India’s property market is poised for a correction and residential property rates will have to drop by up to 30% in some geographies for affordability to catch up, according to a Goldman Sachs Economic Research report released on Monday.
However, such a fall could trigger significant negative effects on the economy with construction, consumption and investment taking a hit. Related industries such as steel and cement on the backend, and hotels, trade and transport on the front-end will be impacted, it said.
Income growth will fall, reducing demand for housing as the economy continues to slow due to the knock-on effects of the global financial crisis, lowering demand for real estate.
Besides income growth, demographics, interest rates, inflation and expectations of future projects affect demand. Commercial real estate demand will also take a beating due to the slowdown in IT and business process outsourcing (BPO) sectors, it said.
A fall in collateral will hurt firms’ balance sheets, increase funding costs, hurt confidence and reduce investment demand.
However, India’s favourable demographics, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the property downturn from being protracted, it said.
Tuesday, November 25, 2008
The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
House prices in 20 U.S. cities declined in the year ended in September at the fastest pace on record as rising foreclosures pushed down property values.
The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
Mounting foreclosures are contributing to the drop in home prices, while adding to the inventory of unsold homes on the market. Lower property values are weighing on household wealth, causing consumers to cutback on spending and increasing the likelihood that the U.S. economy will contract for a second consecutive quarter.
“Price declines have already led to considerable improvements in affordability, but more foreclosures and an inventory overhang will keep depressing prices,” Abiel Reinhart, an economist at JPMorgan Chase Bank in New York, said before the report.
Home prices decreased 1.8 percent in September from the prior month after declining 1 percent in August, the report showed. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
GDP Declines
A government report showed the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department today in Washington. The government’s advance estimate issued last month showed a 0.3 percent decline.
S&P/Case-Shiller also released quarterly figures for nationwide home prices. That measure showed a 16.6 percent drop in the three months through September from the previous three months, compared with a 15.1 percent drop in the second quarter.
Economists forecast the 20-city index would fall 16.9 percent from a year earlier, according to the median of 28 estimates in a Bloomberg News survey. Projections ranged from declines of 16 percent to 17.2 percent.
Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in September, led by a 31.9 percent drop in Phoenix and a 31.3 percent decline in Las Vegas.
Downward Pressure
“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its fundamentals,” David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Reports this month showed mounting foreclosures are pushing prices down and hurting demand. Existing home sales, which account for about 90 percent of the market, dropped in October and prices fell by the most on record, the National Association of Realtors said yesterday.
The median price of an existing home plunged 11.3 percent in October from a year earlier and fell to the lowest level since March 2004, according to the Realtors.
Sales of distressed properties accounted for 45 percent of last month’s total, up from about 40 percent in September, the agents’ group also said. Foreclosure filings were up 25 percent in October from a year ago, according to RealtyTrac Inc., the Irvine, California-based seller of default data.
The drop in home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy until the home sales and prices improve.
D.R. Horton Inc., the largest U.S. homebuilder, reported its sixth straight quarterly loss today. The Fort Worth, Texas- based company said orders fell 38 percent while the cancellation rate was 47 percent.
The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier, more than forecast, after a 16.6 percent decline in August. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
Mounting foreclosures are contributing to the drop in home prices, while adding to the inventory of unsold homes on the market. Lower property values are weighing on household wealth, causing consumers to cutback on spending and increasing the likelihood that the U.S. economy will contract for a second consecutive quarter.
“Price declines have already led to considerable improvements in affordability, but more foreclosures and an inventory overhang will keep depressing prices,” Abiel Reinhart, an economist at JPMorgan Chase Bank in New York, said before the report.
Home prices decreased 1.8 percent in September from the prior month after declining 1 percent in August, the report showed. The figures aren’t adjusted for seasonal effects so economists prefer to focus on year-over-year changes instead of month-to-month.
GDP Declines
A government report showed the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised figures from the Commerce Department today in Washington. The government’s advance estimate issued last month showed a 0.3 percent decline.
S&P/Case-Shiller also released quarterly figures for nationwide home prices. That measure showed a 16.6 percent drop in the three months through September from the previous three months, compared with a 15.1 percent drop in the second quarter.
Economists forecast the 20-city index would fall 16.9 percent from a year earlier, according to the median of 28 estimates in a Bloomberg News survey. Projections ranged from declines of 16 percent to 17.2 percent.
Compared with a year earlier, all areas in the 20-city survey showed a decrease in prices in September, led by a 31.9 percent drop in Phoenix and a 31.3 percent decline in Las Vegas.
Downward Pressure
“The turmoil in the financial markets is placing further downward pressure on a housing market already weakened by its fundamentals,” David Blitzer, chairman of the index committee at S&P, said in a statement.
Robert Shiller, chief economist at MacroMarkets LLC and a professor at Yale University, and Karl Case, an economics professor at Wellesley College, created the home-price index based on research from the 1980s.
Reports this month showed mounting foreclosures are pushing prices down and hurting demand. Existing home sales, which account for about 90 percent of the market, dropped in October and prices fell by the most on record, the National Association of Realtors said yesterday.
The median price of an existing home plunged 11.3 percent in October from a year earlier and fell to the lowest level since March 2004, according to the Realtors.
Sales of distressed properties accounted for 45 percent of last month’s total, up from about 40 percent in September, the agents’ group also said. Foreclosure filings were up 25 percent in October from a year ago, according to RealtyTrac Inc., the Irvine, California-based seller of default data.
The drop in home construction has subtracted from growth since the first quarter of 2006. The downturn is likely to remain a drag on the economy until the home sales and prices improve.
D.R. Horton Inc., the largest U.S. homebuilder, reported its sixth straight quarterly loss today. The Fort Worth, Texas- based company said orders fell 38 percent while the cancellation rate was 47 percent.
Fed Commits $800 Billion More to Unfreeze Lending
The Federal Reserve took two new steps to unfreeze credit for homebuyers, consumers and small businesses, committing up to $800 billion.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.
“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
Aid for Housing
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.
The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.
On the ABS facility, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.
ABS Program
Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.
Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.
The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.
Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.
The central bank will purchase as much as $600 billion in debt issued or backed by government-chartered housing-finance companies. It will also set up a $200 billion program to support consumer and small-business loans, the Fed said in statements today in Washington.
With today’s announcement, the central bank is starting to use some of the unorthodox policy tools that Chairman Ben S. Bernanke outlined as a Fed governor six years ago. Policy makers are aiming to prevent a financial collapse and stamp out the threat of deflation.
“They’re trying to put funds into the system, trying to unfreeze these markets,” said William Poole, the former St. Louis Fed president, in an interview with Bloomberg Television. “Clearly, the Fed and the Treasury are beginning to take a large amount of credit risk.”
The Fed will purchase up to $100 billion in direct debt of Fannie Mae, Freddie Mac and the Federal Home Loan Banks and up to $500 billion of mortgage-backed securities backed by Fannie, Freddie and Ginnie Mae, the statement said.
Aid for Housing
“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” the Fed said.
Separately, under the new Term Asset-Backed Securities Loan Facility, the Fed will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by “newly and recently originated” loans, such as for education, automobiles, credit cards and loans guaranteed by the Small Business Administration, the Fed said.
The Treasury will provide $20 billion of “credit protection” to the Fed in the lending program, using funds from the $700 billion financial-rescue package. The Treasury said in a statement that the facility may expand over time and cover other assets, such as commercial and private residential mortgage- backed debt.
On the ABS facility, the Fed is trying to avoid having “continued disruption of these markets” that would limit lending and “thereby contribute to further weakening of U.S. economic activity,” the central bank said.
ABS Program
Under the new lending program, known as the TALF, the New York Fed will auction a fixed amount of loans each month for a one-year term. Assets will be held in a special-purpose vehicle to be created by the Fed. The program will stop making new loans on Dec. 31, 2009, unless the Fed Board of Governors extends it.
Lenders providing credit under the TALF “must have agreed to comply with, or already be subject to,” executive- compensation restrictions in the October bailout law, the statement said.
The Fed will start buying the direct debt of government- sponsored enterprises -- Fannie, Freddie and a dozen federal home loan banks -- through primary dealers in government debt from next week. The purchases of mortgage-backed securities will be done through asset managers, and officials aim to begin the effort by year-end.
Purchases of both types of debt “are expected to take place over several quarters,” the Fed said.
U.S. Stock-Index Futures Rally on Fed’s Plan to Boost Lending
U.S. stock-index futures advanced, signaling the market may extend its biggest two-day rally since 1987, after the Federal Reserve committed as much as $800 billion to help resuscitate lending.
SLM Corp., the student lender known as Sallie Mae, rallied 14 percent, while CIT Group Inc., a commercial-finance company, jumped 11 percent after the Fed said the funds will be used to purchase mortgage-related debt and support loans to consumers and small businesses. Citigroup Inc. advanced 7.1 percent after its chief financial officer said the bank has no need to sell assets in order to conserve capital.
Futures on the Standard & Poor’s 500 Index expiring in December gained 2.5 percent to 869.1 at 9:11 a.m. in New York. Dow Jones Industrial Average futures rose 162, or 1.9 percent, to 8,547 and Nasdaq-100 Index futures jumped 1.6 percent to 1,164.75.
“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” said Erick Maronak, the New York-based chief investment officer at Victory Capital Management, which oversees $61 billion. “Hopefully that alone will restore confidence and get things moving again.”
The S&P 500 has rallied 13 percent from an 11-year low on Nov. 20 after the government guaranteed troubled assets at Citigroup and President-elect Barack Obama picked Fed Bank of New York chief Tim Geithner as his Treasury secretary.
JPMorgan climbed 5.2 percent to $29 in trading before the official open of U.S. exchanges, while Bank of America Corp. added 2.9 percent to $15.01.
General Electric, the economic bellwether whose products range from lightbulbs to power-plant turbines, rose 1.3 percent to $15.46. Intel Corp., the world’s biggest maker of semiconductors, added 10 cents to $13.66.
Citigroup Gains
Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, advanced 42 cents to $6.37. CFO Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”
Futures maintained gains even after the Commerce Department said the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised. The government’s advance estimate issued last month showed a 0.3 percent decline.
SLM Corp., the student lender known as Sallie Mae, rallied 14 percent, while CIT Group Inc., a commercial-finance company, jumped 11 percent after the Fed said the funds will be used to purchase mortgage-related debt and support loans to consumers and small businesses. Citigroup Inc. advanced 7.1 percent after its chief financial officer said the bank has no need to sell assets in order to conserve capital.
Futures on the Standard & Poor’s 500 Index expiring in December gained 2.5 percent to 869.1 at 9:11 a.m. in New York. Dow Jones Industrial Average futures rose 162, or 1.9 percent, to 8,547 and Nasdaq-100 Index futures jumped 1.6 percent to 1,164.75.
“This is a more direct effort, as opposed to shoring up the balance sheets of key banks,” said Erick Maronak, the New York-based chief investment officer at Victory Capital Management, which oversees $61 billion. “Hopefully that alone will restore confidence and get things moving again.”
The S&P 500 has rallied 13 percent from an 11-year low on Nov. 20 after the government guaranteed troubled assets at Citigroup and President-elect Barack Obama picked Fed Bank of New York chief Tim Geithner as his Treasury secretary.
JPMorgan climbed 5.2 percent to $29 in trading before the official open of U.S. exchanges, while Bank of America Corp. added 2.9 percent to $15.01.
General Electric, the economic bellwether whose products range from lightbulbs to power-plant turbines, rose 1.3 percent to $15.46. Intel Corp., the world’s biggest maker of semiconductors, added 10 cents to $13.66.
Citigroup Gains
Citigroup, the New York-based bank that got $306 billion of loan guarantees from the government over the weekend, advanced 42 cents to $6.37. CFO Gary Crittenden said in a Bloomberg Television interview that there is “no need for us to sell assets at this point, although we’ll continue to work away on non-strategic assets.”
Futures maintained gains even after the Commerce Department said the U.S. economy shrank in the third quarter faster than previously estimated as consumer spending plunged by the most in almost three decades. Gross domestic product contracted at a 0.5 percent annual pace from July through September, the most since the 2001 recession, according to revised. The government’s advance estimate issued last month showed a 0.3 percent decline.
