India emerged as the biggest job creator among the Bric nations; Forex reserves are up... read it all...

Weekly reports on Indian economy and business

• Government Policy & Infrastructure
• Manpower & HR
• Agriculture
• Economy
• International
• Banking & Finance

This week seems to record all things wise and wonderful in India. India emerged as the biggest job creator among the Bric nations; Forex reserves are up, inflation is down, India Inc is tapping the primary market more than ever, M&As and cross-border deals abound…..need we say more? Read on about India Shining!

- Chillibreeze Business Research Team

Government Policy & Infrastructure

PM for easier capital access to SMEs

A sensible policy framework must address the issue of market imperfections that put small enterprises at a competitive disadvantage vis-à-vis large enterprises, said the Prime Minister, Dr Manmohan Singh, speaking at the Small & Medium Enterprise awards function organised by CNBC TV 18 here on Friday.

"In particular, our financial system must be adequately sensitive to the capital needs of small enterprises. I will request the Finance Minister to look at possible ways for expanding access to capital — in particular, risk capital — to SMEs," said Dr Singh.

Noting that the boom in many parts of the IT sector is a result of easy access to foreign venture capital, he added, "The Government is committed to the growth of SMEs and to the emergence of new enterprises in India. We have passed the Micro, Small & Medium Enterprise Development Act to promote the growth of SMEs. We have announced a policy package for doubling credit flow to this sector.

"We also need a policy regime that can enable SMEs to make a smooth transition to a larger scale without unnecessary impediments," he added. "Lack of technological upgradation and shortage of skilled manpower can be constraints on the growth of this sector. Our Vocational Education Mission, which will be operationalised soon will address part of the problem. The massive investments we are making in education will certainly relax the labour constraint."

Taking a wider sociological view, SMEs have proved to be the largest creators of employment opportunities, he said: "They account for more than one-third of our manufacturing output and exports. They will be the best bet for the future in creating more and more employment opportunities that are essential if we have to reduce the proportion of our population dependent on agriculture."

June 23, 2007
Source: The Hindu Businessline

PSUs will find their real worth on Street, says FM

Finance minister P Chidambaram on Friday said that public sector companies should be encouraged to list on stock exchanges to unlock their full potential. Addressing a function held to confer Navratna status on three PSUs, he also said the public sector enterprises should be eventually given autonomy to fix remuneration based on performance of employees.

“Ultimate unlocking of public sector enterprises’ potential should be realised by listing on stock exchanges,” he said.

The government conferred Navratna status on Bharat Electronics (BEL), Hindustan Aeronautics (HAL) and Power Finance Corp (PFC). The PSUs will now be able to enter joint ventures both at home and abroad, which can be up to 15% of their net worth or Rs 1,000 crore, whichever is lower, without the government’s permission.

June 23, 2007
Source: The Economic Times

Plan panel may soon submit views on Deepak Parekh report

The Planning Commission is expected to soon submit to the Finance Ministry its views on the recommendations of the final report of the Deepak Parekh committee on infrastructure financing.

Similarly, the Reserve Bank of India, Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) are also likely to provide their comments on the report. Official sources said that the Finance Ministry has circulated the recommendations to the Planning Commission, RBI, SEBI and IRDA for their comments.

Asked to comment on the recommendations made in the final report, Mr Montek Singh Ahluwalia, Deputy Chairman, Planning Commission, told Business Line that "Planning Commission would soon submit its views on the final report to the Finance Ministry".

Although the private sector wants to invest in infrastructure, the requirement of long tenor debt remains a constraint. Given the inability of Indian banks to lend long-term, there is a felt need to deepen the Indian debt market so that risks are diversified and more long-term funds are mopped up from this market.

The seven-member Deepak Parekh committee, which submitted its final report to the Finance Ministry in end-May, has pegged the infrastructure-spending target at $475 billion for the next five years, much higher than the $320-billion estimated earlier by the Government. One of the committee's recommendations is to use a small part of the foreign exchange reserves for financing infrastructure.

June 23, 2007
Source: The Hindu Businessline

Govt plans to tweak FDI norms to check franchisee pacts

Premium brands — the likes of Chanel, Hugo Boss or Ferragamo —may find it harder to reach wealthy Indian consumers. The government is formulating a new policy on franchisee arrangements between Indian companies and overseas partners with the aim of plugging ‘loopholes’ in the country’s foreign direct investment (FDI) regime. The proposed policy may hamper franchisee arrangements in the case of sectors which do not permit foreign investment through the automatic route, according to official sources.

