Byapaar.com -The Indian Business Blog

Due to my imminent professional exam starting from 18th April, 2008 - I’ll not be able to blog for next 3 weeks. Once its over, I’ll resume the job that I like to do - i.e. blogging.

Inflation has been rising and rising high touching a 13-months record at 6.68 during last week. Indian government has naturally become nervous as general election is not far away and it does not want to be seen a failure to control price rises just before election. So it has called a high level cabinet committee meeting as to how it can tackle the disturbing inflationary  trend.

But it is almost clear on how it plans to from what P. Chidamabaram, the Finance Minister suggested! According to him inflation has to be curbed even if it is at the cost of growth. The Indian industry has sharply reacted to the suggestion made by Mr. Chidambaram. According to Mr. Sanjay Budhia, the Chairman of CII ( Confedaeration Of Indian Industry) - the government should adopt a policy that would support a balance between industrial growth and inflationary reduction. Any hasty measure by the government to bring down inflation would result in loosing the momentum of growth that India has seen over the last decade or so.

For long large developing economies like India and Brazil have been demanding a bigger say in the affairs and running of IMF. Finally, it seems their voice have been heard as the IMF board, in a recent  in a recent proposal has made few changes in the voting structure of the 185-nation lending organization to make it more relevant.

The move is going to enhance the voting shares of emerging economies of India, China, Mexico, Brazil and South Korea. But it will also reduce the same voting shares of countries like Russia, Saudi Arabia, Venezuela, Chile, Argentina and Egypt. This is the first such change in the voting structure of the agency since its inception in 1944. The proposal pledges to increase each member’s vote by 3 times. Hence, India’s voting percentage will be 2.34 - up by a mere 0.42 share.

The European Union (EU) and Indian government have been trying to come to a Free Trade Agreement for quite sometime now and it was to get formalized by the end of this year 2008. But what has been coming out of it has become a  big frustrating experience for the Union Government.

The main contentious issues are still to be addressed properly  and not only that, instead of problems being solved, they are mounting by the day. The negative list, non-tarrif barriers and other differences remain though time is running out. India wants its service industry to get more ground in the EU and the EU wants its products to have easy access to the vast Indian market.

A ministerial meeting is scheduled to be held next month between the two parties in order to sort out differences and exchange negative lists. But negative lists of both sides are growing by the day as more and more products and even allied industries  are seeking protection in the negative lists. The EU has already handed over its negative list that might affect India’’s export of goods primarily based on petrochemical products, not to mention textiles, cosmetics, glassware, fertilizers and pharmaceuticals. Originally, India and the EU were supposed to keep 90 percent of the products under the agreement. But it seems that the figure will decrease to a great extent. The finalization of India’s negative list is still going on as more Indian companies or products are lobbying to get into the negative list to protect their business. It should be mentioned that, goods falling under the negative list would cost more due to high tarrifs.

According to a study by FICCI (Federation Of Indian Chambers Of Commerce and Industry), the Indo-EU trade could reach $572 billions by 2015 if the agreement is properly and timely  implemented. Naturally, Kamal Nath, the Indian Commerce Minister is very disappointed with the slow pace of talks.

On the other hand, some experts feel that India should forget these kind of agreements and look for more pacts which would be integrated with India’s reform policies and thuse bore more fruits.

it has been well documented by each and everybody concerned with Indian that the economic reform started in 1991 under the aegis of then Prime Minister P. V. Narasimha Rao and Finance Minister ( now Prime Minister) Dr. Manmohan Singh is irreversible whatever the political situation in the country is. It is just a case of different approach to carry on the national agenda! Nothing can prove this point more than the left front which are presumed to be the thorn in India’s progress, seeking private participation and foreign direct investment in their endeavor to bring to national prominence of the only significant state they rule i.i. West Bengal. They are even ready to get into collision with the poor ( for long they have claimed to be champion of the poor) in their drive for land acquisition for industrialization. This has been well documented by their brutal repression of poor farmers in an obscure but promising area called Nandigram.

Under all these circumstances, the Indian industry as a hole want broader understanding and collaboration by major political parties from broader spectrum to draw a common programme on economic and induatrial policies for India. Recently FICCI ( Federation of Indian Chambers of Commerce and Industry) has urged the political leaders in this regard and pledged to help them to draw a broader policy that would be acceptable to all parties concerned irrespective of their political affiliation.

The other major industry forum CII ( Confederation of Indian Industries) has also supported the move. In a statement Marut Sengupta, head of policy at CII said that

“If this happens, it will create a greater degree of understanding between industry and government.”

Rajeev Chandrashekar, the newly elected president of FICCI said that the policy would focus on the government’s role in strengthening independent regulators, increasing economic efficiency, improving institutional framework and restructuring government expenditure. The chamber plans to hold lots of seminars in this regard to promote their agenda.

This is to be noted that the present coalition UPA government is running on a Common Minimum Programe envisaged by the left front. So Industry proposal is nothing new and should find greater support that could probably usher in a new dynamism in India’s growth story.

In an unprecedented mood a world consortium of Central Banks from many leading countries led by the US Federal Reserve (Fed) have tried to infuse huge liquidity in the credit market which is starved of funds. This caused a positive response from the market which has been on a sustained bull runs for last few months. The DOW JONES immediately opened at 250 points higher than the previous closing.

The US Fed has declared on Tuesday that from now on financial firms can use home loan mortgages as collateral for the next 28 days. This released about $200 billion in the US liquidity market. On the other hand the European Central Bank, the Bank of Canada, Swiss national Bank and the Bank of England have also announced measures to infuse huge fund simultaneously to arrest the contraction of market trends every where. The burnt of these measures was felt by the bond market that has naturally crashed.