Friday, November 21, 2008
November may be worse, say car firms
Sales expected to dip 15% - one of the worst monthly falls.
With banks refusing to reduce interest rate on auto loans, car sales are expected to fall by 15 per cent in November — one of the worst monthly falls, at least in the last four years.
Reluctance on the part of leading private banks to either soften interest rates on car loans or ease the stringent lending criteria even after RBI aggressively pruned its key lending rates in the last two months, has led to a major slump in demand for automobiles.
Car makers say the situation has worsened of late with the consumers postponing purchases on the expectation that prices will come down over Finance minister P Chidambaram's recent appeal to the automobile industry to slash vehicle prices.
Last month, the car sales recorded a fall of nearly 10 per cent when compared to the same month of the previous year. "The going has become extremely tough, we do not expect the industry to record any growth this month. We are trying to avoid being in the red too. However, I expect the rest of the car industry to be in the negative in the current month," said Arvind Saxena, senior V-P (marketing and sales), Hyundai Motor India.
Recently, some of the leading auto makers, including Maruti Suzuki, had announced production cuts at its plants. Auto dealers are also at the receiving end of the slowdown. In many parts of the country, dealers, saddled with a huge inventory of unsold cars, are forced to shell out huge discounts, generally from their own account, in order to clear stocks.
"Things have surely started to take an ugly turn. Not only bookings have fallen dramatically, but in some markets they are facing cancellations also. There should be a fall of 15 per cent in overall sales this month. We fear that customers will hold back their purchases to March next year with a hope of an excise duty reduction in the upcoming budget," said S P Shah, president of Federation of Automobile Dealers Association, which is the apex body of dealers in the country.
The car segment posted growth of 3.5 per cent from April to October this financial year as against 13.4 per cent recorded during the seven-month period last year. Apart from October, the segment recorded fall in August and July. Jnaneswar Sen, vice-president of Honda Siel Cars India, said, "All our models, except the new City, are not doing well. Sales have been down drastically, well-to-do consumers are coming into showrooms but are disappointed due to lack of adequate financial provision. We do not foresee a helpful period."
The recent announcements about price hikes by two of the leading car-makers — Maruti Suzuki and Hyundai — have only deterred prospective buyers, believe analysts. Maruti had hiked prices by 1 per cent, while Hyundai had said it will look at a 2- per cent hike, although there has not been any upward revision yet.
The monthly sales numbers, which are handed out by auto companies, display wholesale dispatches from their factories and not the actual retail numbers. Manufacturers have been pushing inventory till the end of last month. Many analysts feel that the current month will pull out a much clearer picture of the turmoil.
"Baring two-wheelers, which may report healthy sales in the northern market, the four-wheeler industry will report flattish to negative growth this month. Last year in the same month, the segment reported good sales, which means that there will be high base to match with," said S Ramnath, auto analyst, SSKI Securities.
With banks refusing to reduce interest rate on auto loans, car sales are expected to fall by 15 per cent in November — one of the worst monthly falls, at least in the last four years.
Reluctance on the part of leading private banks to either soften interest rates on car loans or ease the stringent lending criteria even after RBI aggressively pruned its key lending rates in the last two months, has led to a major slump in demand for automobiles.
Car makers say the situation has worsened of late with the consumers postponing purchases on the expectation that prices will come down over Finance minister P Chidambaram's recent appeal to the automobile industry to slash vehicle prices.
Last month, the car sales recorded a fall of nearly 10 per cent when compared to the same month of the previous year. "The going has become extremely tough, we do not expect the industry to record any growth this month. We are trying to avoid being in the red too. However, I expect the rest of the car industry to be in the negative in the current month," said Arvind Saxena, senior V-P (marketing and sales), Hyundai Motor India.
Recently, some of the leading auto makers, including Maruti Suzuki, had announced production cuts at its plants. Auto dealers are also at the receiving end of the slowdown. In many parts of the country, dealers, saddled with a huge inventory of unsold cars, are forced to shell out huge discounts, generally from their own account, in order to clear stocks.
"Things have surely started to take an ugly turn. Not only bookings have fallen dramatically, but in some markets they are facing cancellations also. There should be a fall of 15 per cent in overall sales this month. We fear that customers will hold back their purchases to March next year with a hope of an excise duty reduction in the upcoming budget," said S P Shah, president of Federation of Automobile Dealers Association, which is the apex body of dealers in the country.
The car segment posted growth of 3.5 per cent from April to October this financial year as against 13.4 per cent recorded during the seven-month period last year. Apart from October, the segment recorded fall in August and July. Jnaneswar Sen, vice-president of Honda Siel Cars India, said, "All our models, except the new City, are not doing well. Sales have been down drastically, well-to-do consumers are coming into showrooms but are disappointed due to lack of adequate financial provision. We do not foresee a helpful period."
The recent announcements about price hikes by two of the leading car-makers — Maruti Suzuki and Hyundai — have only deterred prospective buyers, believe analysts. Maruti had hiked prices by 1 per cent, while Hyundai had said it will look at a 2- per cent hike, although there has not been any upward revision yet.
The monthly sales numbers, which are handed out by auto companies, display wholesale dispatches from their factories and not the actual retail numbers. Manufacturers have been pushing inventory till the end of last month. Many analysts feel that the current month will pull out a much clearer picture of the turmoil.
"Baring two-wheelers, which may report healthy sales in the northern market, the four-wheeler industry will report flattish to negative growth this month. Last year in the same month, the segment reported good sales, which means that there will be high base to match with," said S Ramnath, auto analyst, SSKI Securities.
Growth target of 8% possible: PM
Prime Minister Manmohan Singh today assured that industrialists that notwithstanding the global economic crisis India would be able to achieve a growth target of 8 per cent.
Speaking at the two-day Hindustan Times leadership summit, Singh said: "I give you my assurance that despite an adverse international environment, India has the ability and capacity to achieve about 8 per cent growth target."
He, however, said that amidst a deep global crisis we can not pretend that we are not effected. Looking back, Singh said his government had anticipated the slowdown and made provisions for coping with it in the last union budget.
He said the provisions for decent agriculture prices, social safety network like the national rural employment guarantee scheme and implementation of the pay commission report had been some of the farsighted moves of his government.
Holding out assurances, Singh said that his government would mobilize all instruments of policy be it fiscal policy, exchange rate, monetary policy or public investment policy to "see that shortage of demand is neutralized to the maximum".
He asked the industries to have confidence in the system and opt for working with the government in coping with the current situation. "No instrument would be spared to support the growth of enterprise,’’ he said.
The PM promised "liberal credits and bringing down the cost of credit" to help the small and medium enterprises (SME), exporters and labour intensive enterprises, which, he said, "often get neglected" during the policymaking.
Singh, however, said that government was worried that large scale layoffs should not become the order of the day in the industry. "I assure you that the government is committed to see that the ship of Indian industry is not left in the choppy waters but sails with dignity."
On the global financial crisis, Manmohan Singh said that recent G-20 summit in New York had paved way for larger role of India and other developing countries in the Global Financial Stability Forum.
The PM said that he was reluctant to attend the summit as all previous such meets had merely proved to be "breakfast and dinner-eating occasions". He, however, attended it after getting assurances of a meaningful meeting with the US President George Bush.
However, he said this time, at G-20, for the first time the developing nation’s voice was heard with respect.
Speaking at the two-day Hindustan Times leadership summit, Singh said: "I give you my assurance that despite an adverse international environment, India has the ability and capacity to achieve about 8 per cent growth target."
He, however, said that amidst a deep global crisis we can not pretend that we are not effected. Looking back, Singh said his government had anticipated the slowdown and made provisions for coping with it in the last union budget.
He said the provisions for decent agriculture prices, social safety network like the national rural employment guarantee scheme and implementation of the pay commission report had been some of the farsighted moves of his government.
Holding out assurances, Singh said that his government would mobilize all instruments of policy be it fiscal policy, exchange rate, monetary policy or public investment policy to "see that shortage of demand is neutralized to the maximum".
He asked the industries to have confidence in the system and opt for working with the government in coping with the current situation. "No instrument would be spared to support the growth of enterprise,’’ he said.
The PM promised "liberal credits and bringing down the cost of credit" to help the small and medium enterprises (SME), exporters and labour intensive enterprises, which, he said, "often get neglected" during the policymaking.
Singh, however, said that government was worried that large scale layoffs should not become the order of the day in the industry. "I assure you that the government is committed to see that the ship of Indian industry is not left in the choppy waters but sails with dignity."
On the global financial crisis, Manmohan Singh said that recent G-20 summit in New York had paved way for larger role of India and other developing countries in the Global Financial Stability Forum.
The PM said that he was reluctant to attend the summit as all previous such meets had merely proved to be "breakfast and dinner-eating occasions". He, however, attended it after getting assurances of a meaningful meeting with the US President George Bush.
However, he said this time, at G-20, for the first time the developing nation’s voice was heard with respect.
Govt mulls Rs 75,000 cr refinance window
The government and Reserve Bank of India (RBI) are working on opening a massive Rs 75,000 crore refinance window to provide concessional funds for infrastructure, housing and small and medium enterprises (SMEs) by partly leveraging the country’s foreign exchange reserves.
The broad plan is to provide refinancing through India Infrastructure Finance Company Ltd (IIFCL), the government-owned special purpose vehicle set up in 2006, National Housing Bank (NHB) and Small Industrial Development Board of India (Sidbi), a senior government official said.
Funds to these institutions will be available at 7 to 9 per cent to enable banks to earn a decent spread but cap lending between 10 and 11 per cent (see table), significantly lower than current prime lending rates of 13 to 17 per cent.
The announcement of this special financial window, which is expected at the end of this month, is designed to send a powerful signal to banks to lend to sectors that are considered key to economic growth. “In my view, they need such institutionalised signalling,” a senior government official said.
India is expected to grow at 7 to 7.8 per cent this year against two consecutive years of expansion at 9 per cent.
The largest chunk of the refinancing — Rs 50,000 crore or $10 billion — is being earmarked for infrastructure by leveraging India’s forex reserves. “Allocating $10 billion for infrastructure will do more to increase our credibility than the implicit reduction of usable reserves by that amount would do to reduce our protection from external shocks,” a government official commented.
Under the plan, RBI will buy bonds worth up to $10 billion from IIFCL’s London subsidiary at a coupon of 2.5 per cent, the same rate it earns on its reserves. India’s reserves currently stand at $251.4 billion.
Since IIFCL will provide banks with refinance at 9 per cent, the 6.5 per cent spread it earns by doing so is expected to cover possible exchange losses. Critically, the government, however, will bear any exchange loss beyond this percentage.
“We should agree to this arrangement in view of exceptional circumstances,” a bureaucrat said. “It may be noted that in circumstances where there is an exchange loss on this transaction, it will be more than made up by valuation gains in rupees on any reserve use,” he added.
The Planning Commission has suggested IIFCL should provide re-finance to banks for up to 75 per cent of the cost of an infrastructure project. This is expected to be a temporary measure, for two years.
The broad plan is to provide refinancing through India Infrastructure Finance Company Ltd (IIFCL), the government-owned special purpose vehicle set up in 2006, National Housing Bank (NHB) and Small Industrial Development Board of India (Sidbi), a senior government official said.
Funds to these institutions will be available at 7 to 9 per cent to enable banks to earn a decent spread but cap lending between 10 and 11 per cent (see table), significantly lower than current prime lending rates of 13 to 17 per cent.
The announcement of this special financial window, which is expected at the end of this month, is designed to send a powerful signal to banks to lend to sectors that are considered key to economic growth. “In my view, they need such institutionalised signalling,” a senior government official said.
India is expected to grow at 7 to 7.8 per cent this year against two consecutive years of expansion at 9 per cent.
The largest chunk of the refinancing — Rs 50,000 crore or $10 billion — is being earmarked for infrastructure by leveraging India’s forex reserves. “Allocating $10 billion for infrastructure will do more to increase our credibility than the implicit reduction of usable reserves by that amount would do to reduce our protection from external shocks,” a government official commented.
