Wednesday, February 27, 2013

Supply of free medicines: Will Budget have an answer?

Mumbai, Feb. 27:

With the much-publicised programme to supply free medicines across the country losing its initial momentum, February 28 will be crucial, as it could reveal the fate of this initiative.

The Budget statement will make public whether the Union Government has kept its promise of financially supporting the roll-out of free medicines. Or worse, it could end up confirming the worst fears of public-health workers: that the initiative has indeed been stonewalled by fiscal hawks keen on controlling Government spending.

In secrecy

The free-medicines programme, though, has the potential to become a shining star in the armoury of the Government in a pre-election year. And therein lies the key, says an optimistic health worker, hoping that Budget 2013 gives the free-medicines initiative the much-required financial tonic.

In what could have been a path-breaking initiative, the Government-supported programme to supply free medicines through its public health institutions was supposed to roll out last October.

The rub, though, was that the Government was to fork out about Rs 5,000 crore annually. The programme hinges on the Government increasing its health spending from about 1 per cent of the GDP to about 3 per cent.

Boost for dRug-makers

There have been pilot initiatives in Rajasthan, but the progress in other States is unclear, says a health worker. After the initial fanfare, the programme has been cloaked in secrecy, with little being said on whether indeed the programme has got under way in the country, he adds.

The programme could also hold out an opportunity for domestic drug-makers — if the Government decides to source medicines from the over Rs 1.2-lakh-crore pharmaceutical industry.

Indian generic drug makers have been called ‘pharmacy to the world,’ because they supply cheap quality medicines to global markets. It would be a natural fit for the Government to use this manufacturing advantage to make medicines available to its own people, observed an industry representative.

SHANE HAIDER

PGDM 2ND SEM.

Union Budget 2013: Chidambaram faces moment of truth

NEW DELHI: Finance minister P Chidambaram will present one of the most highly anticipated budgets of recent years on Thursday, a blueprint for austerity that forms the centrepiece of India's efforts to stave off a damaging credit ratings downgrade.

The 2013/14 budget caps an intensive seven-month campaign by the energetic Chidambaram, who was appointed last August, to turn around the fortunes of Asia's third-largest economy after years of policy drift and global economic turmoil.

Chidambaram will likely spell out plans to narrow fiscal and current account deficits, which have alarmed ratings agencies and triggered warnings that the country's sovereign bonds could lose their investment grade status and be downgraded to 'junk' if urgent steps are not taken to rein in spending.

He is expected to announce plans to keep a lid on government spending in fiscal 2013/14, capping it at roughly the same level as the year ending next month, officials said, despite fears that lower public expenditure risks deepening India's sharpest economic downturn in a decade.

Economists say he may also unveil measures to widen the tax net to boost government revenues, lay the groundwork for a goods and services tax, reduce the government's huge subsidies bill, sell more stakes in state-owned enterprises and raise import duties to dampen demand for gold.

Investors will watch closely to see whether the three-times Finance minister - seen as a possible candidate for prime minister in 2014 - will fulfil his promise of fiscal prudence or sow the budget with vote-winning, but expensive, welfare handouts.

"Fiscal consolidation is the need of the hour, and ratings agencies will sift through the finer budget details to judge India's sovereign credit rating, which already has a negative outlook at two ratings agencies," investment bank Nomura said.

When Chidambaram stands up in Parliament at 11am to lay out the government's spending and fund-raising priorities for the coming year, he will effectively start the countdown to an election due by May 2014.

Despite the emphasis on fiscal prudence, there will likely be some populist measures that will be key elements in the Congress's campaign.

He is expected to highlight plans to expand the supply for cheap grain for the poor at a total cost of more than $22 billion to the treasury, and an ambitious direct cash transfer programme for delivering social welfare payments and subsidies.

Credibility at stake

Chidambaram has staked his reputation on hitting a fiscal deficit target of 5.3 percent of GDP this year and 4.8 percent in 2013/14. A no-nonsense, Harvard-educated, lawyer who commands both respect and fear in government, he has squelched opposition from cabinet colleagues worried that spending cuts could ignite a backlash among voters.

Some ministries are bracing for funding cuts of up to 20-24 percent from their original 2012/13 targets.

Defence ministry officials fear the cuts could force a delay in weapons purchases by a country that has become the world's largest arms importer in recent years.

"My sense is that (at) this point the critical action we have to take is to try and re-accelerate growth, which is difficult in a situation ... where we are also trying to constrain spending," said Raghuram Rajan, Chidambaram's chief economic adviser, speaking at a news conference on Wednesday.

"But if we constrain spending cleverly, we can actually do both."

Chidambaram has focused on winning back foreign investors who were unnerved by proposals of his predecessor, Pranab Mukherjee, to tax merger and acquisition deals retrospectively and clamp down on tax evasion. He has implemented a spate of investor-friendly reforms, including opening up the retail sector to foreign supermarkets, since last September.

But Thursday's budget, his eighth, will be the biggest test of his reformist credentials.

His last budget, in 2008/09, was widely credited with ensuring the re-election of the Congress-led ruling alliance. Flushed with funds, thanks to near-double-digit economic growth, Chidambaram increased government spending in rural areas, the Congress party's traditional "vote bank".

This year, however, the economic slowdown has left him with little room for big-bang populist measures. The government estimates economic growth for fiscal 2012/13 will be 5 percent, nearly half of what it was in 2007/08.

