The Tata Group had revenues of about $62.5 billion in the fiscal year ended March 31, 2008, and operates in sectors including software, steel, energy, automobiles, hospitality, and consumer products. Founded by Jamsetji Tata in the mid 19th Century, the group's 27 publicly listed enterprises have a combined market capitalisation of some $60 billion and a shareholder base of 3.2 million, the group's website said.

Its top companies include Tata Steel, Tata Consultancy Services (TCS), Tata Motors, Tata Tea, Tata Chemicals, and Tata Power.

Tata Group was leading corporate India's overseas expansion, having notched up the country's biggest foreign takeover with its $13 billion deal to buy Corus in 2007, and putting Indian industry on the map with the Nano car project. The global financial meltdown has hurt the Tata Group by making it more difficult to refinance short-term loans taken out by Tata Motors for the Jaguar/Land Rover deal.

Plans to raise 41.5 billion rupees ($825 million) via two rights issues in October to repay the loans were hit by a stock market slump, with company founders raising their stake to 42 percent from 33 percent as they covered most of the issue.

That month, Tata Motors also said it was rethinking its plans to raise $600 million overseas due to falling markets, and was also reviewing its expansion plans due to softening demand.

In November, Ratan Tata, chairman of Tata Sons, the holding company of the Tata Group, wrote to the heads of group companies, telling them to finalise all pending loan and funding agreements, even if it meant accepting higher interest rates, and put the conglomerate's acquisition plans on hold.

The launch of the Nano, greeted with a rapturous welcome at the Delhi autoshow in January, has been pushed into 2009 after Tata Motors shifted production to Gujarat state in October.

Violent protests by farmers unhappy with the compensation for their land had forced Tata Motors to stop work on the factory in West Bengal state where it planned to build the Nano, which at 100,000 rupees ($2,000) is slated to be the world's cheapest car.

At least 183 people were killed in India's financial capital after Pakistani terrorists struck two of Mumbai's best-known luxury hotels, including the Taj Mahal Palace hotel, the flagship of Tata Group's Indian Hotels Co Ltd.

"The Mumbai attacks add to these adverse conditions. No company can emerge unscathed out of this," said Rishi Sahay of consultancy firm IndusView Advisors. "But the Tata Group will come out it after some time. The kind of balance sheet they have is difficult to underestimate. They have an excellent brand name and they always manage to pull out some miracle from their hat."

Indian Hotels has said it will restore the heritage hotel. "We will rebuild every inch that has been damaged in this attack and bring back the Taj to its full glory," said R.K. Krishna Kumar, vice chairman of Indian Hotels.

Reuters

By Sumeet Chatterjee

The original article described the Pakistani terrorists as "militants", which I have changed and linked to my earlier blog post.

In terms of market capitalization of the Tata Group companies, TCS is the largest, followed by Tata Steel, Tata Power and Tata Motors. Retail investors own nearly a quarter of the various listed Tata group companies. There are also unlisted companies like Tata Industries and Tata Sky.



The Tata Groups holding company is Tata Sons, which is also unlisted. Tata Sons holds major stakes in the Tata group companies and in the unlisted companies under its ownership. Tata Sons is one of the the most closely held and highly valued companies in India.

India must introspect on which nuclear fuel it will choose to achieve its goal of generating 20,000 MW of nuclear power by 2020 — uranium, which the whole world uses, or thorium, a fuel India can source locally and has technical capabilities in, but which remains unproven commercially? The choice will determine over Rs 1 lakh crore of immediate orders for equipment and project management services, a lifetime of maintenance services contracts and an opportunity to stamp the future of India’s ambitious civil nuclear energy programme with the technology’s supremacy.

"If anything is to be approved, it should be thorium," says Seth Grae, president and CEO of US-based nuclear power consulting firm thorium Power. "India should use local thorium reserves. Compared to other extractions, thorium extraction is a simple procedure."

The lobby working against thorium is that of the established reactor builders, technology providers and nuclear-plant operators, who would rather milk their investments in uranium fuel technology they are currently using rather than spend millions on learning and ratifying a new technology.

Thorium is back in nuclear debates almost 50 years after it was banished as an unviable technology. Ironically, the world's first nuclear power plant at Pennsylvania in the US was built using thorium fuel. Although thorium is three-four times more abundant in nature than uranium, the West embraced uranium as the programme could double up for nuclear weapons too. Thorium, though, has several advantages:

Unlike uranium, thorium cannot be readily used as weapon-grade fissile material

Thorium reactors produce 70 per cent less nuclear waste compared to uranium reactors

Spent fuel from thorium reactors is 90 per cent less radioactive than uranium spent fuel

Thorium fuel is 5-10 per cent cheaper and less price-volatile than uranium fuel

Thorium is three-four times more abundant on Earth than uranium

The entire Indian nuclear programme is built around the heavy-water technology that is better suited for thorium use. No other nation, except Russia and, to an extent, Germany, has since worked on heavy-water technology development. More than five decades ago when Homi Bhabha conceived the nuclear programme, it was tailored to eventually use thorium because India has 290,000 tonnes of thorium reserves — the world's second largest behind Australia’s 300,000 tonnes.



India is the only country to be setting up a 300-MW plant at Kalpakkam near Chennai that will be a stepping stone to commercial thorium power generation; the plant is being designed for an astonishing 100-year lifetime! It had been conceived after a trial-run in a 30-KW reactor, also at Kalpakkam. As the next step, a thorium reactor is currently being vetted at Bhabha Atomic Research Centre (Barc) in Mumbai for technology and design.

"India is ahead of the curve of almost everybody in thorium-fuel reactors," says D.V. Kapur, director of Reliance Industries and former power secretary. "But, at what stage thorium reactors will be possible is still a question."

Businessworld
Rajeev Dubey

His crazed eyes said it all. Sadistic glee was etched across the face of the fidayeen captured by closed-circuit cameras at the erstwhile Victoria Terminus in Mumbai as he shot wantonly into the crowd of commuters headed home after a day’s work. By the time he and his band of 20-odd juvenile terrorists had been killed or captured — or had escaped — after killing nearly 200 people and injuring more than 350. Even though the government now says that there were only 10 terrorists, 9 killed and 1 captured and in interrogation, most security analysts around the world don't believe that. The feeling among Indian analysts is that the others, "May have disappeared into the western suburbs in preparation for a future attacks on places such as airports, key bus terminals and business premises such as BKC (Bandra Kurla Complex)."

"These attacks are simply to hamper India’s economic growth," saysMadhav Nalapat, professor of geo-politics at the Manipal University. "The ISI is desperate to stop India’s progress because this gives us more global clout and power, and that threatens them."

The economic focus of the attacks is also clear given their targets. While terrorists often hit economic symbols and civic landmarks, such as the veritable Taj Mahal Hotel (picture above), a symbol of India’s independence and dignity, the Pakistanis started their butchery at the Leopold Café in Mumbai, a favoured watering hole with backpackers and tourists.

Pallavi Dalal, a fashion designer, says she was enjoying drinks with friends at Leopold when the gunmen came. "We only managed to get a table at a far corner near the side entrance, and that saved us," she says. "When we heard a loud crackling noise, we looked around and saw these two chaps crossing the road and firing into Leopold with automatic weapons. We ran out from the side entrance and down the lane into the first building we saw. Firing blindly, they then ran down the lane we had escaped, towards the Taj Hotel. They were shooting all the time, sometimes with one hand, and only stopped to renew the magazine of what we sensed were AK-47s."

