RBI can hike key rates to control price rise
Times of India, December 22, 2009, Page 23
New Delhi: The Prime Minister's Economic Advisory Council chairman, C Rangarajan, on Monday suggested that the RBI could reduce money supply and raise interest rate to tame the rising prices of food articles.
"If price decline does not happen in December, then early steps could be taken. RBI could increase interest rates...preferably could reduce liquidity by acting on CRR," he said.
Rangarajan was responding to a question, what measures the RBI should take to moderate food inflation that climbed to a 10-year high of 20% during the first week of December, driven mainly by higher prices of potato, other vegetables and pulses.
Making a case for reduction in money supply, Rangarajan, also a former Reserve Bank governor, said the apex bank could raise the Cash Reserve Ratio (CRR), the portion of amount that banks are required to keep with the central bank.
Through a slew of measures, the RBI has injected liquidity into the system to help the cash-starved industry to combat the adverse impact of the global financial meltdown since September last year. The RBI Governor, D Subbarao had met finance minister Pranab Mukherjee on December 18, fuelling speculation that the monetary policy would be tightened.
The RBI in October had raised the Statutory Liquidity Ratio (SLR), the portion of funds that banks are required to park in government securities, to 25%, though it retained the CRR at 5%. The central bank would come out with its next monetary policy statement on January 29.
Political pressure is mounting on the governing coalition headed by Prime Minister Manmohan Singh to arrest the price rise. Opposition parties have accused the government of being ineffective in tackling prices and disrupted parliament proceedings. A parliamentary panel last week took the government to task for failing to curb inflation. Former RBI governor Bimal Jalan, meanwhile, said the central bank needs to drain cash from the economy to check speculation in commodities, reports Bloomberg. PTI.
Tuesday, December 22, 2009
RBI can hike key rates to control price rise
US eco to slow down in ’10, needs more stimulus
US eco to slow down in ’10, needs more stimulus
Times of India, December 22, 2009, Page 24
Nobel Prize-winning economist Joseph Stiglitz says the US needs to prepare for a second stimulus package as there’s a “significant” chance growth will slow in the second half of 2010.
The world’s largest economy isn’t likely to expand fast enough to create jobs for new entrants into the labour force or compensate for increases in productivity that will reduce demand for workers, Stiglitz said on Monday.
“The likelihood of this slowdown is very, very high and there’s a significant chance it may be in a negative range,” he said. “If the economy recovers, we don’t need to spend the money. If you don’t prepare now and the economy turns out to be as weak as I think it will likely be, then you are in a very difficult position.”
Stiglitz’s comments echo the view of Nobel laureate Paul Krugman and counter the Obama administration’s judgment that it’s premature to consider another stimulus package after this year’s $787 billion measure. President Barack Obama has instead praised a more limited, $154 billion plan approved by the US House aimed at shoring up the job market.
The worst US recession since the Great Depression has drained more than 7 million jobs in the past two years. The government and the Federal Reserve have spent, lent or committed more than $10 trillion to revive the economy and credit markets. Employers in the US cut the fewest jobs in November since the recession began, and the unemployment rate unexpectedly fell, the Labour Department said. Payrolls slid by 11,000, and the jobless rate declined to 10%.
Federal Reserve policy makers project a decline in the unemployment rate to a range of 9.3% to 9.7% in the fourth quarter of 2010. The US economy expanded last quarter for the first time in a year, growing at a 2.8% pace as government incentives spurred consumers to spend more on homes and automobiles.
The job market is still “in very bad shape” and it is too early for the US and other countries to begin easing stimulus measures put in place a year ago to avert a financial market meltdown, Joseph Stiglitz said in October. BLOOMBERG.
India Inc raises over Rs 150,000cr in 2009
India Inc raises over Rs 150,000cr in 2009
Times of India, December 22, 2009, Page 24
New Delhi: Companies knocking on government doors for bailout funds may have been the norm in the West, but India Inc begged to differ from this rule by raising over Rs 1,50,000 crore of capital for expansion from investors across the world in 2009. Nearly two-thirds of these funds are estimated to have come from investors in overseas markets, which themselves were in shambles and where companies were in dire need of capital, forcing them to beg their respective governments for money.
