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Business Economics & Services Team (BEST)

  Our New Service   

                           Click on to our Regular Capsular Value  Economic Updates                                               

                                                 Greetings!!!!

Supported by a battery of experts, economists and policy watchers, BEST has been endeavoring to bring to our valued readers the important economic updates through our indiainvestorsguide.blogspot.in. While assuring to continue with the daily incisive updates, we have decided to inform our readers’ important economic and policy highlights in a capsular manner to keep them abreast of the developments. We are designing our capsules in such a way that it can give the readers knowledge for primer to compendium on what are going on in the Indian economic landscape.

While the capsular information is free of cost, the detailed report will be priced at a reasonable level to cover the cost of the experts, research that goes into it and other incidentals. The reports will be made available within a gap ranging from one week to a month ordinarily and where detailed information and research are involved, we will set the target after mutual consultation. Of course, the pricing of the report depends on the effort and research that go into that.

I request the readers to go through the blog indiainvestorsguide.blogspot.in to understand the range, depth and incisiveness of the reports that we have prepared. Happily, we have received a large number of hits and comments from all over the world, which embolden us to get going in a stronger way to reach out to more number of people.

Indeed, India is one among the most happening places in the world. It is ranked as the third largest economy in the world after China and the US with a projected  GPD close to US$ 5 trillion in 2014 (IMF 2014 Report).  Importantly, India has more positive attributes than most of countries seeking investment. One, it has the world’s largest young population, with more than 60 percent of the people aged less than 25 years. Two, it has a pluralistic democratic society, where rule of law is supreme and an English proficient population. Third, it has a massive appetite for absorbing investment in various sectors. Fourthly, the return on investment and investment protection are  adjudged high and adequate.

To sensitize the discerning India investors and those who are drawing up plans for investments in India, we have decided to keep our services (only the basic information) free till 31^st December 2014 and the paid services will start from the New Year onwards.

Come and avail of our value added services to gain access to the new India, bubbling with activities.   

                                            Daily capsular Economic updates

1.Indian Cabinet clears  legislation to raise threshold limit  of FDI in insurance companies

The Indian cabinet gave nod to increase the FDI in the insurance sector from the present 26% to 49 %. The bill was pending for the last seven years or so for one reason or the other. There was stiff resistance from the left parties against the bill, which had led to referring the controversial bill to House Select Committee. Since the main opposition party Congress seems to be favorable  to the bill, it is quite likely in both houses of the Parliament the bill may get nod without any further delay. ( Pl contact for further information and incisive report)

2. Uber Ban: Mixed Reactions

The ban on Uber, the taxi aggregator plying on Delhi roads has put a question marks on the FDI friendly policies of the government. It was triggered by an alleged  rape of one of its taxi drivers at night. Some of the ruling party ministers dubbed the knee jerk reaction of banning the group as unfortunate and said it would send wrong signals to investors abroad. ( Pl. ask for detailed reports and the present thinking of the government to overcome the impasse. )

3. Interest Rate Cut: RBI Governor Did not Relent  

Despite the heavy pressure exerted on RBI governor to go for a rate cut, even from the finance minister, he stood the ground. How long will he maintain the stand? Is the Indian economy still under the grip of inflationary expectations? Should the RBI Governor go for a rate cut early next year?  ( Pl ask for politics of rate cut)

4.E-Commerce: the latest Craze in India

Is E-Commerce a fad or India is serious: this is the trillion dollar question being asked by many policy watchers. Many are wanting to have FDI allowed in e-commerce and an equal number of people, especially mall owners and organized retail  are opposed to it. What are thinking of the government? Are the new boys in e-commerce fly by night operators or going to be there forever? How serious are they in stay putting in the business?