That the Pakistani terrorists then rounded up people with British, American and Israeli passports has furthered reinforced this view with the public. "The terrorists are trying to shatter confidence in India among the global community," says Nivedita Dasgupta, a Mumbai-based independent corporate trainer.

The government knew terrorists used the sea route to transport the explosives used in the 1993 Mumbai blasts, and even had fresh warning from the army and intelligence agencies about the possibility of terrorists hitting Mumbai via the sea. The IB source says that a combined meeting of agencies — held a few days before the attacks — called for a review of coastal security. But all this failed to stop Ismail and his fellow fidayeen, who came to Mumbai from Karachi via the Rann of Kutch in Gujarat using firstly the MV Al-Husseni, a Pakistani merchant vessel provided no doubt by the Pakistan navy. They then hijacked the Kuber, an Indian fishing vessel and brutally murdered its crew and wore their clothes and other effects, like red threads on the wrist, to pass off as fishermen.

Already, IHS Global Insight, a US economic forecasting firm, has raised India’s security risk rating by 0.25 to 3.50 "to reflect the continued volatility in Mumbai and the potential for coordinated attacks in separate locations". The British High Commission and American Embassy have also issued travel advisories. And it is estimated that even if 10 per cent of foreign companies restrict travel to India over the next year, the country could loose $1-7 billion in investment.

Air France and KLM have already cancelled flights to Mumbai, and with aviation also hurting because of the anti-government demonstrations in Thailand, there is a growing sense of panic in the industry. Several large tour operators are defaulting on payments, including Raj Travels, which has already defaulted on its payment to airlines.

The terror attacks have also jeopardised the CphI, among the largest global conventions on pharmaceuticals, which was to start on Friday at the Bombay Exhibition Centre. The conference was expected to do business to the tune of Rs 500 crore, and now stands postponed to 2009. Many of the 5,000-10,000 attendees expected are already backing out, says Ajit Kamath, chairman of Arch Pharmalabs, who was helping organise the event. Kamath now worries that China, which has projected its relatively terror-free image with much success, might appear more attractive as a business destination in the short term.

For now, all politicians are making the right cooperative noises. But this is expected to change soon as the BJP, Left and Congress have very divergent views on how to deal with terror. Professor Madhav Nalapat says that over the past four years, the UPA government has forced the security apparatus to follow a "politically correct approach" that is backfiring. "Some sensitive localities have not been entered, searched, etc., for years. And now I fear things are running out of control," he says. Some intelligence reports have maintained there are 100,000 fidayeen waiting in India for attack orders. And Nalapat says, "It could take 10-20 years to end the problem unless we get serious."

Businessworld
Inputs by Gurbir Singh, Gauri Kamath, Dhanya Krishnakumar, Shalini S. Sharma, Noemie Bisserbe, Pierre Mario Fitter, Manashwi, Sreevalsan Menon, Janhavi Abhyankar and Deepti Bose

Indian rose exporters, hit by a dip in local production, have been bracing for lower margins. Domestic production has been low because rains were spread over more days, depriving rose farms of the sunlight they require for growth. Coupled with higher labour and input costs, weather patterns are "definitely impacting production and bottom lines massively," said Manjunath Reddy, managing director of Bangalore-based Meghna Floritech Ltd and a committee member of the South India Floriculture Association, an industry body, which estimates a reduction of 20-25% in rose production this year.

Indian rose farms are located in two clusters at Bangalore and Pune, and flower growers typically export over 60% of produce between September and March. For the rose trade, the festive season running up to Valentine’s Day on 14 February, is a boom time for sales. Roses from Rajasthan have traditionally been used for fragrance, essence, rose water, and other edible products. But now Rajasthan has a research facility at the agriculture university in Udaipur to help farmers grow roses for consumers overseas.

"We expect this Valentine's to be quite normal and the prices that we are talking about are pretty much the same prices that we did last year, but in rupee context, it is better though our sales currency is euro," said K.S. Ramakrishna, managing director of Bangalore-based Karuturi Global Ltd, the world’s largest exporter of roses. The rupee has depreciated 22% against the dollar, by 9% against the euro and 33% against the yen since the start of this year, according to Bloomberg data. That translates into more rupees for every dollar, euro or yen that is earned by exporters, who had been hit last year by the steep appreciation of the local unit.

India’s floriculture exports for the year ended March were valued at Rs338 crore, according to the Agricultural and Processed Food Products Export Development Authority, or Apeda, a Union government agency. Cut flowers such as rose stems constitute around 25% of India’s floriculture exports, which are less than 1% of the international trade in flowers. Commercial floriculture gives greater yield to farmers and takes less labour and water than traditional foodgrain.

Livemint
Ajay Sukumaran

In August 1998, the AB Vajpayee government had unveiled two mega road infrastructure projects — construction of national highways, popularly known as the east-west and north-south corridors, and modernisation of the country’s major airports.



The highway projects got off to a flying start and contributed to the growth momentum the economy gained in the following five years. The airport modernisation project got delayed during the tenure of the Vajpayee government. It was the Manmohan Singh government that began its implementation. And an expanded highways project was also taken up for implementation by the Manmohan Singh government.

Government officials admit that there is now need to announce a few more mega infrastructure projects like the ones that were initiated by the Vajpayee government. Not just to earn some electoral dividends six months from now, but also to improve the economy’s prospects of beating the recession.

What Prime Minister Manmohan Singh continues to do (he did that again while in Muscat on Sunday) is only to talk about the need for a $500-billion investment in India’s infrastructure sector. China, in sharp contrast, is not talking. It has announced a $586-billion plan for investments in infrastructure projects to stimulate the Chinese economy.

Considering that the Indian economy is going through one of its worst crises, you would have also appreciated the government’s eagerness to launch schemes that would entail huge expenditure on projects, create jobs and hopefully some more demand.

On November 6, the Cabinet approved a Rs 950-crore project to construct Afghanistan’s Parliament building and the Indian chancery complex in Kabul. In addition, it enhanced the productivity-linked monetary reward scheme for port and dock workers, approved the national biodiversity action plan and ratified the agreement on the transfer of sentenced persons between India and the Hong Kong Special Administrative Region

The Union Cabinet and the Cabinet Committee on Economic Affairs (CCEA) approved a Rs 1,339-crore national project to construct 53 kilometres of new broad-gauge railway tracks in Sikkim. A Rs 574-crore 110-MW hydroelectric project in Arunachal Pradesh, dredging of the Vallarpadam terminal at Cochin at a cost of Rs 381 crore, a Rs 350-crore biotechnology research programme in partnership with industry and some other schemes to set up border check posts and schools in educationally backward areas were among other major decisions taken at that CCEA meeting.

Central government officials concede that this surely does not indicate that the government is just a few months away from general elections. Nor does it show any urgency on the part of the government to announce some big projects to pump-prime the economy as large sections of Indian industry have demanded during their recent interaction with the government in the wake of the global financial crisis.

Business Standard
AK Bhattacharya

The growth of local tea companies in UP, despite the fact that Tata Tea and HUL were also growing, posed uncomfortable questions. Sent out to seek answers, the Tata Tea sales teams as well as the hired consultants, came back with the same answer — Tata Tea was not selling in more than 100,000 villages in UP.

Local industry bought cheaper CTC tea from auctions and packaged it into poly-packs in backyards. With zero advertising, retailers pushed this product for higher margins, often Rs 40 per kg as against the Rs 20 the organised sector could offer. Realising that the local tea industry had resurfaced in rural areas, Sachin Vyas general manager for sales and distribution at Tata Tea, opted to reach rural consumers through NGOs, despite the severe apprehensions of other team members. "These institutions had access to people like none other," says Vyas. Eventually, the Sir Ratan Tata Trust and the Dorabji Trust screened 12 names.

