Survey indicates strong revival in manufacturing

Survey indicates strong revival in manufacturing
Business Standard, February 2, 2010, Page 1

BS Reporter / New Delhi

The HSBC Markit Purchasing Managers Index (PMI), one of the most reliable indices tracking the health of the manufacturing sector, climbed to its highest level in one-and-half years to 57.6 in January, 2010. The index had stood at 55.6 in December 2009.

“Any lingering concern that India’s manufacturing recovery was tailing off should be put off. A second consecutive rise in PMI has taken the series to a new cycle high consistent on double digit rise in industrial production,” said Robert Prior Wandesforde, Senior Asian economist, HSBC.

The positive results come against the backdrop of Reserve Bank of India’s (RBI’s) decision last week to start tightening monetary policy by raising the cash reserve ratio 75 basis points. The central bank also expressed confidence in the robust rate of growth in industrial output.

According to latest government data, industrial output as measured by the index of industrial production (IIP) grew at a robust rate of 11.7 per cent in November.

Within the disaggregated data, the new export orders index showed a more than 5 point jump, the highest since October 2007.

“Production and new orders have both increased for ten straight months…domestic and foreign demand rose considerably since December. The improvement in external demand was noticeable, although total new business growth continued to increase at a rate above export orders,” said the report.

Companies reaped the benefit of increasing new orders which led them to step up their production levels. According to the HSBC Markit report, Indian manufacturers sharply raised their output levels during the month in line with the increase in new orders and the latest gains have been above the pre downturn averages.

“ The pick-up in exports is extremely heartening and it does point towards a sustainable trend of growth in manufacturing. Growth in industrial output will stay in double digits till the end of this financial year (2009-10) and the encouraging bit is that the composition of lead indicators of the economy are now becoming more and more broad- based,” said Jyotinder Kaur and economist with HDFC.

However, though manufacturing output has gathered momentum, the recovery in employment is yet to gain traction. The index showed a “slight” increase in industry employment in January on the back of higher production requirement and capacity constraints. Although weak, the report states that the increase in employment index was the strongest in almost a year and a half.

RBI hints at curbs on capital inflows

RBI hints at curbs on capital inflows
Economic Times, February 2, 2010, Page 1

Calls For Measures To Avoid Stark Economic Imbalances

Our Bureau MUMBAI

RBI governor Duvvuri Subbarao has for the first time said the nation “may have to take some measures towards capital control” in the short term to avoid stark economic imbalances after acknowledging in the past the role played by fund flows in worsening inflation, boosting asset prices and destroying industry competitiveness.

The governor has laid the foundation for possible action by drawing attention to the fact that most emerging markets face unprecedented flows that are pushing up commodity prices, asset prices and disturbing exchange rates to the disadvantage of local industry.

“All emerging market economies now believe that capital inflows will increase in the months ahead,” Mr Subbarao said in a teleconference on Monday, the first such event in RBI’s history. “If that happens, based on India’s growth prospects, it is possible that the inflows will be much beyond our current account deficit. In the medium term, it is our objective that India expand its capacity to absorb capital flows, but in the short term, should there be flows largely in excess of our current account deficit... we may have to take some measures towards capital control.”

The RBI governor and the government have been preparing the ground for some kind of action on capital inflows for some time now as $17 billion of funds flowing into Indian equities last year pushed up the rupee over 10% since March-end, making Indian exports lose out to Chinese rivals.

Tide seems to be turning

SOARING prices, mainly in real estate, are partly due to inflows.

The prospects of more than 8% GDP growth and government bond yields nudging 8% at a time when rates continue to be near-zero in developed markets are luring global funds. Finance secretary Ashok Chawla and Mr Subbarao in the past have acknowledged the potential problems due to inflows, but maintained that there was no cause for concern.

Now the tide seems to be turning.

“An implicit premise in the latest monetary policy announced by RBI is higher capital flows into India and the need to actively intervene in the markets; this has a bearing for liquidity in the local markets and hence we expect the central bank to be actively managing liquidity with an eye on the emerging capital flow situation,” said Hemant Mishr, head of global markets-South Asia at Standard Chartered Bank.

The central bank has been changing gears. “The endeavour in the EMEs will be to strengthen the recovery process without compromising on price stability and to contain asset price inflation stemming from large capital inflows,” RBI said in its economic review released on Thursday. It followed up with the same assertion while reviewing the monetary policy the next day saying, “sharp increase in capital inflows, above the absorptive capacity of the economy, may complicate exchange rate and monetary management”.