5. Delhi High Court Stop Import of Xiaomi Phones

Ericsson claims Xiaomi infringed upon its patents. As a sequel to that, Delhi High Court has directed the Central Board of Excise and Customs to stop import of Xiaomi equipment into the country. What are the assertions of the Ericsson and counter of Xiaomi. Pl contact us for the latest on the case and its possible legal interpretations and ramifications

6 Clouded Indian Sky

India’s largest budget airline –Spicejet-is on notice. How serious is the problem? How widespread is sickness in Indian aviation scene and what are the possible remedies? Is private sector induction in the airline sector is a flop in the Indian conditions and how that can be streamlined, please intent for a specialized status report.

7. V Putin’s Visit to India

Russian strong man Vladmir Putin is in Delhi along with a strong business delegation. Issues ranging from oil embargo to diamond exports will be discussed at the two day visit. For the inside story on Putin’s visit, please ask for a detailed report.

8. Coal Auction to Trip into  Rough Water

The much talked about coal –reallocation is likely to get embroiled in political wrangling.  While the ruling government is readying the broad contours of the guidelines, the opposition parties are gearing for a confrontation. How serious is the threat? Will it put the fast track policy into backburner? Pl ask for an incisive policy analysis.

9. India’s Oil Bind

Despite the steep fall in oil prices for the last few months and is presently hovering at US$ 65 per barrel, the Indian economy is facing an increasing current account deficit. Admittedly, its exports have sunk and the capital goods imports have not picked up. But gold imports have gone overboard . Why the government is not reining in the heavy gold imports? Look forward to our incisive report.

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The Indian Clouded Sky

Business Economics & Services Team (BEST)

                                                   The Indian Clouded Sky

The Indian airline companies are falling on the way side one after the other. It was Kingfisher a couple of years back and now it is Spicejet. Indian Airlines is in the ventilator and is kept alive with massive infusion of tax payers money. What are the reasons for the widespread sickness? Is it because the way in which these airlines were run was faulty or the aviation industry itself is beset with problems and complexities.

Before, we get into the brass tacks, let us agree  on  a couple points: aviation industry is a high risk area. Even during the best of the days, its profit margins are razor thin and a small downward swing either of the operating cost or traveling public can make or break the industry. Two, busting of airlines is not a new phenomenon. It has happened in the US in the late 1990’s and in an equally forceful manner had happened in India. Many of the airlines, who had made their presence in India in the late 90’s have become extinct. Indian sky was crowded at that point of time. The arrival of  private aircrafts  was when the archaic law air traffic law enacted in 1885 or so  was amended by late Madhav Rao Scindia, when he was the aviation minister. A lot of airlines like ModiLuft, East West, UP Air, Jackson Air  what have you have sprung up taking advantage of the relaxed policy and also on the anticipation that aviation carried in its fold both aura and moolaha (money). But the former was in abundance and the latter was scarce. That had driven many out of business.

Unfortunately, nobody seems to have learnt from the past lessons. People are still betting on the airlines and many new airlines have been pressed into the service and one or two are waiting in the wings. Why they are biting the dust? Has Directorate General of Civil Aviation had undertaken a study on the industry to ferret out the reasons so that such things will never happen hereafter?

Undoubtedly, aviation is a capital intensive industry. Cost of aircraft is prohibitively high. Acquisition of aircrafts goes up every year so also the operating cost including  cost of fuel, salaries, ground handling cost etc. Also, the cyclical fluctuations in the industry are well known. During the slowdown days, most of the airlines were doing badly on account of the low pick up of passengers and freight cargo. But the operating cost and ground handling charges remained the same. Once, the industry picks up, airlines will have to acquire new aircrafts to meet up with the expected demand. Then again the downward cycles hit bleeding the industry further.

Many error and trail  have been conducted in the industry and many suggestion shave been put forward to induct dynamism in the industry. Many in the aviation scene believed that foreign equity by an another airline, which was prohibited earlier, would help revive the bottom lines of the industry and accordingly 26 per cent FDI equity was permitted. But it did not help bolstering the Indian aviation scene. No one has come forward to invest in the airlines. Earlier to that, we have pressed into service budget airlines to make the sector scalable on the presumption that volume of travelers would go up once the tickets are priced reasonably. They thought there would be diversion of traffic  from rail to air. But it might have worked for some time but the opaque nature of pricing of tickets and often the exploitative tactics kept the passengers away from the aviation scene.  