The rural initiative was launched in December 2005. Named Gaon Chalo, meaning "let's go to the villages", the intiative saw Tata Tea joining with 12 NGOs to spread its reach across rural UP. By the end of 2006 Tata Tea added more than 20,000 retailers, including 500 new rural distributors, in 10,000 villages across UP to its distribution network.

"The whole problem with any rural initiative is that people think it’s unviable since a lot depends on retailers’ sincerity and integrity," says Vyas. "You need large investments and the creation of a feasible infrastructure."

MoUs were signed with NGOs (Rural Dealer-1) to act as main distributors at a district level, collecting various products from Tata Tea on credit before giving them to mobile rural distributors (RD-2), also on credit, who would then visit a fixed number of villages periodically to supply tea to small rural retailers (RD-3), who in turn sold to rural consumers. RD-3s made payments to the RD-2s on subsequent visits to replenish stock, and so on up the chain. An average RD3 now earns an additional monthly income of Rs 300-1,000, while an RD2 earns Rs 5,000-7,000. Eventually, NGOs made payments and took supplies from the company.



"Our status as facilitators of rural income has improved our image and financial position," says Raj Shekhar of Irada, an Allahabad-based NGO. And Meenu Tyagi of Sabla, a Rae Bareilly-based NGO, notes that a steady, locally-earned income curbs migration to urban areas to a large extent. "My value and status in society has increased because of the Tata name," says Sanjeev Kaushik, an RD2 supervisor in Muzzafarnagar.

A Gaon Chalo pilot is now being attempted in Madhya Pradesh. The next phase is expected to see most group products (automotives, salt, consumer goods, telecom, insurance) being introduced to this permanent, exclusive distribution chain under a programme called Tata Hut.

Businessworld
Sreevalsan Menon

If you were at a foreign exchange counter at any Indian airport last week, the quoted rates would have shocked you: a little more than Rs 45 if you were to sell them and more than Rs 53 if you wanted to buy. The spread of nearly 18 per cent between the two prices is shocking; usually it ranges around 5 per cent, which is already higher than what a bank would charge you.

Businessworld
Srikanth Srinivas

But exchange rate volatility also raises a set of issues that may have not mattered six months ago. For one thing, no one is certain how much more the rupee will depreciate, and what that will do to corporate India’s prospects.

Second, the spectre of large capital outflows on top of the $12 billion that foreign institutional investors (FIIs) have already taken out of Indian markets raises questions about the quality of the inflows that led to the huge build-up of reserves until March, even May this year.

Third, while India may have the fourth largest reserves in the world, we are also the fifth largest debtor nation — at $221 billion —according to the World Bank’s Global Development Finance 2008 report. Which brings us to an extreme question: in the event of sudden and large reversals, will our current reserves be enough?

Many like Krishnamurthy take heart from the ‘fierce and coordinated’ intervention by central banks around the world, including the Reserve Bank of India (RBI). They point to the fall in oil and commodity prices (the Indian crude oil basket is about $62 a barrel right now), which implies that the trade deficit that has widened sharply in the past two months, will do better.

Foreign exchange reserves

As the global financial crisis deepens, FIIs may end up taking out more than the $12 billion that they have taken out of our stockmarkets so far.

Corporate India has about $62 billion outstanding in external commercial borrowings (ECBs), starting from 2002. Repayment of about 20-25 per cent of which is estimated to fall due this year. That means another $12-15 billion will likely go out in the next few months.

From July 2006 to March 2008, accretion to foreign exchange reserves grew very rapidly; but from April to June 2008, addition dropped alarmingly. Reserves management then was about managing the demand side of capital flows: discouraging them. Now, it is all about managing the supply side of capital — making sure we have enough.

Under the present situation, if another $60 billion — through a combination of ECB repayments and FII sales — were to be taken out, it would absorb all the rupees released by cutting CRR to 3 per cent (Rs 1,80,000 crore) and an unwinding on the market stabilisation scheme (MSS) (about Rs 1,25,000 crore) that the RBI used to mop up excess liquidity.

Before 1990, foreign exchange reserves accounted for 6-8 per cent of GDP for most countries. Today, they account for close to 30 per cent; East Asian economies built them up as insurance against capital flight, with India following suit. And that is now being flight-tested.

Businessworld
Robert F Bruner
(The author is Dean, Darden Graduate Business School, University of Virginia)


The immense rescue legislation passed by the US Congress marks a historic watershed for the world. Critics from both ends of the political spectrum proclaim the passing of free-market capitalism. If you think the world has had a free-market financial system, think again. A free market avoids the distortions due to regulation; buyers and sellers drive the outcomes; competition is rigorous, and can produce volatile results; there is free entry and exit; investors are free to take risks, harvest any gains and bear any losses.

The free market in finance in the US ended in 1912 with the legislation to create the Federal Reserve System, the central bank. ‘Free market’ does not describe well the financial services industry in the world today: government agencies regulate the entry, exit, and combination of financial institutions; they oversee the transparency of financial reporting and securities underwriting; they influence credit and capital policies of lenders; they manage the money supply through which they drive interest rates and inflation expectations; and they provide the electronic system through which vast quantities of cash are transferred.

Government-sponsored entities such as Fannie Mae and Freddie Mac fuelled the extraordinary expansion of mortgage lending. Since 1978, the US government has managed financial markets to maintain full employment and stimulate economic growth. Similar practices prevail in many other countries.

Government coffers are easy targets for special interest groups seeking to save certain firms, jobs and industries. With the bailout of the US banks, you can be sure the auto and air transport industries will be close behind seeking a safety net. Risk-reduction afforded by regulation is not costless. Do we want an absolutely risk-free society? Absolute risk reduction would choke off innovation, entrepreneurship and growth.

The current crisis is distinguished from previous crises by very great complexity, high speed of news and cash, and very large scale. It is hard to imagine the wreckage that would have occurred by now without the government’s interventions to date. The regulatory innovations roiling the markets do not strike me as the death knell of comparatively free-market capitalism. Or at least, if there is a death to grieve, then it must have happened a long time ago.

Businessworld
Kandula Subramaniam

India has an installed power generation capacity of slightly over 145 gigawatt (GW). Of this, over half, or 77 GW, is in thermal coal projects and another 59 GW in gas/liquid fuel power projects. While nuclear power capacity adds up to 4 GW, the balance is in the form of hydro and other renewable energy projects. At one level, the government promises to add over 780 GW of fresh capacity during the current Eleventh Plan, but even the existing assets are being underutilised due to fuel shortage. And a coal and gas shortage threatens to aggravate this by delivering substantially less than the 145 GW installed capacity.

This month, of the 77 coal-based plants, the number of plants with less than a week’s stock of coal stood at 48, and those with less than four days’ stock - dubbed as critical - stood at 25.

It gets worse when it comes to gas-based stations. Take, for instance, GVK’s new 220-MW Jegurudau power plant in Andhra Pradesh, which is ready but there is no gas supply. Commissioning of two other 909-MW stations (Gautami and Konaseema) is held up due to gas shortages. Documents accessed by BW show that the 41 gas/liquid fuel-based power projects — spread across the private and state sectors — barely get 58 per cent of their fuel requirements.


Despite all efforts by the Centre to revive the erstwhile 2,000-MW Dabhol power project (now called Ratnagiri Power) directly under the supervision of the UPA government’s first empowered group of ministers chaired by Pranab Mukherjee, the project still does not have an assured source of gas supply for the entire unit.