Martin Blum, head of emerging markets research at UniCredit in Vienna said

“In the near term, the Fed and global central banks have provided the thing everyone needed, and that’s cash”.

As part of latest policy updates, the Bank of Canada provided C$4 billion, Swiss National Bank $6 billion, and the European Central Bank said it would auction bonds for a term of 28 days thereby providing $15 billion to the credit market.

But some market analysts say that, these measures by the world consortium might revive the market immediately, however questions remains how far these soaps would go in reviving the world economy as a whole for a long duration that everyone longs for.

“The Fed action is good for a day or two”

according to Michael Cheah of AIG Sun America Market Management.

In the Indian context, the market which has been on a sustained bull run for nearly two months and lost almost 30% seems to be upbeat with the latest move which is evident from a jump of 1.25%  of share prices in the BSE Sensex .

“It will be certainly good for our markets. Some action was necessary from the Fed and they are going in the right direction. Our markets have been on a recovery path and additional support by the Fed will consolidate gains further in the domestic markets”

said Kunj Bansal, senior vice-president, portfolio management services at Kotak Securities. Evidently Indian market has recovered significantly since Tuesday.

Coupled with continued bull run in the Indian stock market, another problem is lurking that might hamper the country’s resolution to achieve higher economic growth with price stability. Inflation rate has just crossed the 5 percent mark for the first time in last 10 months. Week ending on 23rd February pegged the Wholesale Price index at 5.02 percent. Rising food price and increase in cost for manufacturing good are some reasons for the inflation to shoot up.

the apex bank in India is a bit worried about the recent spur in inflationary pressure. Mr YV Reddy, the Governor of Reserve Bank of India expressed his concern in a symposium held in Paris on “Globalization, Inflation and Monetary Policy” . According to him

“In the Indian context, considerable weight is currently accorded by the RBI to price and financial stability while recognizing it twin objectives of growth and stability”.

The Indian government is looking to control the the inflationary pressure below 5 percent and targeting to keep it around 4-5 percent. But still consumers are feeling the heat.

True to its name, the booming Indian economy has demonestrated its strength once again by putting four Indians in the top 10 of Forbe’s list of top 10 wealthiest people in the world. Just for information, Warren Buffet, Chairman of Berkshire Hathaway Inc. and the Bridge partner and fellow philanthropist pal of Bill Gates, the Microsoft Founder has pushed his friend to third position to claim the title of world’s richest man with a net worth of a staggering $ 62 billion, an increase of $10 billion over last 12 months. The Mexican telecommunication tycoon Mr. Carlos Slim is estimated to be worth $60 billion enabling him to surge ahead of Bill Gates, worth $58 billion.

But there is no surprise in the list which has seen lots of changes in the top 10 over the last 13 years except Bill Gates holding the number one position during this long period. The surprising element is the rise of four Indian into the top 10 richest billionaires club. The booming Indian economy has resulted into a scorching stock market that shored up values of these four Indian business moguls. Heading the list of Indians at number four in the Forbe’s list is L.N. Mittla, the steel baron ( ArcelorMittal) with a net worth of $ 45 billion. Following him at number five is Mukesh Ambani, Chairman of RIL at $43 billion thus making him the richest resident Asian. His estranged sibling Anil Ambani who broke away from the main RIL group is the sixth richest person in the world worthy of $ 42 billion a net gain of 12 places and $23.8 billion during last 12 months. K.P Singh, who is leading Indian real estate boom with DLF has become the fourth Indian in the top ten ( at number eight) as his fortune rose to $30 billion due to stock market boom.

The list of Billionaires club is now pegged at 1,125  and not surprisingly the US heads the list with 475 billionaires, followed by Russia (87) and Germany (59). India heads the list of billionaires in Asia with 53, 19 of them making their debut. This takes India to fourth in overall position in the Forbe’s list.

During his post-budget interaction with industry chamber the Assocham, Indian Finance Minister Chidambaram told that he felt home loan rates up to Rs. 20 million should be reduced and it is the duty of the RBI and other banks to see to it that the housing loan rate is slashed.

To quote Mr Chidambaram -

“I shall certainly bear in mind that there is public demand that interest rates for borrowers, who borrow (housing loans) up to Rs 20 lakh, must be lowered,”

According to Chidambaram, around 80 percent housing loans fall under the category of below Rs. 2 million and they carry a low risk for banking and credit industry. Hence, all banks should encourage to tend home to people by offering incentives and sops  through interest rate cuts. This would stimulate a lot of key industrial sectors.

The Finance Minister also lauded the efforts of RBI ( Reserve Bank Of India) Governor for drawing up a policy that maintains a balance between high rate of growth with that of low inflation.

The third quarter review of Indian Monetary policy released by the Reserve Bank of India recently revealed that RBI has decided to retain the key rates in a bid to maintain financial and price stability. Keeping in view of the domestic and international financial conditions, the RBI has decided to leave unchanged all key rates, including repo (7.75 percent), reverse repo (6 percent) and Cash Reserve Ration or CRR (7.5 percent). The stance of the policy is to contain inflation close to five percent while conditioning expectations I the range of 4 to 4.5 percent. The Gross Domestic Product (GDP) projection for the year 2007-08 also remains same at 8.5 percent. The flexibility to conduct overnight or longer term repo including the right to accept or reject tenders under the liquidity adjustment facility (LAF) wholly or partially is retained. The major highlights of the monetary policy include emphasis on credit for employment intensive sectors, reasonably positive prospects for industrial sector, favorable prospects for services etc