederation on Indian Industry, Ficci and Assocham, kickstarted the customary pre-budget meetings in the backdrop of an industrial revival coupled with anxieties over the prospects of tax hikes by a government trying to curb its deficit.
Some pushed for disinvestments to check the deficit, rather than measures that could hurt them.
The GDP growth rate for the second quarter of the current fiscal stood at 7.9 per cent, exceeding expectations. The government, in its mid year review, has projected a growth rate of 7.75 per cent for 2009-10.
Harshpati Singhania, president, Ficci said a tightening of the monetary policy to contain food price inflation could hinder growth while adversely impacting the industrial sector.
“We feel that fiscal sops must continue at this point. The GDP numbers (of 7.9 per cent for the second quarter) are driven by the stimulus packages,” Singhania said, adding that the possibility of exit should be reviewed only after September.
Assocham said a continuation of the stimulus package in 2010-11 would be critical for growth and recovery after which it could be phased out gradually. Swati Piramal, president, Assocham said that fiscal deficit can be partly contained through an expeditious disinvestment process.
The industry bodies also urged the minister to roll back the minimum alternate tax (MAT) to 10 per cent from 15 per cent. At present, companies pay 15 per cent MAT on book profits. The government hiked MAT from 10 per cent to 15 per cent in the last budget.
Ficci has also stressed the need to incentivise investments.
Realty, automobile sectors put steel industry back on recovery path
Realty, automobile sectors put steel industry back on recovery path
Hindu Business Line, January 6, 2010, Page 1
Our Bureau, Mumbai
Strong demand from the automobile and realty sectors appears to have put the steel industry on the revival path.
Major manufacturers such as Tata Steel and JSW Steel have reported a healthy year-on-year growth in production for December.
Tata Steel achieved a 21 per cent rise in crude steel production at 600,204 tonnes, against the low base of 494,000 tonnes in December 2008.
“Tata Steel plant now operates at the rate of 7.2 mtpa against the rated capacity of 6.8 mtpa,” the company said on Tuesday. It also registered its best saleable steel production of 592,487 tonnes.
The December demand was largely driven by the automobile sector, said a steel analyst.
Many of the steel companies also passed on the increase in raw material costs to end-consumers on the back of encouraging demand, he said.
Tata Steel said the sale of flat products used in automobiles and consumer durables increased 90 per cent, while that of long products, primarily used in the real estate sector, rose 56 per cent.
During the quarter-ended December, the company's sales jumped 49 per cent to 1.60 million tonnes (1.07 mt). Crude steel output was up 15 per cent to 1.72 mt (1.50 mt) and saleable steel production rose 37 per cent to 1.69 mt (1.23 mt).
JSW Steel's crude steel production in December more than doubled to 563,000 tonnes (229,000 tonnes). Flat product production was up 56 per cent to 330,000 tonnes (212,000 tonnes), while long products rose over three times to 94,000 tonnes (26,000 tonnes).
During the December quarter, JSW Steel's crude steel output jumped 88 per cent to 1.47 mt (782,000 tonnes). Flat and long product output rose to 941,000 tonnes (622,000 tonnes) and 237,000 tonnes (79,000 tonnes).
The stock of Tata Steel rose 2 per cent to close at Rs 649 on the bourses, while JSW Steel rose 11 per cent, closing at Rs 1,134.
NHB brings in strategic partner for mortgage guarantee biz
NHB brings in strategic partner for mortgage guarantee biz
Hindu Business Line, January 6, 2010, Page 6
Foreign player to provide technical expertise; operations likely to start by June.
--------------------------------------------------------------------------------
In the mortgage guarantee company, NHB will be the single largest shareholder but its stake will be less than 50 per cent. The technical partner will also have a large share.
--------------------------------------------------------------------------------
Remya Nair, Mumbai
National Housing Bank has roped in another foreign partner for its mortgage guarantee company, which is expected to commence operation by June.