Also, Indian companies took the quickfire QIPs to meet their immediate capital needs, instead of the time consuming IPO route. As a result, the funds raised by Indian companies during 2009 were more or less equal to the levels seen in 2008, when economic downturn was not a reality for most part of the year.
A total of about 50 companies raised a record-breaking cumulative figure of about Rs 55,000 crore through sale of shares to qualified institutional investors, mostly overseas private equity firms and also local and foreign financial services firms like banks, insurers and fund houses.
According to global consultancy firm Grant Thornton, private PE and QIP space saw 221 deals till December 13, totalling $11.17 billion (about Rs 52,000 crore). “The worst seems to be over for PE investing and clearly there is renewed PE interest in investing in the country, specifically in sectors supporting India’s domestic consumption like education, healthcare and real estate. As a result PE activity in 2010 is expected to rise significantly,” said S Krishna, executive director, PwC.
E&Y’s partner and national director Pankaj Dhandaria said: “PE investment activity is on the rise again as is evident from the deal activity, which has picked up in the past couple of months.” Dhandaria added that India, which is on a growth trajectory and with its ability to generate relatively superior returns, would attract even higher degree of capital (including PE) in the years to come.
It was realty major Unitech which kicked off the QIP bandwagon earlier in the year and raised a total of close to Rs 4,500 crore in two separate deals. Other major QIP deals of the year included a consortium of foreign players putting in close to Rs 3,000 crore in Indiabulls Real Estate. Similar amounts were raised by Axis Bank and Hindalco, while a number of smaller fund-raising deals were also striked successfully.
The QIP performance of 2009 was even better that a total of little over Rs 20,000 crore — a record at that time — raised through this route during 2007, when markets and economy, both in India and abroad, were flying high. The QIP funds raised were not even Rs 2,000 crore in 2008. It was the QIP-push that took India Inc’s fund raising spree in 2009 to the overall levels seen in the previous year, as capital raising activities turned tepid in 2009. PTI.
Use entrepreneurship and innovation as antidote to poverty, says C K Prahalad
Use entrepreneurship and innovation as antidote to poverty, says C K Prahalad
The Economic Times, December 22, 2009, Page 5
ENTREPRENEURS, big or small, should think beyond available resources to become successful. This isn’t merely limited to a particular region, the golden rule applies to all. That’s what Dr CK Prahalad, Paul & Ruth McCracken Distinguished University Professor of corporate strategy at the University of Michigan’s Ross School of Business Management, told ET’s Sutanuka Ghosal and Atmadip Ray in a freewheeling chat. Excerpts:
As author of The Fortune at the Bottom of the Pyramid, are you happy with the way India is looking to achieve inclusive growth? Is there a need to strengthen the ecosystem here for unlocking value at the bottom?
There’s no denying that India needs to do more to eradicate the abject poverty in the country. Yet, we have to take notice of the success stories all around us in reaching out to the poor. The self help group system, ITC’s e-choupal model or Amul’s dairy plant are successful experiments of using the ecosystem for reaching out to the poor masses. Cellphones too have penetrated rural markets and now a million kirana shops are selling telecom products. If the telecom boom can happen, what’s stopping us from achieving similar success in other areas? It’s all about mindset...how you look at it.
Do you think, India lacks entrepreneurship in reaching out to the poor ?
There’s no dearth of entrepreneurship in the country. Even the little boys on the street, who sell small things to earn a living, are entrepreneurs. Entrepreneurship doesn’t necessarily mean volume of investment. In fact, it largely depends on innovation and the way you think. Entrepreneurship and innovation are the antidote to poverty alleviation.
The opportunities are immense in the era of globalisation. The surge in connectivity, digitisation, convergence and social networking have opened up new doors for entrepreneurial boom.
But public policy is a real stumbling block for entrepreneurial development. Why should the licences not be given in two days? Who should an entrepreneur wait months to get the requisite clearances for business? The procedures are cumbersome and the authorities need to address these issues.