Ratnagiri Power (Dabhol) still does not have assured gas supply (Pic by Sanjit Kundu)

Some power plants such as Kayamkulam (350 MW) in Kerala; Maithon (90 MW) in Jharkhand; Basin Bridge (120 MW) in Tamil Nadu; Tanir Bavi (220 MW) in Karnataka; and the 174-MW Cochin project in Kerala are awaiting supplies that would allow them to switch over to natural gas from otherwise expensive alternatives such as naphtha.

Power tariffs are split into two components: fixed and variable charges. While the variable charge is dependent on the fuel consumption, the former takes into account return on equity, debt servicing requirements and operation and maintenance charges. In the event an alternative fuel is not allowed by the concerned state government, the contract period would be reworked and the time period would be extended to allow the recovery of the fixed costs. That way, the fuel risk and even the payment obligation are going to be borne by the final consumer.

Vote-bank obsessed politicians give priority to fertiliser plants and LPG extraction units from available fuel, leaving gas for power stations at third place.

Nuclear Power

Before the signing of the nuclear deal, the nuclear fuel shortage had forced the Nuclear Power Corporation to slash production of power to half of the plants' capacities.

The nuclear power industry has been a government monopoly; there will be influential voices within the government that will want to keep it that way. The current reactors will remain with the government, and it would make sense if the government expanded its programme with foreign technology to a certain extent, since it is important to keep the official nuclear establishment up-to-date. But much faster expansion of generation capacity can be achieved if the private sector is brought in at this stage to import and learn technology and construct atomic power stations.



It would be a good idea to choose half a dozen firms, contract them to build nuclear power stations, and leave them free to make or buy the technology, subject to technical supervision from the Atomic Energy Commission.

The French minister of state for foreign trade, Ann Marie Idrac, is currently in New Delhi to enhance trade between the two countries. With 58 standardised nuclear power reactors, France today has a leading and unique position in the world, thanks to the scale and continuity of its nuclear programmes, particularly in terms of safety and operational records. He said, "In 1998, France initiated the political process that led to the NSG granting an exemption to India on September 6, 2008. The successful completion of the process now offers India the possibility of cooperating fully with France on all aspects of civil nuclear energy, including the supply of equipment, nuclear material and reactors to India."

Three of the world's largest polluters — the US, China and India — still don’t see climate change as an economic opportunity. Instead, they resist cutting climate change-causing greenhouse gases on economic grounds. The troubling reality is that China (6.2 billion tonnes per annum) and India (1.34 billion tonnes) are the world’s lar-gest and fourth-largest carbon dioxide (CO2) emitters. The US is second with 6 billion tonnes and Russia third with 1.5 billion tonnes. But China’s and India’s emissions are growing at 11 per cent and 6 per cent a year, as opposed to US’s 1.7 per cent, and India will cross Russia by 2015.

In India, more than 60 per cent of business leaders feel the country should lead the way in green initiatives, says consultancy firm KPMG, which estimates this to become a $3-trillion industry by 2050. For example, GE’s Ecomagination initiative, which began in 2005 with 17 products and $700 million in research, today has 60 green products with $17 billion in revenues and $1 billion in R&D.

High Emissions Industries

For India to agree to cuts in carbon emmissions, western countries must transfer the latest clean technologies, such as hybrid car engines or energy-efficient machines, at subsidised prices. New Delhi must also press international donors, such as the World Bank, to provide subsidised capital to invest in these technologies.

From government estimates, coal-based power generation, which supplies 53 per cent of India’s total power (77GW) and emits 51 per cent of its CO2 (638 million tonnes), is India’s most polluting industry. To clean the power industry, players such as NTPC, Tata Power, Reliance Energy and Lanco must look at two things — next-generation supercritical boilers and renewable energy (RE) such as wind and solar power.

Supercritical boilers are manufactured by BHEL. Larsen & Toubro (L&T) has already invested Rs 300 crore in a plant in Hazira. Back-of-the-book calculations show that India’s 30,000-MW ultra mega power projects alone are a Rs 99,000-crore market for supercritical technology.


"Solar energy will provide 70 per cent of all our energy needs by 2100," says K. Subramanya, CEO of the Rs 670-crore Tata BP Solar. Likewise, wind power could add up to 100 GW — or 69 per cent of India’s current generation capacity — to the electricity grid, says Sanjeev Ghotge of the World Institute of Sustainable Energy.

The downside is that solar and wind energy cost Rs 20 crore per MW and Rs 5 crore per MW respectively, while coal costs Rs 3 crore per MW. Better tax breaks and higher feed-in tariffs such as those offered by the US and Germany, can boost renewable energy. A national solar mission will rapidly increase solar power’s contribution to the national grid — currently less than 0.5 per cent. There is also money to be made in building a more efficient power transmission grid.

About 30 per cent of a steel plant’s operating costs are for power, which is why Shishir Tamotia, CEO of Ispat Energy, invested Rs 84.7 lakh to maintain a steady blast furnace temperature, recover waste heat and gas, and install energy-efficient lights and air conditioners.

Transport generates 10 per cent of India’s emissions. With annual car sales expected to quadruple to 4 million by 2020, emissions will also increase. Now, car makers are investing in electric, hybrid and hydrogen vehicle research. In India, Bangalore-based Reva already makes the world’s best-selling electric vehicle (EV), and Mahindra & Mahindra and Tata Motors are also chasing the market with research in EVs and hybrids.

In India, a range of taxes — not counting import duties — raise cars’ basic cost by at least 20 per cent. If these taxes are waived for clean cars, their prices could match conventional-fuel vehicles.

Homes and SMEs

The US Green Buildings Council says American homes and offices contribute 38 per cent of the US’s CO2 emissions. India’s figures are lower because heater and air conditioner usage is lower. Even so energy-efficient buildings cost 5-10 per cent more, but they pay back within 3-4 years.

Companies such as Trane and Shristi Infrastructure are chasing what the Confederation of Indian Industry (CII) estimates will be a $4-billion market by 2012 for green buildings in India.

Earlier, consumers wanted cheaper products. So, retailing giants such as Wal-Mart went to China for these. Now, they want environment-friendly products. "Indian companies will be able to supply these," says David Wheat whose aptly named consultancy HaraBara Inc. helps SMEs transit to low-carbon mode.


However, Malini Mehra, director of the Kolkata-based Center for Social Markets, says SMEs (small and medium enterprises), which contribute upto 60 per cent of India’s GDP, need guidance. "They don’t have access to information or a clear and supportive policy environment that encourages transition to a low-carbon economy," she says.

India’s old-world economy needs new thinking to escape the trap set by high oil and commodity prices as well as the looming dangers of a high-carbon economy. India’s best bet is to get future engineers, managers and social workers to think green. The recently created Indian Youth Climate Network is one such initiative that will encourage inter-disciplinary thinking among the youth. "A strong green workforce will prevent the developed world from reaping all the benefits of clean and green economic development," says Ernst & Young partner Sudipta Das, adding that this would help Indian companies compete better internationally.

Businessworld
Pierre Mario Fitter and Alexis Ringwald

Businessworld

Government salaries already form 6 per cent of India’s GDP, and will rise further with the implementation of the 6th Pay Commission recommendations. The total increase for all states, the central government, the military, etc. could be nearly Rs 17,798 crore. This will certainly widen India’s fiscal deficit, which is already burdened with high oil subsidies and the Rs 71,600-crore farm loan waiver. Interest rates could face further pressure as the government looks to scrape together enough resources for the payout. Another area that could be hit is expenses on national infrastructure such as roads or ports, power grids.