Unlike the two existing foreign investors —Asian Development Bank and International Finance Corporation — the third one is believed to be an experienced international player in mortgage guarantee business and is a “strategic partner”.
Final negotiations
“We are in the process of tying up with the strategic partner. The negotiations have reached the final lap. The international partner will provide the technical expertise needed to run the mortgage guarantee company,” said Mr R.V. Verma, Executive Director, National Housing Bank.
Mr Verma, however, did not disclose the name of the partner.
With the tie-up in place, NHB is planning to commence operations of its mortgage guarantee company by June, he said.
“Earlier, the plan was to bring in two international investors, besides ADB and IFC. But now we have decided to bring in only one strategic partner who brings in the requisite expertise,” Mr Verma said.
Initially, NHB was supposed to hold 26 per cent stake and ADB and IFC were to hold 13 per cent stake each. Canada Mortgage and Housing Corporation and AIG-subsidiary United Guarantee Company were to be the other partners providing technical expertise.
However, NHB began scouting for new partners after the two technical partners exited.
In the mortgage guarantee company, NHB will be the single largest shareholder but its stake will be less than 50 per cent. The technical partner will also have a large share, said Mr Verma.
ADB and IFC will have a 10-13 per cent stake each in the company.
Paid-up capital
The mortgage guarantee company will have an initial paid-up capital of Rs 120 crore. This could increase to Rs 750 crore in the next few years depending on business expansion, he said.
The mortgage guarantee company was envisaged in 2002 to compensate banks and housing finance companies in case of defaults by the home loan borrowers.
The guarantee will help banks to securitise their loans more easily as the mortgage guarantee company will encourage standardisation of loan documents and processes. It will also provide additional credit enhancements to the portfolios of the lenders, besides improving credit flow to borrowers in the high-risk category.
Banks can lend to high risk customers without having to worry about potential defaults, Mr Verma said.
HUDCO extends affordable finance for housing projects for EWS and LIG categories at the lowest interest rate of 7% to 7.5% (Floating)
HUDCO extends affordable finance for housing projects for EWS and LIG categories at the lowest interest rate of 7% to 7.5% (Floating). (Advertisement).
Financial Express, January 6, 2010, Page1
Financial Express, January 6, 2010, Page1
Foreign fund flows push shares 81% in 2009
Foreign fund flows push shares 81% in 2009
Financial Express, January 6, 2010, Page13
Reuters, Mumbai
Indian shares are no longer cheap after recording their biggest annual rise since 1991, investment strategists overseeing the country’s top performing equity funds for 2009 said on Tuesday.
Indian shares rose 81% in 2009, driven by a flood of foreign funds, stretching 12 months forward price to earnings multiple of India’s benchmark index to nearly 17 times, one of the most expensive in Asia.
“Markets are not cheap any longer... the earnings has come on the back of substantial fiscal and monetary stimulus,” Sankaran Naren, equities chief investment officer at ICICI Prudential Asset Management said in the Reuters Trading India chat room. “International valuations are cheap compared to Indian markets.
“In large caps, stocks are pretty fairly valued, so one does not see pure value picks there. However, in midcaps, there are some value picks,” Rajat Jain, chief investment officer of Principal Pnb Mutual Fund, overseeing Rs 8,000 crore of funds, also said in the chat room.
While Naren, who manages Rs 7,500 crore of equity assets, said his main bets were in the healthcare, telecom and utilities sectors, Jain prefers financials, consumer firms, construction, industrials and some infrastructure companies.
Principal’s funds, including its Emerging Bluechip Fund which rose 147.3% in 2009 as the top Indian fund, holds shares such as state-run State Bank of India and private sector lenders ICICI Bank and HDFC Bank.
Bad loans are not a serious concern and could even surprise positively, said Jain.
Sankaran Naren, whose ICICI Prudential Discovery Fund gained 134.3% in 2009, said he was overweight telecom as it is the sector which is seeing a cyclical downturn due to competition. “My belief is that it will work, there is too much crowding in other themes” he said.