What is your advice to the GeNext who aspire to take on entrepreneurial roles?
Transformation isn’t about resources. It’s all about aspiration and imagination. Why doesn’t one try to offer one-consumer-experience for a product? For instance, an entrepreneur can bring in innovation in a very traditional shoe business. Let him scan the footprint and take a 3-D image and send it to the design centre for a tailor-made product. A customer will be happy to shell out a little more for such an innovative product.
So, don’t focus on best practices, focus on your next practices.
The country has been growing at a decent clip. However, the global recession slowed down the pace a bit. What is your prescription for India Inc in the light of the latest situation?
For the last six to seven years, Indian companies had performed well and their bottom lines have risen significantly. The global recession provided them an opportunity to look back and consolidate and pay more attention to expanding operations in rural India.
Officially, India is growing at 7%. This means, some states like Gujarat, Punjab or Tamil Nadu are growing at a much faster rate. So, the average growth doesn’t mean much. It’s a segmented growth. Truth is India is a huge market and everybody is interested to come to India.
How important is scale of operation, especially in a country like India?
The scale of operation is a necessity if you want to make a difference for the people in the country. That’s why Amul is so special; ITC’s e-choupal is a runaway hit. Can’t we replicate these models?
If you have desire to do it, you can achieve it. To enhance scale, one can always opt for the franchisee model. Once you’ve perfected your business, then the franchisee model is the way to get a virtual scale.
You have always batted for the Indian economy. What makes you so upbeat about the economy?
India became independent in 1947. But it achieved economic independence only in 1992 and, in merely 17 years, the country has come a long way. India is doing pretty well compared to others. Every time a comparison is drawn between India and China, but don’t forget that China is 20 years ahead of us as far as economic reforms go. It’s like the story of the hare and the tortoise.
Changes in realty market forces landlords to revise strategies
Changes in realty market forces landlords to revise strategies
The Financial Express, December 22, 2009, Page 12
Sajan C Kumar, Chennai
With the rapid changes in real estate market cycles triggering pressure on tenants, landlords have been caught in a bind, grappling to minimise any negative impact on their investment. Since tenants will use the prevailing economic conditions to leverage better deals and incentives that may not have been available previously, a good defensive strategy that involves understanding the market, optimising the lease expiry profile and effectively engaging with the tenants should be deployed by landlords, says a recent research paper by global real estate consultant Jones Lang LaSalle.
There is also a downward pressure exerted on rental rates when tenants move to accomodations that are more cost-effective or re-negotiate their current lease terms. Tenants are negotiating with landlords in a number of areas, in an effort to reduce their real estate costs and increase their flexibility.
According to the research paper, a good defensive strategy involves a detailed analysis of the market in order to understand its dynamics and individual nature. The analysis should consider not only what the markets look like today, but also what it might look like in the future. The key elements of preparing the strategy are, understand the market, including the tenant base (what they come from and the impacts on their industries) and how brokers operate in the market.
Also, it is important to review one’s current lease expiry and determine what is the ideal weighted average lease expiry for the asset or portfolio.
Identifying the best and worst spaces, understanding what made these spaces the best and worst, and looking at ways to maximise their attractiveness is also crucial. The paper advises landlords to engage both with their tenants and potential tenants. The paper adds that forecasting potential market conditions will help identify the best mix of offensive and defensive strategies in order to maintain asset value over time. A good strategy when negotiating rentals is to ask about and see their comparables. Moreover, rent review decisions may have a significant impact on future cash flow.
Deciding when to time the lease expiry profile will depend on the landlord’s appetite for risk and how far ahead in the future one can credibly forecast the market.
Timing the majority of the lease expiries to occur in a single year can result in the maximum benefits if one manages to pick the pick rental period. However, one can also be exposed to the maximum downside, should it arrive at the bottom of the rental cycle. Alternatively, spreading the lease expiries evenly across five years may not yield the maximum returns, but it will enable the landlord to spread the risk and ensure that he ends up with average returns during the period.