The additional strain comes at a time when payments towards farm loan waivers, fertiliser subsidies and revenue losses from inflation-fighting measures — a total of about Rs 70,000 crore — also strain the exchequer. On top of this, the burden of the oil and fertiliser bonds could create some destabilising pressures on bond yields.


However it must be admitted that if the income per head of the Indian people is growing at something like 6 per cent a year, some increase in civil servants’ income beyond inflation is defensible. Without it, their incomes would fall behind the rest of the people. So we have the ritual of periodic pay commissions which, after long deliberations, make detailed recommendations stratified by the various caste distinctions within the government. The last pay commission submitted its report on 24 March. After deliberating on it for five months, the government announced its decision on the eve of Independence Day.

The central government is just the first amongst equals; below it are 29 governments of states and union territories. State government finances are generally in a pitiable state. But the economic boom of the past five years, together with the fall in interest rates, had bolstered their revenue and repaired their budgets; they seemed to be on the way to financial prudence. Those dreams of fiscal soundness must be forgotten now.

On the other hand Government employees do with salaries far below those in the private sector. In some cases, private-sector counterparts of top bureaucrats draw salaries up to 10 times higher. These inequalities make it difficult to retain good talent. The additional income for government employees will lead to higher consumer spends. In the long run, this will raise domestic demand, pumping money back into a weakened economy.


In fact this is exactly what happened with the 5th Pay Commission way back in 1997. The government employees, who form a substantial proportion of the Indian middle-class, received the increased salaries with retrospective effect in lump sums. While this certainly damaged the fiscal balance of both the central and state governments, the government employees' money led to increased consumer spending, which helped boost the economy in the same year when first the Gowda government and later the Gujral government had fallen and the main sectors of the economy had not performed so well.

So it needs to be seen what the government employees will do with their windfall; spend, save, or invest; and what impact will that have on the economy?

Many countries are eyeing the vast farmlands in Africa (Bloomberg)

Businessworld
Sumati Nagrath

Earlier, nations seeking more land for expanding populations (lebensraum or "living space", Hitler called it) went to war. Now, they go to real estate brokers. Countries such as Egypt, Libya, Saudi Arabia and Bahrain, which have growing populations and are heavily dependent on food imports, are leasing thousands of hectares of cultivable land in countries such as Brazil and Australia to grow food grains.


Lester Brown, founder of the Earth Policy Institute, says Libya has leased land in Ukraine to grow wheat and ship it back to its hungry population. Egypt and Saudi Arabia are said to be eyeing the farmlands of Pakistan and Sudan.

The concern is that food exporting nations such as Thailand, Vietnam and the US may choose to hoard food grains instead of selling them, given the growing global food shortage.


Although the world is not quite on the brink of starvation, almost all countries are doing everything they can to ensure food security for their people. The land lease solution may seem innovative but it could open up a whole new can of regulatory worms.

Regulations governing agriculture are diverse, complex and localised. There is a need for international coordination with regard to agricultural techniques and inputs such as seeds, feritilisers, pesticides and soil that countries deploy in their newly-acquired land. Still, most experts applaud the move, as it helps even out the world’s current imbalance between population and land distribution.

Businessworld
Bill Emmott

In what feels like the blink of an eye, the emerging markets have been transformed from global suppressors of prices to sources of a new wave of inflation. The vehicle for this transformation is the price of oil and, to a lesser extent, food, both driven higher by strong demand in China and elsewhere. In reality, though, the ultimate means by which inflationary pressure is being transmitted is a more fundamental commodity: money.


Excess liquidity in countries ranging from China to India to Saudi Arabia has pushed inflation rates higher all over the world. Yet when the developed countries’ credit crunch began in August last year, deflation looked a greater danger: the abundant savings in emerging markets offered hope that a deflationary spiral could be avoided.

From a global point of view, one country’s central bank is more important than the others: China. The reason is two-fold. One is that China is the developing world’s biggest economy, the world’s fourth largest, and one of the most open to trade. So its economic performance affects others. The other reason, though, is that China’s liquidity and its rapid, resource-intensive growth in the past five years has been a big force behind the rise in price of oil and other commodities.

If Chinese demand continues to grow, then the oil price is likely to carry on rising, intensifying the inflationary pressure worldwide. But if the People’s Bank of China (PBOC), the country’s central bank, were to raise interest rates sharply (which are now well below the rate of inflation), bank lending growth would be cut and the economy would slow, cutting also China’s demand for oil. The only way to achieve this would be for the PBOC to allow the Renminbi to appreciate much more rapidly against the dollar and the euro, ceasing its purchases of foreign currencies.


For that reason, some analysts suspect the announcement in June of a slowing of the annual inflation rate from 8.5 per cent to 7.7 per cent may have reflected political manipulation of the data to buy time. If so, the pressure on oil prices and on global inflation may remain uncomfortably strong at least until after the Chinese summer, and the Olympics, have passed. In the autumn, however, the government’s nerve might well return. Inflation needs to be defeated.

Bill Emmott

This is the era of books about the rise of new eras. Notable books recently published make an attempt to answer what will come next? What are the trends in shifting evolving world power?

Fareed Zakaria, the editor of Newsweek International, says that the world has seen “three tectonic power shifts” in the past 500 years, by which he means great changes in the distribution of international power. First there was the rise of the western world, which began in the 15th century. By the western world he presumably means Europe, since his second shift was the rise of the US, which he dates from the final years of the 19th century. And fionally a post-American era, which he also calls “the rise of the rest”.


This era is otherwise known as globalisation, a period during which the US’s long post-1945 effort to convince others of the merits of free trade and liberalised capital markets has finally paid off. But having talked of a 400-year western era, then a 100-year American one, the evidence that this new era is a third tectonic shift, relies on statistics and anecdotes from a handful of years. This jump from broad sweeps of history to contemporary analysis is where the problem of era books arises.

Parag Khanna, a scholar at the New America Foundation in Washington DC, in his The Second World, promotes the idea that the world is now going to be dominated by three big countries or blocs: a declining and (he thinks) incompetent US; a peaceable European Union; and a rising, bumptious and potentially aggressive China.

The trouble with this thesis is not what it includes; it is what it leaves out. What about the other countries that are growing and are getting more powerful? Brazil, Russia, India, South Africa, Mexico, Iran and many more will not buckle down easily to three global “empires”, to use Khanna’s chosen term.

Robert Kagan’s The Return of History and the End of Dreams, says that we are in a multi-polar world in which many countries are becoming powerful, nationalistic and ambitious, and in which the rules of the game will be disorder and unpredictable behaviour.


In truth, this messy, multi-polar world has been evident since the end of the Cold War. In that time, the US’s stance has fluctuated, from the “reluctant sheriff” in the title of a 1997 book by Richard Haass, now head of the Council on Foreign Relations in New York, to the “indispensable nation” cited by Madeleine Albright when she was Bill Clinton’s secretary of state, to the unilateralist approach of President Bush. But the essential trend of the world has not changed in that time. Whether or not that makes the period a new era, or just a further phase of American leadership, is a question best left to historians in decades or even centuries to come.

When IDFC was set up in 1997 based on the recommendation made by the Expert Group on Commercialisation of Infrastructure Projects under Rakesh Mohan (1994-96)— there were several sceptics who said in private that it was a classic case of dissipating capital.