“The restriction on ‘retail trading’, in the form of permitting 51% only in single-brand retail can easily be flouted by following a franchise route, as can be inferred from the ongoing discussion on the Wal-Mart-Bharti retail tie-up. Hence the issue of franchise in the activities not permitted on automatic route should be debated and a conscious decision should be taken by FIPB,” says the agenda note prepared for FIPB. Several key areas, including retail, are not on the automatic route. The Foreign Investment Promotion Board (FIPB) is scheduled to consider the matter on Friday.

June 22, 2007
Source: The Economic Times

Retail licence or retailing corruption?

According to news reports, the government is considering introducing licensing in the retail sector to protect the small retailer. If this does indeed happen, then it would be tantamount to the government giving a raw deal to the majority (in this case the consumer) in trying to pander to the interests of a minority, namely the small retailers.

The policy will attempt to stymie big retail by giving local municipal corporations the right to decide where in the city they can set up shop. The apparent reasoning being that this will prevent big retail from setting up shop in areas dominated by small retail and thereby ensuring the survival of the latter. This, policymakers argue, is important because a number of people employed in small retail could lose their jobs if small retail fails to survive.

While small retailers do provide a substantial number of people with employment they are not exactly altruists. For years, small retailers have been selling goods over MRP, creating artificial shortages by hoarding and adulterating basic commodities.

As for the municipal authorities, as can be seen by the recent sealing drive in Delhi, it is clear that they have no compunction about granting licences depending on the quantum of the ‘facilitation fee’ paid to them.

So what then can the government do to protect small retail? The honest answer to that is, nothing. The reason for that quite simply is to benefit a million shopkeepers the government has no business in depriving hundreds of millions of Indians of a lower price point. Secondly, even if areas were segregated consumers could decide that the extra effort to go and shop at big retail is worth it. What then? Would the government then impose a tax on big retail and drive prices up?

June 19, 2007
Source: The Economic Times

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Agriculture

Paying the price of healthy environment

Use of bio-fuels may be a good idea to help protect environment, but it is putting pressure on consumers' budget by driving the prices of agricultural products and food items to higher levels, a new study says.

Bio-fuel is already taking its toll on food price inflation in the global market and the impact would soon start reflecting into the Indian markets, analysts at the research arm of international banking major Citigroup said in a report. "The growing use of bio-fuels has a serious disadvantage: it is driving up the prices of agricultural commodities and thus taking its toll on food price inflation," it said.

The prices of corn and wheat, the key raw material for ethanol, have already reached their highest levels in over a decade this year. "This is despite expectations of strong global grain production in FY08 which in turn has impacted prices of processed goods," the report said.

To minimise the domestic impact of rising global prices, India would need to enhance agricultural production and productivity, the analysts suggested.

Bio Fuels are fast-becoming a substitute of petroleum as transport fuels. Faced with the challenge of growing energy dependence and curbing green house gas emissions (GHG), a number of countries have begun to implement the use of alternative fuel sources.

Many countries, including Brazil and the EU, provide subsidies to their farmers to encourage them grow crops that will aid the development of alternate fuels. These countries have also imposed regulations requiring a shift towards greener fuel.

The European Union recently directed member countries to use 10 per cent bio-fuels for transport by 2020, while the US aims to use 132 billion litres of bio-fuel by 2017, it said, adding that EUs new regulations would require the entire regions' rapeseed oil production as feedstock.

However, taking a cue from developed countries, the government in India also proposed a rise in ethanol blend with petrol to 20 per cent by 2012, though there is little progress on this front as of now. Oil and sugar companies have failed to arrive at a consensus on pricing, it said.

India also proposes to use bio-diesel produced from jatropha which is grown on waste-lands, the report said.

June 20, 2007
Source: The Economic Times

Farmers demand horticultural lab, cold storage

The fruit and vegetable growers on Monday demanded for setting up an agricultural and horticultural laboratory and a cold storage on the premises of fruit market as they are facing problems.

Maraz Fruit and Vegetable Growers Association, a representative body of fruit and vegetable growers of Pulwama district, today urged the authorities to set up an agricultural and horticultural laboratory within the premises of fruit market for which they would bear the price of the land.