In its annual economic survey released on the eve of the budget, the finance ministry said the economic slowdown was a "wake-up call for increasing the pace of actions and reforms". It projected growth in the coming year of 6.1-6.7 percent.

Nomura said the credibility of Chidambaram's budget would depend on the government's underlying assumptions on growth, asset sales and subsidies.

Some government economic estimates in the past have proven wildly over-optimistic. In the 2012/13 budget for example, the government predicted the economy would grow at 7.6 percent, sharply higher than the 5 percent that is now forecast.

MD. ABDUL WAHAB
CLASS- PGDM

Budget 2013 | Chidambaram’s tryst with destiny

First Published: Wed, Feb 27 2013.

Finance minister P. Chidambaram has implicitly committed himself to presenting a responsible budget in the course of his international roadshows.

New Delhi: Only two Union budgets, in 1990, and 1980 before that, have been presented against a gloomier macroeconomic backdrop than the budget that finance minister P. Chidambaram will present on Thursday.

Everyone is unhappy.

Consumers, at the receiving end of joblessness and continued double-digit inflation for over three years, are unhappy.

Businessmen, buffeted by the new-found volatility in the global economy and hit hard by the Reserve Bank of India’s high interest rate regime, are unhappy.

And investors, domestic and international, small and large, and witness to a spate of undelivered promises by the government, are unhappy.

Over the past four years, the Congress-led United Progressive Alliance (UPA) has presided over an economy where inflation and growth seem to have traded places. If it was 9% growth and 5% inflation in 2009, when the UPA took charge for the second time, it is exactly the reverse now. Investment tapered off a long time ago, and now consumers are beginning to hold on to their money.

Budget 2013 can turn the tide if it does two things—revive growth and generate jobs.

To be sure, one budget cannot provide a quick-fix solution to what is, essentially, a structural problem, but it can provide a credible blueprint.

If Chidambaram presents this blueprint, it will address the twin concerns of growth and jobs.

It will provide political succour to the Congress.

It will calm the jitters of foreign investors and send out the message that India is back in business.

And it may even work wonders on the sentiment of consumers.

I have separated the two objectives of growth and jobs, although one would assume that any growth that is based on fresh investments and higher consumption should generate jobs.

That’s because the reality in India, especially based on recent experience, is that job creation has been decoupled from growth: the phenomenon of jobless growth.

As reported in Mint previously, India generated a million jobs in the five-year period ended 2009-10, while economic growth over the same period averaged 8.7%; the previous five-year period ended 2004-05 saw 58 million jobs being created.

In three of these years, 2005-06, 2006-07 and 2007-08, growth was 9.5%, 9.6% and 9.3%, respectively—returning an average rate of growth of 9.5%.

Worse, about 12 million people are joining the workforce every year.

The task before the finance minister is clear.

Irrespective of the tone and tenor of the budget, it will have to be a credible vision statement. Consumers, financial markets and investors, both domestic and foreign, have repeatedly been disappointed by the government’s inability to walk the talk—and they are understandably at the end of their tether.

The finance minister has also implicitly committed himself to presenting a responsible budget in the course of his international roadshows. So presumably, he will both showcase a vision and set out immediate steps, and, like his colleague railway minister P.K. Bansal, let economics and not politics dominate the strategy.

After all, good economics can be good politics, too.

The good news, from all available signals, is that the economy has either bottomed out or is very close to doing so. In other words, the economy is primed and just needs a nudge from policy manoeuvres to start chugging again. According to a recent investor advisory issued by Yes Bank Ltd, the investment pipeline is promising. The note said more greenfield projects have been announced or are under implementation in 2013 than last year. It added that there are at least 100 projects each in transport, power generation and housing.

It is obvious that the constraints on the economy far outweigh the options that the finance minister has at his disposal. But every challenge, to resort to a cliché, is also an opportunity. That presumably will be the focus of the finance minister, who is already halfway into writing his enviable legacy by fast-tracking the single goods and services tax; he is one credible dream budget away from sealing it.

Will he do it? He owes it to Gen-X, who have already overwhelmed the demographic numbers.

Let us not forget that it was Chidambaram who said in his 2006-07 budget speech, “It is our duty to put the foundations on which the young can build their castles.”

ADITYA KUMAR SINGH

PGDM 2nd SEM

Economic Survey 2013: Soaring imports put India on edge of a crisiszxcm

But imports, especially of oil, should be curbed by linking the sale price to market, says the Economic Survey 2012-13. Gold imports, touted as the root cause of the record current account deficit should be curbed, it says.

"Though capital flows are bridging the gap, the nature of portfolio capital may lead to greater potential financial fragility and also rupee volatility," the Survey says. "A sizeable share of capital is in the nature of foreign institutional investors' investment that could moderate or even reverse if investors switch to risk-off mode. The balance of payments position, therefore, is more vulnerable, which has been reflected in the high rupee volatility."

India's external trade position is at its worst, with the current account deficit for the September quarter at a record 5.4% of the Gross Domestic Product ( GDP), nearly double the level during 1991 currency crisis when India pledged gold to pay off bills. The subsidised sale of fuel and the craze for gold to beat inflation led to the deterioration since they account for about half the total imports.

Dependence on short-term inflows to bridge the current account deficit may backfire if there is a reversal of capital

The squeezing of budget by European nations and the slow recovery in the US after the 2008 credit crisis are hurting exports. Imports, however, remain strong. While exports fell 5.5% to $214.1 billion in April-December 2012, imports fell less than proportionately by 0.7% to $ 361.3 billion.