Under the plan, RBI will buy bonds worth up to $10 billion from IIFCL’s London subsidiary at a coupon of 2.5 per cent, the same rate it earns on its reserves. India’s reserves currently stand at $251.4 billion.
Since IIFCL will provide banks with refinance at 9 per cent, the 6.5 per cent spread it earns by doing so is expected to cover possible exchange losses. Critically, the government, however, will bear any exchange loss beyond this percentage.
“We should agree to this arrangement in view of exceptional circumstances,” a bureaucrat said. “It may be noted that in circumstances where there is an exchange loss on this transaction, it will be more than made up by valuation gains in rupees on any reserve use,” he added.
The Planning Commission has suggested IIFCL should provide re-finance to banks for up to 75 per cent of the cost of an infrastructure project. This is expected to be a temporary measure, for two years.
Monday, November 17, 2008
11 economies in decline
Brazil
Partial view of a Petrobras off-shore oil platform in Angra dos Reis, 180 km south of Rio de Janeiro.GDP: 5.23%
Inflation: 5.74%
Unemployment: 7.7%
Markets: -44.16%
Gallon of gas: $5.83
Interest Rates: 13.75%
Sinking crude prices are a tremendous blow to this oil-driven economy. The stock market is also suffering huge losses, dragged down by the country's oil giant Petrobras. Meanwhile, Brazil's real is down 35% against the dollar, since oil set a record high in July.
China
GDP: 9.74%
Inflation: 6.43%
Unemployment: 4%*
Markets: -64.92%
Gallon of gas: $3.48
Interest Rates: 6.66%
The country's GDP sinks to a 5-year low as manufacturing exports slow amid weak global demand. And mass layoffs at factories are worse than the official 4% unemployment rate suggests, since China does not track employment outside of major cities. A $586 billion government stimulus package aims to boost housing, health care and infrastructure, and includes tax breaks for struggling exporters.
Germany
GDP: 1.85%
Inflation: 2.94%
Unemployment: 7.43%
Markets: -41.12%
Gallon of gas: $8.58
Interest Rates: 3.25%
The German economy, which is Europe's biggest, slid into recession in the third quarter when its GDP contracted by 0.5%. And officials say that they don't expect to see any economic growth in 2009. Consumer confidence index is actually in negative territory, at -53.5, compared with an historical average of 27.1. The government hopes a $642 billion bailout will support the nation's banking system.
Iceland
GDP: 0.3%
Inflation: 7.93%
Unemployment: 2.2%
Markets: -45.81%
Gallon of gas: $7.54
Interest Rates: 18%
This tiny country is suffering near total economic collapse in the wake of the global crisis; in October its stock market crashed and its central bank went bankrupt. The Krona is down nearly 50% against dollar in past 6 months. Iceland receives $2.1 billion from International Monetary Fund, but says it will need $4 billion more.
India
GDP: 7.93%
Inflation: 7.93%
Unemployment: 7.8%
Markets: -51.48%
Gallon of gas: $4.95
Interest Rates: 7.5%
Consumer demand for gold, which typically soars during the Diwali wedding festival, sinks by roughly 20%, signaling trouble. The country's foreign debt expanded to 3.6% of its GDP in 2008, and in October the central bank lends $37.4 billion to financial institutions in October in an effort to boost credit.
Japan
GDP: 0.69%
Inflation: 1.57%
Unemployment: 4.05%
Markets: -42.45%
Gallon of gas: $5.78
Interest Rates: 0.3%
The sock market hits a 26-year low in October, and the government cuts interest rates for first time in more than seven years. It also unveils a $275 billion stimulus package, including loans for small and medium-sized businesses, as well as tax rebate checks to households.
Russia
GDP: 7%
Inflation: 14.03%
Unemployment: 5.9%
Markets: -65.53%
Gallon of gas: $3.93
Interest Rates: 11%
Sinking natural gas and oil prices shrink exports, and investor jitters over Russia's military takeover of Georgia crush the stock market. Russian banks are hit particularly hard by the credit crisis because they hold significantly more in foreign debt than national assets. The central bank sets up a $50 billion lending facility for financial institutions, and the finance minister indicates there is more money coming.
Saudi Arabia
GDP: 5.85
Inflation: 11.45%
Unemployment: 13%†
Markets: -50.5%
Gallon of gas: $0.45
Interest Rates: 4%
OPEC production cuts in October hit this country the hardest -- it signals that it can't afford to cut back any more. Falling oil prices are hampering the economy and holding up much-needed public construction projects. Meanwhile, the cost of living here is soaring on escalating food and housing costs.
South Africa
GDP: 3.83%
Inflation: 11.78%
Unemployment: 23.2%
Markets: -30.64%
Gallon of gas: $4.64
Interest Rates: 12%
Metals exports such as gold and platinum are hurt by falling precious metals prices, and soaring food and electricity prices are driving a steep increase in inflation. Unemployment had hit a seven-year low in March, but is rising as the economy slows.
United Kingdom
GDP: 0.99%
Inflation: 3.78%
Unemployment: 5.4%
Markets: -34.2%
Gallon of gas: $8.09
Interest Rates: 3%
Both the Prime Minister and the Treasury chief say the British economy is likely in a recession. The pound is at a 6-year low against the dollar, and retail sales are down for first time in nearly 4 years. A $63 billion bailout for the banking sector offers some relief.
United States
GDP: 1.57%
Inflation: 4.22%
Unemployment: 5.62%
Markets: -33.10%
Gallon of gas: $3.8
Interest Rates: 1%
Home prices plummet by as much as 40% in some parts of the country, and nearly one million homes have been lost to foreclosure since the mortgage crisis began in August 2007. The government is flooding the frozen financial system with nearly $3 trillion to restore liquidity, and, despite a $168 billion stimulus package that was unveiled last spring, political support for a second stimulus package is gaining momentum.
Partial view of a Petrobras off-shore oil platform in Angra dos Reis, 180 km south of Rio de Janeiro.GDP: 5.23%
Inflation: 5.74%
Unemployment: 7.7%
Markets: -44.16%
Gallon of gas: $5.83
Interest Rates: 13.75%
Sinking crude prices are a tremendous blow to this oil-driven economy. The stock market is also suffering huge losses, dragged down by the country's oil giant Petrobras. Meanwhile, Brazil's real is down 35% against the dollar, since oil set a record high in July.
China
GDP: 9.74%
Inflation: 6.43%
Unemployment: 4%*
Markets: -64.92%
Gallon of gas: $3.48
Interest Rates: 6.66%
The country's GDP sinks to a 5-year low as manufacturing exports slow amid weak global demand. And mass layoffs at factories are worse than the official 4% unemployment rate suggests, since China does not track employment outside of major cities. A $586 billion government stimulus package aims to boost housing, health care and infrastructure, and includes tax breaks for struggling exporters.
Germany
GDP: 1.85%
Inflation: 2.94%
Unemployment: 7.43%
Markets: -41.12%
Gallon of gas: $8.58
Interest Rates: 3.25%
The German economy, which is Europe's biggest, slid into recession in the third quarter when its GDP contracted by 0.5%. And officials say that they don't expect to see any economic growth in 2009. Consumer confidence index is actually in negative territory, at -53.5, compared with an historical average of 27.1. The government hopes a $642 billion bailout will support the nation's banking system.
Iceland
GDP: 0.3%
Inflation: 7.93%
Unemployment: 2.2%
Markets: -45.81%
Gallon of gas: $7.54
Interest Rates: 18%
This tiny country is suffering near total economic collapse in the wake of the global crisis; in October its stock market crashed and its central bank went bankrupt. The Krona is down nearly 50% against dollar in past 6 months. Iceland receives $2.1 billion from International Monetary Fund, but says it will need $4 billion more.
India
GDP: 7.93%
Inflation: 7.93%
Unemployment: 7.8%
Markets: -51.48%
Gallon of gas: $4.95
Interest Rates: 7.5%
Consumer demand for gold, which typically soars during the Diwali wedding festival, sinks by roughly 20%, signaling trouble. The country's foreign debt expanded to 3.6% of its GDP in 2008, and in October the central bank lends $37.4 billion to financial institutions in October in an effort to boost credit.
Japan
GDP: 0.69%
Inflation: 1.57%
Unemployment: 4.05%
Markets: -42.45%
Gallon of gas: $5.78
Interest Rates: 0.3%
The sock market hits a 26-year low in October, and the government cuts interest rates for first time in more than seven years. It also unveils a $275 billion stimulus package, including loans for small and medium-sized businesses, as well as tax rebate checks to households.
Russia
GDP: 7%
Inflation: 14.03%
Unemployment: 5.9%
Markets: -65.53%
Gallon of gas: $3.93
Interest Rates: 11%
Sinking natural gas and oil prices shrink exports, and investor jitters over Russia's military takeover of Georgia crush the stock market. Russian banks are hit particularly hard by the credit crisis because they hold significantly more in foreign debt than national assets. The central bank sets up a $50 billion lending facility for financial institutions, and the finance minister indicates there is more money coming.
Saudi Arabia
GDP: 5.85
Inflation: 11.45%
Unemployment: 13%†
Markets: -50.5%
Gallon of gas: $0.45
Interest Rates: 4%
OPEC production cuts in October hit this country the hardest -- it signals that it can't afford to cut back any more. Falling oil prices are hampering the economy and holding up much-needed public construction projects. Meanwhile, the cost of living here is soaring on escalating food and housing costs.
South Africa
GDP: 3.83%
Inflation: 11.78%
Unemployment: 23.2%
Markets: -30.64%
Gallon of gas: $4.64
Interest Rates: 12%
Metals exports such as gold and platinum are hurt by falling precious metals prices, and soaring food and electricity prices are driving a steep increase in inflation. Unemployment had hit a seven-year low in March, but is rising as the economy slows.
United Kingdom
GDP: 0.99%
Inflation: 3.78%
Unemployment: 5.4%
Markets: -34.2%
Gallon of gas: $8.09
Interest Rates: 3%
Both the Prime Minister and the Treasury chief say the British economy is likely in a recession. The pound is at a 6-year low against the dollar, and retail sales are down for first time in nearly 4 years. A $63 billion bailout for the banking sector offers some relief.
United States
GDP: 1.57%
Inflation: 4.22%
Unemployment: 5.62%
Markets: -33.10%
Gallon of gas: $3.8
Interest Rates: 1%
Home prices plummet by as much as 40% in some parts of the country, and nearly one million homes have been lost to foreclosure since the mortgage crisis began in August 2007. The government is flooding the frozen financial system with nearly $3 trillion to restore liquidity, and, despite a $168 billion stimulus package that was unveiled last spring, political support for a second stimulus package is gaining momentum.
Japan's Economy Shrinks 0.4%, Confirming Recession
Japan's economy, the world's second largest, unexpectedly shrank in the third quarter, entering the first recession since 2001 as companies cut spending.
Gross domestic product fell an annualized 0.4 percent in the three months ended Sept. 30, the Cabinet Office said today in Tokyo. Economists predicted the economy would grow 0.1 percent after contracting a revised 3.7 percent in the previous period.
The slowdown may deepen as the global financial crisis hurts exports, prompting companies from Toyota Motor Corp. to Canon Inc. to slash profit forecasts and cut investments. Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180 percent of GDP, limiting the government's ability to stimulate growth.
``It's only going to get worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.''
The yen fell to 97.49 per dollar as of 12:57 p.m. in Tokyo from 96.09 before the report. Japan's currency has gained 8.9 percent since the end of September, compounding exporters' woes.
The Nikkei 225 Stock Average rose 2.7 percent, reversing declines of as much as 2.9 percent, as investors bought shares of drug and utilities companies, whose earnings are less vulnerable to a slowdown. The gauge has lost 43 percent this year. The yield on Japan's 10-year bond was unchanged at 1.5 percent.
G-20 Summit
The economy last contracted over two consecutive quarters -- the technical definition of a recession -- in 2001. Europe also entered a recession last quarter, a report showed last week.
Leaders from the Group of 20 nations this weekend agreed to take a ``broader policy response'' by using interest-rate cuts and fiscal stimulus to shore up the weakening global economy. The Bank of Japan has little scope to contribute further after lowering the benchmark rate to 0.3 percent last month, and a 5 trillion yen ($52 billion) stimulus plan announced by Prime Minister Taro Aso last month risks worsening the public debt.