In a memorandum submitted to the District Development Commissioner, chairman of the association Qazi Mohammad Amin said that they was ready to pay for the land in the vicinity of the fruit market at Pulwama.

They also demanded for setting up of cold storage system for fruits and vegetables to help the farmers. In the absence of these facilities, the farmers are facing difficulties, Amin said.

June 18, 2007
Source: The Economic Times

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Manpower & HR

Labour squeeze hurts India Inc

Company managers and housewives have a common grouse: They are not able to get the kind of workers they want at the salaries they are prepared to pay. Even if they manage to find the workers — assembly-line employees, clerks, engineers, software programmers or whoever, in the case of company managers, and maids or cooks in the case of housewives — the salaries are higher than ever before though their skill levels call for far longer training than earlier.

Companies are now worried that this shortage in employable graduates will stymie the India growth story, at a time when more industries are looking to shift to cheap production destinations. Industry representatives say that they started feeling this crunch in the availability of workers more than two years back. It is also then that industry bodies started talking about the situation and drew up skill development plans jointly with member companies.

"We have always thought that we have a billion people and somehow we will figure this (availability of workers) out," says Mr B. Santhanam, Managing Director, Saint-Gobain Glass India Ltd. "What was happening was that we were using up our internal resources. But you actually don't realise that at some point in time your growth is going to be limited by human capacity as much as physical capacity," says Mr Santhanam, who has studied the gradual tightening in the labour supply market.

The combined hiring by the IT/ITES and manufacturing sectors resulted in this labour squeeze. As a result of this, companies started hiring outside their regular area — or, as they describe, from second rung educational institutions in the cities and from Tier II and III towns.

With the size of the talent pool itself increasing dramatically there was bound to be a quality problem, leading to more noise being made about the employability of graduates — both technical and from the arts and science streams — and the lack of soft skills in them became even more glaring.

As Mr T. V. Mohandas Pai, Director (Human Resource), Infosys Technologies Ltd, points out, the problem of employability of graduates and lack of soft skills has been there for some time now, but has "gotten worse because of the increasing hiring and also lack of good faculty."

All this has meant that the industry, be it manufacturing or the IT, has had to spend more time and money on training their recruits (more of that next week). But with no guarantee that the recruits will stay long enough with the company to even justify the cost of the training. But that is a risk the companies have, and are willing, to take.
Most companies have found one way out — outsource their non-core activities such as utilities and facilities management and logistics though they still may have to train the employees performing these non-core activities.

June 23, 2007
Source: The Hindu Businessline

India’s biggest job-creator among Brics

India may be lagging behind China in terms of economic growth or becoming a global manufacturing hub, but it has outpaced the communist giant in creating the maximum number of jobs among the Bric nations.

The Organization for Economic Cooperation & Development (OECD) in its Employment Outlook 2007 report released on Tuesday said India, the world’s second-fastest growing economy after China, generated more than 11 million new jobs every year during 2000 and 2005 — higher than Brazil, Russia and China.

The four countries together created over 22 million net new jobs on an average per year during 2000 and 2005, which is more than five times the net employment gains recorded in the OECD area as a whole over the same period.

India generated 11.3 million net new jobs per year on an average during this period, higher than 7 million in China, 2.7 million in Brazil and 0.7 million in Russia. In contrast, the average was 3.7 million in the OECD area as a whole. Paris-based OECD comprises 30 developed countries including the US, UK, France, Germany and Japan.

June 20, 2007
Source: The Economic Times

Super-star CEOs are out; inclusive in

Imperial, super-star CEOs are out. Inclusive CEOs are in. Hiring CEOs from outside is a passe. Developing and grooming in-house CEOs is the new flavour. Management by consensus is now giving way to encouraging constructive disagreement.

In a rapidly changing corporate world, constantly under intense board and media scrutiny, it is not just the companies who are changing. The CEOs as a breed too are evolving to keep pace, reveals the sixth Booz Allen Hamilton CEO turnover study.

The study explores the emergence of a more demanding environment for CEOs and boards by examining the linkages between CEO tenure and corporate performance, comparing CEO turnover in major regions and industries. The survey was carried out among the world's 2,500 largest publicly traded firms.

What clearly emerges is that CEOs globally are under tremendous pressure. According to the study, in 1995, one in eight departing CEOs left involuntarily. In 2006, it was nearly one in three. Almost 32% of departing CEOs in 2006 were forced to resign on account of either poor performance or disagreements with the board.

