Inflation is down, but so is industrial output

Inflation is down, but so is industrial output
The Hindu Business Line, March 13, 2009, Page 1

January sees some growth

Turnaround in capital, consumer goods sectors.

Our Bureau

New Delhi, March 12 Industrial output showed a dip for the second month in a row, the decline being 0.5 per cent in January 2009. Led by a continuing downturn in the manufacturing and mining sectors, the overall output was marginally better than the minus 0.63 per cent clocked in December.

January’s numbers, however, were way below the 6.2 per cent year-on-year rise in output clocked in the same month of 2007-08.

For the first ten months of the current fiscal, industrial growth was recorded at three per cent (versus 8.7 per cent during April-January 2007-08), putting a question mark on the official projection of 7.1 per cent GDP growth for 2008-09.

Official advance estimates had pegged industrial growth at 4.8 per cent for the current fiscal.

The January data show that while the performance of intermediate and basic goods had been disappointing, there had been an encouraging turnaround in the capital goods and consumer goods sectors.

According to the latest official Index of Industrial Production (IIP) data released here on Thursday, the overall growth in manufacturing output, which has a weight of around 80 per cent in the IIP, declined by 0.8 per cent and mining production by 0.4 per cent .

However, electricity generation rose, though at a slower pace of 1.8 per cent against 3.7 per cent a year ago.

Food products

In terms of specific industries, 12 out of the 17 sectors showed a decline in growth in January.

The biggest dip in production, at 16.1 per cent, was witnessed in the case of food products, followed by wood and wood products (15.2 per cent) and transport equipment and parts (13.4 per cent).

Among those recording a growth, the production of machinery and equipment other than transport was up 17.5 per cent.

Other positives to the industrial story include consumer goods, particularly durables, which showed a growth after a long time.

Consumer durables and non-durables recorded a growth of 2.5 per cent and 0.7 per cent respectively , with the overall growth in consumer goods sector being 1.1 per cent.

E-registry of mortgaged homes on cards

E-registry of mortgaged homes on cards
The Hindu Business Line, March 13, 2009, Page 1

IBA move could bring down housing loan frauds.

K. Ram Kumar, Mumbai, March 12

In a bid to overcome the menace of home loan frauds, the Indian Banks’ Association (IBA) proposes to set up a committee to work out the modalities for establishing a central electronic registry that will list all mortgages created by deposit of title/sale deeds with banks.

Though the establishment of a central registry has been envisaged under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests (SARFAESI) Act, 2002, the proposal, somehow, had escaped the attention of law-makers as well as bankers.

With banks regularly falling prey to frauds being committed in home/ mortgage loans using fake sale/title deeds, the IBA committee, to be headed by the National Housing Bank Chairman & Managing Director , is expected to fast track the matter relating to the registry.

Less scope to cheat

According to Mr M. R. Umarji, Chief Advisor (Legal), IBA, once the registry is established, banks can verify the mortgage status of a house/property and accordingly take a decision on sanction or otherwise of a loan. “The registry would make it almost impossible for borrowers to get away by offering the same collateral/ security to take loans from various banks,” he said.

For a small fee, banks as well as those intending to purchase house/property can run a check with the proposed centralised electronic registry to verify whether a notice regarding the house/property has already been filed.

As the e-registry is envisaged as a repository of title holdings through e-filing of notice about the collateral/security, banks, once they are satisfied about the clarity of the title with respect to the collateral/ security being offered by a prospective borrower, will be encouraged to take faster credit decisions and may even charge lower interest rates.

Rs 600-cr loss?

The need for setting up a centralised registry assumes importance because between 2002 and 2006, when the economy was buoyant, 28 public sector banks cumulatively reported home loan frauds to the tune of around Rs 600 crore. This was disclosed by Reserve Bank of India in a reply to an application made under the Right to Information Act,

Bankers say that if one considers the PSBs’ home loan push in 2007- 2009, the home loan fraud could be in the region of Rs 1000 crore. The situation would be worse in the case of new generation private sector banks, which of late are showing an increasing interest in the home loans front.