"The room to increase exports in the short run is limited, as they are dependent upon the recovery and growth of partner countries, especially industrial economies," it says. "This may take time.

The main focus has to be on curbing imports, mainly by making oil prices more market determined, and curbing imports of gold." Global economic uncertainty is not gone either, despite five years of stimulus by both the (US) Federal Reserve and the European Central Bank.

If the sovereign crisis in Europe returns, or the political stand-off in the US borrowing plan balloons into a crisis, flows could reverse as it happened when the US was downgraded from AAA rating, or when Greece was nearly thrown out of the Euro club.

"In the Euro area, despite several rescue packages, the crisis has become deep, structural and multifaceted, posing a major downside risk to the global outlook," it says.

India needs to be watchful of the global scenario and also keep an eye on the external borrowings of its corporates, which, if not backed by foreign currency earnings or hedging, could aggravate a crisis. "Unfortunately, too many Indian corporations with little foreign currency earnings leave foreign currency borrowings unhedged so as to profit from low international interest rates," says the Survey. "This is a dangerous gamble for reasons described above and should be avoided."

The long-term solution to prevent an external crisis is to ensure India attracts long-term funds in the form of foreign direct investment. The Survey suggests the FDI cap be raised in financial services such as insurance and even in state-run banks to attract more inflows.

"There is a need to review increasing of FDI cap in insurance and public sector banks," it says. "By raising cap to 49% in the insurance sector, there is scope for substantial growth in the coming years. This sector could be one of the major sources of longterm investment in infrastructure. Similarly, FDI limit in public sector banks could be increased to 26%."

LALIT SHARMA

PGDM 2nd sem

Highlights: Economic Survey 2012

The finance ministry delivered a report on the state of the economy on Wednesday, a day before finance minister P Chidambaram unveils what is expected to be the most austere budget in years. The annual report was prepared by Raghuram Rajan, the former chief economist to the International

Monetary Fund (IMF) who became the top adviser in the finance ministry last year. Following are highlights of the report:
GROWTH
* GDP growth seen at 6.1-6.7 pct in 2013/14

FISCAL DEFICIT
* India likely to meet fiscal deficit target of 5.3 pct of GDP in 2012/13, despite "significant" shortfall in revenues
* Government target for fiscal deficit is 4.8 pct of GDP in 2013/14
* Government target for fiscal deficit is 3 pct of GDP in 2016/17
* Prioritisation of expenditure seen as key ingredient of credible medium-term fiscal consolidation plan
* Raising tax to GDP ratio to more than 11 pct seen as critical for sustaining fiscal consolidation
* Room for accommodative monetary policy with expected fiscal consolidation

INFLATION
* Headline inflation may decline to 6.2-6.6 pct by March

CURRENT ACCOUNT DEFICIT
* Focus on curbing imports, making oil prices more market determined to reign in current account deficit
* Recommends curbing gold imports to reign in current account deficit
* Room to increase exports in the short run limited

FOREIGN INFLOWS
* Foreign Institutional Investors (FIIs) flows need to be targeted towards long-term rupee instruments

SECTOR GROWTH
* Industrial output seen growing around 3 pct in 2012/13
kaushal singh PGDM 2 SEM

EDITORS PICK

The winter has been hard this year and it is not quite the season for me to venture out. But having strayed onto Raisina Hill in the capital on the eve of Budget day, I decided to make the best of it. I strayed into the corner room in North Block, knowing little that this was the nerve centre today. Settling down on the wall close to the writing desk (I couldn't risk going too close, lest the fly zapper is called for) I chose a vantage point to get a helicopter view. Within minutes of settling in, the country's finance minister P Chidambaram walked over to the desk, preparing his eighth budget speech. Aha! I soon realized the treat I was in for. Dear Readers, watch out for these words in the FM's speech!

"I have to stick to the numbers and propel growth, continuing the reforms" PC was muttering to himself. "But it's just not that- My job is to ensure that this government is voted back to power, and that's the tricky part," he said while scribbling down a set of numbers on a white paper. I could read the capital letters- Subsidy, Expenditure, and Revenue... It was imminent that he was under immense pressure. Yet he exuded a sense of confidence in some odd way. The fiscal discipline part is done for this financial year, "I am home on this count having met 5.1% and what's more, even my worst critics will have to acknowledge this. Fiscal consolidation will have to be the backbone of this budget as this alone can bring back foreign investors, not to forget the close watch by the credit rating agencies and the risk of a slippage," he read out. One thing was sure, "the government would keep the fuel subsidies lower this year as motor fuel prices had been decontrolled," he smiled to himself as he recalled how hard it was to sell this to the party.

The mute television screen caught his eye just then as it beamed an advertisement on how easy it was to buy and invest in gold. "Gold imports has posed a huge problem for the current account deficit (CAD) making it almost impossible for Subba to bring down the interest rates. I need to get investors away from gold and divert to savings," he said even as he ran through the high inflation numbers.

"That Infy guy, Nilekani, has done a good job with Aadhaar the direct benefit transfer, and now that it has been adopted by my party I need to make this the centre point of my new and old schemes," he said eyeing through the detailed list of schemes attached to the DBT. "It will be a strong political plank but that is not all. This is my weapon to target subsides better, make government welfare schemes effective and cut out waste; It will help in fiscal consolidation as it will help bring my subsidy bill down but most importantly this will give the leg up to financial inclusion." He appeared a bit pre-occupied at this point, looking away from his papers. "I need the states on board for this, will weave in some sops if needed, for their partnership is crucial to make the DBT pay dividends," he said aloud, leaning back on his chair for a brief moment before he swung back to add a post-it on to a page. I stretched forward to read the page..States partnership to roll out the Goods and Services Tax ( GST). But Alas! I could not read the date, it was far too small.