His funds hold shares such as Bharti Airtel and Mahanagar Telephone Nigam Ltd.
“Pharma is very cheap given the certainty of earnings,” he said, adding he liked power utilities as a defensive bet. Drug firms Cadila Healthcare and and FDC are among his discovery fund’s top-5 picks. His investments from the utilities sector includes Tata Power Company and Indraprastha Gas.
Real estate was the one sector both the fund strategists said they were wary of.
“The sector is new to the stockmarket and we do not know how to value landbanks,” said ICICI’s Naren. “The sector is too volatile for investors.” Jain added that the problems of real estate firms were not behind them and they still faced execution challenges. These concerns were aired hours after Godrej Properties surged nearly 20% after listing at a 5.05% premium on its debut on Tuesday.
Financial Express, January 6, 2010, Page13
Reuters, Mumbai
Indian shares are no longer cheap after recording their biggest annual rise since 1991, investment strategists overseeing the country’s top performing equity funds for 2009 said on Tuesday.
Indian shares rose 81% in 2009, driven by a flood of foreign funds, stretching 12 months forward price to earnings multiple of India’s benchmark index to nearly 17 times, one of the most expensive in Asia.
“Markets are not cheap any longer... the earnings has come on the back of substantial fiscal and monetary stimulus,” Sankaran Naren, equities chief investment officer at ICICI Prudential Asset Management said in the Reuters Trading India chat room. “International valuations are cheap compared to Indian markets.
“In large caps, stocks are pretty fairly valued, so one does not see pure value picks there. However, in midcaps, there are some value picks,” Rajat Jain, chief investment officer of Principal Pnb Mutual Fund, overseeing Rs 8,000 crore of funds, also said in the chat room.
While Naren, who manages Rs 7,500 crore of equity assets, said his main bets were in the healthcare, telecom and utilities sectors, Jain prefers financials, consumer firms, construction, industrials and some infrastructure companies.
Principal’s funds, including its Emerging Bluechip Fund which rose 147.3% in 2009 as the top Indian fund, holds shares such as state-run State Bank of India and private sector lenders ICICI Bank and HDFC Bank.
Bad loans are not a serious concern and could even surprise positively, said Jain.
Sankaran Naren, whose ICICI Prudential Discovery Fund gained 134.3% in 2009, said he was overweight telecom as it is the sector which is seeing a cyclical downturn due to competition. “My belief is that it will work, there is too much crowding in other themes” he said.
His funds hold shares such as Bharti Airtel and Mahanagar Telephone Nigam Ltd.
“Pharma is very cheap given the certainty of earnings,” he said, adding he liked power utilities as a defensive bet. Drug firms Cadila Healthcare and and FDC are among his discovery fund’s top-5 picks. His investments from the utilities sector includes Tata Power Company and Indraprastha Gas.
Real estate was the one sector both the fund strategists said they were wary of.
“The sector is new to the stockmarket and we do not know how to value landbanks,” said ICICI’s Naren. “The sector is too volatile for investors.” Jain added that the problems of real estate firms were not behind them and they still faced execution challenges. These concerns were aired hours after Godrej Properties surged nearly 20% after listing at a 5.05% premium on its debut on Tuesday.
PE, VCs on road to raise $13-15 bn in 2010, say experts
PE, VCs on road to raise $13-15 bn in 2010, say experts
Business Standard, January 6, 2010, Section II, Page 3
Shilpy Sinha & Shivani Shinde/Mumbai
Investments to be company-specific; infrastructure to remain in focus.
Private equity (PE) players and venture capitalists (VCs) are back in the market to raise funds. Sector experts say 2010 will see these players raise $13-15 billion, almost on a par with what they raised in 2008.
PE players and VCs had raised $10-11 billion in 2009, though most of this was in the second half of 2009.
"We will see a 30-40 per cent rise in fund-raising this calendar year. We expect PE players and VCs to raise $13-15 billion,&" said Harish H V, partner, Grant Thornton.
