Indian Economy

The Industrial Production figures suggest the economy will grow by 7.5 per cent this fiscal and perhaps over 8.5 per cent in the next fiscal, Mukherjee told reporters.

The Index of Industrial Production, or the measure of the country's factory output, surged to a 16-year-high of 16.8 per cent in December, led by a robust performance by manufacturing, particularly consumer durables, indicating that demand was picking up across sectors.

Analysts say the industry is set for a good showing in January as well. Research services provider Dun &Bradstreet expects industrial production to have grown by 13.5-14.5 per cent for the month.

D&B revised upwards its growth forecast for the third quarter to 7.3 per cent after taking into account the stunning performance by the industry.

"We have revised our GDP forecast for Q3 to 7.3 per cent, from the earlier 6.8 per cent, given the buoyancy witnessed in industrial activity in this quarter," D&B said in a release.

Mr Ahluwalia's comments came as the government said it expected India's economy to accelerate at 7.2% in the year ending in March 31, up 50 basis points from the previous fiscal year.

Indications that Asia's third-largest economy was recovering quickly from the global economic slowdown strengthened expectations that the government may rein in its fiscal stimulus, analysts said.

"We should expect a partial roll back of the stimulus introduced by the government during the crisis at some point soon ... possibly during the budget," said a senior economist who did not want to be named.

India's budget is due later this month.

However, Anjan Roy, an economist at the Federation of Indian Chambers of Commerce and Industry, said it was too early to withdraw the stimulus as the economy was still at an early stage of recovery.

Source: Moneycontrol.com India growth set to near 2007 boom levels

"I expect industrial production to be high next year. With normal monsoon, GDP growth could reach 9 per cent in 2010-11," said Ashvin Parekh, partner and national director, Ernst & Young Financial Services.

Parekh further said India could grow between 7.5 and 8 per cent in the current fiscal as export numbers are expected to rise in the coming months and industrial growth could be around 9-10 per cent.

Impacted by the global financial crisis, the growth rate slipped to 6.7 per cent in the last fiscal from 9 per cent in the three preceding years.

This should be quite embarrassing for Congress as Mr Lalu Prasad Yadav, who was the railways minister during this period, had literally become the toast of the Manmohan Singh government, with no less than the prime minister himself lavishing praise on him for steering the ministry into the pink of health.

The white paper presented by railway minister Mamata Banerjee in the Lok Sabha on Friday has, however, punctured these claims. It presented a not-too-rosy picture on the financial health of the railways, giving a lie to Mr Yadav's boast of running the ministry through its `golden period,' and said that the best period, financially, of the railways in the last 20 years was 1991-96, when Mr C K Jaffer Sharief was at the wheels. In the process, Ms Banerjee ran down her first own previous stint in the Rail Bhawan during 2000-01.

``Analysis of the overall growth of railways during the period 2004-05 to 2008-09 shows that the performance was below par if the normally accepted growth elasticity of 1.25% is reckoned,'' the report, tabled amid din created by RJD members and Andhra MPs, said. The RJD chief sat with a grim face during all this.

The former railways minister, while speaking to newspersons later in the day, trashed the white paper as a `a black paper', and said that his claims of record profit were correct. ``My tenure was the best period and there was no dispute on my earnings,'' he said. Some officers in the ministry, he maintained, appear to have misled Ms Banerjee and ``she should find out who they are.''

The white paper, however, sought to paint a different picture. Observing that the losses from passenger operation was almost Rs 14,000 crore in 2008-09, the document said a new form of presentation of accounts was started during the Lalu regime which projected a concept of cash surplus before dividend which made the railway finances `look good.'

``There were only two accounting changes during the last five years, these have contributed significantly in inflating the figures of `cash surplus before dividend,' a new way of portraying surpluses generated, introduced in 2007-08. These, together with other factors such as interest on fund balances and treatment of SRSF, inflated the cash surplus before dividend by Rs 17,006 crore,'' the document said.

If these accounting changes had not been done, the accumulated surplus of Rs 89,000 crore during the five years would come down to Rs 39,500 crore, the white paper said.

This reduction also includes the impact of Pay Commission arrear payments which have been taken to the years in which it actually accrued, the 70-page document said.

The analysis was undertaken by a consultant appointed to study the railway's financial performance and accounting systems.

Arguing that the railways' contribution to National GDP remained stagnant at 1.18% during the period, the white paper said while there was good growth during this period, it was mainly propelled by the boom in the economy.

Besides, it said, several measures taken during this period, including those of increasing the carrying capacity of wagons, reducing terminal detention and increasing maintenance cycles helped in accelerating the growth in freight traffic.

It said freight earnings grew by 14.11% Compounded Annual Growth Rate (CAGR). Freight rates were substantially increased during the period including 44% increase in grain and 35% in fertilisers.