Migration to cities will ease poverty: WB

Migration to cities will ease poverty: WB
The Financial Express, March 13, 2009, Page 4

fe Bureau, New Delhi

Urbanisation can help lift people out of poverty, the World Bank said in its World Development Report 2009: Reshaping Economic Geography, released in India on Thursday. Arguing for greater concentration in cities, the report said the process of migration from villages to cities should be encouraged and welcomed. The governments should establish common institutions that promote this market-led evolution of industrial cities rather than trying to evenly spread the economic activity across geography of a country, the report said.

Presenting a 3D view of economic development, where Ds stand for density, distance and divisions, the report said some places such as Tokyo, US, Western Europe, Mumbai, Beijing and Shanghai are doing well because they have higher population densities, shorter distances, and fewer divisions or man made barriers to trade. One of the most prosperous cities Tokyo, for instances, is home to 3.5 crore or a quarter of the Japan’s population packed into less than 4% of its land. Gurgaon, which 20 years ago was a cluster of villages, is now one of the most service-oriented corridors sitting in the middle of India’s largest consumer market, the report stated.

“We economists think about how things are done and what things are done, but we don’t think as much about where things are done,” said the report’s director Indermit S Gill. “But where economic activity is concentrated can be the difference between poverty and prosperity—for people as well as for countries.”

The report said rapid urbanisation in many countries has led to faster and shared growth, resulting in lower poverty. For instance, the Republic of Korea went from more than 80% rural to over 80% urban between 1950 and 2000. It also transformed from a low income country into a high income nation during the same period.

The report acknowledges this process of agglomeration and concentration can result in creation of big slums, just as it happened during the industrial revolution in cities like London, Paris and New York in the 19th century, but it also pulls people out of poverty. The dynamic pull of the cities would attract people towards economic opportunities and the governments anticipate this and plan accordingly, with a view to encourage this process, the report said. “Twenty-five years ago in an increasingly crowded Mumbai, authorities tried to keep out more migrants and stopped building infrastructure. But people came anyway, and Mumbai now has 16.5 million people, more than half of whom live in slums,” it said.

“The role of government remains important—not to spread out economic activity but to encourage mobility toward it, and to ensure universal access to basic services such as health and education,” the report said. Instead of worrying about the size of metropolis, the report calls for policy makers to ensure that these places work well and efficiently. The report also argues for greater mobility of labour and capital across the world and increased market access within a country and among countries. The World Bank has been publishing WDR every year since 1978 on a particular aspect of development. The next year’s theme is development in a changing climate.

• Rapid urbanisation in many countries has led to faster and shared growth, resulting in lower poverty

• The process of agglomeration and concentration can result in creation of big slums

• The report argues for greater mobility of labour and capital across the world

Migration to urban areas is good, says World Bank

Migration to urban areas is good, says World Bank
Business Standard, March 13, 2009, Page 4

BS Reporter / New Delhi

Taking a dig at India and other countries that believe economic activities must be spread geographically to benefit the poor, a new World Bank report has called for concentration of production, mobility of people and economic integration to lift rural people out of poverty. Population shift from villages to cities is natural and should be encouraged, it said.

This contradicts India’s policy of countering migration by setting up industries in backward areas and offering temporary employment through schemes like the National Rural Employment Guarantee Programme.

“The world’s most geographically disadvantaged people know all too well that growth does not come to every place at once,” said Indermit S Gill, director of the World Development Report (WDR) and chief economist, Europe and Central Asia. “Markets favour some places over others. To fight this concentration is tantamount to fighting prosperity,” Gill added.

Giving India’s example, where more than 60 per cent of the nation’s poor live in the economically backward states, the report calls for policies that promote mobility of people, products and ideas. Instead of worrying about the size of metropolises, the report calls for policymakers to focus on improving the basic infrastructure to make sure these places work well like Tokyo or New York.

Giving example of Mumbai, the report says despite its attempts to discourage inflows of people, who were attracted to economic opportunities, Mumbai has twice as many people as in 1980s. Half of the city’s population lives in slums as the government has not created the requisite infrastructure.

The standard practice in cities with limited land is to raise the permitted Floor Space Index (FSI) over time to accommodate urban growth, as in Manhattan, Singapore, Hong Kong and Shanghai. However, the Municipal Corporation of Greater Mumbai went the other way by lowering the permitted FSI, which has resulted in a vicious circle of supply shortages and high land prices.