Although inflows have caused problems for policymakers in the past, it is a taboo to publicly state that they may be curbed. This is probably the first time since January 2005 that the RBI governor is talking about some measures to control capital flows. In 2005, governor YV Reddy had in a veiled manner suggested containing inflows, but later clarified he did not mean that. But recently, countries such as Taiwan and Brasil in a limited way have imposed what is popularly known, but disliked by many, as the Tobin Tax—a tax on a transaction to deter speculation. “What’s clear from the governor’s comments is that he is worried about higher government borrowing pushing up yields, which in turn could attract more capital,” said the head of treasury with a foreign bank.

There may not be a tax, or a blunt measure straightaway, but tinkering with many instruments as it has done in the past such as capping interest on NRI deposits, limiting foreign investment in corporate and sovereign debt, and directing the end use of funds raised overseas.

But the governor said he hasn’t made up his mind on which stick to beat with. “We will look at all those measures and also at what other emerging market economies are doing. We will learn from their experience,” he said.

Imports rise 27%, confirm economy back on track

Imports rise 27%, confirm economy back on track
Economic Times, February 2, 2010, Page 9

22.4% Rise In Non-Oil Imports In Dec Reflects Manufacturing Growth

Our Bureau NEW DELHI

IMPORTS moved back to the positive terrain for the first time since the financial crisis, clocking a 27% growth in December, indicating that the domestic economy was well on its way to recovery, aided by rapidly improving exports that grew for the second successive month.

“Trade has now fallen in line with all other indicators of the economy that had already started improving,” said Crisil chief economist D K Joshi, adding that trade was the last indicator to improve as it is linked to the global economy. The strong 22.4% rise in non-oil imports, after a steady fall for more than a year, reflects an increase in manufacturing and investment activity in the country, as the bulk of imports is industrial inputs and capital goods.

Capital goods accounted for nearly 16% of imports in the year 2008-09.

The near double digit growth in exports in December 2009 from a year ago, albeit from a low base, suggests a demand pick-up in the Western markets, including both the EU and the US.

The pick up in exports should boost manufacturing and thereby the overall industrial growth, which was a strong 11.7% in November, 2009.

This (rise in non-oil imports) coupled with the recovery in exports bodes well for the growth momentum,” said Citi economists Rohini Malkani and Anushka Shah in a research note. The recently provided additional stimulus to labour-intensive export sectors that had not responded well to the packages announced earlier is also expected to contribute to positive growth.

“We believe that exports would keep moving uphill and we can touch $170 billion by the end of the fiscal,” said Ajay Sahai, director general, Federation of Indian Export Organisations (Fieo).

There is an increase in import of both capital goods for manufacturing in general and power equipment as the country is implementing a large number of power projects.

“This is a good sign as it indicates that manufacturing will continue to post a double digit growth that will ultimately result in a higher GDP,” Mr Sahai added.

Oil imports in December 2009 stood at $6.5 billion, 42.8% higher than $ 4.58 billion in the corresponding period last year. India’s exports had turned positive in October 2009 after falling continuously for 13 months. Imports, which had slipped into the negative territory a little later, took that much longer to recover and post a postive growth.

Due to a higher increase in imports in December 2009, the trade deficit widened to $10.1 billion, which is the highest since November 2008. Trade deficit for the nine month period narrowed to $76.2 billion, compared to $106 billion last year.

NAREDCO opens eastern region office in Bhubaneswar

NAREDCO opens eastern region office in Bhubaneswar

BS Reporter/Kolkata - Feb 02,2010 00:50 AM

National Real Estate Development Council (NAREDCO) under the Union Ministry of Housing and Urban Poverty Alleviation on Saturday opened its eastern regional office in the city. This is the fifth regional office of NAREDCO in the country after Mumbai, Hyderabad, Jaipur and Delhi.

NAREDCO's regional office in the city was inaugurated by Arun Panda, secretary, housing and urban development of the Orissa government in the presence of Sanjeev Srivastav, senior vice president, NAREDCO; D K Singh, vice chairman, BDA; Gadadhar Parida, commissioner, Bhubaneswar Municipal Corporation and R Nanda, vice chairman, Cuttack Development Authority.

National Real Estate Development Council's Regional office inaugurated in Orissa

National Real Estate Development Council's Regional office inaugurated in Orissa

Saturday, January 30, 2010

Report by Dipti Ranjan Kanungo, Bhubaneswar:

The National Real Estate Development Council's Regional (East) office and Orissa Chapter of the council inaugurated here on Saturday by the Commissioner Cum Secretary of Housing and Urban Development Dr Arun Kumar Panda . The inauguration ceremony tookplace at Hotel May Fair Lagoon in presence of more than 200 guests from all over the country.