IDFC has, over the years, expanded its business footprint and it now has a private equity arm, brokerage and investment banking, a mutual fund, and only the last piece that every finance institution wants to have is a bank within its fold is missing. See private equity in infrastructure:

In march 2003, IDFC private equity closed its first infrastructure-dedicated fund of about $200 million.

IDFC acquired Standard Chartered Bank’s mutual fund (MF) business for $205 million in March this year. This MF will not only help IDFC connect with a retail audience, but it will also have another arm in its fold to raise money and invest. The MF business has very low regulatory barriers, it has low capital requirements and the returns are high. Market penetration by MFs is largely in the top ten cities.

In the case of wholesale funding, IDFC’s borrowings costs are exposed to sharp hikes in interest rates and tightness in market liquidity. Second, its business model has relatively higher portfolio concentrations compared to banks; and third, as a finance company platform, there are limits in leveraging relative to banks.

IDFC is also handicapped by the fact that there is no corporate bond market in India. The tenure of the longest IDFC bond is 10 years, even though there is a 30-year bond issued by the central bank, RBI. IDFC, therefore, willy-nilly lands up borrowing from banks to the extent that they are the biggest subscribers to IDFC’s bonds.

In August 2006, the RBI started regulating IDFC as a non-banking finance company (NBFC) instead of a public financial institution. It further placed a cap of 15% of total funds, on the amount IDFC could lend to a single borrower, which severely limits IDFC's investments in big infrastructure projects.


IDFC also bought 8.2 per cent in National Stock Exchange (NSE) for about $20 million, and within six months of this deal, NYSE, General Atlantic, Softbank and Goldman bought a total of 20 per cent in NSE, valuing the exchange at $2.5 billion.

In February 2007, IDFC also set up a $5-billion fund to finance infrastructure along with Citigroup, India Infrastructure Finance Company (IIFCL) and Blackstone Group. Of this, $2 billion will be in equity capital ($1 billion each in quasi-equity and equity) while $3 billion would be in long-term debt with financing maturities exceeding 10 years.

India continues to set up newer entities for financing infrastructure, but the Middle Kingdom’s State Development Bank of China has been responsible for at least part-funding mega projects: the multi billion dollar Three Gorges Hydel Project, the Beijing-Kowloon Railway and the $3.5-billion Daya Bay Nuclear Power Project in southern China.

Businessworld
Dhanya Krishnakumar

Under the national semiconductor policy, the Centre agreed to bear 20-25 per cent of the capital expenditure of a semiconductor manufacturing or associated facility, including solar cell fabrication units (fabs), during the first 10 years. This led to spurt of interest and investments in solar energy, which is based on photovoltaic cells.

Photovoltaic refers to the creation of voltage from light. SPV systems directly convert sunlight into useful electricity. This process is called the photoelectric effect. The energy generator in a PV system is the solar cell, which are essentially thin wafers of silicon. These cells when connected in series and parallel constitute a solar panel.


That was the trigger for many players to rush into the solar photovoltaic (PV) space. With over $7 billion worth investments in PV units sanctioned in the new Fab City that is coming up in Hyderabad, and close to Rs 600 crore set aside for R&D in this area in the Eleventh Plan, the government’s solar programme is finally showing signs of growth.

The project phase itself takes about two years and only then will we get a clear picture of how much actual installed or generation capacity many of the players really have. India’s theoretical solar power reception just on its land area is about 5,000 trillion kWh per year. The daily average solar energy incident over India varies from 4 to 7 kWh/sq mtr. with about 2,300-3,200 sunshine hours per year, depending on location. This is far more than current total energy consumption. Which, even assuming 10 per cent conversion efficiency for PV modules, will still be a thousand times greater than the likely electricity demand by the year 2015.


Tata BP Solar recently signed an agreement with Calyon Bank (Credit Agricole CIB) and BNP Paribas to raise Rs 3.1 billion to fund its solar cell expansion project from the present installed capacity of 128 MW to 300 MW by 2012. Players such as California-based Signet Solar are also planning three PV manufacturing units in India at an investment of over $2 billion. Moser Baer is investing close to $1.5 billion; Titan Energy Systems is planning an investment of $750 million, Nanotech Silicon India $2 billion, and Hindustan Semiconductor Manufacturing Corporation $1 billion.

Reliance Industries has also approached the government with plans to set up a semiconductor wafer fabrication plant and solar PV module unit at a total outlay of over Rs 30,000 crore.

Moser Baer India is the first company to invest about $1.5 billion in thin-film photovoltaic and has plans to ramp up to 600 MW over the next two years from the existing project capacity of 40 MW. This will be done in partnership with Applied Materials. Moser Baer India's thin-film photovoltaic manufacturing capacities for crystalline silicon and thin film technologies are coming up in Greater Noida and Sriperumbudur.

At the current 20 per cent annual growth, India can emerge as the fourth largest generator of solar energy after Germany, Japan and China in the coming years.

Businessworld

Kenneth Rogoff

Today’s soaring commodity prices scream a fundamental truth of modern life that many politicians, particularly in the West, don’t want us to hear: the world’s natural resources are finite, and, as billions of people in Asia and elsewhere escape poverty, western consumers will have to share them.

The US’ ill-considered bio-fuels subsidy programme demonstrates how not to react. Rather than acknowledge that high fuel prices are the best way to inspire energy conservation and innovation, the Bush administration has instituted huge subsidies to American farmers to grow grains for bio-fuel production. Never mind that this is hugely inefficient in terms of water and land usage.


Another wrong turn is the proposal recently embraced by two US Presidential candidates to temporarily scrap taxes on gasoline. But this is not the way to do it. The gas tax should be raised, not lowered. The sad fact is that by keeping oil prices high, OPEC is doing far more for environmental conservation than western politicians who seek to prolong the era of ecologically unsustainable western consumerism.

It is not just oil prices that are high, but all commodity prices, from metals to food to lumber. Prices for many have doubled over the past two years. Oil prices have risen almost 400 per cent in the past five years.

Admittedly, the global commodity price boom has had profound, albeit enormously complex and uncertain, effects on poverty. While surging commodity prices are helping poor farmers and poor resource-rich countries, they are a catastrophe for the urban poor, some of whom spend 50 per cent or more of their income on food.

For now, though, instead of whining about high commodity prices, governments should be shielding only their very poorest citizens, and letting the price spikes serve as a wake-up call for the rest of us. The end to western consumerism is not yet at hand, but high commodity prices are a clear warning that big adjustments will be needed as Asia and other emerging nations begin to consume a larger share of the global pie.

True, when today’s global economic boom ends, commodity prices will plummet, easily 25 per cent, quite possibly 50 per cent or more. Western politicians will cheer, and many pundits will express relief that less money will be flowing to undemocratic countries in the developing world.


ET

Gold prices in the 1970s, Japan’s equity market in the 1980s and tech shares in the 1990s all witnessed similar cyclical bear markets amidst secular bull runs. During their previous major bull phase from 1987-94, even emerging markets suffered two major setbacks of 30% in 1990 and 20% in 1992.

Research shows that commodity prices always lag the economic cycle and start to fall in earnest only four to five months after a major economic slowdown sets in. Admittedly, over the past decade emerging market demand has come to be the most important factor in determining commodity trends.

But changes at the margin matter the most in driving prices and US demand is still relevant for commodities such as oil. The US consumes just under a fifth of the total global oil output and latest data reveal that oil demand in the US is down 7% from a year ago.

Rising oil prices are currently the biggest obstacle in the way of stock markets rallying any further. Much of the bad news regarding the US credit crisis has already been discounted and valuations are supportive enough to engage long-term investors.