"Close to 45 funds are either preparing to enter the market or have already hit the road to raise funds. While I feel that matching the level of 2007 is difficult, the year will be better than 2009,&" said Jagannadham Thunuguntla, equity head, SMC Capitals.
The increase reflects the growth that India Inc has continued to report even in the downturn. "Limited partners (LPs) are quite positive about India's economy. We do not expect any change in the fee or compensation structure,&" said Harish.
Industry experts say the year will be governed by returns. "LPs are going to focus on returns. We think the returns will be more than 20 per cent, better than in 2009,&" said a banker.
"I think LPs are still trying to rework their portfolios. It will be difficult for general partners to convince LPs to invest,&" said Thunuguntla.
Infrastructure, consumer services, education, healthcare, financial and clean technology will be the favoured sectors, say experts.
One sector that is already in focus is infrastructure. The players are in the process of raising close to Rs 8,541 crore ($1.78billion) worth of infrastructure funds. Out of this, Rs 6,800 crore are India-dedicated funds, according to data from Preqin.
Some players looking at the sector are Axis Private equity, ICICI Ventures and UTI Asset Management Company. "Investors will become company-specific rather than sector-specific. Good sectors can have bad companies and so it makes sense to focus on companies,&" said Thunuguntla.
Fund-raising by VCs already seems to be gaining momentum. "I am seeing an improvement in early-stage venture funding. My sense is that things will improve from the lows of 2009 but may not touch the high that was touched in 2007 and early 2008,&" said Alok Mittal, managing director, Canaan Partners. Norwest Venture Partners recently raised a $1.2-billion global fund.
Says Anil Ahuja of 3i. "Fund-raising will be more selective. It will be better in 2010 than what we saw in 2008-09. LPs will be more careful in allocating capital to first-time funds. Established funds will have it easier as LPs will feel more comfortable with funds with proven track records. The number of funds that get allocation from LPs will come down significantly,&" said Ahuja.
Telangana crisis pushes cement prices up
Telangana crisis pushes cement prices up
Business Standard, January 6, 2010, Section II, Page 4
Sohini Das/Ahmedabad
Production, despatch affected by turmoil; rail wagon shortage hits momentum.
The ongoing agitation for a separate Telangana state has disrupted supply and triggered a rise in cement prices in western parts of the country, especially the Mumbai region.
Andhra Pradesh (AP) has nearly 50 small and medium cement manufacturing units and the monthly output from these is normally between 2-2.2 million tonnes. Industry sources said Orient Cement and Andhra Cement are among those who had to shut their units for some days in December.
This is because the turmoil has not only affected demand but also transportation of the commodity via rail and road. There has also been a shortage of rail wagons since November, that had originally sparked a series of price rises across western and southern markets. Due to transportation uncertainties, some manufacturers had to shut production, as storage is a major issue with this commodity.
When asked, company officials declined to say anything; the Cement Manufacturers Association was not available for comment.
"Andhra accounts for nearly 60 per cent of the south Indian cement market and also supplies cement to the Mumbai and Gujarat market. The supply in AP has been impacted by around 10-12 per cent due to plant shutdown, which has also impacted its dispatches to the western markets," claimed Rupesh Sankhe, analyst with Mumbai-based Angel Broking.
Also, construction activity has almost come to a standstill in Andhra, with some companies like Bharat Forge even considering relocating operations to states like Gujarat.
"While demand has gone up in Mumbai, arrivals are yet to pick up. Despatches are expected to rise in some time. However, traditionally, February to May is a period of high demand and prices should be on the upward curve in the Mumbai region during this time," explained Sanjay Ladiwala, president of the Cement Stockists and Dealers' Association.
Currently, the wholesale billing price is Rs 250 for a 50-kg bag in Mumbai, while retail prices are around Rs 265 a bag, Ladiwala informed. This is up marginally by Rs 2-3 in the last one week and has increased by around Rs 10 per bag over November prices.
Prices in Andhra had firmed up from Rs 145 in October to Rs 155-160 by November-end, while in Karnataka and Tamil Nadu, the commodity was then selling for Rs 165 and Rs 175 per bag, respectively.