Consumer sentiment rising in India: MasterCard survey
The Financial Express, December 22, 2009, Page 11
fe Bureau, Chennai
Consumers across Asia Pacific, West Asia and Africa markets are approaching the next six months with optimism, according to the latest MasterCard Worldwide Index of Consumer Confidence survey, released on Monday.
As the global economy recovers, 21 of the 24 markets polled reflected positive consumer sentiment looking ahead, including Vietnam (90.3), Nigeria (89.4), Qatar (89.2), United Arab Emirates (86.1) and China (85), which topped the list.
Consumers in India continued to be optimistic. They are slightly more optimistic than six months ago (68.0) and a year ago (63.9). Consumer sentiment have gone up on three economic indicators. Consumers are more optimistic about employment (66.9 vs 60 six months ago), the stock market (70 vs. 68.3) and regular income (70.5 vs. 70). Outlook on the other indicators has declined from six months ago: Economy (66.7 vs. 67.2) and quality of life (69.8 vs. 74.5).
Both Mumbai (79.1 vs 61.7) and Chennai (95.2 vs 61.3) consumers have become more optimistic than they were six months ago. New Delhi (49.4 vs 79.3) has experienced a dip in consumer confidence score. A new market, Bangalore (47.2), is added to the list of markets surveyed in India.
Developed markets in the region have seen a quick recovery in consumer confidence. United Arab Emirates leapt up in confidence with the largest Index score increase of the markets last surveyed six months ago (29.6 to 86.1). Sharp improvements were also evident for Singapore with a strongly optimistic Index score of 79.4, up from a pessimistic 31.2 in the previous survey, New Zealand (69.7, up from 21.5 six months ago), and Australia (69.5 from 24.1). Across the three markets, confidence in the economy and employment has improved dramatically.
The Asia Pacific region saw an increase in its consumer confidence index score from six months ago (66.3 up from 38.7). Vietnam (90.0), China (85.3) and Singapore (79.4) reflected significantly higher consumer confidence compared to other markets in the region. Most markets showed increased confidence in their employment outlook, particularly Vietnam and Singapore, which topped the region for confidence in this indicator.
Japan (24.4), which has been pessimistic in its outlook for 30 of the 34 surveys since the inception of the index, continued this trend - more than one in three Japanese consumers expect the economy to be worse in the next six months. Philippines (49.7) hovered near the neutral mark, pulled upwards by a positive outlook towards regular income for the six month period ahead.
Markets in the West Asia seemed to be tracking to 2008 levels of optimism with the current index score of 74.5. The consolidated Index score across the six West Asia markets surveyed was much higher than that of six months ago (49.9) and even a year ago (72.7). Sentiment were particularly strong in Qatar (89.2), UAE (86.1) and Saudi Arabia (83.2).
Ansal API to raise Rs 650 cr via QIP
The Financial Express, December 22, 2009, Page 5
Rajat Guha, New Delhi
Delhi-based real estate developer Ansal API will raise around Rs 650 crore through a qualified institutional placement (QIP) in February, 2010, a banker involved in the process told FE. The company has mandated IDFC-SSKI as its lead banker for the slated QIP.
In June, the board of directors of Ansal API had decided to seek the approval of shareholders to issue equity shares, to qualified institutional buyers to raise up to Rs1,500 crore. The company had informed the same to the Bombay Stock Exchange (BSE) as well.
Now, after weathering the slowdown and assessing its financial requirement, the company has decided to go ahead with a QIP of just Rs 650 crore, a company official said. The realty firm is also planning to increase the limit of foreign institutional investors' (FIIs) in the company to 49% from the present limit of 24%.
When contacted a company spokesman said, “We do not comment on market speculation.”
The funds raised through the QIP would be mainly used to retire the company’s debt of Rs 1,000 crore and fund its Rs 2,000 crore megapolis project. This QIP will also be used to partly fund and support the two large hi-tech integrated townships consisting of hotels, buildings, shopping malls, IT parks and group housing in Lucknow and Dadri.
Ansal API, which has built Ansal Plaza, Delhi’s first mall owns majority of commercial real estate in Connaught Place.