It is time that we come out with some out of box solutions to salvage the airline industry from its slumber. I feel that there should be  some new models to be tested now. One such model is participation of the aircraft manufacturers in the actual running of an airline. Boeing and Airbus are two large airline manufacturers in the world. The aircraft engines are manufactured by companies like Rolls Royce, Raytheon (aviation equipment) Pratt & Whitney etc. Could we think of a grand alliance among airline companies, aircraft and engine manufacturers, airport managing companies etc. for running the aircraft? This will help not only in bringing some stability in the aviation industry but also help expand each others’ operations. Also, importantly, it will ensure some backward and forward linkages, which are critical for industry to survive.    

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Land Acquisition Bill-Will the Government Walk the Talk ?

Business Economics & Services Team (BEST)

 Land Acquisition Bill-Will the Government Walk the Talk?

At an Indo-US Infrastructure Summit held today, the Union Minister for Road Transport, Highways & Shipping waved a green twig to the US investors to focus on India, which according to him, will be  a win-win situation. Interestingly, the minister also  hit the nail on the grey areas that might ward off  the foreign investors. Important among them is the oft repeated restrictive provisions of the recently amended land acquisition bill, which has created a lot of consternation among various segments of the society, particularly industry.

The minister assured the US delegation attending the Summit that the government is seized up with the matter and a positive decision will be taken very soon. Experts feel that the minister’s assurance is an oversimplification of the complex process that is awaiting when the government gets into brass tacks for amending the law. Dissenting voices are aired freely even by certain segments of the ruling alliance against tinkering with the law. The reason is simple. Rightly or wrongly, the legislation has empowered certain sections of the stakeholders particularly the farmers whose lands were acquired for industrial purposes. They are backed by some of the very powerful  NGOs and in certain pockets by the banned naxal groups, who are known for their militant stand against liberalization policies.

Against this backdrop, the minister and the entire council of ministers should tread a careful line. The last regime-UPA-had amended the law primarily   on the assumption that it could bring them more votes. That backfired since the sins they had committed could not offset the sins against them. Interestingly, some of the past sins committed by the union government and some of the state governments cannot be wished away. They had acquired land on the promise that industrial clusters would be set up.  What that had happened was setting up of big satellite towns developed by big builders in connivance with the authorities. The farmers felt cheated.

The first thing that the government should do is to evolve a model acquisition guideline that can clearly protect the interests of the persons whose land is acquired and that protection should be in continuum and not a one-time payment.

The Minister also spelt out many schemes that the US would be interested in taking cognizance of while exercising their investment plans. One is roads, where the government is planning to build 30 kms a day, a herculean task, if achieved, will make India’s physical distribution the best in the world. The minister is willing to consider each project as a stand - alone one and will evolve separate strategies for making them attractive and give yield to the investors commensurate with their investment.   

In ports and inland water sector, the minister wants the US investment in building hovercrafts, catamarans, building of jetties. The government is chalking out ambitious plans to innovative facilities for tapping the growth potentials in the country.

The minister’s assurance that a model documentation for infrastructure projects will be evolved soon is a good augury since the present guidelines are inadequate, archaic and are heavily lauded against the investor.

What is important is the implementation and not rolling out the wish list. The minister knows it better than anyone else since he has to his credit the implementation of many important infrastructure projects while he was the PWD minister of the Maharashtra Government. He must be knowing what he talks.   

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China Pips the US. What it Portends?

                        Business Economics & Services Team  (BEST)                       


                                      China Pips the US. What it Portends?