South Indian players were expected to go in for 'pricing discipline' after cement prices had crashed below Rs 140 in September-end, Sankhe said. Things are, however, very different now.
Business Standard, January 6, 2010, Section II, Page 4
Sohini Das/Ahmedabad
Production, despatch affected by turmoil; rail wagon shortage hits momentum.
The ongoing agitation for a separate Telangana state has disrupted supply and triggered a rise in cement prices in western parts of the country, especially the Mumbai region.
Andhra Pradesh (AP) has nearly 50 small and medium cement manufacturing units and the monthly output from these is normally between 2-2.2 million tonnes. Industry sources said Orient Cement and Andhra Cement are among those who had to shut their units for some days in December.
This is because the turmoil has not only affected demand but also transportation of the commodity via rail and road. There has also been a shortage of rail wagons since November, that had originally sparked a series of price rises across western and southern markets. Due to transportation uncertainties, some manufacturers had to shut production, as storage is a major issue with this commodity.
When asked, company officials declined to say anything; the Cement Manufacturers Association was not available for comment.
"Andhra accounts for nearly 60 per cent of the south Indian cement market and also supplies cement to the Mumbai and Gujarat market. The supply in AP has been impacted by around 10-12 per cent due to plant shutdown, which has also impacted its dispatches to the western markets," claimed Rupesh Sankhe, analyst with Mumbai-based Angel Broking.
Also, construction activity has almost come to a standstill in Andhra, with some companies like Bharat Forge even considering relocating operations to states like Gujarat.
"While demand has gone up in Mumbai, arrivals are yet to pick up. Despatches are expected to rise in some time. However, traditionally, February to May is a period of high demand and prices should be on the upward curve in the Mumbai region during this time," explained Sanjay Ladiwala, president of the Cement Stockists and Dealers' Association.
Currently, the wholesale billing price is Rs 250 for a 50-kg bag in Mumbai, while retail prices are around Rs 265 a bag, Ladiwala informed. This is up marginally by Rs 2-3 in the last one week and has increased by around Rs 10 per bag over November prices.
Prices in Andhra had firmed up from Rs 145 in October to Rs 155-160 by November-end, while in Karnataka and Tamil Nadu, the commodity was then selling for Rs 165 and Rs 175 per bag, respectively.
South Indian players were expected to go in for 'pricing discipline' after cement prices had crashed below Rs 140 in September-end, Sankhe said. Things are, however, very different now.
Should RBI raise interest rates?
Should RBI raise interest rates?
Business Standard, January 6, 2010, Page 8
Business Standard/New Delhi
A rate hike will set back the recovery process, but if RBI does raise rates, it will be to prevent the rise in food prices from spilling over to other sectors and to dampen inflationary expectations
Dharmakirti Joshi, Director and Principal Economist, Crisil Ltd
In its October policy, the Reserve Bank of India (RBI) had set the tone for monetary tightening. The exit from an accommodative monetary stance was signalled via reversing some of the unconventional liquidity-boosting measures announced earlier. Raising the SLR was one of them. RBI nevertheless refrained from explicit tightening via interest rate hikes as the recovery was considered fragile.
What has changed since then? Compared to October 2009, the economy now appears to be on stronger legs. The second quarter GDP growth of 7.9 per cent positively surprised market participants and policy-makers alike. Until the first quarter of this year, government spending was the key driver of demand in the economy. It still is, but now private consumption demand too is supporting it. Real private final consumption expenditure grew at 5.6 per cent in the second quarter versus 1.6 per cent in the first quarter. The investment demand too has picked up. Recent data shows that exports have started growing, albeit over a depressed base. All this has improved the growth prospects for the current fiscal, leading all the key forecasters to scale up their India growth estimates for 2009-10. While the economic scenario has improved significantly since October 2009, some concerns on the growth front still remain, given the uncertain global scenario.