The white paper said passenger earnings grew at a CAGR of 10.52%. Though there was no increase of passenger fares, earning per passenger km grew at compounded rate of 1.27% mainly because of some increase in fares of upper classes and high tatkal charges.

The growth compares favourably to 7.7 per cent recorded in the July-September quarter in the previous year.

Consequently, the economy rose by 7 per cent in the first half ending September 30 of the current fiscal on the back of stimulus packages and revival of domestic demand, giving hopes that final figures for the year could be much higher.

The government, including Finance Minister Pranab Mukherjee, the Reserve Bank and the Planning Commission had predicted a growth of about 6-7 per cent, while global agencies and analysts forecast it to be even lower.

The Prime Minister's economic advisory panel had pegged the economy to grow by around 6.1% in Q2 due to the impact of a weak monsoon on agriculture.

Source: Business-standard India's Q2 GDP at 7.9%

The PMEAC, in its Economic Outlook for 2009- 10 submitted to Prime Minister Manmohan Singh on Wednesday, said India’s GDP growth rate could range between 6.25 per cent and 6.75 per cent and on an average could grow at around 6.5 per cent. PMEAC chairman C. Rangarajan said the ongoing global financial crisis and the effect of the drought on the country’s farm output are key factors impacting growth.

India’s farm output, which accounts for as much as 18 per cent of GDP, is expected to shrink by two per cent.

“ On the whole, we must say the Indian economy has weathered the international financial crisis very well. It has been able to hold on to a rate of growth which is perhaps the second fastest in the world,’’ Rangarajan told journalists. India’s economic growth slowed down to 6.7 per cent during 2008- 09, from an over nine per cent growth rate in the preceding three years, in the wake of the global financial crisis.

The PMEAC has expressed concern over surging food prices and expects the overall rate of inflation to go up to six per cent by the end of the current fiscal.

Source: Mail today GDP growth pegged at 6.5%

The FDI inflows in July were at $3.51 billion, against $2.25 billion in the same month last fiscal. In June this year, the figure was at $2.58 billion.

"I expect the next five months to be more positive," Commerce and Industry Minister Anand Sharma told reporters today.

INVEST INDIA

• The body to be in collaboration with industry body Ficci and state governments
  
• It would act as the first reference point for any investor interested in India and would facilitate setting up business within the country
  
• To be an advisory body and to have sector-wise consultants who will coordinate with state governments on feasible measures
  
• To conduct capacity-building exercises at state levels to create an investor-friendly environment
  
• To be a permanent executive set-up

On Invest India, Sharma said it would act as the first reference point for any investor interested in India and would facilitate setting up business within the country.

"The government's equity share will be 49 per cent which it will reduce in a span of time to 35 per cent by giving half per cent stake to state governments over a period of time. Ficci will have a 51 per cent stake," Sharma added.

The company would be an advisory body and would have sector-wise consultants who will coordinate with state governments on feasible measures. It will conduct capacity-building exercises at state levels to create an investor-friendly environment. The minister cleared that the functions of this company would not coincide with the functions of the Foreign Investment Promotion Board. "The company will basically try to bridge the information gap and will help foreign investors," said Ficci Secretary General Amit Mitra.

It would be a permanent executive set-up and the major beneficiaries will be small and medium investors who are interested in investing in India, said an official with the Department of Industrial Policy and Promotion (DIPP). The management will constitute six members each from DIPP and Ficci.

"This will provide multiple benefits such as technology transfer, market access and will give insight into new organisational skills," said A Sakthivel, president, Federation of Indian Export Organisations.

With the improvement in macro-economic conditions as well as buyer affordability, developers witnessed a stronger response to new launches across cities over the past quarter. In January-March '09, bookings were mostly being absorbed by the business class and professionals (doctors, lawyers), while participation of the service class (barring government employees) was minimal . Now that property prices have climbed down and the risk of job layoffs has diminished, the service class is likely to participate actively in property absorption, leading to a strong recovery in residential demand in Q2FY10.

With the return of liquidity to the sector in the form of FDI, QIPs and bank loans in recent months, the balance sheet position of realty players has started to improve, in turn changing the risk dynamics of the business. Listed real estate stocks were in the danger zone of the Altmann Z score - a key risk measure for bankruptcy - but with equity infusion, the chances of bankruptcy have diminished.

Over the last couple of months, several developers have launched properties across cities in the residential category, garnering a significant response from buyers. This has motivated builders to focus on the residential space, particularly on the affordable segment . Most developers are looking to enhance their execution capabilities in this space. If 60% of the planned development is executed, it will improve the balance sheet of realty players and also enhance buyer affordability.