The promoters of the company feel that via QIP they will be able to mobilise funds faster as there are fewer formalities with regard to rules and regulation, as compared to other rights issue.
Reeling under acute cash crunch, a host of real estate companies are now resorting to QIP and preferential allotment of warrants to promoters to strengthen their cash balance.
Realty firms like Unitech, Parsvnath, Sobha Developers, HDIL, Puravankara, Anantraj Industries, Akruti City and Orbit Corp are looking to raise additional long-term funds through sale of shares, mostly through QIP, where shares are sold to institutional investors.
Monday, December 21, 2009
Urban Agenda: The Way Forward
Urban Agenda: The Way Forward
Business Standard, December 21, 2009, Page 7
Urban India is in focus. From a time when the focus was mainly on rural India, today we have come to a stage when rural-urban development is of equal importance. This was the essence of the discussion on “Urban Agenda: The Way Forward” organized by Skoch Development Foundation in New Delhi recently.
The discussants argued on the nuances and thinking behind the Jawaharlal Nehru National Urban Renewal Mission, its implementation and status on the ground, and suggested the way forward. Panelists noted that the JNNURM is reshaping our cities, with the local government institutions, the Centre and state government working in tandem to ensure its success. As Jaipal Reddy, Union Minister for Urban Development, noted that the multi-faceted challenge before India was regeneration of old cities and tackling increased urbanization. In this connection, he pointed out that JNNURM was the only flagship programme of the government which was launched not because of any political pressure or because of some doctrine or ideological demand, but because the time for urbanisation had come.
Agreeing, Saugata Roy, Minister of State for Urban Development, pointed out that JNNURM should increasingly focus on the smaller towns and cities as these urban centres lacked the necessary financial resources to take development forward.
The discussants also noted that though population-wise, India is still to reach the world landmark of 50 per cent of its population living in urban areas, the urban issues facing the country are very complex and challenging, and there were no readymade solutions for the short run.
M Ramachandran, Secretary, Urban Development, pointed out in his presentation, there was a need to scale up investment in urban infrastructure, which historically has been only 0.2 to 0.25 per cent of the countrys GDP. Agreeing that the problems of urban areas and their sustained development are no longer accepted stoically, instead, they are beginning to be tackled effectively. In fact, JNNURM is a reforms driven, fast track programme seeking to ensure planned development of identified cities with focus on efficiency in urban infrastructure and services delivery mechanism, community participation and accountability of urban local bodies and parastatals to the citizen. Today, cities can actively and confidently move forward by relying on the various facilitative measures available.
However, an issue of concern raised by all the panelists was the huge quantum of funds that would be required to take the programme to its logical conclusion. As Jaipal Reddy emphasised, the huge investments made so far are only adrop in the ocean and one has to continually focus on making the urban local bodies self-sufficient, with their resources linked to the quality of services they provide.
As Ramachandran noted, if a proper PPP regime is put in position, private participation is possible in building infrastructure or managing the basic services and ensuring that suitable delivery mechanisms are in place. For Hari Sankaran, Managing Director, IL&FS, the issue, however, was not of raising adequate resources, but one of finding the mechanism in which one could implement these projects expeditiously. According to him, private investments are expensive methods if projects are implemented tardily. They are efficient, if one can implement projects expeditiously. In this context, yet another issue that came up for discussion related to the need for levying appropriate service charges for facilities provided by the local government authorities.
On her part, Isher Judge Ahluwalia, Chairperson, ICRIER, said that urban renewal was the biggest challenge that India was facing today. For her, tackling urban issues would not be possible if we did not synergise urban and rural development policies. "The salvation of the rural poor lies in how we resolve the issue of urban development. The issue is how do we create a modern industrial society in which those who are dependent on agriculture find alternatives for higher, more productive employment?" Here, it was important that the government looked for new and unconventional ways to raise the necessary resources to fund urban development programmes. The issue is not about public exchequer doling out funds for infrastructure. What is needed is that revenue bases are created at every level of the government, including at the level of the urban local bodies and state governments and for this we need improved governance.