Another development since the last policy is the pick-up in inflationary pressures. In its October policy, RBI had raised the fiscal yearend inflation target to 6.5 per cent. Given the speed with which inflation is rising, it is quite likely that this target will be breached much before that. The weak base of last year is further pushing inflation up. Under normal circumstances, a simultaneous rise in growth and inflation would have triggered a rate hike. The nature of inflation, however, makes the monetary policy decision quite complicated. The pressure on inflation is largely due to a supply shock from agriculture and not due to demand factors. For the month of November 2009, food inflation stood at 17 percent, fuel inflation was negative and manufactured product inflation was 4.0 per cent. The weekly data on food and fuel as on December 19 shows inflation is firming up in these categories from November levels. It is well understood that the spike in food prices cannot be arrested by raising interest rates. The pressure from supply side shock to food prices has, however, been persistent and is reflected in the double-digit inflation in the Consumer Price Index (CPI) since October 2008. This can spill over to general inflation if the demand is picking up and monetary conditions are easy. Raw material/commodity prices have also posted a significant rally recently. This has the potential to further pressurise inflation by raising the cost of production.
The nature of growth and inflation in India at the current juncture does pose a dilemma for RBI. When the downside risks to the economy had increased with the onset of recession in advanced economies, it was easier to decide on a swift rate reduction. With recovery gaining pace and inflation in the uncomfortable zone, there is little doubt that we will soon see an interest rate hike. But timing the rate hike in today's scenario is a major challenge not only for the Indian central bank but also for many others around the globe. If you raise rates too soon, you risk jeopardising the recovery that has just begun, and if you do it too late, you risk inflation.
The monetary policy has to be vigilant as it impacts the economy with a delay. Since the last policy announcement in October, the recovery is stronger and inflationary pressures are higher. I expect RBI to now move from implicit tightening to explicit tightening to address the potential second-round effects of food price increases on general inflation and also to tame inflationary expectations which are now rife. The danger in waiting for the recovery to firmly take hold is that it could be too late to tame inflation. RBI could begin with CRR hike and a 25 basis points increase in short-term interest rates in its January policy. Following that, interest rate increases could be calibrated, depending on the strength of the recovery and inflationary pressures.
Chandrajit Banerjee, Director General, CII
As India, and indeed the rest of the world, shows signs of recovering from the global economic crisis, the task of central bankers is becoming more complex. While the fiscal and monetary support has helped economic recovery, the recovery itself is not yet strong enough to warrant an increase in interest rates. Further, with the hardening of food prices, the RBI governor will face many calls to tighten policy at the third quarter review of Monetary Policy at the end of this month.
Yet it is worth examining the merits of an immediate tightening versus a wait-and-watch approach. While the recent numbers on industrial growth have been impressive, it is uncertain whether they can be sustained in the event of a withdrawal of monetary stimulus. The sectors which have been doing well are consumer-driven and, therefore, are sensitive to interest rates. Indicators of investment demand, such as capital goods production, still remain subdued. An increase in interest rates would serve to slow down consumer demand which could have a further negative impact on firms' investment plans. In any case, there is a risk that the weak monsoon will have a negative impact on rural incomes and hence on consumer demand. It is, therefore, quite likely that the recent pick-up in growth needs to be nurtured by a soft interest rate regime.
The main driver of both CPI and WPI inflation has been food prices, which have been increasing at a rapid rate. The price of food articles has increased by as much as 19-20 per cent during December, with the main contributors being cereals, pulses, fruit and vegetables, meat and fish. The main reasons for the sharp rise in food prices are the shortfall in food production and weakness in distribution. The deficiency in this year's monsoon has led to a sharp 18 per cent drop in the kharif food grain output. This could have been offset through wider disbursement of government stocks. However, the government response in terms of distribution has been poor, as indicated by food stocks remaining far higher than what is required as per the buffer norms.
It is clear that food prices are being driven up by certain structural and policy-induced factors. The effectiveness of monetary policy in dealing with this is questionable. Monetary tightening will be a blunt instrument, curbing demand across sectors when the problem clearly lies in a single sector.