Between 1995 and 2006, the annual turnover of CEOs across the globe increased by 59%. During the same period, performance-related turnover — cases in which CEOs were pushed out — increased by a whopping 318%.

Further, what is also apparent is that boards are focusing more on grooming in-house leaders and turning to outsider CEOs less often as outsider results continue to disappoint.

What does an inclusive CEO imply. That he must be willing to engage in dialogue with investors, employees, and government; to surround himself with managers and advisors who complement his own capabilities; and to maintain transparency in his communications about financial results and compensation. Their ability to balance multiple and at times contradictory interests - the interests of active institutional shareholders like hedge funds and buyout firms, for example against those of other investors.

What also clearly emerges is that CEOs globally are under tremendous pressure. According to the study, in 1995, one in eight departing CEOs left involuntarily. In 2006, it was nearly one in three. Almost 32% of departing CEOs in 2006 were forced to resign on account of either poor performance or disagreements with the board.

Between 1995 and 2006, the annual turnover of CEOs across the globe increased by 59%. During the same period, performance-related turnover — cases in which CEOs were pushed out — increased by a whopping 318%.

June 19, 2007
Source: The Economic Times

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Economy

Forex reserves up by $1.46 b

The country's foreign exchange reserves rose $1.468 billion to $211.015 billion in the week ended June 22 mainly due to the RBI's intervention in the forex market.

The reserves had increased by $1.174 billion to $209.547 billion in the week ended June 8.
The foreign exchange kitty has seen accretion to the tune of $7.028 billion in four consecutive weeks.

Foreign currency assets rose $1.469 billion to $203.646 billion, according to RBI's Weekly Statistical Supplement. Treasury officials said the RBI had continued to intervene in the forex market last week to rein in the appreciating rupee. Market participants expect the RBI to continue intervening in the forex market and prevent the rupee from appreciating below 40.50.

June 23, 2007
Source: The Hindu Businessline

India Inc raises Rs 30k cr via primary market in Q1

India Inc has raised more money from the capital markets in the first six months of 2007 than it has in any single year since 1998. According to Prime Database, Rs 30,914 crore has been raised in April-June 2007, surpassing the Rs 30,510 crore mopped up in 2004.

Unlike 2004, when PSU disinvestment in the first half of the year had fuelled the primary markets, this time its India Inc’s demand for capital that is leading to fund mobilisation. While DLF and ICICI have been the big issuers of equity this year, in all 57 public issues have been floated during the year.

Driven by the need to fund both domestic growth and foreign acquisitions, Indian companies are raising record amounts of capital, say experts. “Besides organic growth, large cross-border M&A deals are increasing Corporate India’s demand for capital. Also, serious asset creation is currently happening in India. Infrastructure funding is also fuelling large demand for funds by Indian companies,” said Citigroup Global Markets managing director, Ravi Kapoor.

There is a robust pipeline of issues slated to hit the market in the second half of the year. This includes Coal India’s Rs 3,000-crore issue, Puravankara Projects’ Rs 1,300-crore issue, Omaxe’s 1,400-crore issue and IVR Prime Urban Developers’ Rs 800-crore issue.

Besides public issues in India, experts say Indian companies are also tapping the international markets for raising money.

“With the existing interest rate regime in India and the benign dollar-rupee rate, the demand for external credit borrowings will only increase in the next few years. The growth could be as high as 50% over the next 2 years,” said ABN Amro’s country corporate and investment bank head Brijesh Mehra.

June 23, 2007
Source: The Economic Times

Inflation eases to 4.28%

Inflation eased to 4.28 per cent for the week ended June 9, as compared to 4.80 per cent for the previous week, mainly due to lower prices of food articles and some manufactured items.

The wholesale prices-based inflation stood at a much higher level of 5.29 per cent in the corresponding week a year ago. Among the food articles, prices of pulses, cereals, wheat, fruits and vegetables and fish-marine witnessed a decline while condiments and spices moved up.

In the manufactured items, prices of khandsari and soyabean oil came down, while sunflower oil, vanaspati, imported edible oil became dearer

June 22, 2007
Source: The Economic Times

Expat execs at home in India

Cutting their teeth in fast-growing and highly-challenging markets such as India and the Asia-Pacific region is fast becoming a vital shortcut for ambitious managers at transnational firms. That’s not all. Most expatriate managers who initially plan to be here in India for a year or two, end up staying on much longer given the richly rewarding experience of setting up a subsidiary from scratch and growing it at a an enviable clip.