Flipping through the pages as he crossed the Ts and dotted the Is, I had heard he was a perfectionist; he eyeballed the paragraphs in part A of his speech. As if he was ticking the boxes, "this one on poverty alleviation, skills, R&D, rural roads, infrastructure, education, mid-day meals, textile industry, MSMEs, health..." the list went on till he suddenly stopped. "Women and gender issues have to be addressed and this is something I need to assure," Chidambaram read aloud. A higher tax exemption, special safety features for working women to name a few.

Going through the pages quickly he zeroed down on the part on right to food. "This was close to Mrs Gandhi and is important for the vast poor in our country," he said to himself. "

gaurav singh tomar
pgdm 2nd sem

Economic Survey 2013: Indian economy more vulnerable to global shocks

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Indian economy has greater vulnerability to global shocks and economic re-balancing will help in reducing the risks, the Economic Survey said today.

NEW DELHI: Indian economy has greater vulnerability to global shocks and economic re-balancing will help in reducing the risks, the Economic Survey said today.

Emphasising that India cannot take the external environment for granted, the Survey said the country is exposed to shifts in risk tolerance of global investors.

Another external risk is that India's import bill is strongly tied to the price of oil.

"Globalisation of Indian economy has helped raise growth, it has also meant greater vulnerability to external shocks. A focus on domestic macroeconomic re-balancing will help reduce vulnerability," said the Economic Survey 2012-13, which was tabled by Finance Minister P Chidambaram in Parliament.

It is unlikely that the support to Indian growth from the global economy would be significant, it added.

"India cannot take the external environment for granted, and has to move quickly to restore domestic balance," the survey said.

"The government is committed to fiscal consolidation. This along with demand compression and augmented agricultural production should lead to lower inflation, giving the RBI the requisite flexibility to reduce policy rates," it added.

It also said that global recovery would depend on risks managed from the US fiscal adjustment and Eurozone area.

Crisis in the Eurozone has become deep, structural and multifaceted, despite several rescue packages over the last two years, posing a major downside risk to the global outlook.

AMIT GUPTA

PGDM 2nd SEM

Economic Survey: Worst over for India, but future uncertain

Economic Survey says growth to recover to 6.1-6.7% range next fiscal, but highlights issue of jobless growth

Asit Ranjan Mishra

| Remya Nair

First Published: Wed, Feb 27 2013. 12 36 PM IST

In a pragmatic assessment, the first being overseen by newly appointed chief economic adviser Raghuram Rajan, the survey concedes that the economy is facing structural problems and the key policy priorities are to fight inflation, curb fiscal profligacy and generate jobs. Photo: Mint

Also Read

Updated: Thu, Feb 28 2013. 09 27 AM IST

New Delhi: For the second year in a row, the annual economic survey has maintained that the worst is over for the Indian economy, this time with the caveat that higher growth is contingent on the government following through with key policy actions to address structural flaws.

Presented to Parliament a day before finance minister P. Chidambaram presents the Union Budget, the Economic Survey of 2012-13 forecast that the economy should recover to a growth pace ranging between 6.1% and 6.7% in the next financial year.

The document, which is a diagnosis of the adverse state of the economy in the current fiscal, unambiguously identifies the structural constraints facing the Indian economy and argues that bold policy initiatives are an imperative, not an option, to ensure the forecast is realized.

It has effectively argued that policy inaction is the downside risk to the economy.

In a break with the past, the Economic Survey has devoted an entire chapter on the critical issue of the economy being unable to generate jobs despite record growth. “Because good jobs are both the pathway to growth as well as the best form of inclusion, India has to think of ways of enabling their creation.”

Setting the agenda, the survey said the only way to start a virtuous circle lies in “shifting national spending from consumption to investment, removing the bottlenecks to investment, growth and job creation, in part through structural reforms, combating inflation both through monetary and supply-side measures, reducing the costs for borrowers of raising financing, and increasing the opportunities for savers to get strong real investment returns”.

Raghuram Rajan, the chief economic adviser who took charge in August, later told reporters at a press conference, “There are no silver bullets here. There are lots of things that we need to do that will start us on the path of macroeconomic stabilization, which will instill confidence both in financial and real investors.”

The Indian economy is projected to slow to 5% growth in the year to 31 March, the slowest pace in a decade, burdened by regulatory hurdles for infrastructure investments, higher interest rates and global economic crisis.

The survey pointed out that with the ongoing private sector deleveraging and government fiscal consolidation in developed economies, the global economy is likely to post a “very moderate” recovery in 2013 and would only gather steam in 2014. The survey said India cannot take the external environment for granted and has to move quickly to restore domestic balance. “What is important is to recognize that a lot needs to be done, and the slowdown is a wake-up call for increasing the pace of actions and reforms,” it said.

Rajan said India is in a difficult situation, but not an impossible one. “The bigger issue is whether we have a good handle on the underlying circumstances of the economy and the necessity for the policy to rectify that.”

