Weekly Economic Bulletin Date: September 02 - 08, 2008 Issue No. 280
Contents 1 News Feature • • 2 Export basket swells 31.2 pc India-focused PE funds set to raise $5 bn by Dec Page 2-4 Page 1
Overseas Investment • • • • Global investors inject Rs 411 crore in Moser Baer's solar photovoltaic business JVs with FDI need to seek FIPB nod for arm pump-ins N-Deal: India Inc sees $40 bn foreign investment Finance minister clears 17 foreign investment proposals
3
Trade News • • • India tops list of Dubai's trading partners India-German trade to cross 30 bn Euros by 2010: Sibal India-EU trade talks to resume ahead of Paris summit
Page 4-6
4
Sectoral News • • • • • Managed IT Services to touch $2.78 bn by 2010 Real estate developer’s forsee high sector growth: report Pharma PSUs exceed Q1 sales target by 20% India targets doubling foreign tourist arrivals by 2010 Oilmeal exports rise almost fourfold in August
Page 6-9
5
News Round-up • • Growing economy to boost India’s banking system: RBI Bharti, RIL among 10 Indian cos in Forbes Asia's Fabulous 50
Page 9-10
News Feature Export basket swells 31.2 pc A slowdown in the European and the US markets notwithstanding, merchandise exports from India jumped 31.2% to $16.34 billion in July 2008 compared to $2.45 billion in July 2007. High imports of crude oil, on the other hand, pushed up imports 48.1% to $27.14 billion in July 2008, virtually doubling the trade deficit for the month to $10.79 billion. Exporters point out that much of the value increase in exports was due to increase in input prices and not profit margin. The increase in input prices was also reflected in the widening trade deficit. According to FIEO president Ganesh Gupta, there was a need to continue with the export assistance extended to exporters, particularly to traditional sectors that are still not showing much growth in exports.
http://economictimes.indiatimes.com/News/Economy/Foreign_Trade/Export_basket _swells_312_pc/articleshow/3433960.cms
India-focused PE funds set to raise $5 bn by Dec Emerging Indian companies, which are on the growth mode, need not necessarily be wary of the rise in interest rates to fund their expansion plans. The private equity (PE) brigade is waiting with pretty deep pockets and is expected to add further weight during the second half of the current calendar year. According to PE industry experts, India-focused funds are expected to raise close to $5 billion in the six months from June to December, more than double in the same period last year. What’s more interesting is that these funds are able to raise amounts ranging from $700 to $1 billion hardly within three months. IDFC Private Equity, for example, raised its third fund of $700 million in just a month’s time. Sequoia India Capital, in late August, closed its growth equity fund at $725 million taking its total corpus to $1.8 billion. According to data from Venture Intelligence, a venture and private equity research firm, India-focused PE funds in the first half have raised a little over $3 billion as against a total of around $8.5 billion in entire 2007. “With $5 billion in the pipeline, these funds cumulatively will be able to maintain the same levels as last year,” noted an industry analyst.
http://business-standard.com/india/storypage.php?autono=333474
1
Overseas Investment Global investors inject Rs 411 crore in Moser Baer's solar photovoltaic business Moserbaer India Ltd announced that its wholly owned photo voltaic subsidiary has entered into a definitive agreement to raise Rs 411 crore from a consortium of global investors including CDC group, Morgan Stanley and IDFC among others. This agreement is to fund the subsidiary's ambitious growth plans. The current transaction values Moserbaer's photovoltaic business at Rs 6350 crore. The company, headquartered in New Delhi, is the world's second largest manufacturer of optical storage media like CDs and DVDs. The company recently transformed from a single business into other areas of operation like solar energy, home entertainment and IT peripherals and consumer electronics. http://www.business-standard.com/india/storypage.php?tp=on&autono=45974
JVs with FDI need to seek FIPB nod for arm pump-ins The government is planning to rework the foreign direct investment (FDI) policy for holding companies. Joint venture companies with foreign equity will need to seek fresh approval from the Foreign Investment Promotion Board (FIPB) within 90 days while investing in downstream companies like subsidiaries. The FIPB clearance will be mandatory to avoid imposition of penalty by the Reserve Bank of India (RBI). Detailed guidelines for downstream investments by joint ventures with foreign equity will be issued shortly. These companies will be given a three-month grace period for regularising downstream investments. Recently, the FIPB discussed ‘compounding’ for a telecom company since it had made investments in two telecom infrastructure companies without obtaining permission to act as a ‘holding-cum-operating’ company. Compounding refers to payment of a penalty by the company concerned for investing in an Indian company without obtaining permission to act as an operating-cum-holding company. FIPB’s contention is that companies usually obtain permission to function as operating companies and clearance for holding companies is obtained specifically by investment 2