To this, T K A Nair, Principal Secretary to the Prime Minister, said that today there was unanimity that programmes like JNNURM were needed and all governing bodies-whether local or state or central-were wanting to be part of the growth process.
Importantly, the panelists noted that historically economic development in the country was linked to growth versus distribution, with the result that we achieved neither. It was only in the 1980s that the mantra changed to growth for distribution that we ended up getting higher growth and were now being able to tackle poverty also.
But to ensure that this growth momentum is sustained, Arun Maira, Member, Planning Commission, said it was important that we also looked at capacity building as the huge investment in the urban development space would need a far greater number of qualified people than those are currently available. For our urbanization experiment to be successful, Maira said, the capacity building process for people and of institutions must begin now.
"Also, since the current urban management techniques are outmoded, it was important that we have another closer look at the master plan concept. And one way to address such issues will be to strengthen the role of local governments in line with the 74th Amendment in so far as planning for a city or township is concerned. Community participation in the planning process is another key element that needs to be addressed.”
For T K Arun, Economic Times, the urbanization efforts need greater policy initiatives. We need to think of mixed land use, we need to think of vertical towns, we need to design things in such a way that people actually dont have to spend large amounts of time in traffic or burning up fuel, he added.
“We need to create a modern industrial society in which those who are dependent on agriculture find alternatives for higher, more productive employment. I think the approach for this is to simultaneously look at urban and the rural development”
—Isher Judge Ahluwalia , Chairperson, ICRIER
“Private investments are expensive methods of implementing projects tardily. They are efficient if you can implement projects expeditiously and I think that is one singular issue that needs to be addressed in implementing projects, especially in urban areas”
—Hari Sankaran ,MD, IL&FS
“The Urban Renewal Mission has already had a tremendous impact and today there is a great demand from all over the country for including more and more cities in the ambit of the mission”
—TK A Nair , Principal Secretary to the Prime Minister
“The book is comprehensive in the sense that it covers urban reforms, reform agenda for the urban local governments, e-governance, urban mobility, water and sanitation and benchmarking of urban services.”
—MRamachandran , Secretary, Urban Development
“Based on our field research, we did have insights from the felt needs perspective. It is easy to criticize till you actually put yourself on the other side and start looking at the policy challenges and issues.”
—Sameer Kochhar, President, Skoch Development Foundation
“It is not just the hard infrastructure that makes agreat city, it is the soft infrastructure. And I say the soft infrastructure building must precede the hard infrastructure.”
—Arun Maira , Member, Planning Commission
Limit independent directors’ tenure
Limit independent directors’ tenure
The Times of India, December 21, 2009, Page 24
Pankaj Doval, TNN NEW DELHI:
NEW DELHI: Seeking a more effective role by independent directors in ensuring corporate governance, the Institute of Company Secretaries of India (ICSI) has recommended a limited six-year term for them and suggested that nominees of financial institutions should not be treated as independent since they had their own interests to protect.
ICSI, that submitted its recommendations to the ministry of corporate affairs and market regulator Sebi, said the Satyam fraud necessitated a re-look at the regulatory provisions that currently exist.
"The nominee directors have a clear mandate to safeguard the constituency they represent i.e. the financial institution they represent. Hence to term them as independent is an anomaly," ICSI VP Vinayak S Khanvalkar said. Sebi should also make similar changes to Clause49 that governs corporate governance on listed companies, he added.
The statutory body said there should be a fixed tenure for independent directors to avoid any intimacy between them and the management. "Boards need to be regularly refreshed with new blood," it said. Currently, there is no limit prescribed on the tenure of an independent director, though Clause 49 recommends a period of nine years.
ICSI also recommended amendments to Clause49. "It needs to be suitably amended by specifying positive attributes for independent directors such as integrity, experience and expertise, managerial qualities and ability to understand financial statements, among other things," Khanvalkar said.
As recommended by industry chamber CII, ICSI also sought demarcation of the roles of the chairman of the board and that of the MD/CEO. It said this should be done to promote balance of power. Other recommendations of the ICSI included an annual evaluation of the performance of the board, various committees and individual directors.
Posts