Lower oil prices will ease inflationary pressures and allow equity market valuations to expand again. In short, for the script of a secular bull-run in emerging markets to remain on track, commodity prices led by oil need to come off the boil, pronto.

Businessworld

Omkar Goswami

OPEC was formed as a permanent inter-governmental organisation in September 1960. From its inception, OPEC’s objectives have been explicitly cartel-like; OPEC has 13 member countries. It began with five: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Subsequently, others joined the organisation: Qatar, Indonesia, Libya, the UAE, Algeria, Nigeria, Ecuador and Angola.

As I write this article, the OPEC’s weighted average basket is quoting at $111.66 per barrel. More ominously, on 28 April, OPEC president Chakib Khelil, Algeria’s oil minister, warned of the prospects of crude at $200 per barrel.


In fact, until 2007 the OPEC was not viewed as a price-gouging cartel. Barring 1973 and 1979, it has see-sawed between cutting and raising quantities. Till September 1999, crude was below $20 per barrel; and it remained below $30 right up to March 2004. So, what has made the OPEC so successful in not only maintaining hard prices, but steadily stepping these up to over the $110 mark?

Economists will tell you about the rising demand from India and China, uncertainties in supplies, and the role of commodity speculators. These are valid reasons. But to my mind, the biggest factor of them all is a man called George W. Bush.

If Bush had only alienated Hugo Chavez of Venezuela, the oil-consuming world would have breathed easier. But he has put off Iran, the UAE and, most importantly, its biggest oil-producing ally, Saudi Arabia. Gone are the days when the President of the US could have a quiet word with the King, and have the Saudis exercise restraint on the OPEC. Not so long ago, Bush’s father, George W.H. Bush, was welcomed as an honoured guest of King Fahd at Riyadh. Today, King Abdullah doesn’t feel the same about the son or his emissaries. For instance, Dick Cheney’s last avisit to Saudi Arabia was only politeness. The Saudis are irritated with Bush’s confrontational style; the US upsetting their neighbourhood, and not bothering to consult with them.


Thus, Thanks to Bush’ bellicose body language, the Saudis watch from the sidelines. Not once since September 2007 has the largest producer in the OPEC spoken of increasing supplies to dampen prices. With the Saudis remaining quiet, every other producer is making hay, including US-haters like Mahmoud Ahmedinejad of Iran and Hugo Chavez.

The US has become public enemy number one in the Middle East. And we are all paying the price. Long live Dubya!

But Saudi Arabia has resisted attempts by OPEC members to discuss the declining value of the American currency and thus decoupling Oil and the Dollar.

Businessworld
Srikanth Srinivas

The International Monetary Fund’s (IMF) World Economic Outlook (WEO) — a biannual report published every April and October — has estimates of 3.7 and 3.8 per cent of projected global growth for 2008 and 2009, which are lower by a full percentage point since January this year. The slowdown will be more persistent than earlier thought, it seems.

True, much of this slowdown will be felt in the US; growth prospects for that country have deteriorated more rapidly: Growth estimates for 2009 are 1.2 per cent lower. As US banks and financial institutions continue to take hits to their assets, those already pessimistic projects could go even lower: the WEO points out that if global growth falls below 3 per cent, we will be in a global recession. The probability of that happening is estimated at 25 per cent.

But there is a silver lining. Emerging markets, led mainly by China and India, will boost overall global growth, says the WEO; any slowdown in those economies is likely to be moderate, as they have no exposure to the credit crisis that has gripped the US and Europe.


Major concerns

The WEO identifies three major concerns that could impact the global economy more adversely that it has already:

Inflation — led largely by higher energy and food prices — is rising all over the world.

A price boom in the commodity markets. At least in part, says the IMF, the recent run up in commodity prices could be the result of investors seeing it as an alternative asset class.

Third, the financial shock emanating from the collapse of the housing markets and the subprime mortgage market crisis has inflicted considerable damage to institutions at the core of the financial system. Low liquidity in inter-bank markets and weak capital adequacy in banks has fuelled concerns about credit risk.

Risks for emerging markets

While India and China (and other emerging markets) will continue to experience high growth despite the global slowdon, their economies too will have to deal with some looming issues:

High on the risk table for emerging markets — including India — is high and persistent inflation. The producer price index — or the wholesale price index (WPI) in India shows some cause for alarm. In both China and India, producer prices show double-digit growth. Producer prices — mainly oil and raw material inputs — are rising faster than consumer prices.

Agricultural production — and given food price inflation — is a cause for concern. Tightening liquidity conditions, perceived high interest rates, a domestic credit shock and capital outflows together could be the perfect storm that drives growth rates below 6 per cent.

Prospects for India

Finance Minister P. Chidambaram doesn’t think that such a big drop in growth rate is likely either, even as he acknowledges that a slowdown may be necessary to bring down inflation, particularly food price inflation which can be critical in this election season.

We are reasonably self-sufficient in major commodities, and the food supply is more or less in balance. But food prices and commodity are likely to remain high, driven by growing incomes; but how much of that inflation is permanent and how much temporary is to be seen.


So while India may be relatively insulated from the contagion of the credit market, this is no time for complacency either. As IMF’s Johnson says, now is the time when prudent governments should draw up contingent plans to guard against deeper ‘tail risks’ — the risk that an unlikely event that can create catastrophic results.

Businessworld

Lacking adequate irrigation and remunerative support prices, the Indian farmer continues to suffer at the hands of an uncaring bureaucracy, manipulative politicians and avaricious moneylenders.

More than 280 farmers have committed suicide in Maharashtra’s Vidarbha district since January. The government says that more than 100,000 have killed themselves between 1997 and 2005 .

In Vidarbha, the main cause of suicide is indebtedness to moneylenders, who often charge interest rates of up to 40 per cent on loans.

Though the government has announced a Rs 3,750-crore aid package for indebted farmers, and a Rs 60,000-crore write-off of small farmer loans held by public sector banks, these do not offer any relief to farmers who have taken loans from traditional moneylenders. In fact, 116 farmers in Vidarbha have committed suicide since New Delhi announced its loan waiver.


Both, the state governments and the Centre have also shied away from using existing usury laws to go after the moneylenders, who often hold powerful positions in political parties.

Given the global rise in food prices, which is enriching farmers in countries such as Australia, Brazil and the US, various farmer organisations, such as the Vidarbha Jan Andolan Samiti, are pressing the government to raise the domestic support prices on crops. But New Delhi is refusing to budge.

Businessworld

Raghu Mohan

Annual inflation, which soared to 6.68 per cent by 15 March, can mar the political fortunes of the UPA at the next General Elections. Lehman Brothers’ (India) economist Sonal Varma says that rising global commodity prices — food, energy and metals — have put upward pressure on domestic prices. While the price pressure has been relentless across-the-board, it’s the sharp escalation in manufactured products’ prices in recent weeks that has caused this significant up-tick.

Union Commerce Secretary G.K. Pillai has made it clear to iron ore miners to come up with a solution to knock down steel prices. “We won't wait for even a month,” he told reporters in New Delhi this week when asked for a timeframe. Other categories that have contributed to higher inflation are edible oils, pulses and processed food.


“What a difference three months can make,” says HSBC’s economist Robert-Prior Wandesforde. “In November last year, WPI was running close to 3 per cent, well below the central bank’s 4-4.5 per cent target. Although not (yet) at a level likely to be triggering panic within policy circles, the pace of increase must be of concern. In our view, a further sharp rise looks probable.” HSBC has revised its WPI forecasts upwards to show a 6.2 per cent average rate for 2008-09, and a peak of 6.5 per cent at end-2008.