Another concern is that interest rates are already high in India due to the impact of a sudden increase in government borrowing following the onset of the global financial crisis. The benchmark yield on 10-year government securities has hardened from a low of below 5.0 per cent in January 2009 to about 7.6 per cent currently. This has, to some extent, off-set the impact of monetary easing, so actual lending rates have not declined to the same extent as policy rates.
Bank credit disbursals have just started picking up from a 12-year low, though the banking system still has surplus liquidity as indicated by the amount of funds being parked with RBI in its daily reverse repo auctions. Recent data for the week ending December 18 shows that while the year-on-year increase in banks' credit is just 11.3 per cent, banks' investment in government bonds has increased by 24.2 per cent. An increase in RBI's policy rate at this stage would only encourage banks to stay away from commercial lending, rewarding them for their risk-averse behaviour.
Monetary tightening would only result in a further increase in bond yields which would increase the government's interest costs and pose a challenge to fiscal consolidation. Instead, it would be important for the government to stick to its borrowing targets for this year and try to reduce its borrowing in the coming year. Once private sector demand picks up, it will be difficult to sustain the government's current level of borrowing. Raising interest rates without first reducing government borrowing will only lead to the private sector being "crowded out&".
Business Standard, January 6, 2010, Page 8
Business Standard/New Delhi
A rate hike will set back the recovery process, but if RBI does raise rates, it will be to prevent the rise in food prices from spilling over to other sectors and to dampen inflationary expectations
Dharmakirti Joshi, Director and Principal Economist, Crisil Ltd
In its October policy, the Reserve Bank of India (RBI) had set the tone for monetary tightening. The exit from an accommodative monetary stance was signalled via reversing some of the unconventional liquidity-boosting measures announced earlier. Raising the SLR was one of them. RBI nevertheless refrained from explicit tightening via interest rate hikes as the recovery was considered fragile.
What has changed since then? Compared to October 2009, the economy now appears to be on stronger legs. The second quarter GDP growth of 7.9 per cent positively surprised market participants and policy-makers alike. Until the first quarter of this year, government spending was the key driver of demand in the economy. It still is, but now private consumption demand too is supporting it. Real private final consumption expenditure grew at 5.6 per cent in the second quarter versus 1.6 per cent in the first quarter. The investment demand too has picked up. Recent data shows that exports have started growing, albeit over a depressed base. All this has improved the growth prospects for the current fiscal, leading all the key forecasters to scale up their India growth estimates for 2009-10. While the economic scenario has improved significantly since October 2009, some concerns on the growth front still remain, given the uncertain global scenario.
Another development since the last policy is the pick-up in inflationary pressures. In its October policy, RBI had raised the fiscal yearend inflation target to 6.5 per cent. Given the speed with which inflation is rising, it is quite likely that this target will be breached much before that. The weak base of last year is further pushing inflation up. Under normal circumstances, a simultaneous rise in growth and inflation would have triggered a rate hike. The nature of inflation, however, makes the monetary policy decision quite complicated. The pressure on inflation is largely due to a supply shock from agriculture and not due to demand factors. For the month of November 2009, food inflation stood at 17 percent, fuel inflation was negative and manufactured product inflation was 4.0 per cent. The weekly data on food and fuel as on December 19 shows inflation is firming up in these categories from November levels. It is well understood that the spike in food prices cannot be arrested by raising interest rates. The pressure from supply side shock to food prices has, however, been persistent and is reflected in the double-digit inflation in the Consumer Price Index (CPI) since October 2008. This can spill over to general inflation if the demand is picking up and monetary conditions are easy. Raw material/commodity prices have also posted a significant rally recently. This has the potential to further pressurise inflation by raising the cost of production.