 China has at last  piped the US as the largest economy in the world and India continues to be the third largest, retaining a position  that she has been maintaining for quite sometime. It is significant to note that the China's supremacy has come after the US reigning for long 142 years at the top slot. But what that has happened now is not the one that has come out of blue. It was largely expected, going by the efforts being made by China to close the ranks with the US. But that was expected by economists only by 2019. Now it has happened much before the expected time.
The recently released data by IMF, points out that in 2014, the Chinese economy  will  notch at  US$ 17.65 trillion, while the US economy will perform a shade lower than that at US$ 17.42 trillion. It was a  reversal of the performance of the two countries in 2013.  While the US maintained its lead at US$ 16.77  trillion, China came second at US$ 16.15 trillion.
What is significant is that in absolute terms both the economies have grown, but China's growth was more spectacular. What does it mean? There are many points that can be debated upon. One: is the China's spectacular growth sustainable? Two: how does it bring about shifts in the power equations among the comity of nations? Three: will China start asserting its hegemony on the rest of the world?

Clear cut answers for all these questions are near impossible. There are different shades of opinions on these issues. Many feel that it will  be a neck to neck race between the US and the China for the number one slot in the coming years since the margin of difference is in decimals. Many applauding the US economy says that  the beleaguered economy has long left its financial profligacy and has accepted sound economic principles. That is showing positive results in terms of containing its huge current account balance. That position is going to be consolidated in the coming years. Secondly, many believe that Chinese supremacy in technology is a mere hog wash. Its copy cat nature combined with an opaque system might be hiding many things. One has to go beyond the veil of secrecy to discern what is lying inside.  
But China has her own supporters who vouch for its technological supremacy. They quote the examples of Huawei, Haier, Xiaomi etc to drive home its solid technological strength, which is an important indicator to maintain the growth dynamics. Reverse engineering or copy cat syndrome is an abuse hurled upon China now by its detractors. Initially, they must have done that, when investment in R&D was beyond her means. Now its investment in R&D is huge. Many of the large corporations are investing between 10 to 14 percent in R&D. The success models of Huawei and Haier will motivate many more large and small Chinese corporations to invest in R&D.
Now coming to India, which has been holding consistently a third position for long, any vaulting in the pecking order is near impossible at least for the next ten years or so. But India also has a lot to cheer. Way back in 2000, it was ranked as the fourth in the pecking order below Japan, with a economic turnover close to US$ 1 trillion as against Japan's US$ 2.63 trillion. In 2013, India scaled high at US $ 6.78 trillion, while Japan's remained at US$ 4.67 trillion. Come 2014, India has upped its figure to US$ 7.28 trillion ahead of Japan's US$ 4.79 trillion. To push both China and the US to lower slots, India will have to grow at over 10 percent for the next 10 years or so, presuming that both China and the US will grow at a lesser pace on account of their large GDP base. Will it happen before 2050 or beyond that is the trillion dollar question?    

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Tailors & Cobblers Syndrome in Exports

Business Economics & Services Team (BEST)


                                        Tailors & Cobblers Syndrome in Exports

Not long ago, one of the noted industrialists had famously commented against a clarion call given by the government to industry to augment the exports from the country. His intemperate response was that industrialists were not tailors and cobblers to help the government to up the exports from the country. Admittedly, the main manufacturing products exported from the country were garments and shoe uppers and the industrialist was ostensibly got agitated at the government's indiscreet reference to bracket industrialists with the category of  low ended professions like exporting business. Even though that silly comment had  come  out from one of the most flamboyant industrialist of the time, who was well traveled, educated and one among the most anglicized men of that tribe, he could get away with that comment, apart from some angry commendations from media, government and the exporting community, who were terribly upset by his comments bordering apartheid. It was because it was a control raj and was in tandem with the widespread belief that export was untouchable to an established industrialist or a business house

