The Tribune, Chandigarh, India

India Inc expected rate hike from RBI
Sanjeev Sharma
Tribune News Service

New Delhi, November 2
In its monetary policy announcement today, the RBI hiked the repo rate, at which it lends to banks, to 6.25 percent and raised the reverse repo rate, at which it absorbs excess cash, to 5.25 per cent

Just before the RBI announcement, finance minister, Pranab Mukherjee speaking at the AICC session in Delhi had cited inflation as a major challenge to the UPA government and had listed several moves to arrest it including monitoring of interest rates and liquidity by the RBI.

After the hike, the finance minister said the move may have a small negative short-term impact on economic growth.

Mukherjee, however, hoped the move would help boost the growth rate in the medium to long term.

“Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low,” RBI governor D Subbarao said in the monetary policy review.

“With this increase, since we started reversing the monetary policy stance in March 2010, the repo rate has increased by 150 basis points and the reverse repo by 200 basis points”, he said.

The governor said today’s monetary policy actions are expected to sustain the anti-inflationary thrust of recent monetary actions and outcomes in the face of persistent inflation risks, rein in rising inflationary expectations which may be aggravated by the structural nature of food price increases and be moderate enough not to disrupt growth.

Chanda Kochhar, Managing Director & CEO, ICICI Bank reacting to the RBI policy said the low possibility of any further rate action in the immediate future and the decision to leave the cash reserve ratio unchanged indicate that RBI wants to keep the monetary environment conducive for growth in the economy. The policy endorses the continuing growth momentum in the Indian economy with the GDP growth projection for fiscal 2011 being retained at 8.5%, despite uncertainties in the global economy, she said.

She said the 25 basis points increase in repo and reverse repo rate is as per market expectations. The thrust of the policy is to sustain the strength and stability of the financial system while promoting long term growth and financial inclusion.

In response to the RBI rate hike, India Inc today expressed concern the RBI's decision to hike short-term lending and borrowing rates could lead to higher interest rates and impact growth of the economy. Dr Amit Mitra, Secretary General, Ficci said, “We fear that this move could seriously impact consumption demand going forward and adversely impact the interest sensitive sectors like consumer durables and auto which have led the growth hitherto as also on housing demand. These persistent hikes in rates by RBI can thus pose further challenge to Industrial growth. Including the current announcement, this is sixth hike in a row”.

He said the increase in provisioning on residential housing loan and the teaser rate indicates RBI’s concern on asset prices.

This overcautious measure of RBI may have adverse impact on real estate sector which is still recovering from the crisis. This could also have spillover effect on core sectors of economy particularly cement and steel.

Chandrajit Banerjee, director general, Confederation of Indian Industry (CII) said, “ We believe that banks will not immediately raise their lending rates, as that would curtail credit growth and constrain the economic recovery. We are reassured by RBI’s statement that it is unlikely to increase rates again in the near future.”

Swati Piramal, Assocham president said banks would increase both lending as well as deposit rates immediately.

The real estate sector was badly hit after the RBI expressed concerns that asset prices in India have risen sharply in a short time which is a cause for concern. It announced several measures which stoked fears that real estate demand would take a hit. RBI announced that the loan to value (LTV) ratio not to exceed 80 per cent in respect of housing loans, increasing the risk weight for residential housing loans of 75 lakh and above, irrespective of the LTV, to 125 per cent and increase the standard asset provisioning by commercial banks for all housing loans with teaser rates to 2 per cent. 11 out of the 12 stocks comprising the BSE real estate index including DLF, Unitech, Indiabulls Real Estate, Parsvnath closed the day in the red.

Swati Piramal said this will continue to boost housing for the masses but put a check on the higher ticket real estate activities. Thus there would be shift in the direction of focus of the real estate sector.

Sunil Godhwani, CMD, Religare said, “The hike reflects the predominance of inflationary concerns over the concerns of moderation in domestic growth. The monetary policy decision aptly puts inflation on the top of the agenda of policy makers, even as we come closer to a pause”.