On 31 March, the Cabinet Committee on Prices, chaired by Prime Minister Manmohan Singh, announced a slew of measures to curtail inflation. It cut the import duty on refined oil (sunflower, soya bean, coconut and groundnut) and on hydrogenated vegetable fats to 7.5 per cent (from 20 per cent), on butter and ghee to 30 per cent (from 40 per cent), and on maize to nil (from 15 per cent) for an upper limit of 500,000 metric tonnes. Additionally, it also imposed an across-the-board ban on the export of non-Basmati rice, raised the ceiling on the minimum export price on Basmati exports to $1,200 from $1,000, and extended the ban on export of pulses by a year.

Will the measures on edible oils work? “China and India are the two biggest importers of vegetable oil, together accounting for 30 per cent imports of major edible oils. India is expected to import 15 per cent of both soy and palm oil,” says Standard Chartered Bank’s senior economist for India, Shuchita Mehta. “Given the recent rally in edible oil prices and that prices would remain on elevated levels going forward, the heat doesn’t seem to be going off.”

Prior to the announcement of these measures, RBI Governor Y.V. Reddy said, “Inflation is unacceptably high. We are very, very concerned. We are in full readiness to take appropriate action to contain inflation.” The cash reserve ratio (CRR) — the money that banks keep as a percentage of their deposits with the RBI — is now at 7.50 per cent. In the RBI’s armoury, the CRR is the most blunt weapon, and it is clear that it will not hesitate to crank up the CRR to arrest liquidity, and, in turn, inflation.


But there is a fundamental question. Is the current rise in inflation a monetary or a supply-side issue? If it is the latter, how are monetary measures going to curb inflation?

It is also likely that the Centre may defer large expenditure and maintain higher cash balances with the RBI in April and May. Prior-Wandesforde is of the view that the Centre, which had shown its hand in the 2008 Budget targeted at the rural poor, will presumably await the verdict of opinion polls and local elections before deciding when to hold the general election; and if further measures are required.

Daily Star

In a real turn up for the books, the World Bank's latest report released here has stated that India received the largest amount of remittances from migrants in 2007--all of US$27 billion--followed by China, Mexico, the Philippines and France.

The Chinese expatriate community spread across the globe has for long been thought to have been the unquestioned leaders when it came to sending remittances back home; indeed, remittances have been a major driver of economic growth in the Communist country.


India, now, has knocked China off the top spot with its $27 billion remittances while China comes in a close second with remittances worth $25.7 billion in 2007, according to the World Bank.

Mexico ($25 billion), the Philippines ($17 billion), and France ($12.5 billion) make up the top five. (Tajikistan, Moldova and Tonga were the top remittance-receiving countries as a percentage of GDP.)

“In many developing countries, remittances provide a lifeline for the poor,” said Dilip Ratha, senior economist and co-author of the Migration and Remittances Factbook 2008.

He added that remittances are "often an essential source of foreign exchange and a stabilising force for the economy in turbulent times”.


In terms of migration, the United States of America was the top immigrant-receiving country with 38.4 million immigrants, followed by Russia with 12.1 million and Germany with 10.1 million.

Businessworld
By Bill Emmott
The author is a former Editor of The Economist.

If the US slides into recession, it will be due to the billions of dollars lost by banks in the subprime mortgage market. Unlike in earlier slumps, there is no point in blaming foreigners. The problem lies at home.

Moreover, part of the solution is coming from the countries that protectionists expected to gain popularity by attacking: China, other Asian countries, and the Arab world. Their state-run investment funds, known as ‘sovereign-wealth funds’, have provided more than $70 billion in new capital to the big Wall Street commercial and investment banks.

My former employer, The Economist, described this as “the invasion of the sovereign-wealth funds” in its 19 January 2008 issue. These huge funds, which economists at Morgan Stanley reckon command total assets of $2.9 trillion, may be saviours today but soon enough, says The Economist, rich-country politicians will start to attack them for gaining too much control over strategic investments and for harbouring political motives. Protectionism may be silent today, goes this argument, but tomorrow it will be noisier than ever.


The Economist has influential company. Larry Summers, who was Treasury Secretary under Bill Clinton, wants sovereign-wealth funds to be regulated in a special way. Last September, I attended a debate about this between Summers and Jose Angel Gurria, the former Mexican finance minister who now heads the OECD in Paris.

In the debate, Gurria took the position of an economic liberal: open capital markets were vital for global prosperity, and it would be counter-productive to place obstacles in the path of such investment funds. All that was needed was a code of conduct. Nonsense, said Summers, it would be naïve to rely on codes and transparency. In his view, such funds cannot be relied upon to act like normal, profit-seeking investors. They might want to secure foreign technology for national strategic interests, for instance.

The Economist did not argue for special rules covering sovereign funds, but it did agree that these funds are likely to provoke a backlash amongst rich-country politicians.

So, what are the public-policy implications of these funds’ rise? If oil and commodity producers continue to build up vast balance-of-payments surpluses and if China continues to accumulate foreign-exchange reserves, the Sovereign-Wealth Funds are going to get bigger.


This issue needs to be sliced up in two ways. The first: for whom might these funds be a problem? The second: what type of behaviour would merit special rules? If you look at the recent rescue of Wall Street banks, the “for whom” question matters greatly. For the US government and for taxpayers, the rescue is not a problem; it has saved them huge sums. The problem is really one for the banks’ shareholders and creditors, for these investments have diluted shareholders’ rights and in some cases established preferential claims on the cash flows of the banks.

The “what behaviour” question is also illuminated by the bank rescue. All the investments in those banks are minority stakes. Only if the sovereign funds were to buy controlling stakes could their behaviour become an issue.

The right conclusion is that sovereign-wealth funds require no special rules as long as they buy only minority stakes. Only when they take controlling stakes should they be given special scrutiny or be subjected to special rules.

Three state-owned oil marketing companies (BPCL, HPCL, IndianOIL) will jointly pump in $600 million, or Rs 2,400 crore, in Brazil to buy/lease plantations and related units for producing ethanol, a byproduct of the sugarcane industry blended with petrol to make "gasohol”.

TOI

Oil fields and coal mines are passe. India is now poised to make its first overseas acquisition of sugarcane acreage in search of altenate fuel energy security.

Ethanol is considered less-polluting than petrol and its progressive use is seen as reducing dependence on oil imports.


Brazil is the world’s biggest sugarcane grower and leads in gasohol usage with upto 25 per cent blending. India, with its inadequate ethanol supplies, has been doddering with efforts to introduce 5 per cent blending as opposition from sugarcane lobby and alcohol industry have blocked efforts to raise supply.

A team of executives from Bharat Petroleum, Hindustan Petroleum and IndianOil has initialled documents for working out deals to acquire 15-35 per cent stake in two of the largest ethanol players in the Brazilian sugarcane industry— Louis Dreyfus Commodities Bioenergia and Infinity — and 50 per cent equity in new plantations/projects of smaller firm Rezek.

Indian oil firms will form a joint venture company for ethanol investments and share half of the equity in it. The remaining half ownership will be offered to the Brazilian partners. Most of the investment will be equity contribution from the Indian oil companies as local debt is not available for financing acquisitions in Brazil. The joint venture will be based in Brazil for tax benefits.

Brazil allows foreign ownership of sugarcane acreages which are rain-fed and require little irrigation. The plantations are mechanised with integrated sugar mills.

Several European firms have acquired acreages and taken up ethanol manufacturing for captive use in their home country.

One way of making sugar useful...even if it is foreign sugar!