The survey, however, seemed to be against raising income-tax rates or the imposition of a super-rich tax. “Of course, it is much better to achieve a higher tax-GDP (gross domestic product) ratio by broadening the base that is taxed rather than increasing marginal tax rates significantly—higher and higher tax rates impinge more and more on incentives to undertake taxable activity, while encouraging tax evasion,” it held.

C. Rangarajan, chairman of the Prime Minister’s economic advisory council, had mooted a higher tax rate for the super rich to compensate for falling tax revenue collections.

India’s tax-GDP ratio, after reaching a peak of 11.9% in 2007-08, declined to 9.6% in 2009-10 and was at 9.9% in 2011-12.

“Raising the tax-GDP ratio to above the 11% level is critical for sustaining the process of fiscal consolidation in the long run,” the survey said.

Making a case for the Reserve Bank of India to lower interest rates further to enable a pick-up in investment and consumption, the survey said the central bank should link its monetary policy to the behaviour of the less-volatile non-food manufacturing inflation, or core inflation.

“To the extent that monetary policy has limited influence over certain aspects of inflation such as food prices, it may be appropriate for monetary policy to set rates based on what it can influence,” the survey said.

Advocating expenditure reforms, the survey said the fiscal deficit should be reduced by shrinking wasteful and distortion-inducing subsidies while protecting Plan expenditure, given the large unmet development needs. Chidambaram has promised to keep the fiscal deficit at 5.3% of GDP in 2012-13 and bring it down to 4.8% in the next fiscal.

Measures highlighted in the Economic Survey may resonate in the Union Budget on Thursday, said Madan Sabnavis, chief economist at Care Ratings.

“This environment has warranted the government to reduce spending to anchor inflation, facilitate corporate and infrastructure spending to ease supply and work towards fiscal consolidation. Going forward, these steps would need to be pursued with greater fervour,” he added.

The survey stressed the need for creating more productive jobs, especially in the organized manufacturing sector, to meet growing aspirations of the youth. It estimated that nearly half the additions to India’s labour force in 2011-30 will be in the 30-49 age group.

“The survey has raised some very valid concerns. Joblessness is a key issue and the government needs to focus its energies on generating employment,” said Rajesh Chakrabarti, executive director, Bharti Institute of Public Policy, and a faculty member at the Indian School of Business.

“There is a need to create jobs for our burgeoning population. The job creation numbers show that some of the government’s strategies surrounding employment generation like the skill development strategy have not worked,” he added.

VIKAS KUMAR GUPTA

PGDM 2ND SEM

Blackstone in talks to buy Gurgaon SEZ for $440 mn: Reports

MUMBAI: Blackstone Group LP is driving the migration of private equity money into India's commercial real estate after the global financial crisis cooled the country's once-ardent residential segment and the number of unsold new homes surged.

Since 2005, when India opened its property sector to foreign investors, money has mostly poured into housing because of simpler investment rules while sales of finished homes provide private equity funds a clear exit. But with Indian home prices down between 5 and 30 per cent since 2009, some investors are moving into commercial assets that yield steady rental income and limiting their exposure to the volatile residential market.

Despite a limited supply of commercial real estate open to foreign investment and a lack of exit options, many investors such as Morgan Stanley and Rothschild-backed Xander Group Inc are eager to grab a bigger slice of India's property market due to the country's fast-growing economy, the promise of double-digit returns and attractive valuations.

"We waited till valuations got a bit softer and more attractive. And now, we are going aggressive," Akhil Gupta, chairman of Blackstone India, said in an interview. "We have done a few large deals, and are looking to infuse more capital."

Blackstone, the biggest global private equity property investor, is the most active in India and has spent $500 million on about 20 million square feet (1.8 million square metres) of leased assets over the past 18 months.

It is now on the hunt for more. Most of Blackstone's India acquisitions are made jointly with Embassy Group, a Bangalore-based developer that invests largely in South India.

The duo is in talks to buy a special economic zone in Gurgaon - the booming satellite city outside the capital New Delhi - for about 24 billion rupees ($440 million), two sources with direct knowledge of the matter told Reuters earlier this month. That would be India's biggest private equity real estate investment since 2008.

Owned by Unitech BSE 1.52 % Corporate Parks and developed by Delhi-based Unitech Ltd, the special economic zone has 3.7 million square feet of leased offices and potential to develop another 1.8 million square feet, sources have said.

The deal would follow Blackstone's recent agreement, according to a Reuters report, to buy a technology park in Bangalore, along with Embassy and a domestic property fund, for around $367 million.

Blackstone and Embassy declined to comment. As of last year, investment in Indian property by private equity funds totalled $1.95 billion, with 57 per cent of it in commercial assets. That compares with $9.8 billion in 2007, when most of it was in residential projects, according to Chennai-based data firm Venture Intelligence.

LIMITED POOL The value of commercial property being built in India has risen to around $42 billion today, still just a third of the value of homes under construction, compared with $34 billion in mid-2010, according to property consultant Jones Lang LaSalle.

Not all of this can be bought by overseas funds as Indian rules allow them to invest only in technology parks and special economic zones. Also, foreign property investors cannot sell for three years.

Blackstone is the most active in India and has spent $500 mn on about 20 mn sq ft (1.8 mn sq m) of leased assets over the past 18 months

Rising competition for the limited pool of income-producing assets has pushed rental yields - annual rental income divided by the cost of the asset - down to about 10 per cent from 12 to 13 per cent, investors say.