The report lays special importance on 3Ds – density (of population closer to economic activity), distance (reducing transport cost) and divisions (less divisions or barriers to trade) — to make economic hubs.

In India, new economic activity in the industry and services is now concentrated along India’s metropolises and coastal cities, increasing the central region’s economic distance from density. While people want to move closer to opportunities, mobility has not been helped by ethnic and linguistic divisions, coupled with policies that seek to revive growth in lagging areas through subsidised finance and preferential industrial licensing.

Instead, the government should provide improved education, health and other social services across the country to prepare quality human resource which can migrate to economic hubs for better opportunities, Gill said.

The report criticised India’s special economic zones (SEZs), which are not as well located as in China. China has located its SEZs in coastal areas and has promoted migration of its people to these areas as well as foreign investment, and leading to greater connectivity to foreign markets.

Unplanned urbanisation bane of Indian cities, says report

Unplanned urbanisation bane of Indian cities, says report
The Financial Express, March 13, 2009, Page 4

fe Bureau, New Delhi

Cities are witnessing rapid urbanisation and population concentration since economic activities are mostly concentrated in these areas. Migration from economically weaker areas serves as another cause of fast-emerging trend, which has multiple ripple effects.

According to the World Development Report 2009 on Reshaping Economic Geography, “The poor are gravitating to towns and cities, but more rapid poverty reduction will probably require a faster pace of urbanisation, not a slower one—and development policy makers will need to facilitate this process, not hinder it.” Since a transformation involves both the urban and the rural, strategies must include measures to improve a spectrum of settlements—secondary cities, small urban centers, towns, and villages.

Mumbai, the financial capital of India, can be seen as an example. The city has a diverse population, and this will help determine priorities for all levels of the government (central, provincial, and municipal). In rapidly urbanising areas, congestion can quickly set in and metropolitan areas may also need to address within-city divisions posed by shantytowns and slums.

The city planners of Mumbai, in the 1960s and 1970s, decided that its population should be controlled at about 7 million. Land regulations and infrastructure policies were designed accordingly. However, people migrated into the city in search of livelihood, and today, the city is more than twice the intended size, with the highest population density of any metropolitan area in the world.

It is estimated that 54% of Mumbai’s 16 million people now live in slums and another quarter in degraded apartments, lowering the permitted FSI to 1.33 in 1991.

Almost all buildings in Mumbai with an FSI exceeding 4.5, were built before 1964. Under the rules that existed until recently, new buildings, including those in the central business district, were subject to the FSI of 1.33. As a result, space consumption in Mumbai averages 4 square meters, much less than the 12 square meters in Shanghai and the more than 20 square meters in Moscow. Also, about half of its residents are huddled within 2 property taxes and inflated real estate prices for revenue.

The result is a vicious circle of supply shortages and high land prices. Mumbai slipped from the 25th place to 40th in the league table of “best cities for business” between 1995 and 1999. It remains India’s premier business city—it topped Chennai and Bangalore in investment in 2007 and was the top destination for domestic migrants. World Development Report 2009 questions how long it will keep this position unless it reforms its regulations and improves infrastructure.

Successful cities react to growing traffic congestion with spatially connective infrastructure, WDR 2009 points out. But preceding such infrastructure in all successful cities is a fluid land market and an empowered local government. In December 2005 Jawaharlal Nehru National Urban Renewal Mission (JNNURM) was launched to take care of rapid urbanisation of Indian cities.

In realty show, towering rates face elimination

In realty show, towering rates face elimination
The Economic Times, March 13, 2009, Page 1

Buyers Keep Away Despite 50% Fall In Rates

Rajesh Unnikrishnan & Sanjeev Choudhary
MUMBAI NEW DELHI

SOME two weeks ago, Mumbai-based stock broker Ashok Samani won an auction to buy eight apartments owned by the late Harshad Mehta and family in the posh Worli locality. Mr Samani, who put in a winning bid of Rs 32.60 crore, or Rs 26,080 per sq ft, for the apartments in an upmarket housing society called Madhuli, is pleased with the bargain.

“It’s a reasonable rate. Compared to prices in 2008, it’s a decent buy,” he said.