Impact on Household Expenses and Borrowers

n Banks might increase the base rate keeping in view of the consistent increase of policy rate viz. repo rate and reverse rate by RBI. This increase has been in line with the expectations of bankers. This is in turn lead to an increase in your housing loan rate, car loan rate and personal loan rate.

n The continuing inflation is a matter of concern for exporters. However, consistent increase of policy rates by RBI will ensure that exporters heave a sigh of relief in the months to come. As the monetary transmission takes a while to trickle down and hence impact the overall economy, the exporters will get a much better market by next quarter.

n As there is liquidity crunch in the market, the operating rate of banks will continue to be the repo rate.

n Increase in the repo rate and reverse rate will be good news for depositors as banks will hike the deposit rates before they take a call on the lending rates linked to base rate.

n The impact of increase in key policy rates will have similar impact for education loan as well. There was a proposal from the government to cap the education loan at 2% over and above the base rate. This move could substantially reduce the funding cost for students. However, the time frame required to make this a policy is still in question.

n Spread between repo and reverse repo was reduced by 25 basis points in the last mid term review. This will further bring stability in financial market.

n The stock market is not going to witness much uncertainty as the policy hikes are not a surprise to the investors. In the short run, 5,950 mark on the Nifty seems to have a strong support level and any fall should be used as a buying opportunity. — Reuters

Trade, technolgy-transfer high on agenda during Obama’s visit
Sanjeev Sharma
Tribune News Service

New Delhi, November 2
US President Obama’s visit has raised hopes that India Inc will be able to persuade him to drop policies inimical to Indian interest.

Rajan Bharti Mittal, president, Ficci, adds: “The recent hike in H1B and L1 visa fee by the US would have an adverse impact on the competitiveness and commercial interests of Indian companies sending professionals to undertake projects locally for American customers in the US. Though the need of the US Government to strengthen their border security is understandable, it is inexplicable to our companies to bear the cost of such a highly discriminatory law. We are also concerned about the State of Ohio’s order prohibiting offshoring of Government procured services and hope that such actions do not spread to other States”.

The trade between the countries has steadily grown over last few years. According to a FICCI study on the composition of merchandise trade in Jan-Dec2009, major items of export from India to US were textiles (23%), precious stones & metals (21.5%), iron & Steel products (5.3%), organic chemicals (6.2%), machinery (5%), electrical machinery (5.3%) and pharmaceutical products (7.8%).

The major items of imports by India from US include machinery (14.1%), aviation & aircraft (13.7%), precious stones & metals (14.2%), electrical machinery (7.9%), fertilizers (7%), mineral fuel and oil (5.8%) and optical instruments & equipment (5.6%).

On investments too, there has been increased activity. U.S. has invested about USD 8.5 billion in India between April 2000 and June 2010, which is about 7% of total investment inflows into India during this period.

According to the recent FICCI-University of Maryland study, Indian companies made 372 acquisitions in the U.S. in the period 2004-2009. 267 of these acquisitions were valued at USD 21 billion and over 40,000 jobs were created by only 85 of these transactions. In the same period, Indian companies also made 127 greenfield investments worth USD 5.5 billion that created about 17,000 jobs in the United States.

On the areas where collaboration can be increased, says Somers of USIBC, “Defense collaboration would achieve a real boost if FDI caps could be raised from 26% to 74%, resulting in greater transfer of technology. An long-term debt market could be facilitated if India were to lift FDI caps in the insurance sector from 26% to 49%. Opening the multi-brand retail sector will reduce waste in the farm-to-market supply chain, increasing efficiencies, which would have a stabilizing and positive effect on food prices. Clean energy is an area where we have much at stake - and share similar objectives. We all need more energy, and we desire to do this with minimal environmental impact. That’s why civil nuclear cooperation is so vitally important. We need to partner to develop and explore such technologies. Health is a universal concern - and India and the united States are natural partners. Our common entrepreneurial DNA can be channeled into research, enabling new discoveries, which can benefit all humanity.

Finally, we need to collaborate on the development of infrastructure - where we can both bring real value. Clean water, urban transports, sewerage treatment, air quality control, urban planning: these are areas where US companies excel. We are eager to partner with Indian companies to develop clean infrastructure project in India, in the United States, and around the world. To build this global workforce of tomorrow, collaboration in education must be a shared objective. If we form partnerships in these areas, there is no question we can shape the destiny of the 21st Century.”

Swati Piramal, president, Assocham, “ India and USA can be close partners in expanding knowledge frontiers in science and technology, including space, robotics, nuclear energy, defense and their business applications. In addition, put in place strong bilateral engagement across diverse services sectors. This would involve liberalisation of the Indian services economy on the one hand, and easy movement of personnel across borders on the other. Also, the two countries should become preferred investment destinations. An investment treaty should be rapidly negotiated. The Foreign University Bill is under government of India’s active consideration and will be significant for allowing relations in education to flourish with foreign countries.”