NAREDCO's Regional office would promote the development of real estate throught Eastern and Northern India and shall act as an interface between central government and state government , local authorities and boards on one hand and regional real estate developers ,buyers ,financial instituations,banks, real estate agents on the other hand . It will also help in promoting the concepts of 'affordable housing' and 'sustainable development' in this region.Newly appointed Vice President of the Regional office (East) Mr Anup Mohapatra a renowned real estate czar from the state.

The Regional office at Bhubaneswar has just been inaugurated and rest of the regional offices will be established during remaining months of the first quarter of 2010.

Orissa Chapter of NAREDCO is jointly formed by the state government and the private sector enterprises involved in various facets of real estate development and operate at Orissa state. level as governed by NAREDCO constitution. The Chief Minister of the state would be the chief Patron and Secretaries of Ministries like Urban Development , Housing, LSG, and Finance would be the members of the Governing council of this state chapter. Housing Board, Development Authorities and other state bodies involved in housing and real estate development would also be the members along with real estate developers , housing finance institutions and brokerage firms working in Orissa.

Naredco to open regional office

Naredco to open regional office
By Express News Service
29 Jan 2010 05:05:00 AM IST

BHUBANESWAR: National Real Estate Development Council (NAREDCO) of the Union Ministry of Housing and Urban Poverty Alleviation is all set to open its Regional Office (East) and launch the Orissa chapter of the Council in Bhubaneswar on Saturday. It would be the fifth regional office in the country after Mumbai, Hyderabad, Jaipur and Delhi.

As the nodal agency for housing and real estate sector in India, Naredco’s activities range from legislative, legal and regulation issues to commercial ones. The Bhubaneswar regional office would benefit all stakeholders of the sector from buyers, financial institutions, banks, Government, realtors, etc, operating in the Eastern and North- Eastern states. It would have jurisdictional control over Orissa, Bihar, West Bengal, Sikkim and North-East states.


© Copyright 2008 ExpressBuzz

Government to introduce new slum policy

Government to introduce new slum policy
By Express News Service
31 Jan 2010 05:50:00 AM IST

BHUBANESWAR: The State Government is all set to introduce a new policy and strategy on slum-dwellers soon.

Calling the builders to take advantage of various schemes of the Centre towards providing low-cost housing for the economically weaker sections, middle class and urban poor, Urban Development Secretary Arun Kumar Panda today said while thinking about profit margins from big projects, the realtors must come forward with unique and low-cost projects to help the needy.

Speaking at the inauguration of fifth regional office of National Real Estate Development Council (NAREDCO) here, Panda said a trust building atmosphere between the people and the realtors must be developed in the region.

He also advised stakeholders of NAREDCO to bring new ideas and suggestions to the notice of the Government so that a proper road map can be laid and a time line is set to address housing problems in the Capital and other emerging urban pockets of the State.

As recognition to its growth status and future potential in the entire eastern region, the Temple City today got the opportunity to have a regional centre of NAREDCO after Mumbai, Hyderabad, Jaipur and New Delhi. The Orissa Chapter of the national body was also inaugurated on the occasion.

BDA vice-chairman DK Singh said as according to the new comprehensive development plan of the city, a tremendous potential is likely to be tapped by stakeholders involved in urban housing, NAREDCO can be the proper platform to build a credible interface in this regard.

While BMC Commissioner Gadadhar Parida hinted at making the Capital a slum-free zone by adopting a proper planning for 377 habitations, his Cuttack counterpart RN Nanda said quality control must be the new mantra for builders.

Vice-president, NAREDCO eastern chapter, Anup Mohapatra called for a better coordination among all stakeholders.

NAREDCO president Rohtas Goel spoke.


© Copyright 2008 ExpressBuzz

Real Estate Intelligence Service, Monday, 1st February 2010

Monetary policy review indicates economy on growth path

Monetary policy review indicates economy on growth path
Economic Times, Financial Times, January 31, 2010, Page 1

Vikas Agarwal, ET Bureau

The Reserve Bank of India (RBI) announced a 75 basis points (0.75 percent) hike in the cash reserve ratio (CRR) in its policy review on Friday last. The RBI has kept other policy levers -repo rate, reverse repo rate and bank rate unchanged.

This means the banks will have to keep more in deposit with the RBI. Hence, it will result in drawing out around Rs 36,000 crores from the system.

The RBI's move has come as an unpleasant surprise for the markets as most analysts and fund houses were expecting a 50 basis points hike in the CRR as against the 75 announced.

These are some of the significant aspects of this move:

Impact on liquidity

At present, the domestic economy is dealing with a situation of excess liquidity. Liquidity has gone up due to funds coming in from foreign investors.

This excess liquidity is one of the reasons for the higher inflation, and a hike in the CRR will help in drawing out some of the excess liquidity from the system, and hence in maintaining a balance.