Indeed, homes in buildings of Madhuli’s class were selling for Rs 38,000-40,000 around the same time last year, about a third higher than the rate at which Mr Samani struck his deal. Mr Samani may be happy with his bargain, but many other potential buyers don’t think the time is ripe for good deals.

In early 2008, a Rs 18-crore deal was negotiated for a 2,925 sq ft house in Delhi’s Defence Colony by a builder who planned to demolish the house and develop flats, hoping for a return of about 30% on his investment.

Wriggling out of deals

BUTafter the downturn in the real estate market, he is trying hard to wriggle out of the deal, even at the cost of losing the Rs 50 lakh he had paid as ‘token money’ indicating his intention to purchase the property. “A few buyers have approached me with a price of Rs 9-10 crore, but exited midway," said a broker who is negotiating on behalf of the property’s owner.

As in the rest of the world, the real estate market in India is trapped in a vicious cycle of plunging prices. With the bottom nowhere in sight, potential buyers do not want to try and catch a falling knife, said Pranay Vakil, chairman, Knight Frank India, a property consultancy firm.

“They are expecting a further cut in prices while developers themselves have been dropping prices anticipating an increase in sales volumes.”

Rajneesh Chhabra, a property broker based in south Delhi, says asking rates are down 30% from their peak but it’s still almost impossible to find a buyer.

“Financiers have disappeared from the market and those dependent on bank loans do not buy property in south Delhi,” he said, adding that deal volumes have shrunk more than 95% from their peaks about a year ago.

With the financial year drawing to a close this month, cashstrapped real estate developers have already cut prices by an average 40% in all their upcoming projects.

“I expect that prices will soon come back to the 2003-04 level when rates were hovering between Rs 12,000 and Rs 17,000 in upmarket areas like Malabar Hills,” said Yashwant Dalal, president of the Mumbai Estate Agents Association. In Malabar Hill, the most expensive home address in India, prices have fallen by a fourth to Rs 25,000-45,000 per sq ft, depending on the age of the building and amenities.

Ten months ago, actor Vinod Khanna offered to pay Rs 1.25 lakh per sq ft for a 2,500 sq ft apartment in the ultra-luxury El Plazo housing society in the Hanging Gardens area of Malabar Hill.

"Now the rates are in that area (Hanging Gardens) are around Rs 70,000 to Rs 75,000 per sq ft. Similarly, in Pedder Road, rates are around Rs 45,000 per sq ft," Mr Dalal said.
A London-based Indian national acquired a 3,475 sq ft property at NCPA apartments in the Nariman Point area for Rs 97,842 per sq ft nearly six months ago, but rates there are almost half that now, said a south Mumbai property dealer.

In central Mumbai’s Worli and Lower Parel areas, rates are down to Rs 12,000-18,000 per sq ft while they have fallen by more than a fifth to Rs 15,000- 25,000 in Bandra. Where price drops have been of the order of 50%, buyers appear to be showing interest.

"We are quoting Rs 16,000 per sq ft for our new project in Lower Parel and the initial response has been positive," said Ram Yadav, finance director of Orbit Corporation. A year ago, property prices in this area were over Rs 35,000 per sq ft. Properties in the heart of the national capital on Prithviraj Road, Aurangzeb Road, Amrita Shergil Marg, Jor Bagh and Golf Links, which have seen deals involving industrialists such as LN Mittal, Naveen Jindal and GM Rao as well as film star Shah Rukh Khan, are now struggling to find buyers. A 11,250 sq ft home in Golf Links, which was bought for Rs 70 crore, is now available for Rs 50 crore, but there are few takers.

“Earlier, financiers used to buy homes. Now they neither have money nor the hope that they will be able to sell it at a higher rate and so have just withdrawn from the market. End-users are rare and they only negotiate, but don’t buy in the expectation that prices will fall further,” said Neeraj Chopra, a Dwarka-based property broker.

In India’s technology capital Bangalore, prices have fallen by up to 25% in some areas, a recent report by Morgan Stanley said. DLF, India’s biggest real estate company, cut rates by about 30% at its upcoming project and the company sees prices falling further.

Irshad Ahmed, president of Irshads Property Matters, said in suburbs such as Whitefield, Outer Ring Road and Sarjapur Road, hard bargaining can result in final prices that are 30% lower than card rates.