Improved Bank lending appetite
As on March' 08, the outstanding gross bank credit (GBC) by scheduled commercial banks to the realty sector stood at Rs 623bn, rising 40% from Rs 453bn in the previous year. In FY09 the GBC increased by 46% to Rs 908bn. The total real estate exposure of banks also increased from 2.8% to 3.3% in March '09 as the RBI relaxed certain norms for realty companies towards the end of FY09, as follows:

Loans granted by banks to housing finance companies for on lending to individuals for purchase/ construction of dwelling units may be classified under the priority sector , provided the housing loans granted by housing financing companies do not exceed Rs 2mn per dwelling unit per family. Eligibility under this measure is restricted to 5% of the individual bank's total priority sector lending. This is likely to help companies in the affordability housing space and especially players in tier III cities.

As developers were faced with inventory pile-ups (especially in the commercial and retail segments ) and a tightening money situation also forced them to launch residential projects since these garner cash upfront. Buyer interest has revived substantially as prices were slashed almost 20-40 % depending on project location, while the apartment size was reduced to bring a greater section of buyers into the fold. Over the past couple of months, there has been a slew of residential launches across the country, leading to higher absorption month on month.

n the metro cities, the new launch tally for January-March '09 jumped to 14,478 from 3,096 in the preceding quarter. Sales picked up to 40% of

launched units as against 36% in October-December '08. "We expect the next quarter to be even better," the report says.

There is a healthy improvement in the number of registration agreements - a key indicator of property sales - signed during January-April '09. For metro cities, registrations have increased by 24% and 21% MoM respectively. Another key indicator, stamp duty, has also risen 55% MoM in March. Although it declined 17% in April, this was mainly because of a reduction in apartment size and prices.

Key demand drivers
Residential property prices have witnessed a correction across India. In some cities the correction is as much as 50% from peak prices. This is a healthy sign as it has encouraged conversion of buyer intent into demand. Moreover, at the MCHI property exhibition held in April we observed new launches were priced 30-35 % cheaper than ready possession and existing properties in the same location. The outright price cuts have replaced all the discounts and freebies on offer in the previous exhibition itself.

Apartment downsizing
Along with the reduction in property prices, developers have downsized apartments in order to attract a wider breadth of customers and push volume sales. In a few cities, the apartment size has been trimmed by anywhere between 19% and 38%. This means that a flat which previously cost Rs 100 has come down to Rs 40-50 , enabling a lower segment buyer to select a house at a better location or at the same location but at a lower cost. Some developers have also introduced the concept of condo apartments, one bedroom and one-and-a-half-bedroom units to widen their customer base.

Cheaper home loans
The last two years till December '08, home loan rates had moved up steadily. Fixed and floating rates of major banks like HDFC Bank and ICICI Bank peaked at 14.5% from 8-8 .5% in 2007. Banks were agreeing to finance only 70-80 % of the total property value as against 85-90 % previously . These factors deterred individual investors from availing of loans especially in conjunction with the job uncertainty induced by the slowdown.

Since October '08 inflation has begun to cool off and is currently below 1%. Corresponding rate cuts have led private banks to lower interest rates to 9-10 % (floating), while large state owned players are offering a special rate of 8% to buyers . Loan sanctions too have risen to 80-90 % of the property price

According to real estate consultancy firm DTZ, almost all new project launches of major developers in the past 6-9 months have been in the affordable housing segment in Tier 1 cities like national capital region, Mumbai, Bangalore, and Pune, among others.

These new launches recorded high sales with residential project developers collecting 15%- 20% of the house price in the first few of months of booking, even before construction had started. The balance of the price is linked to construction and thus enables developers to finance a substantial part of the project through collections.

With continued pressure on liquidity and slow sales in most segments, DTZ said in a report that the ability of developers to keep up a strong development pipeline for high-demand projects in affordable housing segments in Tier-1 cities would be a factor in their success.

Most of the developers have taken loans and invested in land in Tier II and Tier III cities, where demand has completely dried up. But, to service their debt, developers must continue to sell their p ro d u c t s, which is being realized mainly in Tier I cities. Therefore, apprehensions are mounting that many of the developers might divert the money taken as booking amount to service their debt.

However, in the last 4-6 months, many large developers have reduced debt on their balance sheets in an effort to lower the fixed interest cost burden on cash raised, issuing fresh equity to private equity investors and through sales of newly-launched affordable products in Tier I cities. DTZ report says while this has eased liquidity position for the time being, there is only a marginal improvement in the interest servicing capacity of leading developers, which continues to put pressure on operating cash flows.

While almost all large developers have deferred immediate debt repayments with the consent of lenders, many have succeeded in raising money from large investors by issuing equity to them. DTZ report said a total of $2.5 billion was reportedly raised by some of the leading developers during this period, which was partially utilised in reduction of debt.