Exit opportunities for funds are also few, as India does not yet permit publicly listed real estate investment trusts (REITs), although it is considering allowing such vehicles, which pool income-generating assets. That means investors looking to cash out can form private REITs, list the assets as REITs in places such as London and Singapore, or sell to another investor.

Morgan Stanley, which has made several residential property investments in India, is in talks to invest $186 million in its first office development in the country, in Mumbai's Bandra-Kurla financial district, Reuters reported recently.

For residential projects, where returns can be higher, Morgan Stanley will stick to projects where approvals are largely in place and land has been acquired, said Shirish Godbole, managing director at Morgan Stanley Real Estate Investing (MSREI) India.

Returns on leased assets are between 14 and 16 per cent, compared with residential development projects that return 19 to 21 per cent, according to Jones Lang LaSalle.

ABDUL WAHEED
PGDM 2nd SEM.
IIMT COLLEGE OF MANAGEMENT

Kolkata market fire: Breadwinners snatched away

Raju, Rubina and Sonu do not know each other, but the fire that engulfed the five storey Surya Sen Market here leaving 19 dead on Wednesday has strung them together in their misfortune of having a breadwinner snatched away.

A 15-year-old boy, Raju, whose migrant labourer father Rajnish, who slept in the shop at nights after a hard day's work, was s

tanding beside the gate crying inconsolably.
"Please bring back my father, I don't know where he is," he wept.

A 30-year-old woman, Rubina said that her husband, Ismail, a daily labourer in the market and her family were to leave for a wedding at home next month for which they had saved up.
"We were about to leave for our village for my sister-in-law's wedding next month. We don't know what will happen now," she sobbed.
A 10-year-old boy, Sonu along with his uncle was looking for his father and grand father, who had a grocery shop in the market.
"I am searching for my father Ratan Lal and my grand father. Both of them had stayed back in the shop last night. Please help me find them," he entreated his eyes welling with tears.

According to Fire Services minister Javed Khan, most of the bodies of the 19 victims were charred beyond recognition.
JEEUTIKA SINHA
PGDM 1st sem

Sebi orders probe, halts payout in four mid-cap scrips

MUMBAI: Market regulator Sebi on Wednesday stopped payout of funds and securities for some trades executed on Monday in at least four midcap stocks that witnessed hectic activity in the last three days.

The stocks included Core Education, Eros International , ABG Shipyard and Welspun Corp, top sources confirmed to TOI. Sebi has also started an investigation into this sudden and sharp fall in about 10-12 mid-cap stocks. The regulatory move came even as there were widespread talks about selling of a large number of mid-cap stocks in which some of the leading speculators in the market had built positions but failed to meet their margin commitments to their respective brokers. Market sources said some of these brokers and clients are scheduled to meet on Thursday to discuss the situation arising out of the regulatory move, which has been taken to mitigate market risks and stop alleged manipulations . In the market, there are some brokers who finance speculators and traders (also called market operators) to take positions in stocks for intra-day trades.

In this case, as the prices of some speculative stocks fell sharply, leading to losses for operators, brokers liquidated those speculative positions, pulling down the prices further . The regulatory direction came on the same day U K Sinha , chairman, Sebi, said in Hyderabad that the regulator was probing crash in the prices of about 10-12 mid-cap shares on Monday. On that day, the stock price of Core Education had crashed 62%. On Wednesday it took a further knock of 46% to close at Rs 60. Last Friday, the stock had closed at Rs 304. So in just three sessions, the stock has lost 80% of its value. Without disclosing any details, Sinha said that the probe was started on Tuesday. "A similar attempt was made sometime in July in about four-five scrips and we identified the people who tried to manipulate the market, passed orders against them and took risk mitigation measures," Sinha was quoted by PTI.

Amjad khan

PGDM 2nd

What can send the markets up on budget day?

A file photo of finance minister P. Chidambaram. Photo: Min

Indian equities have had a substantial correction in the run-up to the Union budget. They’ve also done worse than the rest of emerging Asia. Is that because they had run up too fast at the end of last year? Not really—the MSCI India equity index has underperformed MSCI emerging markets Asia year to date, in the last three months and also in the last one year.

That suggests the markets are keenly aware of the constraints being faced by the finance minister. The Indian economy is facing structural constraints in a number of key sectors—coal, power, land, iron ore, gas, agriculture—to name a few and there’s little the finance minister can do in the budget to tackle these problems. But with the run-up to the budget being so weak, could there be room for positive surprises? As Edelweiss Securities said in a research note put out on Wednesday: “Market looks oversold and with Union budget on the anvil, markets may rebound to any positive news flow.”

So what could be the positive surprises that may send the markets up? Here are some of them:

• The economy

The finance minister has already committed that the fiscal deficit for FY13 and FY14 will be 5.3% and 4.8% of GDP, respectively. A lower number will be welcomed by the markets, provided it is credible. For example, with the failure of the spectrum auction, it might be difficult for the finance minister to stick to his 5.3% target for the current fiscal. Any attempt to fudge the oil subsidy figures, as was done last year, will be viewed askance.

In general, a reform-oriented budget that does lip service to populism and shifts the focus on spending towards infrastructure-building and capital formation will be positive. A Citibank note says the market will focus on “(a) incentives for financial savings, including equity; b) road map or commitment on GST (goods and services tax); c) legislative intent on land acquisition, sectoral FDI (foreign direct investment), insurance; d) infra and capital investments; e) bond markets; and f) execution commitments and initiatives. It’s the incentives that should be the swing element, and where the surprises could lie.”