The mid-to senior-level managers who took the risk of coming to the little-known market less than a decade ago now wield considerable influence in the parent company. Think Scott Bayman of GE whose 15-year stint in the country came to an end this month when he retired, or Kwang-Ro Kim, the former MD of LG Electronics India who rose to become one of the top-five executives at the consumer electronics giant after spending 10 years in India taking the company to the leadership position in almost every consumer durable category.

Take the case of Frenchman Thierry Cros, MD, Seco Tools India, manufacturer of carbide cutting tool, who came to India as VP marketing, seven years ago. The company moved on from becoming a JV to a wholly-owned subsidiary of Seco Tools AB, the Swedish company, and Cros too decided to stay put as its head.

According to Cros many of his current and former colleagues whose careers seem to be stagnation are looking to take a leaf out of his book by seeking a posting to markets such as India. The reasons are only too obvious. As the more developed economies are growing at a snail’s pace and salaries are booming in India, the choice is not so difficult anymore.

Arnold Camelbeke, a Belgian, and managing director, Bekaert India, a wholly-owned subsidiary of the Belgian major, NV Bekaert SA, over Euro 2 billion manufacturer of steel cord for radial tyres, has been here for 11 years, after having set up operations in China. Pointing to the advantages of a longer tenure, Camelbeke says: “India is still a hardship posting: look at the roads, power, water and other infrastructure issues. But, staying here for a long time helps to learn how to cope with all this and readies you for any challenge in the future.”

Traditionally, international companies have been recalling their expat managers after a three year tenure in India. Owing to the fast growing strategic importance of India both as a market and as a global base for product development, sourcing and manufacturing, large companies are now looking for executives to stay for at least five years.

Interestingly, as the expat clusters grow, it has a positive effect on the local infrastructure. For example, when DaimlerChrysler came to India in 1994, they found that its 20-odd expat execs needed a school for their children. So, the company helped set up Pune’s first International Baccalaureate (IB) school, used by children of not just of expatriates but locals as well. The same goes for restaurants, hospitals and sundry services.

June 19, 2007
Source: The Economic Times

'Mfg sector to create 1.6 mn jobs annually'

With the country's manufacturing sector likely to witness an annual growth rate of 12 per cent till 2010, an additional 1.6 million jobs will be created in the segment every year, Minister of State for Industry Ashwani Kumar said.

"The manufacturing sector in India is likely to grow by 12 per cent per annum by 2010 which could generate additional 1.6 million jobs every year," Kumar said at the UBS CEO Forum in Florence, Italy on Sunday.

Kumar said of the total 550 billion dollars required for infrastructure development in India in the medium term, about one-third resources could be obtained through FDI.

He added that the SEZ policy was being fine tuned to ensure transparency and more employment opportunities for those displaced due to developmental projects.

Speaking at a session on 'Rapid emergence of India and China as global economic powers and their impact on the developed world', Kumar said growth in emerging economies has had a positive effect on consolidation of developed economies by spurring demand and supply, ensuring economies of scale, increasing global labour force and coherence in the global development agenda.

"Embracing of market economies by India and China will make possible the emergence of an international treaty based regime toward a fully integrated global economy," he said adding that investors should acknowledge resilience of India's democratic institutions as its strength

June 18, 2007
Source: The Economic Times

Prices rising faster than we think

It could be too early to rejoice over the falling inflation rate, which eased to 4.80% as of June 2. An analysis of government data reveals that the Wholesale Price Index (WPI), the main measure of inflation, was revised upward in final figures compared to provisional estimates in as many as 50 out of 54 weeks between April 1, 2006 and April 7, 2007.

The latest provisional inflation data was released on June 15, which showed the WPI index rose by 4.80% for the week ended June 2. But final figures released on the same day pertains to the week ended April 7, which showed inflation actually stood at 6.44% instead of 6.09% given in the provisional data. Going by this trend, inflation rate for the week ended June 2 may actually be higher than the provisional estimate of 4.80%.

This will only be known when the final figures are released in August. During 1-year period from April 1, 2006, inflation hit a peak of 6.69% for the week ended January 27, 2007 and the lowest level of 3.70% in the week ended April 15, 2006.