Quarter-on-quarter, Japan's economy shrank 0.1 percent, today's report showed. Capital spending fell 1.7 percent from the previous three months, compared with economists' expectations of a 2 percent drop.
Toyota, which makes more than three-quarters of its sales abroad, forecast profit will fall this fiscal year by almost 70 percent. The carmaker will fire 3,000 workers by March, and the Nikkei newspaper reported this month that it will delay adding capacity at a domestic plant that makes Lexus sedans.
Canon Cuts
Canon, the world's largest camera maker, last month forecast profit growth would fall for the first time in nine years and said it will cut capital spending 4.7 percent in 2008 to 410 billion yen.
``The economy is still so sensitive to the global business cycle,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. ``A long as the global economy keeps sinking, Japan will probably experience a deep recession.''
Net exports subtracted 0.2 percentage point from growth after imports outweighed an increase in shipments abroad. Exports rose 0.7 percent, less than the 1.2 percent expected. Imports climbed 1.9 percent as oil surged to a record in the quarter. Economists predicted a 1.5 percent gain.
``Given that the global economy is decelerating, Japan's downturn will continue,'' Economic and Fiscal Policy Minister Kaoru Yosano said after the report. He said there's a risk that that the slump will become ``more severe'' because the global financial crisis is spreading to emerging economies.
Economic growth in China, which became Japan's biggest customer in July, slowed to 9 percent last quarter, the weakest since 2003.
May Suffer Less
Still, Japan will probably suffer less than its biggest counterparts after companies shed debt and streamlined labor forces following the bursting of the property and asset bubble in the early 1990s. Asia's biggest economy will shrink 0.1 percent next year, according to the Organization for Economic Cooperation and Development, less than the 0.9 percent and 0.5 percent contractions in the U.S. and Europe.
Consumers are getting some relief as inflation abates and the government prepares to provide households with at least 12,000 yen ($125) each as part of the stimulus plan. Consumer spending increased 0.3 percent last quarter, more than the 0.1 percent economists expected, today's report showed.
``Though consumer spending was a positive figure, it's difficult to take it as a good sign because the figure was boosted by seasonal factors such as the hot summer and the Olympics,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Consumption will probably turn negative in the fourth quarter'' and the economy won't recover until 2010, she said.
The ratio of jobs to applicants has fallen for eight months and the deteriorating profit outlook for companies is also putting pressure on wages. Winter bonuses, which typically account for about 10 percent of a fulltime worker's annual pay, will fall 2.9 percent this year, the Nikkei reported last week.
Gross domestic product fell an annualized 0.4 percent in the three months ended Sept. 30, the Cabinet Office said today in Tokyo. Economists predicted the economy would grow 0.1 percent after contracting a revised 3.7 percent in the previous period.
The slowdown may deepen as the global financial crisis hurts exports, prompting companies from Toyota Motor Corp. to Canon Inc. to slash profit forecasts and cut investments. Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180 percent of GDP, limiting the government's ability to stimulate growth.
``It's only going to get worse,'' said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. ``Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.''
The yen fell to 97.49 per dollar as of 12:57 p.m. in Tokyo from 96.09 before the report. Japan's currency has gained 8.9 percent since the end of September, compounding exporters' woes.
The Nikkei 225 Stock Average rose 2.7 percent, reversing declines of as much as 2.9 percent, as investors bought shares of drug and utilities companies, whose earnings are less vulnerable to a slowdown. The gauge has lost 43 percent this year. The yield on Japan's 10-year bond was unchanged at 1.5 percent.
G-20 Summit
The economy last contracted over two consecutive quarters -- the technical definition of a recession -- in 2001. Europe also entered a recession last quarter, a report showed last week.
Leaders from the Group of 20 nations this weekend agreed to take a ``broader policy response'' by using interest-rate cuts and fiscal stimulus to shore up the weakening global economy. The Bank of Japan has little scope to contribute further after lowering the benchmark rate to 0.3 percent last month, and a 5 trillion yen ($52 billion) stimulus plan announced by Prime Minister Taro Aso last month risks worsening the public debt.
Quarter-on-quarter, Japan's economy shrank 0.1 percent, today's report showed. Capital spending fell 1.7 percent from the previous three months, compared with economists' expectations of a 2 percent drop.
Toyota, which makes more than three-quarters of its sales abroad, forecast profit will fall this fiscal year by almost 70 percent. The carmaker will fire 3,000 workers by March, and the Nikkei newspaper reported this month that it will delay adding capacity at a domestic plant that makes Lexus sedans.
Canon Cuts
Canon, the world's largest camera maker, last month forecast profit growth would fall for the first time in nine years and said it will cut capital spending 4.7 percent in 2008 to 410 billion yen.
``The economy is still so sensitive to the global business cycle,'' said Hiromichi Shirakawa, chief Japan economist at Credit Suisse Group AG in Tokyo. ``A long as the global economy keeps sinking, Japan will probably experience a deep recession.''
Net exports subtracted 0.2 percentage point from growth after imports outweighed an increase in shipments abroad. Exports rose 0.7 percent, less than the 1.2 percent expected. Imports climbed 1.9 percent as oil surged to a record in the quarter. Economists predicted a 1.5 percent gain.
``Given that the global economy is decelerating, Japan's downturn will continue,'' Economic and Fiscal Policy Minister Kaoru Yosano said after the report. He said there's a risk that that the slump will become ``more severe'' because the global financial crisis is spreading to emerging economies.
Economic growth in China, which became Japan's biggest customer in July, slowed to 9 percent last quarter, the weakest since 2003.
May Suffer Less
Still, Japan will probably suffer less than its biggest counterparts after companies shed debt and streamlined labor forces following the bursting of the property and asset bubble in the early 1990s. Asia's biggest economy will shrink 0.1 percent next year, according to the Organization for Economic Cooperation and Development, less than the 0.9 percent and 0.5 percent contractions in the U.S. and Europe.
Consumers are getting some relief as inflation abates and the government prepares to provide households with at least 12,000 yen ($125) each as part of the stimulus plan. Consumer spending increased 0.3 percent last quarter, more than the 0.1 percent economists expected, today's report showed.
``Though consumer spending was a positive figure, it's difficult to take it as a good sign because the figure was boosted by seasonal factors such as the hot summer and the Olympics,'' said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. ``Consumption will probably turn negative in the fourth quarter'' and the economy won't recover until 2010, she said.
The ratio of jobs to applicants has fallen for eight months and the deteriorating profit outlook for companies is also putting pressure on wages. Winter bonuses, which typically account for about 10 percent of a fulltime worker's annual pay, will fall 2.9 percent this year, the Nikkei reported last week.
Friday, November 14, 2008
Great Indian Takeaway’ may come at a high price
The Indian media gleefully called last year the “Great Indian Takeaway”.
Starting with Tata Steel’s US$11 billion (Dh40.37bn) buyout of Corus, the Anglo-Dutch steel maker, in January of that year, Indian companies went on to snap up international firms worth more than $31.4bn. That was four times higher than the 2006 figure.
This year, the acquisition spree has continued, but now that recession is starting to sweep through the US and UK markets, the wisdom of these deals is likely to be put to the test.
Back in March, when the Indian car manufacturer Tata Motors bought the iconic British brands Jaguar and Land Rover, there were already questioning voices. In the weeks leading up to the $2.3bn deal, the Wall Street investment bank Bear Stearns had collapsed and been bought out by JPMorgan Chase.
“There may be some pressures in some geographies today,” said Ravi Kant, the Tata Motors chairman, when announcing the deal. “[But] we feel that we have done a wise thing by going in for these two brands.”
Six months later, Mr Kant cannot afford to be so sanguine. “At the time that we did the deal, none of these things were foreseen,” he said as Tata Motors’s results were announced recently. “It’s unfortunate that today all of us, not just Jaguar and Land Rover, are in this situation of economic turmoil.”
Others are certainly in the same boat. Most of the international firms that Indian companies have bought in the past two years have had long histories of loss-making. They were often larger than the Indian companies buying them, and the international expansion was often made possible by easy borrowing.
That cheap and easy money is now gone. The Indian wind turbine maker Suzlon last week dropped the $360 million rights issue it needed to buy an additional stake in the German wind power company REpower Systems.
Tata Motors has abandoned its plan to raise $500m to pay off the bridge loan for its Jaguar-Land Rover deal through an issue of international equity, citing “the unprecedented and challenging times”. It only managed to raise the $840m domestic portion of its rights issue because its parent group bought $608m of the shares.
The refinancing for Hindalco’s acquisition of the Canadian aluminium roller Novelis has also run into problems. Investors only bought 17 per cent of Hindalco Industries’s $1bn rights issue, again leaving the controlling Birla family and the underwriting banks to pick up the slack. Last week, Hindalco – a maker of aluminium and copper products – succeeded in raising a $1bn loan from a consortium of 11 international banks. But it still needs to find a further $1bn internally to repay the $3.03bn loan.
It only takes a cursory look at the financial histories of most of the companies that Indian firms have acquired to see the scale of the risk.
Novelis, the world’s largest flat-rolled aluminium maker, was already haemorrhaging cash when India’s Hindalco bought it in February last year.
At the heart of Corus, which Tata Steel bought for £6.2bn (Dh33.9bn) at the end of January last year, is British Steel. The company only turned a profit in two of its 10 years of independent life, and then continued to make heavy losses after it merged with the Dutch steel maker Koninklijke Hoogovens to form Corus in 1999.
Ford is thought to have absorbed losses of more than $10bn in the years that it owned Jaguar and Land Rover.
And the list goes on. REpower, which Suzlon bought a major stake in last year, made heavy losses in 2004 and 2005. The international power company Intergen, which India’s GMR Infrastructure took a 50 per cent stake in for $1.1bn in July, made heavy losses in 2002.
The story is broadly the same for most of the smaller car parts manufacturers or pharmaceuticals groups that Indian companies have bought.
And this vulnerability to losses has been made still worse by the debt that Indian companies have tended to load onto their balance sheets.
Tata Tea set the trend for India’s international acquisitions when it bought Tetley Tea in 2000. The leveraged buyout-type structure it used – with most of the debt loaded on to a UK-based acquisition vehicle – has been copied, not least by Tata Steel with its Corus acquisition.
Tata Steel paid for almost half of the Corus deal by loading $6.14bn of bank debt onto the acquisition vehicle, Tata Steel UK. Hindalco did something similar with Novelis.
TV Raghunath, the head of mergers and acquisitions at Kotak Mahindra Capital, said: “Not many of them have recourse to the parent, or not a big portion, so consequently the Indian acquirer is pretty much insulated.”
But their new subsidiaries are, as a consequence, exposed. Last month, ratings agencies Moody’s and Standard & Poor’s both downgraded the outlooks on Tata Steel UK. Moody’s said it feared that Tata Steel UK could end up holding debt worth more than four times its underlying earnings if the slump in the steel price continued.
Fitch has also put Tata Steel on watch for a downgrade, saying it was now less certain of parent Tata Group’s ability to support its companies.
Other companies have funded their deals at the parent level with foreign currency convertible bonds (FCCBs), which now look vulnerable to currency fluctuations.
The $500m worth of FCCBs that Suzlon issued to fund the REpower acquisition led it to post losses of $26m as it adjusted the liability to reflect the rupee’s fall to a record low against the dollar.
.
The recession has begun to show its effects on the companies acquired by Indian firms. Tata Motors announced recently that the number of cars the two brands sold between July and September had slumped by more than 11 per cent compared to the same period last year. Sales of Land Rover, traditionally seen as the strongest brand of the two, dropped nearly 20 per cent.
Corus is also starting to put Tata Steel under pressure. The first year of Corus ownership was better than Tata Steel could possibly have hoped for.
“There was a huge margin expansion because raw materials prices did not got as high as the steel price,” said Rakesh Arora, a steel analyst at Macquarie Bank.
When steel prices were at their peak earlier this year, Corus was making $120 for every tonne it produced. In the first six months of this year, Corus would have earned about $2bn. This is much more than Tata Steel could have expected at the time of the acquisition, said Mr Arora.