• Broad market

• Accelerated depreciation in some growth sectors such as power, renewables, or more industrial categories.

• Sops to route money through the Rajiv Gandhi Equity Savings Scheme or mutual funds.

• A reduction in the securities transaction tax and/or short-term capital gains tax will be viewed positively, although a marginal reduction like the one in last year’s budget will not move the markets. The introduction of a commodities transaction tax will be taken positively, as it will create a level-playing field and correct the large shift in trading to commodities.

• Raising the base exemption limit in direct tax will be a positive.

• There are fears (in some quarters) about the minimum alternate tax (MAT) being raised to 20% (from 18.5%); and excise duty being raised to pre-crisis levels of 14% (from 12% currently). If these rates are left unchanged, it will be a positive. If they are indeed raised, it will be negative for the market.

Here are some of the measures that could move stock prices in different sectors:

• IT sector

Any tax sops such as removal of MAT on special economic zones (SEZs) or revival of tax benefits for export-oriented units will be a positive surprise.

• Telecom

The key number that will be watched is the budgetary assumption on receipts from spectrum sales. However, given the government’s unrealistic expectations on this front this year, this number will be taken with large doses of salt. The budget numbers were most likely drawn before the failure of the auction this week and it’s unlikely budget estimates will be modest, leaving little room for upside.

• Banking and financial services

• Capping of gross government borrowing to Rs.5.4 trillion.

• Laying down a time-bound road map for FDI in insurance.

• Power

• Introduction of a take-out financing mechanism/allow debt restructuring for hydel power projects.

• Allocation of money towards incentivizing state governments to proceed with the debt-restructuring plans of state-owned electricity distributors.

• Fertilizers

• Hike/deregulation in urea prices.

• Road map for direct transfer of fertilizer subsidies to farmers.

• Auto sector

No increase in excise duty on passenger vehicles and utility vehicles and no levy of the expected differential excise duty on utility vehicles.

• Capital goods

• Imposition of higher duties on imported equipment—will give more protection to domestic industry and lift the investment cycle on home ground.

• Formation of any special investment vehicles for outlays towards roads and other infrastructure.

• Easing norms for Indian firms to access more foreign capital (ECBs, or external commercial borrowings)—this will lower borrowing costs for these firms.

• Cement

No increase in excise—directly or indirectly—will offset the marginal hike in costs through railway freight rates.

• Textiles

Reduction or abolition of duties on certain grades of fabric (man-made fibres) to make garments; any excise duty relief on branded garments.

• Oil and gas

• Public sector oil companies will benefit if the diesel subsidy is limited to a specific amount.

• The definition of mineral oil to include “natural gas” in section 80-IB will benefit exploration companies.

• Shipping and ports

• Revision of subsidy for ship building will be positive for ship-building companies and make them more competitive. It will also lower the cost of vessel acquisition for shipping companies.

• Extension of 80-IA benefits for a longer time period will benefit the ports sector.

• Aviation

• Support services of airports to be included under section 80-IA.

• Tax rationalization on the jet fuel front.

• Real estate

Increase in exemption limits on housing loan interest and principal repayments.

• Metals

• Increase in investment-based tax deductions that will benefit those who are setting up projects, especially if it’s done with retrospective effect. This is key because most metal companies are setting up large projects.

• Hike in import duty on finished goods—in response to complaints of dumping from China in sectors such as steel—that will give better protection to domestic industry.

• Exports have been a big disappointment overall—a return of export-linked incentives will be a big positive.

• Pharmaceuticals

• A return of export-linked incentives, since this is a major export-oriented industry.

• Any relaxation in the MAT rate or its applicability to SEZs will be a big surprise.

Paritosh Ranjan
PGDM 2sem

Economic Survey 2013: Soaring imports put India on edge of a crisis

Economic servey 2013; soaring imports put India on edgs of a crisis

Dependence on short-term inflows to bridge the current account deficit may backfire if there is a reversal of capital.

EDITORS PICK

India may be on the edge of an external shock due to reliance on shortterm flows from portfolio investors to bridge the current account deficit, as the inflows can reverse at short notice, causing damage to the currency. Raising exports in the short term may be difficult given the grim economic scenario in the US and Europe.

But imports, especially of oil, should be curbed by linking the sale price to market, says the Economic Survey 2012-13. Gold imports, touted as the root cause of the record current account deficit should be curbed, it says.

"Though capital flows are bridging the gap, the nature of portfolio capital may lead to greater potential financial fragility and also rupee volatility," the Survey says. "A sizeable share of capital is in the nature of foreign institutional investors' investment that could moderate or even reverse if investors switch to risk-off mode. The balance of payments position, therefore, is more vulnerable, which has been reflected in the high rupee volatility."

India's external trade position is at its worst, with the current account deficit for the September quarter at a record 5.4% of the Gross Domestic Product ( GDP), nearly double the level during 1991 currency crisis when India pledged gold to pay off bills. The subsidised sale of fuel and the craze for gold to beat inflation led to the deterioration since they account for about half the total imports.

LALIT SHARMA

PGDM 2ND SEM..

Economic Survey 2013-14 to suggest ways to boost growth

The Economic Survey to be tabled in Parliament on Wednesday is likely to suggest a series of steps to arrest the declining GDP growth, which is estimated to be at the decade-low of 5 per cent in the current fiscal.
Rail Budget 2013: Highlights

Prepared by a team of economists, led by Chief Economic Adviser Raghuram Rajan, the Survey is likely to make a strong case for accelerating economic reforms to neutralise domestic and global factors which have stymied growth.