The economic slowdown has brought about realignment in the financing and development strategy of real estate companies. One, most developers have restructured debt by either replacing it with equity or by renegotiating on payment or rate terms. Two, development focus has shifted to residential sector, which is a self-financing venture.

In these circumstances, buyers must be circumspect while selecting a property. First of all, one should try to take loan from established banks
Real Estate
and financial institutions like HDFC Ltd and ICICI Bank, which vet the entire project before approving a loan for an apartment in that project. In the course of approving a project, these institutions ensure the developer has all the approvals and sanctions from local authorities to construct residential project on the land. Not only this, before approving a project, they also ensure developers have a good financial grounding to implement the project.

Suppose, you want to take a loan from some other bank, where you have a salary account, you must then find out whether the leading banks have approved the project or not, in which you are intending to buy. If you come to know that any of the banks have not approved the project and are not giving loans for it, you should desist from buying there.

Besides, while going for loan, you should opt for construction-linked scheme. In most cases, builders offer a discount up to 15% on cash down payment
. That means if you make the entire payment upfront, you will get a discount of 15%. But, in this case, you will take the loan of the entire amount up front, and so you will have to pay interest on the entire amount from day one.

But, if you take the construction-linked scheme, this will not only reduce your interest payout in early days, but it will also insulate you from delay in construction of the project to an extent. At this point in time, when most developers are facing a liquidity crunch, it is better to link your payment with the construction. This will force developers to implement the project as per schedule in order to take receive the next instalment.

Early signs of a recovery in India's economy emerged on Monday as Gross Domestic Product (GDP) for the AprilJune quarter grew 6.1 per cent, up from 5.8 per cent in the previous quarter. The spectre of drought, however, muted the cheers.
Compared to the 7.8 per cent growth in the same quarter last year, the upturn is nothing to get too excited about.

The economy grew even faster -- by 8.6 per cent -- in the previous quarter of last year. Thus while the latest GDP figures are enviable given the global situation, the slowdown is visible.

While agriculture grew by 2.4 per cent in this quarter, down from 2.7 per cent in the previous quarter, the manufacturing sector output rose by 3.4 per cent, up from a contraction of 1.4 per cent in the previous quarter.

The figures were in line with analysts' forecasts. "The worst may be over and we expect to see improved performance in subsequent quarters," Planning Commission Deputy Chairman Montek Singh Ahluwalia said.

The stock markets, however, ignored the optimistic data, with the Sensex falling by 1.6 per cent or 256 points to close at 15,667.

Source: Hindustan Times    
GDP up at 6.1%, some cheer amid drought fears

The scheme could offer tax benefits for investments up to Rs five lakh and be instrumental in partly meeting the country's infrastructure funding needs, which have been pegged at as high as 750 billion dollars, sources said.

The scheme could serve multiple purposes including giving additional tax benefits to the public, channelising the huge amount of money lying idle in saving accounts or with households for productive means, that too without adding to the fiscal deficit, the sources noted.

The government has already announced a borrowing programme of over Rs 3,00,000 crore for the current fiscal and any further increase could result in liquidity available for the private sector drying up and also add to the ballooning fiscal deficit, they added.

There have been demands from various sectors for additional tax benefits for citizens and also tapping alternative resources for meeting the government's spending needs

* INDIA may have lost the world Twenty20 championship, but it is all set to emerge as the world's champion economy by 2010, says the World Bank.

India is projected to become the fastest- growing economy in the world by 2010, clocking a growth in gross domestic product ( GDP) of 8 per cent.

China would by then have been pipped to second place, with a GDP growth rate of 7.5 per cent in 2010, says the World Bank's report ` Global Development Finance 2009', released on Monday.

This means that India is likely to be the country to have rebounded the fastest from the shattering impact of the global financial meltdown.

Although the global lending agency has painted an unusually stark picture of the state of the world's economy, and has sharply increased its estimate of the impact of recession on global economic growth as a whole, India and China have emerged as beacons of hope amidst the prevailing gloom.

For the world economy as a whole, the report has sharply increased its estimate of the slowdown.

Source: Mail Today India To Grow Faster Than China By 2010,

The US may have a few economic lessons to learn from India, with the emerging economy being better rated than the world's largest economy in terms of their capabilities to tackle the raging financial turmoil.

India has been ranked at the 13th position among 57 countries by Switzerland-based International Institute for Management Development (IMD) for being better equipped to tide over the crisis and emerge more competitive in near term.

The rankings based on `Stress Test´ also takes into account the future scenario along with individual nations' readiness and resilience in a period of global recession.

Denmark has clocked the top position, followed by Singapore, Qatar, Norway and Hong Kong. The US is placed far below at the 28th spot.

Moreover, at the 13th place, India is ahead of neighboring China (18th rank) and the world's second-largest economy, Japan (26).

Source: Live Mint India Better Placed Than US To Tide Over Economic Crisis