But now the slump in steel demand and prices could easily push Corus back into making losses. Merrill Lynch estimates that Tata Steel is more sensitive to a fall in the steel price than its Indian peers – for every 1 per cent change in the steel price, the company’s earnings per share for next year fall 15 per cent.
Tata has already been taking bold short-term measures to keep its new acquisitions in the black. Ratan Tata, the chairman of Tata Group, has issued a directive to all of the chief executives of Tata companies, putting a moratorium on further acquisitions and asking them to cut back on acquisition plans.
Last Friday, Tata Steel moved to cut production from 20 per cent to 30 per cent, and said it would lay off 400 workers at Corus plants in Europe. Tata Motors is planning to cut 600 jobs from Jaguar and Land Rover’s UK manufacturing plants, and is offering workers three-month sabbaticals on 80 per cent of their pay. Some plants are only working four days a week.
Aditya Sanghi, the head of investment banking at Yes Bank, which advised Suzlon on its REpower deal, said it would take the next few years to reveal which acquisitions were well judged and which were not.
“There is no broad-brush answer. It all depends on individual synergies,” he said. “You need to look at what the rationale of the acquisition was. I don’t think if a deal is strategic, a short-term downturn should take away the strategic merits of it.”
Starting with Tata Steel’s US$11 billion (Dh40.37bn) buyout of Corus, the Anglo-Dutch steel maker, in January of that year, Indian companies went on to snap up international firms worth more than $31.4bn. That was four times higher than the 2006 figure.
This year, the acquisition spree has continued, but now that recession is starting to sweep through the US and UK markets, the wisdom of these deals is likely to be put to the test.
Back in March, when the Indian car manufacturer Tata Motors bought the iconic British brands Jaguar and Land Rover, there were already questioning voices. In the weeks leading up to the $2.3bn deal, the Wall Street investment bank Bear Stearns had collapsed and been bought out by JPMorgan Chase.
“There may be some pressures in some geographies today,” said Ravi Kant, the Tata Motors chairman, when announcing the deal. “[But] we feel that we have done a wise thing by going in for these two brands.”
Six months later, Mr Kant cannot afford to be so sanguine. “At the time that we did the deal, none of these things were foreseen,” he said as Tata Motors’s results were announced recently. “It’s unfortunate that today all of us, not just Jaguar and Land Rover, are in this situation of economic turmoil.”
Others are certainly in the same boat. Most of the international firms that Indian companies have bought in the past two years have had long histories of loss-making. They were often larger than the Indian companies buying them, and the international expansion was often made possible by easy borrowing.
That cheap and easy money is now gone. The Indian wind turbine maker Suzlon last week dropped the $360 million rights issue it needed to buy an additional stake in the German wind power company REpower Systems.
Tata Motors has abandoned its plan to raise $500m to pay off the bridge loan for its Jaguar-Land Rover deal through an issue of international equity, citing “the unprecedented and challenging times”. It only managed to raise the $840m domestic portion of its rights issue because its parent group bought $608m of the shares.
The refinancing for Hindalco’s acquisition of the Canadian aluminium roller Novelis has also run into problems. Investors only bought 17 per cent of Hindalco Industries’s $1bn rights issue, again leaving the controlling Birla family and the underwriting banks to pick up the slack. Last week, Hindalco – a maker of aluminium and copper products – succeeded in raising a $1bn loan from a consortium of 11 international banks. But it still needs to find a further $1bn internally to repay the $3.03bn loan.
It only takes a cursory look at the financial histories of most of the companies that Indian firms have acquired to see the scale of the risk.
Novelis, the world’s largest flat-rolled aluminium maker, was already haemorrhaging cash when India’s Hindalco bought it in February last year.
At the heart of Corus, which Tata Steel bought for £6.2bn (Dh33.9bn) at the end of January last year, is British Steel. The company only turned a profit in two of its 10 years of independent life, and then continued to make heavy losses after it merged with the Dutch steel maker Koninklijke Hoogovens to form Corus in 1999.
Ford is thought to have absorbed losses of more than $10bn in the years that it owned Jaguar and Land Rover.
And the list goes on. REpower, which Suzlon bought a major stake in last year, made heavy losses in 2004 and 2005. The international power company Intergen, which India’s GMR Infrastructure took a 50 per cent stake in for $1.1bn in July, made heavy losses in 2002.
The story is broadly the same for most of the smaller car parts manufacturers or pharmaceuticals groups that Indian companies have bought.
And this vulnerability to losses has been made still worse by the debt that Indian companies have tended to load onto their balance sheets.
Tata Tea set the trend for India’s international acquisitions when it bought Tetley Tea in 2000. The leveraged buyout-type structure it used – with most of the debt loaded on to a UK-based acquisition vehicle – has been copied, not least by Tata Steel with its Corus acquisition.
Tata Steel paid for almost half of the Corus deal by loading $6.14bn of bank debt onto the acquisition vehicle, Tata Steel UK. Hindalco did something similar with Novelis.
TV Raghunath, the head of mergers and acquisitions at Kotak Mahindra Capital, said: “Not many of them have recourse to the parent, or not a big portion, so consequently the Indian acquirer is pretty much insulated.”
But their new subsidiaries are, as a consequence, exposed. Last month, ratings agencies Moody’s and Standard & Poor’s both downgraded the outlooks on Tata Steel UK. Moody’s said it feared that Tata Steel UK could end up holding debt worth more than four times its underlying earnings if the slump in the steel price continued.
Fitch has also put Tata Steel on watch for a downgrade, saying it was now less certain of parent Tata Group’s ability to support its companies.
Other companies have funded their deals at the parent level with foreign currency convertible bonds (FCCBs), which now look vulnerable to currency fluctuations.
The $500m worth of FCCBs that Suzlon issued to fund the REpower acquisition led it to post losses of $26m as it adjusted the liability to reflect the rupee’s fall to a record low against the dollar.
.
The recession has begun to show its effects on the companies acquired by Indian firms. Tata Motors announced recently that the number of cars the two brands sold between July and September had slumped by more than 11 per cent compared to the same period last year. Sales of Land Rover, traditionally seen as the strongest brand of the two, dropped nearly 20 per cent.
Corus is also starting to put Tata Steel under pressure. The first year of Corus ownership was better than Tata Steel could possibly have hoped for.
“There was a huge margin expansion because raw materials prices did not got as high as the steel price,” said Rakesh Arora, a steel analyst at Macquarie Bank.
When steel prices were at their peak earlier this year, Corus was making $120 for every tonne it produced. In the first six months of this year, Corus would have earned about $2bn. This is much more than Tata Steel could have expected at the time of the acquisition, said Mr Arora.
But now the slump in steel demand and prices could easily push Corus back into making losses. Merrill Lynch estimates that Tata Steel is more sensitive to a fall in the steel price than its Indian peers – for every 1 per cent change in the steel price, the company’s earnings per share for next year fall 15 per cent.
Tata has already been taking bold short-term measures to keep its new acquisitions in the black. Ratan Tata, the chairman of Tata Group, has issued a directive to all of the chief executives of Tata companies, putting a moratorium on further acquisitions and asking them to cut back on acquisition plans.
Last Friday, Tata Steel moved to cut production from 20 per cent to 30 per cent, and said it would lay off 400 workers at Corus plants in Europe. Tata Motors is planning to cut 600 jobs from Jaguar and Land Rover’s UK manufacturing plants, and is offering workers three-month sabbaticals on 80 per cent of their pay. Some plants are only working four days a week.
Aditya Sanghi, the head of investment banking at Yes Bank, which advised Suzlon on its REpower deal, said it would take the next few years to reveal which acquisitions were well judged and which were not.
“There is no broad-brush answer. It all depends on individual synergies,” he said. “You need to look at what the rationale of the acquisition was. I don’t think if a deal is strategic, a short-term downturn should take away the strategic merits of it.”
Yen Rises on Speculation G-20 Will Fail to Agree on Rescue Plan
Nov. 14 (Bloomberg) -- The yen rose against the dollar and the euro on speculation a Group of 20 nations summit will fail to reach a consensus on how to kick-start the global economy.
The Japanese currency advanced against the Australian and New Zealand dollars as investors pared higher-yielding assets before heads of state from the G-20 nations gather in Washington today for two days of talks on the credit crisis. The yen was also buoyed on speculation its 2.7 percent slide against the dollar and 4.8 percent tumble against the euro yesterday was excessive.
``I'm looking for the yen to strengthen against the dollar,'' said Takeshi Tokita, vice president of foreign- exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan's second-largest publicly traded lender. ``No one is sure what will come out of the G-20. It's likely that the U.S. and Europe won't see eye to eye on many of the problems the global economy is facing.''
The yen rose to 97.16 per dollar as of 10:42 a.m. in Tokyo from 97.68 late yesterday in New York. Against the euro, it was at 123.82 from 124.78. The euro fell to $1.2746 from $1.2769. The pound bought $1.4826 from $1.4841. The yen may rise to 95.50 today, Tokita said.
Japan's currency gained to 64.44 yen per Australian dollar from 65.07 late yesterday in New York. It also advanced to 55.22 yen versus the New Zealand dollar from 55.81.
Against the dollar, the yen rose 1.2 percent this week, its biggest gain since Oct. 24, on speculation investors reduced carry trade purchases of higher-yielding assets funded with currencies with lower rates. The yen rose 1 percent against the euro, 3.2 percent against the Australian dollar and 5.9 percent versus the New Zealand dollar this week.
Benchmark interest rates are 0.3 percent in Japan, 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia and 6.5 percent in New Zealand.
G-20
U.S. President George W. Bush yesterday urged leaders of the world's biggest economies not to abandon free-market capitalism following the seizure in credit markets. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators.
Under debate are proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit-rating companies to stiffer oversight.
U.S. stocks rallied the most in two weeks and crude oil rebounded from a 21-month low yesterday, sparking the yen's decline.
``We had such a big move yesterday, Japanese exporters are likely to buy the yen on the cheap,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``People are also eyeing the G-20 meeting.''
The Japanese currency advanced against the Australian and New Zealand dollars as investors pared higher-yielding assets before heads of state from the G-20 nations gather in Washington today for two days of talks on the credit crisis. The yen was also buoyed on speculation its 2.7 percent slide against the dollar and 4.8 percent tumble against the euro yesterday was excessive.
``I'm looking for the yen to strengthen against the dollar,'' said Takeshi Tokita, vice president of foreign- exchange sales in Tokyo at Mizuho Corporate Bank, a unit of Japan's second-largest publicly traded lender. ``No one is sure what will come out of the G-20. It's likely that the U.S. and Europe won't see eye to eye on many of the problems the global economy is facing.''
The yen rose to 97.16 per dollar as of 10:42 a.m. in Tokyo from 97.68 late yesterday in New York. Against the euro, it was at 123.82 from 124.78. The euro fell to $1.2746 from $1.2769. The pound bought $1.4826 from $1.4841. The yen may rise to 95.50 today, Tokita said.
Japan's currency gained to 64.44 yen per Australian dollar from 65.07 late yesterday in New York. It also advanced to 55.22 yen versus the New Zealand dollar from 55.81.
Against the dollar, the yen rose 1.2 percent this week, its biggest gain since Oct. 24, on speculation investors reduced carry trade purchases of higher-yielding assets funded with currencies with lower rates. The yen rose 1 percent against the euro, 3.2 percent against the Australian dollar and 5.9 percent versus the New Zealand dollar this week.
Benchmark interest rates are 0.3 percent in Japan, 1 percent in the U.S., 3.25 percent in Europe, 5.25 percent in Australia and 6.5 percent in New Zealand.
G-20
U.S. President George W. Bush yesterday urged leaders of the world's biggest economies not to abandon free-market capitalism following the seizure in credit markets. G-20 leaders including Australian Prime Minister Kevin Rudd and French President Nicolas Sarkozy have used the crisis to demand greater government control of markets and to attack the U.S. for failing to rein in investors and speculators.
Under debate are proposals ranging from curbing executive pay and restraining hedge funds to raising capital requirements for banks and subjecting credit-rating companies to stiffer oversight.