Property dealers and builders are also are lining up an array of discounts and freebies to try and clinch deals.

The Gateway project by developer Brigade in Malleshwaram, among the oldest localities in town, is quoting at Rs 5,090 per sq ft as against Rs 5,790 per sq ft last year. But there is scope for negotiations, depending on which flat is chosen and the mode of payment, a marketing team official said. Second sale rates at Gateway are Rs 4,700-4,800 per sq ft, according to a property dealer.

In Bangalore’s downtown area—the Mantri group’s upmarket Altius complex here has only one apartment to a floor with a current market price of around Rs 14 crore—there aren’t many units available for a second sale. A city broker says as there are no other projects that open up to views of the city’s lung space, Cubbon Park, the price will hold. But the number of people showing interest in buying has dropped, he added.

However, in the upmarket areas of Chennai, there have been no considerable price drops.

In Chennai’s Arcot Road, Purasawakkam, Thiruvanmayur and Valasaravakkam areas, rates still hover between Rs 4,700 and Rs 6,600 pre sq ft, about the same as a year ago, a dealer said, but prices have fallen by 20-30% in the suburbs. In Kolkata, home prices have fallen from their peak around the middle of 2008 and hover around levels seen at the beginning of last year. In areas such as Ballygunge Circular Road, Sunny Park and Queens Park, rates that were Rs 8,500-10,000 per sq ft in January 2008 jumped to Rs 13,000-14,000 in June-July before dropping to Rs 9,000-11,000.

“Prices in the city’s posh areas, including Ballygunge Circular Road and Queens Park, had surged because of limited supply but they have been hit now. Areas like Prince Anwar Shah Road, Behala and Lake Town remain unaffected as real estate prices in these areas never reached unrealistic levels,” said Jitendra Khaitan, CEO of real estate consultancy Pioneer Property Management. Sumit Dabriwala, managing director of property developer Hiland Group, said highend residential properties, which were being sold for Rs 12,000-15,000 per sq ft last year, are averaging Rs 9,000-10,000 per sq ft now. “On an average, properties in upmarket areas have seen a 10-15% price reduction in the premium category,” he said.

A number of banks have cut home loan rates in recent weeks, sparking hope that sales will pick up in the quarter beginning April, rescuing the property market from its downward spiral. This could be a crucial period as the impact of the ongoing financial crunch is expected to peak by then.

(With inputs from J Padmapriya in Bangalore, Anuradha Himatsingka in Kolkata and Hemamalini Venkatraman in Chennai)

Real Estate Intelligence Report, Thursday, March 12, 2009

World economy to shrink in Great Recession: IMF

World economy to shrink in Great Recession: IMF
The Financial Express, March 11, 2009, Page 1

Agencies

The International Monetary Fund (IMF) expects the global economy to contract this year and the slump will be the worst “in most of our lifetimes”, managing director Dominique Strauss-Kahn said. The global financial crisis that has slashed international trade can now be termed the “Great Recession”, Strauss-Kahn said in a speech to African central bank governors and finance ministers in Dar es Salaam, Tanzania on Tuesday.

“The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss- Kahn said. “Continuing deleveraging by world financial institutions, combined with the collapse in consumer and business confidence, is depressing domestic demand across the world.”

The IMF had forecast in January that the global economy would expand 0.5% this year. The World Bank said in a March 8 report that the international economy was likely to shrink for the first time since World War II, and trade will decline by the most in 80 years.

European governments from Dublin to Athens have committed more than 1.2 trillion euros ($1.5 trillion) to protect their banking systems and leaders pledged to spend a combined 200 billion euros to try and lift their economies out of the worsening slump. The US is spending $787 billion on an economic stimulus package to revive its economy.

The IMF is aiming to double its resources to $500 billion to better address the crisis, with Japan already pledging an extra $100 billion. Strauss-Kahn said he is “confident” the Group of 20 countries will agree to this goal at a summit in April. He urged better coordination between leading nations to help boost the global economy and called on rich countries to “reject protectionism, both in trade and finance”.

“If one crisis amongst all crises in the world that requires some coordination, it is this crisis,” Strauss-Kahn said. “It’s a global crisis, so the solution can’t be implemented by one country alone.” Poor countries may be worst hit by a slump in economic growth and trade because poverty will increase, the IMF managing director said.