June 18, 2007
Source: The Economic Times

India's outbound FDI may touch $ 35 bn

Creating perhaps a record of sorts, the country's total outbound foreign direct investment (FDI) in 2007 may exceed the target of $ 30 bn for inbound FDI in fiscal 2007-08, a study said.

"For Indian corporate sector, 2006 was a watershed year in terms of mergers and acquisitions as Indian companies went shopping across the globe. The total outbound deals, which were valued at $ 4.3 bn in 2005, crossed $ 15 bn-mark in the following year and it could well breach the $ 35-bn level this year," the report by Ficci and Ernst and Young said.

The report on 'Direct investments in the Unites States of America by Indian enterprises' also revealed that Indian companies invested over $ two bn in 2006-07 in 48 deals with the US counterparts.

"IT and ITeS have emerged as the front-runners in outbound investment from India to the US, accounting for 48 per cent of the total 48 deals worth over $ two bn in 2006-07," the report said.

Top three of the 48 deals are Tata Tea's $ 677 mn acquisition of Energy Brands Inc, OVL's Omimex de Columbia takeover for $ 425 mn and Tata Coffee's $ 220 mn deal with Eight O'Clock Coffee Company. However, the Tatas later sold its 30 per cent stake in Energy Brands Inc to Coca-Cola for $ 1.2 bn.

Besides the bigger deals, small and medium enterprises also made acquisitions in areas like IT, ITeS, pharma and healthcare, irrigation, electricals, automotives, textiles, telecom, paint, paper and gems and jewellery.

June 17, 2007
Source: The Economic Times

SEZs

Ambanis' zones among 36 SEZs cleared

A total of 36 special economic zones (SEZs) were given a formal go-ahead by the government on Friday, including three in Navi Mumbai promoted by Reliance Industries chairman Mukesh Ambani and an 18-hectare IT SEZ at Dhirubhai Ambani Knowledge City in Maharashtra promoted by Anil Ambani group’s Reliance Infocomm.

The board of approvals (BoA) also accorded in-principle approvals to nine SEZ proposals which are yet to acquire land. BoA chairman GK Pillai informed all members that the state governments have been informed that that they could undertake acquisition of land for SEZs only when “100% of owners” give their consent. If any proposal for compulsorily acquired land comes up, the same would not be notified as SEZ.

While the fate of the 1,250-hectare multi-product SEZ in Navi Mumbai promoted by Mukesh Ambani remains uncertain due to contiguity factors, formal approval was given to three adjoining sector-specific SEZs covering an area of 345 hectares.

Of the seven cases deferred, two proposals for multi-product SEZs came from Skill Infrastructure. The clearance could not be given as they did not meet the net-worth requirement. A total of 339 SEZs have received formal approval so far of which 126 have been notified. In all, Rs 35,145 crore has been invested in these zones which have created 32,578 direct jobs.

June 23, 2007
Source: The Economic Times

Industrial zone planned in 9 SEZ villages

The Maharashtra government’s special land acquisition officer has recommended the removal of nine villages from the list of 45 earmarked for setting up the Maha Mumbai SEZ.

The official has contended that these villages have already been reserved by the government, in 2003, for a township and an industrial zone, and substantial investments have already been made for these purposes.

The officer’s report, a copy of which is with ET, states that large parts of land in these villages have been mortgaged to raise money for various industries. The report was submitted to the state revenue department in the second week of May.

The Maha Mumbai SEZ is promoted by the Reliance group. When contacted, the company spokesperson refused to comment.

June 18, 2007
Source: The Economic Times

'No forcible eviction from farmland for SEZs'

Displacement of people from land sought for special economic zones (SEZs) will be purely voluntary and no forcible land acquisition will be made, Rural Development Minister Raghuvansh Prasad Singh has assured.

Singh, whose ministry has a draft rehabilitation package ready for people who are displaced from their farmland to make way for SEZs, also assured that the compensation in such cases would be attractive and offered before acquisition.

Piloted by the rural development ministry, the government proposes to enact a new law - Resettlement and Rehabilitation Act - and the relevant bill is being examined by the law ministry. The government also proposes to amend the Land Acquisition Act to give the new law an overriding effect over the Land Acquisition Act and the Special Economic Zone Act.

The concept of SEZ, seen as a prime mover of the Indian economy, came under criticism after farmers opposed forced land acquisitions for such projects at many places across the country, especially in Nandigram in West Bengal where 14 people were killed in police action against protestors March 14.