U.S. stocks rallied the most in two weeks and crude oil rebounded from a 21-month low yesterday, sparking the yen's decline.
``We had such a big move yesterday, Japanese exporters are likely to buy the yen on the cheap,'' said Osao Iizuka, head of foreign exchange trading at Sumitomo Trust & Banking Co. in Tokyo. ``People are also eyeing the G-20 meeting.''
Thursday, November 13, 2008
Per-capita income growth to fall Rs 658 on 2% GDP drop
There’s now a broad consensus that the country’s GDP growth rate will fall at least 2 percentage points by 2009.
How does a 2% drop in GDP growth translate in terms of lower household and per-capita incomes would be the most critical parameter going forward for a host of businesses that sell directly to households: everything from homes, cars, consumer electronics, daily expendables to financial services like insurance and loans.
Our analysis shows that a 2% drop in GDP growth shaves away Rs 3,290 in 2008-09 and Rs 7,820 in 2009-10, both at current prices, from annual household income growth.
On a per-capita income basis — taking a five-member average household — the loss is Rs 658 and Rs 1,564 respectively.
To be sure, the figures are just the drop in relative incomes between the most pessimistic and most optimistic GDP growth projections going around. In absolute terms, GDP and per-capita income will expand this fiscal and next.
We have assumed a 2% drop in GDP growth simply by taking the best-case and worst-case scenarios painted by reputed research organisations.
The best-case projection, by New Delhi-based Centre for Monitoring Indian Economy (CMIE) is a GDP growth of 8.7% in 2008-09. We have assumed a best-case as 8% for 2009-10. And the worst case, by Goldman Sachs, is 6.7% GDP growth this fiscal and 5.8% for 2009-10.
The analysis — done for ET by New Delhi-based analytics firm Indicus Analytics — assumes average inflation at 9% for 2008-09 and 6% for 2009-10. Figures from the Central Statistical Organisation’s end-May 2008
Revised estimates of annual national income, 2007-08, and census projections for population were used to arrive at estimated numbers for GDP and per-capital income for 2008-09 and 2009-10.
At the macro level, for the fiscal ending March 2009, the absolute difference in GDP (at current prices) between best and worst growth projections will be Rs 12,037 crore.
However, the gap widens to a sizeable Rs 2,07,669 crore for 2009-10.
This Rs 2 lakh crore-odd figure is about 8% of private final consumption expenditure (PFCE) for 2007-08. PFCE is the total consumer spend on all products & services.
Investment-led growth, which accounted for over 55% of GDP increase in 2007-08, is perceptibly slowing down on the back of expensive and hard-to-get credit.
Domestic consumer demand (as reflected by PFCE), which accounted for 46% of GDP growth last fiscal, was widely expected to shoulder the burden of economic growth for two-three years.
However, with consumer demand faltering across sectors — from cars, two-wheelers, airline seats, houses to consumer loans — the impending squeeze on household income growth will only aggravate pain across the economy.
How does a 2% drop in GDP growth translate in terms of lower household and per-capita incomes would be the most critical parameter going forward for a host of businesses that sell directly to households: everything from homes, cars, consumer electronics, daily expendables to financial services like insurance and loans.
Our analysis shows that a 2% drop in GDP growth shaves away Rs 3,290 in 2008-09 and Rs 7,820 in 2009-10, both at current prices, from annual household income growth.
On a per-capita income basis — taking a five-member average household — the loss is Rs 658 and Rs 1,564 respectively.
To be sure, the figures are just the drop in relative incomes between the most pessimistic and most optimistic GDP growth projections going around. In absolute terms, GDP and per-capita income will expand this fiscal and next.
We have assumed a 2% drop in GDP growth simply by taking the best-case and worst-case scenarios painted by reputed research organisations.
The best-case projection, by New Delhi-based Centre for Monitoring Indian Economy (CMIE) is a GDP growth of 8.7% in 2008-09. We have assumed a best-case as 8% for 2009-10. And the worst case, by Goldman Sachs, is 6.7% GDP growth this fiscal and 5.8% for 2009-10.
The analysis — done for ET by New Delhi-based analytics firm Indicus Analytics — assumes average inflation at 9% for 2008-09 and 6% for 2009-10. Figures from the Central Statistical Organisation’s end-May 2008
Revised estimates of annual national income, 2007-08, and census projections for population were used to arrive at estimated numbers for GDP and per-capital income for 2008-09 and 2009-10.
At the macro level, for the fiscal ending March 2009, the absolute difference in GDP (at current prices) between best and worst growth projections will be Rs 12,037 crore.
However, the gap widens to a sizeable Rs 2,07,669 crore for 2009-10.
This Rs 2 lakh crore-odd figure is about 8% of private final consumption expenditure (PFCE) for 2007-08. PFCE is the total consumer spend on all products & services.
Investment-led growth, which accounted for over 55% of GDP increase in 2007-08, is perceptibly slowing down on the back of expensive and hard-to-get credit.
Domestic consumer demand (as reflected by PFCE), which accounted for 46% of GDP growth last fiscal, was widely expected to shoulder the burden of economic growth for two-three years.
However, with consumer demand faltering across sectors — from cars, two-wheelers, airline seats, houses to consumer loans — the impending squeeze on household income growth will only aggravate pain across the economy.
Industrial growth slips in Sept; but ‘encouraging’
New Delhi, Nov. 12
A negative growth of 3.3 per cent in intermediate goods in September compared with 10 per cent in the corresponding period last year pulled down growth in the Index of Industrial Production (IIP) to 4.8 per cent in September 2008 as against 7 per cent in the same month last year.
In contrast, the capital goods sector grew by 18.8 per cent and the consumer durables increased by 13.1 per cent.
The Chief Statistician, Dr Pronab Sen, told Business Line that the negative growth in intermediate goods could be on account of manufacturers of final goods expecting a slowdown in the coming months, and running down their inventories of intermediates.
MANUFACTURING GROWS
The manufacturing sector grew by 4.8 per cent during the month marking a substantial fall compared to 7.4 per cent registered in September last year.
Simultaneously, the growth in the electricity sector also decelerated marginally to 4.4 per cent as against 4.5 per cent recorded in the same month last year.
Mining output increased by 5.7 per cent in September 2008 as against 4.9 per cent in September 2007.
The overall growth in the IIP for the April-September period stood at 4.9 per cent, almost half compared to 9.5 per cent growth recorded in the first half of last fiscal.
Describing the 4.8 per cent growth as encouraging, the Finance Minister, Mr P. Chidambaram, said in a statement that “after the poor results reported for the month of August 2008, the IIP for September 2008 is more encouraging.”
He, however, pointed out that “data collection must be improved and made more relevant, contemporary and universal.” In particular, the Minister pointed out that “the growth in the capital goods sector has been an impressive 18.8 per cent as against 20.9 per cent in September 2007.”
Similarly in September “the growth in consumer goods has been a satisfactory 5.6 per cent as against negative growth of 0.2 per cent in the same month last year”, he said.
Consumer non-durables grew marginally by 2.8 per cent against 2.6 per cent a year ago.
The growth in basic goods sector came down to 4.6 per cent as against 6.5 per cent during the same period last year.
Of the 17 industries, nine posted a positive growth with transport equipment and parts showing the highest growth if 16.8 per cent followed by machinery and equipment other than transport equipment at 16.1 per cent.
Beverages, tobacco and related products grew by 1.7 per cent while paper and paper products and printing grew by 8.3 per cent.
TEXTILES NEGATIVE
However, cotton textiles (-9.3), wood and wood products, furniture and fixtures (-9.7), leather and leather products (-8.6 per cent) registered a negative growth.
Apart from these, jute and other vegetable fibre textiles, textile products (including wearing apparel), basic chemicals and chemical products (except petroleum), rubber, plastic, petroleum and coal products also registered negative growth rates.
A negative growth of 3.3 per cent in intermediate goods in September compared with 10 per cent in the corresponding period last year pulled down growth in the Index of Industrial Production (IIP) to 4.8 per cent in September 2008 as against 7 per cent in the same month last year.
In contrast, the capital goods sector grew by 18.8 per cent and the consumer durables increased by 13.1 per cent.
The Chief Statistician, Dr Pronab Sen, told Business Line that the negative growth in intermediate goods could be on account of manufacturers of final goods expecting a slowdown in the coming months, and running down their inventories of intermediates.
MANUFACTURING GROWS
The manufacturing sector grew by 4.8 per cent during the month marking a substantial fall compared to 7.4 per cent registered in September last year.
Simultaneously, the growth in the electricity sector also decelerated marginally to 4.4 per cent as against 4.5 per cent recorded in the same month last year.
Mining output increased by 5.7 per cent in September 2008 as against 4.9 per cent in September 2007.
The overall growth in the IIP for the April-September period stood at 4.9 per cent, almost half compared to 9.5 per cent growth recorded in the first half of last fiscal.
Describing the 4.8 per cent growth as encouraging, the Finance Minister, Mr P. Chidambaram, said in a statement that “after the poor results reported for the month of August 2008, the IIP for September 2008 is more encouraging.”
He, however, pointed out that “data collection must be improved and made more relevant, contemporary and universal.” In particular, the Minister pointed out that “the growth in the capital goods sector has been an impressive 18.8 per cent as against 20.9 per cent in September 2007.”
Similarly in September “the growth in consumer goods has been a satisfactory 5.6 per cent as against negative growth of 0.2 per cent in the same month last year”, he said.
Consumer non-durables grew marginally by 2.8 per cent against 2.6 per cent a year ago.
The growth in basic goods sector came down to 4.6 per cent as against 6.5 per cent during the same period last year.
Of the 17 industries, nine posted a positive growth with transport equipment and parts showing the highest growth if 16.8 per cent followed by machinery and equipment other than transport equipment at 16.1 per cent.
Beverages, tobacco and related products grew by 1.7 per cent while paper and paper products and printing grew by 8.3 per cent.
TEXTILES NEGATIVE
However, cotton textiles (-9.3), wood and wood products, furniture and fixtures (-9.7), leather and leather products (-8.6 per cent) registered a negative growth.
Apart from these, jute and other vegetable fibre textiles, textile products (including wearing apparel), basic chemicals and chemical products (except petroleum), rubber, plastic, petroleum and coal products also registered negative growth rates.
Wednesday, November 12, 2008
IIP in September at 4.8% against 1.4% in Aug
The industrial growth in September was at 4.8% against the 13-year low of 1.4% in August 2008.
The index of six infrastructure industries, that have a combined weight of 26.7% in the IIP, posted a growth of 5.1% for September. Electricity, which has a weight of 10.17% in the IIP, recorded 4.4% growth rate for September, up sharply from 0.8% in August.
“Although substantial addition to the generation capacity may not be in the offing, I expect growth rate for electricity generation to remain 4-6% for the rest of the year,” Reliance Energy Trading CEO Mahendra Kumar Garg said.
Central excise collection for September registered a 3.8% drop from the corresponding month last year. The direct tax numbers for October also shows that real estate, infrastructure, cement, automobiles, power, textiles and downstream oil companies are witnessing moderation in growth in comparison to corresponding period last year.
The only consolation for the revenue department has been a good growth in service tax collections. The service tax collected in the first seven months of this fiscal has been Rs 29,867 crore in comparison to Rs 23,204 crore in the same period last year
Industrial production, which accounts for about a fifth of gross domestic product and is mostly geared to meet domestic demand, rose 8.1 per cent in 2007/08.
The index of six infrastructure industries, that have a combined weight of 26.7% in the IIP, posted a growth of 5.1% for September. Electricity, which has a weight of 10.17% in the IIP, recorded 4.4% growth rate for September, up sharply from 0.8% in August.
“Although substantial addition to the generation capacity may not be in the offing, I expect growth rate for electricity generation to remain 4-6% for the rest of the year,” Reliance Energy Trading CEO Mahendra Kumar Garg said.
Central excise collection for September registered a 3.8% drop from the corresponding month last year. The direct tax numbers for October also shows that real estate, infrastructure, cement, automobiles, power, textiles and downstream oil companies are witnessing moderation in growth in comparison to corresponding period last year.