The nature of growth and inflation in India at the current juncture does pose a dilemma for RBI. When the downside risks to the economy had increased with the onset of recession in advanced economies, it was easier to decide on a swift rate reduction. With recovery gaining pace and inflation in the uncomfortable zone, there is little doubt that we will soon see an interest rate hike. But timing the rate hike in today's scenario is a major challenge not only for the Indian central bank but also for many others around the globe. If you raise rates too soon, you risk jeopardising the recovery that has just begun, and if you do it too late, you risk inflation.
The monetary policy has to be vigilant as it impacts the economy with a delay. Since the last policy announcement in October, the recovery is stronger and inflationary pressures are higher. I expect RBI to now move from implicit tightening to explicit tightening to address the potential second-round effects of food price increases on general inflation and also to tame inflationary expectations which are now rife. The danger in waiting for the recovery to firmly take hold is that it could be too late to tame inflation. RBI could begin with CRR hike and a 25 basis points increase in short-term interest rates in its January policy. Following that, interest rate increases could be calibrated, depending on the strength of the recovery and inflationary pressures.
Chandrajit Banerjee, Director General, CII
As India, and indeed the rest of the world, shows signs of recovering from the global economic crisis, the task of central bankers is becoming more complex. While the fiscal and monetary support has helped economic recovery, the recovery itself is not yet strong enough to warrant an increase in interest rates. Further, with the hardening of food prices, the RBI governor will face many calls to tighten policy at the third quarter review of Monetary Policy at the end of this month.
Yet it is worth examining the merits of an immediate tightening versus a wait-and-watch approach. While the recent numbers on industrial growth have been impressive, it is uncertain whether they can be sustained in the event of a withdrawal of monetary stimulus. The sectors which have been doing well are consumer-driven and, therefore, are sensitive to interest rates. Indicators of investment demand, such as capital goods production, still remain subdued. An increase in interest rates would serve to slow down consumer demand which could have a further negative impact on firms' investment plans. In any case, there is a risk that the weak monsoon will have a negative impact on rural incomes and hence on consumer demand. It is, therefore, quite likely that the recent pick-up in growth needs to be nurtured by a soft interest rate regime.
The main driver of both CPI and WPI inflation has been food prices, which have been increasing at a rapid rate. The price of food articles has increased by as much as 19-20 per cent during December, with the main contributors being cereals, pulses, fruit and vegetables, meat and fish. The main reasons for the sharp rise in food prices are the shortfall in food production and weakness in distribution. The deficiency in this year's monsoon has led to a sharp 18 per cent drop in the kharif food grain output. This could have been offset through wider disbursement of government stocks. However, the government response in terms of distribution has been poor, as indicated by food stocks remaining far higher than what is required as per the buffer norms.
It is clear that food prices are being driven up by certain structural and policy-induced factors. The effectiveness of monetary policy in dealing with this is questionable. Monetary tightening will be a blunt instrument, curbing demand across sectors when the problem clearly lies in a single sector.
Another concern is that interest rates are already high in India due to the impact of a sudden increase in government borrowing following the onset of the global financial crisis. The benchmark yield on 10-year government securities has hardened from a low of below 5.0 per cent in January 2009 to about 7.6 per cent currently. This has, to some extent, off-set the impact of monetary easing, so actual lending rates have not declined to the same extent as policy rates.
Bank credit disbursals have just started picking up from a 12-year low, though the banking system still has surplus liquidity as indicated by the amount of funds being parked with RBI in its daily reverse repo auctions. Recent data for the week ending December 18 shows that while the year-on-year increase in banks' credit is just 11.3 per cent, banks' investment in government bonds has increased by 24.2 per cent. An increase in RBI's policy rate at this stage would only encourage banks to stay away from commercial lending, rewarding them for their risk-averse behaviour.
Monetary tightening would only result in a further increase in bond yields which would increase the government's interest costs and pose a challenge to fiscal consolidation. Instead, it would be important for the government to stick to its borrowing targets for this year and try to reduce its borrowing in the coming year. Once private sector demand picks up, it will be difficult to sustain the government's current level of borrowing. Raising interest rates without first reducing government borrowing will only lead to the private sector being "crowded out&".
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