Technology is one area where there are lots of expectations from the Presidential visit. Says Ron Somers, “The enhancement of our High Technology trade relationship we hope will be one of the major outcomes from President Obama’s visit to India. Trade in high technology will be a game-changer, one, I believe, that will shape our destinies this Century. Looking beyond mere dollar values of our trade in goods and services, imagine how much can be accomplished when the United States and India are exploring the frontiers of space together, securing fresh sources of clean water, pioneering an ‘Ever-Green’ revolution leading to stable food prices and food security, generating energy in ways that today are not thought possible via innovations in green technology.”

Dilip Modi, Sr. Vice President, ASSOCHAM says joint R&D and collaboration in research will help in developing creative technologies and innovative solutions to address issues including energy efficiency and global warming.

CII is hopeful that this interaction will result in concrete decisions and actions, including joint collaborative work in agriculture, energy, education and infrastructure. Enhanced high technology cooperation is also expected through bilateral agreements in aviation, space, defense and biotechnology.

CII is also optimistic that there will be movement in easing export control regulations, early conclusion of the proposed Totalization Agreement as well speedy negotiations of the Bilateral Investment Treaty.

Says Ron Somers that there is much scope to grow our trade relationship. “Sitting down at the table and constructing a mutually meaningful and successful conclusion to the Doha Round of WTO negotiations would be a real winner for both sides. In practical terms, this means opening our economies, allowing more business-to-business access, lowering barriers on both sides wherever they exist.”

M&M to expand Mohali unit
Ruchika M. Khanna
Tribune News Service

Chandigarh, November 2
Mahindra and Mahindra is all set to expand its manufacturing facility in Mohali and Chappar Chiri near here. With these two facilities manufacturing the Swaraj brand of tractors reaching its optimum production levels, the company is looking at expanding its capacity by 40 per cent next year.

Talking to TNS here today, Bishwambhar Mishra, CEO, Mahindra and Mahindra, Farm Equipment Sector, said that the two plants, which were acquired with the taking over of Punjab Tractors Ltd., will be reaching its optimum capacity of 60,000 units this year. “We will first be concentrating on improving the production with innovation and efficiency, and then invest in adding production lines here. We are looking at increasing the capacity to 1 lakh units,” he said.

Mishra said that this year, a record production has been achieved in the Swaraj plant in October, with 7402 units being produced. “We are also looking at creating a Centre of Excellence here, for developing harvestor solutions. We have already developed track harvestors, sugarcane harvestors and an innovation of the combine harvestor that can be attached on to a tractor. These are all cost effective machines, which are being re-engineered to suit the needs of Indian farmers,” he said.

He said that earlier they had invested Rs 44 crore in the foundry here. “Though the project got delayed because of some unforeseen circumstances, it is back on track now and we are looking at starting production by the end of November,” he said.

Besides, the company is also looking at setting up a new facility near Hyderabad, with an investment of Rs 300 crore. They are also exploring the possibility of exporting their lower Horse Power tractors to Indonesia, and based on the economies of scale achieved, an assembly unit will be set up there. “The new plant near Hyderabad is being set up on the old Allwyn Nissan plant, spread over 500 acres. This will have a capacity of 90,000 units per annum. , and will primarily cater to the market in South India,” he concluded.

Motorola launches Android handset Flipout

New Delhi, November 2
Mobile phone maker Motorola Mobility India today launched its new Android-based handset ‘Flipout’ in the Indian market, priced at Rs 15,990.

“We further enhance our smart phone portfolio in India with a unique and trendy form factor for the young at heart with the Motorola Flipout. It merges Motorola's design heritage with Android capabilities to deliver a unique smart phone form factor," Motorola Mobility India Country Head Faisal Siddiqui said.

The Android-powered handset has a QWERTY keypad and is equipped with 2.8-inch screen, 3 Mega-pixel camera and expandable memory up to 32 GB.

Android is a mobile operating system, which was initially developed by Google and later by the Open Handset Alliance (OHA), a consortium of 50 hardware, software and telecom companies. It allows developers to design applications independent of the handset type and users can download over 70,000 applications like games, music, music players and location-based services. — PTI

ONGC plans $-10 bn investment

New Delhi, November 2
State-owned Oil and Natural Gas Corporation plans to invest over $10 billion in bringing to production gas discoveries off the east coast, its Director (Exploration) D K Pande said today. ONGC is aiming to develop finds in Krishna Godavari basin through four different projects, he said on the sidelines of the Petrotech-2010 oil and gas conference here.