Our Bureau adds: Slowing growth of the world economy will impact India, too. An Axis Bank report on inflation trends released on Monday shows that wholesale price index-based inflation would touch zero per cent by April. This will be a first for the Indian economy in the past 60 years. The low inflation will occur due to the cuts in excise duty, the strong base effect of a high inflation a year ago, plus the impact of a cut in fuel prices. From a peak of 12.82% last year, WPI-based inflation eased to 3.03 % at the end of February 21.

Author of the note, Saugata Bhattacharya, said a revival in demand is unlikely to be strong and inflation could dip further into the negative zone in April--meaning prices at the wholesale level for a range of commodities would start falling, a rarity in India.

However, consumer price index inflation, which is more representative of prices in the household consumption basket, continues to be higher. But those, too, are expected to come off a high as cuts in retail petrol, diesel and LPG prices with effect from January 31 and the 2% services tax cut announced in February 24 “are likely to be reflected in CPI inflation going forward”, the note adds.

Internal auditor cannot be tax auditor for the same company

Internal auditor cannot be tax auditor for the same company
The Hindu Business Line, March 11, 2009, Page 9

K.R. Srivats, New Delhi

Come April 1, an internal auditor of an organisation cannot take up tax audit of the same entity.

The auditing profession regulator — the Institute of Chartered Accountants of India (ICAI) – has now decided to implement this norm in true spirit from this date.

This decision will mainly impact those chartered accountancy firms that were being appointed as internal auditors and also performing tax audits for the same organisation. It also covers those employees who had taken up the role of an internal auditor.

The stipulation that an internal auditor cannot be a tax auditor has been put in place to ensure there is quality of service and auditor independence is maintained, said Mr Uttam Prakash Aggarwal, ICAI President.

“If the same person is getting two assignments from the same management — as an internal auditor as well as tax auditor, the chances are high that this will influence his independence. We do not want this to happen,” Mr Aggarwal told Business Line.

Although the central council had in October 2008 taken a decision to this effect, it was not fully put into practice on account of the representations received on this front. It was submitted that this decision would create “hardship” for those who had already appointed their internal auditor for carrying out tax audit for financial year 2008-09, i.e. assessment year 2009-10.

PPP planned for developing non-metro airports’ city-side

PPP planned for developing non-metro airports’ city-side
The Economic Times, March 11, 2009, Page 7

Nirbhay Kumar & Subhash Narayan, ET Bureau

NEW DELHI: Infrastructure developers, interested in building city-side projects around a non-metro airport, may have to join hands with Airport Authority of India (AAI). The government is considering to make it a pre-condition for a private developer, an official in the government said.

“The government is planning to invite bids for non-metro airport development projects soon. The civil aviation ministry is revising the terms and conditions (for bids) after that request for qualifications (RFQs) from interested parties will be invited. It has identified about a dozen small airports, including Amritsar and Udaipur in the first round,” the official, who didn’t wish to be named, said.

City side work include development of hotels, shopping complexes, entertainment facilities and convention centres around an airport.

The official said the modified document would enable AAI to hold equity in the special purpose vehicles (SPVs) created by private firms for building city-side infrastructure. As per the proposal AAI will have an option to get fixed income from the developer with an escalation clause.

“The presence of public sector AAI will address employees’ concerns,” he said. The city-side works for non-metro airports had earlier hit a roadblock with AAI employee unions opposing the move to allow private developers to undertake commercial operation and maintenance of terminal buildings. Officials of the aviation ministry and AAI had met on Monday to discuss the issue related to the city-side development of non-metro airports by private firms.

The aviation ministry plans to upgrade 35 non-metro airports including various state capitals with a total investment (both public and private) of about Rs 40,000 crore. While it targeted to complete the infrastructural works at 24 airports by 2009 the remaining airports had a deadline of March, 2010.

Airside works at nine small airports such as Trichy, Trivendrum, Udaipur, Ahmedabad and Jaipur have been completed but their city side development is yet to begin, the official said. Airside works include terminal building, runway, taxiway and related infrastructure. “We are expecting that airside works at three more airports would be completed in a month or two,” he said.