As the official assessment of the country's economy, the Survey is customarily tabled in Parliament by Finance Minister ahead of the General Budget. The document is viewed as being important because it prescribes steps for the government to deal with various economic problems, leaving the onus of taking hard decisions on the government.
Full Coverage: Budget 2013

The major focus of the Survey this year is likely to be on pushing economic growth, which has been projected by the Central Statistical Organisation (CSO) at 5 per cent for this fiscal, sharply lower than the original estimate of 7.6 per cent (+/- 0.25 per cent).

Taking into account persistent contraction of industrial production and exports, the Survey is expected to suggest measures to deal with the issues impacting them.

It may, however, welcome the government's recent reform initiatives with regard to partially deregulating diesel price, opening up of FDI in retail and liberalising foreign investment norms for various sectors, including insurance.

On the taxation front, the Survey could pitch for early implementation of the Goods and Services Tax (GST) and the Direct Taxes Code (DTC), with a view to expanding tax base and raising tax-GDP ratio.

The issues like surge in gold import and widening Current Account Deficit (CAD) too are likely to figure prominently in the Survey.

by shiv kumar
PGDM 2 nd sem

Economic Survey: Worst over for India, but future uncertain

First Published: Wed, Feb 27 2013. 12 36 PM IST

In a pragmatic assessment, the first being overseen by newly appointed chief economic adviser Raghuram Rajan, the survey concedes that the economy is facing structural problems and the key policy priorities are to fight inflation, curb fiscal profligacy and generate jobs. Photo: Mint

Updated: Thu, Feb 28 2013. 09 27 AM IST

Updated: Thu, Feb 28 2013. 09 27 AM IST

It has effectively argued that policy inaction is the downside risk to the economy.

C. Rangarajan, chairman of the Prime Minister’s economic advisory council, had mooted a higher tax rate for the super rich to compensate for falling tax revenue collections.

India’s tax-GDP ratio, after reaching a peak of 11.9% in 2007-08, declined to 9.6% in 2009-10 and was at 9.9% in 2011-12.

“Raising the tax-GDP ratio to above the 11% level is critical for sustaining the process of fiscal consolidation in the long run,” the survey said.

Measures highlighted in the Economic Survey may resonate in the Union Budget on Thursday, said Madan Sabnavis, chief economist at Care Ratings.

ADITYA KUMAR SINGH

PGDM 2 SEM.

Economic Survey 2013: Indian agriculture largely a success story

Story
Comments

The Survey rightly states that Indian agriculture is largely a success story, saluting the farmers who have responded to improved price signals. But it also points out various challenges that lie ahead.

Ashok Gulati

It is consoling that despite a deficit of 8% in south-west rainfall during 2012-13 compared to its long period average (LPA), agriculture's contribution to GDP growth is likely to be around 1.8%.

It is also good news that the revised figure of agri-GDP for the 11th Plan as a whole is 3.6%, up from 3.3% estimated earlier. Gross capital formation in agriculture as a percentage of agri-GDP has almost doubled in a decade and now hovers around 20%.

Given a capital-output ratio of about 4:1, this should easily give us a growth of more than 4.5%, but even the dream of having a consistently 4% growth in agriculture still remains elusive.

Agricultural exports are also on their wings. While in 2011-12, agri-exports touched $37 billion against imports of only $17 billion, in 2012-13, exports are likely to cross $40 billion against imports of roughly $20 billion. Grain stocks in government kitty have been the highest at 82 million tonnes in June 2012, and likely to cross 90 mt in June-July 2013, breaking all records in India.

The Survey rightly states that Indian agriculture is largely a success story, saluting the farmers who have responded to improved price signals. But it also points out various challenges that lie ahead.

The biggest challenge is taming food prices. While in 2011-12, the component of protein foods and fruit and vegetables dominated food price inflation, in 2012-13, there is a resurgence of cereal prices, especially wheat and rice, which have increased by 23% and 17%, respectively, in January 2013 over the year ago. This appears paradoxical as granaries are overflowing.

Why this has happened is a long story, but the solution is short and simple: liquidate quickly at least 10 mt of wheat for domestic use as well as for exports at the coming MSP of Rs 1350/qtl, ex-Punjab. If we don't take this challenge head-on, and the next crop comes in the market in April, the country will be saddled with unprecedented large wheat stocks for the next three years.

In case of protein foods and fruit and vegetables, the Economic Survey talks about the need to develop logistics with forward and backward linkages, develop modern retail, agro-processing and cold chains to tackle their rising prices. The direction is right. But how big this can be, depends upon various institutional reforms as well as massive investments in infrastructure, especially power and roads.

The next big challenge the Survey points out is the rising bill of edible oil imports, which is likely to cross $10 billion in 2012-13. It also speaks about the need to re-calibrate the price vector in favour of oilseeds and pulses, while restraining price increases in grain. But mere tweaking of relative prices will not give us a long-term solution.

It has to come from a vision to develop palm oil as that is the only plant which can give 4 tonne of oil per hectare. Food and fertiliser subsidies will be the other big challenges, which if not rationalised quickly, may touch Rs 200,000 crore in 2013-14. Is there anyone to bite the bullet and give it directly in cash to farmers and consumers? That will be much more effective than the present system and save at least a third of this amount, if not more.
abhishek kumar
pgdm 2nd.