“We are targeting 25-30 million standard cubic meters per day of natural gas production by 2014-15," he said.

The G-1 and G-15 fields will produce 2 mmscmd of natural gas from 2011 while S-1 and Vasistha deep-water project will produce 5 mmscmd.

However, the major push will come from development of finds in and around block KG-DWN-98/2, which sits next to Reliance Industries' giant KG-D6 block.

Pande said the block now has 10 gas discoveries and ONGC plans to tie-up nine of these with six gas finds in neighbouring 1G block to produce 20-25 mmsmcd from 2014-15. "This development will cost $4.5 billion," he said.

Another $5 billion will be needed to develop the ultra-deepsea UD-1 discovery in the KG-DWN-98/2. This discovery will be developed at a later date. — PTI

AI management empowered on hiring: Patel
Tribune News Service

New Delhi, November 2
After reports that some directors on Air India Board opposed the appointment of Pawan Arora as COO of its low-cost arm Air India Express, civil aviation minister Praful Patel said that the Air India management was empowered to take decisions for staff selection.

“If there is any controversial appointment, I am sure that Air India management and Air India Board will take a suitable decision. It is a question of Air India employees, so let the Air India management and board take care of these issues,” Patel said, responding to queries regarding independent directors raising objections on the appointment of Arora and functioning of AI’s top management, including CMD Arvind Jadhav.

Indonesia seeks Indian investment
Tribune News Service

Chandigarh, November 2
Indonesia is seeking investment from Indian entrepreneurs in agriculture technology and agriculture equipment manufacturing, thermal power plants and mining sectors.

Addressing a meeting with business men from Indian companies at the CII and later at PHD Chamber here this evening, Lt Gen (retd) Andi M. Ghalib, Ambassador Extraordinary, Republic of Indonesia, said that Indonesia could do well to get investment in areas like agriculture and agriculture equipment manufacturing and in the thermal power sector. “Though our country is primarily an agriculture based economy, there is no agri technology and farmers still use power tillers. So we are looking at investment from tractor manufacturers in India to come and set base there,” he said.

"We would also like capital investment from Indian companies in potential areas of thermal power and mining sector. We are looking at increasing our thermal power generation by 100 per cent in all the 33 provinces in the country," he said. Indonesia is keen to double its power generation capacity in each of its 33 provinces, he said adding that at least 1,000 to 1,200 MW power is needed for each province as against the present generation of 600 MW.

Other than this, we are also looking at investment in IT sector. He said that there were huge opportunities for investment in coal mining in Indonesia, as Indonesia has huge resources of good quality of coal with little ash in it.

8 industrial plans approved in HP
Tribune News Service

Shimla, November 2
The State Level Single Window Clearance and Monitoring Authority approved eight new proposals for setting up industrial projects in the state. The projects at Rs 462.33 crore will help provide employment to 1,784 persons. Chief Minister Prem Kumar Dhumal said a uniform policy needed to be adopted with regard to exporting clinker outside the state by cement plant. He said cement companies, which had set up grinding units in the neighbouring states, adopted different policies.

The industries department needed to bring all such activities under the provisions of a legally valid policy applicable uniformly to all such cement manufacturing units.

He said the price of a cement bag manufactured within the state was higher within the state and cheaper in neighbouring states. He added the department should examine the price fixation structure being adopted by cement manufacturing companies and ensure that there was no over-charging from the consumers in the state.

Poultry farmers of 5 states form association
Amaninder Pal
Tribune News Service

Jalandhar, November 2
Broiler producers from Punjab, Haryana, Himachal Pradesh, Uttar Pradesh and Rajashtan have floated a new organisation - North Indian Broiler Farmer Association. The aim is to get hatcheries to lower prices of one-day chicks.

Irked over the unbending attitude of hatcheries, which are already facing a boycott from the poultry farmers of Punjab and Haryana, the poultry farmers of these five states formed a 25-member executive committee to give momentum to the agitation against the alleged cartel of hatcheries.

Lakhbir Singh Pannu, president of the association, said that the self-mposed ban on the purchase of one-day old chick from the hatcheries would also be implemented by the farmers of the Himachal Pradesh, Uttar Pradesh and Rajasthan, from today onwards till November 10. The farmers of Punjab and Haryana have been observing such a ban since October 21. He said that to apprise the various state government about the crises, the association would hold district level demonstration in front of the offices of the deputy commissioners in all these states on November 11.