June 17, 2007
Source: The Economic Times

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International

India's investment in US surpasses $2 bn

Indian companies invested over $2 billion in the US in 2006-07 and completed a total of 48 deals with the firms there, says a report.

The IT and ITES (IT-enabled services) industries have accounted for 48 percent of the 48 deals, including mega deals taking place in other sectors such as pharma, hospitality, agro products and automotive industry among others, according to a study jointly done by the Federation of Indian Chambers of Commerce and Industry (FICCI) and global professional services firm Ernst & Young.

Indian outbound deals crossed $15 billion in 2006 and it is expected that by 2007 the value could surpass $35 billion. Also, during the first nine months of 2006, Indian companies have announced 115 foreign acquisitions worth $7.4 billion, a seven-fold increase since 2000.

According to the report, the companies that have clinched the top five deals during the period are Tata Tea, ONGC Videsh, Tata Coffee, Indian Hotels and HOV Services.

It also stresses on the fact that Indian investments abroad are not always done by large business conglomerates but are largely driven by several of Indian small and medium enterprises.

One of the main factors that have acted as a catalyst for such enormous deals is the growing confidence among Indian companies coupled with the willingness to take risk. Also, India Inc is now well-equipped to acquire overseas companies because of the regulatory development that has taken place due to the government's liberal measures and various monetary relaxations provided by the Reserve Bank of India (RBI) with the growth of foreign exchange.

In the BPO (business process outsourcing) space, the report said, Indian companies are now increasingly opening up units in the US providing opportunities of large-scale employment there, giving rise to a 'reverse outsourcing' trend.

June 17, 2007
Source: The Economic Times

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Banking & Finance

Quasi regulator as friendly banker

The entry of private and foreign players in the banking industry may have increased competition in the sector and led to improved services in areas like technology but customer satisfaction is still a far cry. Besides, there’s often a glaring difference in the treatment meted out to corporates or large borrowers compared with individual depositors.

But there’s some good news for the common man. An independent watchdog other than RBI namely the Banking Codes and Standards Board of India (BCSBI) is taking steps to ensure that the customer, especially the common man, gets the service he is promised by banks.

BCSBI, a quasi-supervisory and quasi-regulatory body funded by RBI, is mandated to increase the compliance of banks with a set of voluntary codes which are broadly on the lines of the UK’s Banking Codes and Standards Board. The idea is to bridge the institutional gap for measuring the performance of banks against a benchmark reflecting the best practices. “The main function of a central bank is financial stability. Regulators worldwide do not directly get into the role of redressal of grievance. Hence, the need for an independent watchdog,” says KV Subba Rao, BCSBI CEO.

The difference between Banking Ombudsman and BCSBI is that while the former is a redressal mechanism to attend to disputes between banks and its customer as well as attend to individual complaints relating to deficiencies in banking services, the latter’s task is to oversee compliance with Code of Bank’s Commitment to Customers. BCSBI can look into individual complaints only to the extent that it points to systemic failures in compliance with the code.

The code represents each member bank’s commitment to minimum standards of service to individual customers in relation to products and services offered by the bank under broad areas of deposit accounts, safe deposit lockers, foreign exchange services, remittances within India, loans and advances and guarantees, credit cards, Internet banking, interest rates, tariff schedule, privacy issues, etc.

June 18, 2007
Source: The Economic Times

Govt to seal Rs 40k cr RBI buyout in SBI

The government will soon bring in an Ordinance to enable the buyout of RBI’s stake in State Bank of India. It plans to complete the Rs 40,000-crore transaction by the end of this month.

“The Ordinance, relating to amendments to the State Bank of India Act, 1955, would enable the transfer of RBI’s shareholding in SBI to the Centre,” information and broadcasting minister PR Dasmunsi told reporters after the Cabinet meeting here.

The Ordinance will be promulgated to enable the government to buy the stake before June 30, when RBI concludes its financial year.

Officials said the Rs 40,000-crore payout to RBI will not affect overall liquidity. The amendments to the SBI Act 1955, pending in Parliament are independent of the Ordinance.

There is no provision in the SBI Act to enable such a transfer. After the RBI stake sale, government will hold 59.73% in SBI. And once the SBI amendment Bill is passed in Parliament, it can reduce its holding from 59.73% to 51%. At present, RBI’s stake in SBI cannot fall below 55%.

June 18, 2007
Source: The Economic Times

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