The only consolation for the revenue department has been a good growth in service tax collections. The service tax collected in the first seven months of this fiscal has been Rs 29,867 crore in comparison to Rs 23,204 crore in the same period last year
Industrial production, which accounts for about a fifth of gross domestic product and is mostly geared to meet domestic demand, rose 8.1 per cent in 2007/08.
Tuesday, November 11, 2008
Slowdown to keep India's exports 20 pc below target: Study
NEW DELHI: Indian exports are likely to miss the target of $ 200 bn by 20 per cent this fiscal, as prevailing domestic and global economic conditions have severely affected shipments, a study said.
Besides the slowdown syndrome, other reasons which would affect exports include rising ocean freight rates and certain export restrictions imposed by the government, industry body Assocham said in its study on "Realistic Exports Vs The Targeted One".
"Seven key export segments such as textiles, apparel, gems and jewellery, diamonds, brass-ware, handicrafts and leather are already reeling under recessionary trends," it said.
The chamber anticipates a shortfall of about USD 40 bn in exports this current fiscal.
"Indian exports are likely to witness a shortfall of about 20 per cent against their target as prevailing domestic economic conditions have caused a severe dampening effect on potential export segments of the Indian economy," it said.
In the first two months of this fiscal, merchandise exports do not bring in as much foreign exchange as those brought in by high-value added products such as ready-made garments, diamonds, jewellery, gems, carpets, handicrafts and brass-ware, an Assocham spokesman said.
In September, India's exports registered a growth of mere 10.4 per cent against 26.9 per cent in August.
Other factors that have eroded costs and competitiveness of Indian exports include rising input costs, which are not falling, and power and infrastructure remain a problem for the manufacturing sector.
As a result, India is still far behind on logistics and the transaction cost of exports have already risen around 20 per cent, Assocham said.
The country is facing stiff competition on the exports front from neighbouring China as well as from Bangladesh, Sri Lanka, Pakistan and Bhutan.
As a result, its traditional exports have suffered in the past, which will continue to suffer even in the future until exporters make amends to their products by technology infusion.
Besides the slowdown syndrome, other reasons which would affect exports include rising ocean freight rates and certain export restrictions imposed by the government, industry body Assocham said in its study on "Realistic Exports Vs The Targeted One".
"Seven key export segments such as textiles, apparel, gems and jewellery, diamonds, brass-ware, handicrafts and leather are already reeling under recessionary trends," it said.
The chamber anticipates a shortfall of about USD 40 bn in exports this current fiscal.
"Indian exports are likely to witness a shortfall of about 20 per cent against their target as prevailing domestic economic conditions have caused a severe dampening effect on potential export segments of the Indian economy," it said.
In the first two months of this fiscal, merchandise exports do not bring in as much foreign exchange as those brought in by high-value added products such as ready-made garments, diamonds, jewellery, gems, carpets, handicrafts and brass-ware, an Assocham spokesman said.
In September, India's exports registered a growth of mere 10.4 per cent against 26.9 per cent in August.
Other factors that have eroded costs and competitiveness of Indian exports include rising input costs, which are not falling, and power and infrastructure remain a problem for the manufacturing sector.
As a result, India is still far behind on logistics and the transaction cost of exports have already risen around 20 per cent, Assocham said.
The country is facing stiff competition on the exports front from neighbouring China as well as from Bangladesh, Sri Lanka, Pakistan and Bhutan.
As a result, its traditional exports have suffered in the past, which will continue to suffer even in the future until exporters make amends to their products by technology infusion.
Exports plunge to five-year low in October
NEW DELHI: In a clear signal of the debilitating impact of the global economic crisis on India’s trade and employment prospects, merchandise exports dipped 15% and slipped into negative territory during October 2008 compared to the same month in 2007. The government expects the situation to continue or even deteriorate in the coming months. This is the first time in five years that India’s exports have witnessed a decline.
According to preliminary estimates by the commerce department, the decline in exports in October is sharper at 20% if petroleum — the only major sector registering an increase in exports during the month — is excluded from the calculation.
Director general of foreign trade RS Gujral said the export figures in September and October point to the difficult times ahead for exporters over the next year. Reduction of demand in the US and western Europe, pressure on prices and problems of credit and credibility will plague exporters in the months to come, he said. The DGFT admitted that the export target of $200 billion was unlikely to be met. “I personally believe that it is unlikely that the export target will be met,” he said.
Labour-intensive sectors like textiles, garments, handicrafts, certain segments of leather and gems & jewellery are the ones which have been hit the most by the slowdown in the West, he said. “Exports from all sectors, except petroleum and two minor sectors, declined in October. The employment-generating sectors have been hit the most,” Mr Gujaral said, adding that there could be job-cuts in such sectors.
When asked about the measures the government was contemplating to help exporters tide over the crisis, the DGFT said the high-level committee set up by the prime minister was closely monitoring the situation and would recommend suitable measures. “Specific areas, like labour-intensive export sectors, are likely to be identified and measures to address the credit problems of such sectors could be taken,” he said. According to Mr Gujral, the government has realised that measures taken by RBI to address the credit crunch, like reducing the cash reserve ratio (CRR) of banks, has not percolated down to exporters.
While the DGFT did not disclose the actual export figures, a 15% decline over $14.53 billion of exports in October 2007 would mean exports of around $ 12 billion in October 2008.
Average export growth in April-October 2008 is estimated to decelerate to 21.5% from a robust 30.8% in the first six months of the fiscal.
According to preliminary estimates by the commerce department, the decline in exports in October is sharper at 20% if petroleum — the only major sector registering an increase in exports during the month — is excluded from the calculation.
Director general of foreign trade RS Gujral said the export figures in September and October point to the difficult times ahead for exporters over the next year. Reduction of demand in the US and western Europe, pressure on prices and problems of credit and credibility will plague exporters in the months to come, he said. The DGFT admitted that the export target of $200 billion was unlikely to be met. “I personally believe that it is unlikely that the export target will be met,” he said.
Labour-intensive sectors like textiles, garments, handicrafts, certain segments of leather and gems & jewellery are the ones which have been hit the most by the slowdown in the West, he said. “Exports from all sectors, except petroleum and two minor sectors, declined in October. The employment-generating sectors have been hit the most,” Mr Gujaral said, adding that there could be job-cuts in such sectors.
When asked about the measures the government was contemplating to help exporters tide over the crisis, the DGFT said the high-level committee set up by the prime minister was closely monitoring the situation and would recommend suitable measures. “Specific areas, like labour-intensive export sectors, are likely to be identified and measures to address the credit problems of such sectors could be taken,” he said. According to Mr Gujral, the government has realised that measures taken by RBI to address the credit crunch, like reducing the cash reserve ratio (CRR) of banks, has not percolated down to exporters.
While the DGFT did not disclose the actual export figures, a 15% decline over $14.53 billion of exports in October 2007 would mean exports of around $ 12 billion in October 2008.
Average export growth in April-October 2008 is estimated to decelerate to 21.5% from a robust 30.8% in the first six months of the fiscal.
After hefty payout, BSE shareholders to get 12:1 bonus
After pocketing a hefty 3000% dividend in 2007-08, shareholders of the Bombay Stock Exchange (BSE) are being treated to some more largesse this time in the form of a bonus issue. According to reliable sources, the BSE board at its meeting on Saturday has decided to offer 12 bonus shares for very share held by shareholders.
Though the bonus issue is in line with brokers’ expectations, the move is seen as the first step towards eventual listing of the exchange’s shares. BSE is required to enhance its capital base significantly from the current level for listing purpose.
Post-bonus, the exchange’s equity capital would increase from the current Rs 78 lakh to Rs 10 crore, which is the limit applicable to companies seeking listing on the National Stock Exchange (NSE). The minimum paid-up capital requirement for BSE listing is Rs 3 crore.
Confirming the bonus issue, a broker shareholder said: “The move is positive in the sense that we are a step closer towards listing. But, we are more concerned about broader issues relating to stock market turmoil and the consequent loss in business, which have badly affected our prospects.”
In the last AGM, shareholders had insisted on speedy listing of BSE’s shares, which has been delayed by several months. The exchange was planning to get its shares listed by the end of the last fiscal. By increasing capital through bonus issue, the corporatised and demutualised exchange would fulfil the listing criteria and would be able to take the process further.
Sources say BSE is looking to list shares with or without initial public offering (IPO). Some brokers feel the cash-rich exchange does not need more funds and so could seek Sebi exemption from floating an IPO. As on March 31 2008, its reserves stood over Rs 1,500 crore, bolstered by equity participation of strategic investors Deutsche Boerse (DB) and Singapore Exchange (SGX) at Rs 5,200 per share. Strengthening its networth was also the exchange’s robust earnings for 2007-08.
The bonus would be offered to broker members and several other non-broker shareholders, which collectively own 51% stake in the BSE. Apart from DB and SGX, the list also includes Indian investors like SBI, LIC, Bajaj Auto and foreigners like Dubai Financial LLC, Atticus Mauritius and Caldwell Asset Management.
Though the bonus issue is in line with brokers’ expectations, the move is seen as the first step towards eventual listing of the exchange’s shares. BSE is required to enhance its capital base significantly from the current level for listing purpose.
Post-bonus, the exchange’s equity capital would increase from the current Rs 78 lakh to Rs 10 crore, which is the limit applicable to companies seeking listing on the National Stock Exchange (NSE). The minimum paid-up capital requirement for BSE listing is Rs 3 crore.
Confirming the bonus issue, a broker shareholder said: “The move is positive in the sense that we are a step closer towards listing. But, we are more concerned about broader issues relating to stock market turmoil and the consequent loss in business, which have badly affected our prospects.”
In the last AGM, shareholders had insisted on speedy listing of BSE’s shares, which has been delayed by several months. The exchange was planning to get its shares listed by the end of the last fiscal. By increasing capital through bonus issue, the corporatised and demutualised exchange would fulfil the listing criteria and would be able to take the process further.
Sources say BSE is looking to list shares with or without initial public offering (IPO). Some brokers feel the cash-rich exchange does not need more funds and so could seek Sebi exemption from floating an IPO. As on March 31 2008, its reserves stood over Rs 1,500 crore, bolstered by equity participation of strategic investors Deutsche Boerse (DB) and Singapore Exchange (SGX) at Rs 5,200 per share. Strengthening its networth was also the exchange’s robust earnings for 2007-08.
The bonus would be offered to broker members and several other non-broker shareholders, which collectively own 51% stake in the BSE. Apart from DB and SGX, the list also includes Indian investors like SBI, LIC, Bajaj Auto and foreigners like Dubai Financial LLC, Atticus Mauritius and Caldwell Asset Management.
Friday, November 07, 2008
IMF slashes India’s 2009 growth to 6.3%
Washington: The International Monetary Fund, or IMF, predicted lower growth in India and economic contractions in the US, Japan and euro region next year, calling for further interest rate cuts and fiscal stimulus.
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago. And its estimate for the country’s growth in 2008 is down 0.1 percentage points to 7.8%.
Also See Losing Steam (PDF)
An economist said India could grow faster than IMF’s estimate. “Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year,” said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd. Joshi’s estimate of growth this year is 7.5%.
“Markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions,” IMF said in an update to its World Economic Outlook report, released in Washington on Thursday. “Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
The revisions reflect a further choking-off of credit to companies and businesses in the past month. The Bank of England on Thursday declared the most serious banking “disruption” in almost a century, cutting its benchmark interest rate to the lowest level since 1955.
Also Read Rapidly weakening prospects call for new policy stimulus (PDF)
US gross domestic product will contract 0.7%, Japan’s will shrink 0.2% and the euro area’s 0.5% in 2009, IMF said on Thursday in Washington. The fund last month foresaw 0.1% US growth, with expansions of 0.5% in Japan and 0.2% in the euro zone.
Global growth will be 2.2% next year, down from 3.7% this year, IMF said. The fund said in its semiannual World Economic Outlook report on 7 October that world GDP would rise 3% in 2009. As recently as July, IMF economists expected a 3.9% expansion.
IMF has said that a growth rate of 3% or less is “equivalent to a global recession”.