At least, three decades had passed since that incident and the industrialist had long left his terrestrial existence. Has his dictum still hold good? Admittedly, it is a debatable point. One may easily dismiss  the  tailors and cobblers syndrome in exports these days. But  a deeper insight may provide enough inputs to a hypothesis that it is still continuing in a surrogate form or the other. Before we discuss this issue, let us differentiate between merchandize exports and services exports. When the famous lamentations were uttered, there was mostly one type of exports and that was merchandize exports. Services exports were Greek and Roman to most of the people except a few categories like tourism and manpower exports, the receivables under these categories were termed as invisibles and were not treated at par with mercantile exports.
Now, a total transformation has taken place with the software exports, which are counted under services exports. Many new companies have come up and they are known more prominently than the manufacturing industries in India. The brand values of the top 10 software export companies in India is perhaps higher than all the manufacturing companies put together.
Therefore, let us take these two types of exports separately and examine the efforts of the manufacturing companies towards augmenting India's exports. How many manufacturing companies take pride in achieving higher growth in the exports sector. We get to know about their profit margin, turnover growth, mergers and acquisitions and of late their corporate social responsibility. That does not mean that corporations are not exporting to other destinations. They are doing that and not as a part of their larger corporate game plan like the foreign companies are doing or what the Chinese are aggressively doing. China manufacturers for the world. EU does it for the world and the US, of late, after a bad current account crisis, has started focusing on exports. But where is India? How many Indian companies have a separate strategy for exports or a long term plan to capture a sizable market abroad
Exports are still being considered as an exclusive realm of .service providers, small and medium enterprises, and of course tourism and manpower exports that brings in hordes remittances. Nay, still the old abusive idiom of tailors and cobblers is seemingly fit into the scheme of things in India.
The government has unsuccessfully tried to shake off the stigma by coming out with newer plans and strategies. But they have failed miserably. We have created SEZs and similar zones in order to promote exports from the country giving the units several concessions. The recent findings of the Comptroller and Auditor General of India about the efficacy of such zones are depressing. According to its findings, the government had lost several thousand crores of rupees  by way of tax exemptions and there are instances when the units have come up in such enclaves only to corner the tax benefits and not to partake in the export drive from the country.
The latest thinking is that the entire country should be made an SEZ to pep up the manufacturing and exports from the country. In theory it is good and can  give  a leg up to both manufacturing and exports. But the trillion dollar question is how many large corporations will come out with an undertaking that they will use the facility and bring a qualitative change in India's export profile.                     

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Will the Ukraine Embargo on Russia help India?

Business Economics & Services Team (BEST)


      Will the Ukraine Embargo on Russia help India?

Next week, Russian strongman Vladmir Putin is visiting India. Scheduled immediately before the visit of President Obama, the grapevine in the diplomatic circles was it was a part of appeasement policy followed by India to gravitate towards both countries to fulfill its long term trade objectives. That is true to a very great extent. But the Ukraine spin might not have occurred to many. Russia is facing flak from the US and EU for its intervention in the Ukraine and the efforts to destabilize its  democratically elected government. The US and EU had retaliated by imposing economic sanctions on Russia, which appears to be emaciating its economic girth. Oil exports  from Russia has dropped considerably at a time when the prices of the liquid gold is poised to register a record low. This is a double whammy for Russia.

The other blow comes from its predominant position as an exporter of rough diamond.  Twenty-nine of the world's output of rough diamonds are mined in Russia. There has been concentration of  diamond trade in hubs like Antwerp, Belgium, Dubai and Hong Kong. Most of the world's  production of rough diamonds-roughly 85%- are imported into India for cutting and polishing and are being re-exported to various  destinations. With possibility of sanctions extending to an indefinite period looming large, Russia is looking for  alternate strategies for  roughing up the onslaught. One approach is to make India a trading hub in the same way as they do it in European countries.
There is a lot of merit in Russian thinking since it will cut down the killing made by the middle men sitting in European centers. It is a known fact a large number of   diamond traders in these centers are Indians or people of Indian origin. By value adding diamonds in India and re-exporting them to various destinations they avail a number of facilities. On the top of it, the skilled and cheap labor in India add to their profit.