Impact on inflation

The inflation rate has been rising sharply since the last few months. The main reasons that contribute to a higher inflation rate are higher prices of food articles, more liquidity in the system and the lower base effect of last year. This move by the RBI will not have much of an impact on the supply-driven food price inflation.

Also, nothing can be done about the lower base effect of last year. However, it will contain the price rise due to excess money in the system (demand pull inflation).

The RBI has also hiked its expected inflation target for the end of this fiscal year (March 2010) from 6.5 percent to 8.5 percent. This indicates that the RBI feels the CRR hike alone cannot control inflation completely. However, it will help in moderating it.

Impact on credit off-take

The credit off-take in the retail category was quite low. It has picked up slightly during the last couple of months due to the festival season and a number of attractive offers floated by banks.

The hike in the CRR will have some effect on credit growth. The RBI has lowered its credit growth forecast from 18 to 16 percent, in line with expectations.

Impact on interest rates

The hike in the CRR will leave less money with bank to lend. Therefore, indirectly, their cost of funds goes up and there is a case to increase the interest rates.

However, the lower credit offtake and excess liquidity in the system could work in favour of keeping the rates unchanged in the retail loan segment. Many banks have already announced that they will not increase the rates, and will maintain them at the current levels.

However, in the light of this CRR hike, the process of fresh lending is expected to further tighten, and interest rates may go up in the medium term, if certain parameters change further.

Indicators

In this monetary policy review, the RBI has given a clear signal that the domestic economy is back on the growth path. Hence the moves to reverse the expansionary policy stand, which was more-suited for the crisis kind of situation prevalent earlier.

The RBI has started the tightening in order to prevent the economy from overheating. The RBI has also revised its financial year 2011 GDP growth forecast upwards from six to 7.5 percent.

Interest rates expected to hold steady in near term

Interest rates expected to hold steady in near term
Economic Times, Financial Times, January 31, 2010, Page 3

There is adequate liquidity and interest rates will not move in the near future, says Ashish Gupta

The stock markets were keenly following the Reserve Bank of India (RBI) for moves to reign in inflation and ensure growth. This was for the simple reason that the inflation rate has been rising consistently. Interest rates and credit are important constituents for industry. Corporate performance is to a great extent tied up with the availability of credit and the cost at which it is available. Inflation is a major concern.

So, the RBI had the tough task of balancing growth and liquidity. In the credit policy review it has left its short-term interest rates unchanged, but raised the cash reserve requirements of banks by a higher-than-expected 75 basis points, to be implemented in two phases. It also warned of rising inflation. The RBI has increased the cash reserve ratio (CRR) by 75 basis points as against market expectation of 50. It has clearly indicated its intention to control inflation.

The RBI said it will anchor inflation expectations and keep a vigil on the trends in inflation, and be prepared to respond swiftly and effectively through policy adjustments as warranted. Further, the RBI will actively manage liquidity to ensure that credit demands of productive sectors are adequately met. It will also maintain an interest rate environment consistent with price and financial stability, and in support of the growth process.

The RBI has also hiked its forecast for GDP growth in the current year to 7.5 percent, from an earlier target of six percent, and said the current rate of growth is likely to be sustained in the financial year that ends March 2011.

The RBI had earlier pegged the growth rate at six percent and inflation at 6.5 percent. Assuming a near-zero growth in agricultural production and continued recovery in industrial production and services sectors, the baseline projection for gross domestic product growth for 2009-10 is now raised to 7.5 percent. Keeping in view the global trend in commodity prices and the domestic demand-supply balance, the baseline projection for wholesale price inflation for end-March 2010 is now raised to 8.5 percent. On the assumption of normal monsoon and global oil prices remaining around the current level, it is expected inflation will moderate from July.

As an outcome, banks will start exercising a little more caution keeping in mind the fact that the RBI is so concerned about inflation. Banks are not expected to hike the rates immediately because there is excess liquidity in the system. The industry does not foresee interest rates going up in the near future because of the expected inflows and the liquidity condition at present.

The fact that interest rates have not been increased will continue to spur demand. There was a lot of anxiety on whether the government will pull back the various stimulus measures. The fact that interest rates have not been changed will now put the industry at ease.

The net impact on stock markets is expected to be neutral in the near term. With the raised GDP growth projections, the industry demand is expected to grow. Also, as the interest rates are expected to remain at their present levels in the near future, business plans of corporates will not be affected adversely.

All this may not impact the stock markets negatively. Especially so because the interest rate sensitive sectors may not be adversely impacted as the impact on interest rates would be just marginal, if any.

However, in case the inflation rate does not come under control, the RBI would have to step in with tougher measures.