Growth in the US “will suffer as households respond to depreciating real and financial assets and tightening financial conditions,” IMF said. In Japan, “growth from net exports is expected to decline”. The 15-nation euro region will be “hard hit” by the slowdown, the fund said.
IMF also warned on Thursday of growing risks of deflationary conditions in advanced economies.
“There is a clear need for additional macroeconomic stimulus relative to what has been announced thus far,” the fund said. “Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated.”
As the credit crunch widens, the reversal in major developed countries is spreading to poorer nations, increasing demand for IMF loans.
In emerging and developing countries, GDP in 2009 will increase 5.1%, less than the 6.1 % expansion the fund predicted in October. China’s growth will measure 8.5% next year, weaker than the 9.3% forecast a month ago.
Since the fund produced its forecast in October, the outlook for developing countries has deteriorated as investors shunned their currencies and bonds, sending borrowing costs climbing.
India’s stock market and currency are both down. The benchmark index of the Bombay Stock Exchange has fallen 52.02% since January and the rupee has lost 17.42% against the dollar in the same period.
Its estimate for India’s growth in 2009 is now 6.3%, 0.6 percentage points lower than its earlier estimate of 6.9% made just a month ago. And its estimate for the country’s growth in 2008 is down 0.1 percentage points to 7.8%.
Also See Losing Steam (PDF)
An economist said India could grow faster than IMF’s estimate. “Growth next year will definitely be slower than this year, but it may still touch 7%. New oil refineries coming up next year will also boost GDP (gross domestic product). I agree with IMF that growth momentum will slow further, but it may pick up towards the end of next year,” said Dharmakirti Joshi, principal economist with credit rating agency Crisil Ltd. Joshi’s estimate of growth this year is 7.5%.
“Markets have entered a vicious cycle of asset de-leveraging, price declines and investor redemptions,” IMF said in an update to its World Economic Outlook report, released in Washington on Thursday. “Global action to support financial markets and provide further fiscal stimulus and monetary easing can help limit the decline in world growth.”
The revisions reflect a further choking-off of credit to companies and businesses in the past month. The Bank of England on Thursday declared the most serious banking “disruption” in almost a century, cutting its benchmark interest rate to the lowest level since 1955.
Also Read Rapidly weakening prospects call for new policy stimulus (PDF)
US gross domestic product will contract 0.7%, Japan’s will shrink 0.2% and the euro area’s 0.5% in 2009, IMF said on Thursday in Washington. The fund last month foresaw 0.1% US growth, with expansions of 0.5% in Japan and 0.2% in the euro zone.
Global growth will be 2.2% next year, down from 3.7% this year, IMF said. The fund said in its semiannual World Economic Outlook report on 7 October that world GDP would rise 3% in 2009. As recently as July, IMF economists expected a 3.9% expansion.
IMF has said that a growth rate of 3% or less is “equivalent to a global recession”.
Growth in the US “will suffer as households respond to depreciating real and financial assets and tightening financial conditions,” IMF said. In Japan, “growth from net exports is expected to decline”. The 15-nation euro region will be “hard hit” by the slowdown, the fund said.
IMF also warned on Thursday of growing risks of deflationary conditions in advanced economies.
“There is a clear need for additional macroeconomic stimulus relative to what has been announced thus far,” the fund said. “Room to ease monetary policy should be exploited, especially now that inflation concerns have moderated.”
As the credit crunch widens, the reversal in major developed countries is spreading to poorer nations, increasing demand for IMF loans.
In emerging and developing countries, GDP in 2009 will increase 5.1%, less than the 6.1 % expansion the fund predicted in October. China’s growth will measure 8.5% next year, weaker than the 9.3% forecast a month ago.
Since the fund produced its forecast in October, the outlook for developing countries has deteriorated as investors shunned their currencies and bonds, sending borrowing costs climbing.
India’s stock market and currency are both down. The benchmark index of the Bombay Stock Exchange has fallen 52.02% since January and the rupee has lost 17.42% against the dollar in the same period.
No need to get panicky on slowdown: Nasscom
Hyderabad, Nov. 6 Don’t talk of gloom and doom, Mr Som Mittal, President of Nasscom, asks all those who refers to the slowdown and its impact on the Indian IT, ITES, animation and gaming industries.
Releasing the Nasscom Animation and Gaming Report 2008 here on Thursday, he said the fundamentals of the Indian economy were very strong and that there was no need to get panicky.
Referring to the highlights of the report, he pegged the animation industry at $1.16 billion by 2012 as against an estimated $460 million in 2008. The industry would grow at a compounded annual growth rate of 27 per cent in the next four years.
During the same time, the fledgling gaming industry would grow to $1 billion from $212 million, growing at a CAGR of 50 per cent.
He said the industry needed Government support in the form of reduced taxes and providing infrastructure.
Mr Mittal, who was here in connection with the Nasscom Animation and Gaming India 2008, said the number of H1 visas India received were just 14 per cent of all the visas given by the US. Making light of the reports that the slowdown would spell doom for the Indian industry, he said the country contributed just three per cent of the IT business market globally.
Mr Mittal and other speakers, including Dr Ganesh Natarajan, Chairman of Nasscom and Global Chief Executive Officer of Zensar, bet on the evolving opportunities in the domestic market itself.
Contemporary themes
Though started with mythological themes such as Hanuman and Ramayan, the animation industry had come of age with contemporary themes like Roadside Romeo and Toonpur Ka Superhero was gaining currency.
“Last year itself, we saw announcement of 85 domestic animation movies. Work on 28 of these are in different stages of production,” the Nasscom report, which was jointly produced by Ernst & Young, said.
The report pointed out that the industry faced with lack of original content. “The domestic demand for animation is restricted to select animation movies and advertising. Lack of quality resources, high attrition rates and absence of sufficient bandwidth are some of the issues that need to be addressed,” it said.
Earlier addressing the inaugural of the conference, Dr Ganesh said Mr Obama’s victory would not mean death for outsourcing business. His election, in fact, would result in huge opportunities for India as a strong US would have a cascading impact.
Releasing the Nasscom Animation and Gaming Report 2008 here on Thursday, he said the fundamentals of the Indian economy were very strong and that there was no need to get panicky.
Referring to the highlights of the report, he pegged the animation industry at $1.16 billion by 2012 as against an estimated $460 million in 2008. The industry would grow at a compounded annual growth rate of 27 per cent in the next four years.
During the same time, the fledgling gaming industry would grow to $1 billion from $212 million, growing at a CAGR of 50 per cent.
He said the industry needed Government support in the form of reduced taxes and providing infrastructure.
Mr Mittal, who was here in connection with the Nasscom Animation and Gaming India 2008, said the number of H1 visas India received were just 14 per cent of all the visas given by the US. Making light of the reports that the slowdown would spell doom for the Indian industry, he said the country contributed just three per cent of the IT business market globally.
Mr Mittal and other speakers, including Dr Ganesh Natarajan, Chairman of Nasscom and Global Chief Executive Officer of Zensar, bet on the evolving opportunities in the domestic market itself.
Contemporary themes
Though started with mythological themes such as Hanuman and Ramayan, the animation industry had come of age with contemporary themes like Roadside Romeo and Toonpur Ka Superhero was gaining currency.
“Last year itself, we saw announcement of 85 domestic animation movies. Work on 28 of these are in different stages of production,” the Nasscom report, which was jointly produced by Ernst & Young, said.
The report pointed out that the industry faced with lack of original content. “The domestic demand for animation is restricted to select animation movies and advertising. Lack of quality resources, high attrition rates and absence of sufficient bandwidth are some of the issues that need to be addressed,” it said.
Earlier addressing the inaugural of the conference, Dr Ganesh said Mr Obama’s victory would not mean death for outsourcing business. His election, in fact, would result in huge opportunities for India as a strong US would have a cascading impact.
Monday, November 03, 2008
Global crisis affects Indian economy, but bank deposits safe, assures PM
Prime Minister Manmohan Singh on Monday said the global crisis had impacted corporates, banks and investor sentiment, but assured that the banking system and deposits were safe and the government would take more steps to protect economic growth.
"A crisis of this magnitude was bound to affect our economy and it has. International credit has shrunk with adverse effects on our corporates and banks. Global uncertainty is also tending to dampen investor sentiment," he said during a meeting with India Inc to review the state of the economy in the face of the global meltdown.
He asked industry to refrain from any "knee-jerk" reaction such as large-scale layoffs, which might lead to a negative spiral, and said "industry must bear in mind its societal obligations in coping with the effects of this global crisis", which the Prime Minister felt "is now likely to be more severe and prolonged".
"Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effect ... the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day to day basis and more steps will be taken if required."
The meeting was attended, among others, by Ratan Tata, Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, where finance minister P Chidambaram, RBI covernor D Subbarao and Planning Commission deputy chairman Montek Singh Ahluwalia represented the government.
Singh said additional liquidity and reduction in repo rate will help to "provide credit at reasonable rates".
He said, "The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," adding that India will also seek reform of international financial institutions to prevent recurrence of such crisis.
The Prime Minister said that Indian "banks are well regulated and also well capitalised. I think we have successfully conveyed to our people that our banking system, both in the public and private sector, is safe, and the government stands behind it and that no one should fear for the safety of bank deposits."
Detailing the several measures taken to infuse liquidity into the system to ensure adequate flow of credit, he said, "I believe these steps have made a substantial difference. We recognize that the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day-to-day basis and more steps will be taken if required."
Singh exuded confidence that the country's financial system would be stable and function well following recent measures, while adding that the negative impact on the real economy needs to be minimised.
"The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence," he said.
Singh further told the industry leaders that the government was able to "act more boldly" because its efforts to contain inflation have begun to be effective.
Pointing out that expanding investment in infrastructure can play an important counter cyclical role in the current situation, he said, "We will review projects and programmes in the area of infrastructure development, including both pure public sector projects and public private partnership projects, to ensure that their implementation is expedited and they do not suffer from constraints of funds."
"A crisis of this magnitude was bound to affect our economy and it has. International credit has shrunk with adverse effects on our corporates and banks. Global uncertainty is also tending to dampen investor sentiment," he said during a meeting with India Inc to review the state of the economy in the face of the global meltdown.
He asked industry to refrain from any "knee-jerk" reaction such as large-scale layoffs, which might lead to a negative spiral, and said "industry must bear in mind its societal obligations in coping with the effects of this global crisis", which the Prime Minister felt "is now likely to be more severe and prolonged".
"Our first priority was to protect the Indian financial system from possible loss of confidence or contagion effect ... the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day to day basis and more steps will be taken if required."
The meeting was attended, among others, by Ratan Tata, Mukesh Ambani, K V Kamath, Shashi Ruia, Deepak Parekh, K P Singh, where finance minister P Chidambaram, RBI covernor D Subbarao and Planning Commission deputy chairman Montek Singh Ahluwalia represented the government.
Singh said additional liquidity and reduction in repo rate will help to "provide credit at reasonable rates".
He said, "The government will take necessary monetary and fiscal policy measures on the domestic front to protect our growth rates," adding that India will also seek reform of international financial institutions to prevent recurrence of such crisis.
The Prime Minister said that Indian "banks are well regulated and also well capitalised. I think we have successfully conveyed to our people that our banking system, both in the public and private sector, is safe, and the government stands behind it and that no one should fear for the safety of bank deposits."
Detailing the several measures taken to infuse liquidity into the system to ensure adequate flow of credit, he said, "I believe these steps have made a substantial difference. We recognize that the situation is abnormal and we need to be constantly on the alert. The situation is being watched on a day-to-day basis and more steps will be taken if required."
Singh exuded confidence that the country's financial system would be stable and function well following recent measures, while adding that the negative impact on the real economy needs to be minimised.
"The public sector banks have been instructed to ensure that they act counter cyclically in this situation to counter the general erosion of confidence," he said.
Singh further told the industry leaders that the government was able to "act more boldly" because its efforts to contain inflation have begun to be effective.
Pointing out that expanding investment in infrastructure can play an important counter cyclical role in the current situation, he said, "We will review projects and programmes in the area of infrastructure development, including both pure public sector projects and public private partnership projects, to ensure that their implementation is expedited and they do not suffer from constraints of funds."
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