Importantly, both Putin and Prime Minister Narendra Modi are attending the  World Diamond Conference, which will be held in Delhi next week.At the meeting Alrosa, a group of Russian companies engaged in diamond trade is expected to enter into long term contracts with Indian traders. If the deals go through, India will be able to import directly diamonds from Russia, without the medium of middlemen. That will cut the cost of imports considerably. In the long run, this development will have greater ramifications for the diamond trade. The Indian or people of Indian origin middlemen will migrate from European centers to India and set up their businesses from Indian shore denying these countries the revenue they earned from diamond trade. Second, India will gradually export the diamonds to the end destinations bringing up a lot of foreign exchange resources  into India.
But these are propositions easier said than done. Some of the world's known companies in diamonds like De Beers, Rio Tinto etc. have a vested interest in diamond trade. They have established trade routes, which will be impossible to penetrate. In their scheme of things, Europe can be the trading route and India can be the traditional hub for low end cutting and polishing.  They are supposed to put a lot of pressure on Putin administration and the western countries not to bring diamonds into the sanction's purview.
The other eventuality is the length of  sanction period itself. Steadily declining oil prices is casting a shadow on oil producing non - OPEC countries like Venezuela, Iran, Iraq etc. along  with Russia. How long the Russian Federation will withstand the onslaught is a trillion dollar question. Once the sanctions are lifted, the trade route will be restored.

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Five Fault Lines That Decided Against Rate Cut

Business Economics & Services Team (BEST)


                                              Five  Fault Lines That Decided Against Rate Cut
Despite the heavy pressure exerted on RBI Governor Rajan through multiple channels, it goes  to his credit that he stood the ground and refused to go for a rate cut. BEST has undertaken a quick survey as to what were the reasons for that bold decision, collating opinions from, economists, bankers, policy  experts, business men and common man. The results are as follows.
1. Unabated fiscal deficit.
Many thought that the RBI Governor has sounded alarm bell to the government and others about the precarious fiscal deficit, which is threatening to go beyond control. Already, the projected fiscal deficit for the current financial year has crossed 90% of the allowable limit set. The grandiose programs launched by the government such as Swatch Bharat (clean India), Jan Dhan (financial inclusion), cleaning up of rivers and importantly the report of the next pay commission will  entail huge expenditure in the coming months further straining the fiscal deficit.
2. Increase in  the non-performing assets of the public sector banks is a matter of great concern. There  can be two views on the issue. One, further blocking of the credit to the industry can turn more accounts into non-performing since many of them are held up for want of finance at reasonable rate for implementation. The other view is that many of the projects have gone haywire on account of the mismanagement and there is no guarantee that further infusion will help in achieving a U-turn in the trend. Rather, there is no checks and balance in place to prohibit diversion of funds from project funding to speculative purposes or non productive works. The controversy around sanctioning of a loan in principle to one of the controversial  corporations, heavily steeped into indebtedness, to the extent of one billion dollar from a PSU bank have invited severe criticism.
3. The price level is still overheated though the statistics doled out hid some of the realities on the ground. Food inflation is ruling very high with an unprecedented fluctuations in the prices. For instance, on a year to year basis, almost all food items have shown an upward spiral in prices. A case in point is cauliflower, the price of which used to be hovering around Rs 8to 10 a kg  in this season, is being sold out over Rs 20 in some markets on an average. Daily fluctuations  in prices is also significant. Today, the prices of cauliflower scled to Rs 30 in the Safal outlets, which is a state run retail outlet. The prices charged by the vendors will be several percentage more than this. Equally significant is the steep increase in prices of medicines including life saving ones on account of taking them out from the purview of administered price.
4. Despite heavy cuts in the oil prices, foreign exchange segment seems to be in a stand still. Further, gold import rules were relaxed to bring down the prices during the marriage season. But foreign exchange outgo on account of that is more offsetting the likely gain from the cut in oil prices. This shows that there is a huge pend up demand  for imports  particularly consumer items. Also, with lesser foreign exchange  outgo, rupee should have been stabilized against dollar. But that is not happening. Also, the lackluster performance of the export sector, despite the slow recovery of the US economy and standstill of the EU economies is a matter of concern.
5. Though a a government with a clear mandate has been elected to power, the policy framework seems to be seethed in the old mold. The government has completed already six months in office, a reasonable length of time to show some results in all fronts. But at the ground level,  many of these policy initiatives have yet to show results.
  

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