companies looking at downstream investments. Confusion arises only when a company which is into operations wants to invest in subsidiaries or joint ventures. http://economictimes.indiatimes.com/News/Economy/Finance/JVs_with_FDI_need_t o_seek_FIPB_nod_for_arm_pump-ins/articleshow/3442395.cms N-Deal: India Inc sees $40 bn foreign investment As many as 400 Indian and foreign firms are seen as the beneficiaries of the far-reaching verdict in Vienna where the 45-member Nuclear Suppliers Group (NSG) decided to resume civilian nuclear commerce with India. India's apex industry bodies, which have hailed the decision, also feel that the country can now attract over $40 billion in foreign investment over the next 10-15 years as the result of private sector entry into India's nuclear power generation. "The go-ahead to the nuclear deal will signal the building of scores of nuclear plants in India on assured fuel supply," said Amit Mitra, the secretary general of the Federation of Indian Chambers of Commerce and Industry (Ficci). "This will trigger the participation of 200 firms with capabilities to operate, and maintain nuclear plants, but put on the Entities List by the US in 2005 for perceived possession of technologies for nuclear plants or dual-use technology." That list has since been pruned to about four, giving the 200-odd companies full play in nuclear power production. http://economictimes.indiatimes.com/articleshowarchive.cms?msid=3452581
Finance minister clears 17 foreign investment proposals Finance Minister P. Chidambaram approved 17 foreign investment proposals worth Rs.18.44 bn, which were earlier cleared by the Foreign Investment Promotion Board (FIPB) Aug 26. The proposals relate to sectors concerning chemical and petrochemicals, commerce, information and broadcasting, power, urban development, information technology and telecommunication, the government said here in a statement. However, nine proposals have been deferred that include one of Mumbai's Tata Investment Corp.
3
Proposals of Aditya Birla Telecom Ltd and Japan's Daiichi Sankyo Co Ltd have been recommended for the consideration of the cabinet committee on economic affairs (CCEA), as the investments involved are above Rs.6 bn. Euchner Industrie Beteiligungen Gmbh of Germany has been given approval to set up a wholly owned subsidiary to carry out wholesale trade in electronic equipment and accessories. Publising group IBN Lokmat News Pvt. Ltd has been allowed to induct foreign investment, direct or indirect, up to 13 percent of the issued, subscribed and paid-up share capital including present indirect foreign holding in the company. Similarly, BBCW Channels Pvt. Ltd can now undertake downlinking and distribution of television channels in India. Also BBC Worldwide (India) Pvt. Ltd can make an amendment in the existing approval letter for inclusion of the term "downlinking". http://economictimes.indiatimes.com/News/Economy/Foreign_Trade/Finance_minist er_clears_17_foreign_investment_proposals_/articleshow/3445569.cms
Trade News India tops list of Dubai's trading partners Pushing aside China to the second place, India has topped the list of Dubai's main trading partners during the first half of 2008. The bilateral trade volume of imports between India and Dubai has grown by 49.6 per cent, crossing USD 6.56 billion as against USD 4.38 billion, in the corresponding period last year, a report by Dubai World's Statistics Department has said. India also topped among trading partners in exports, which was put at USD 2.26 bn, a growth rate of 44.4 per cent as compared to the first six months last year, the report said. http://economictimes.indiatimes.com/News/Economy/Indicators/India_tops_list_of_ Dubais_trading_partners/articleshow/3455967.cms
India-German trade to cross 30 bn Euros by 2010: Sibal Union Minister of Science and Technology and Earth Sciences Kapil Sibal said trade between India and Germany was expected to cross 30 billion Euros in 2010 as the two countries expanded the areas of cooperation in various fields.
4
During his keynote address at the Golden Jubilee of IIT Madras, he said Indo-German trade would also touch 50 billion Euros in 2020 if India and Germany can engage in a fruitful partnership in various areas of research and development in science and technology. "In the year 2007-2008, the figures of Indo-German trade stood at 12.07 billion Euros", he said. India and Germany were also discussing creation of an International Centre for Excellence in Molecular Biology in India. "We are also deepening and strengthening our cooperation with the German Academic Exchange Service (DAAD), Humboldt Foundation, Fraunhoffer Society and (DFG) Deutsche Forschungsgemeinschaft, which has recently opened its offices in Delhi". He said many collaborative projects were being initiated in emerging Science and Technology field like artificial intelligence, nanotechnology, biomedical research. Apart from shared political, economic and social values, India considers Germany a very important collaborator in nation building. "Germany is one of the largest economies of Europe. About 22 per cent of the Euro-zone economy is contributed by Germany. Indian entrepreneurs are aware of the fact that the nation offers access to 454 million consumers with a highly advanced infrastructure, roadways, railroads and state of the art communication networks, he said. http://economictimes.indiatimes.com/News/Economy/Foreign_Trade/IndiaGerman_trade_to_cross_30_bn_Euros_by_2010_Sibal/articleshow/3459967.cms
India-EU trade talks to resume ahead of Paris summit After clinching a deal with ASEAN on a Free Trade Agreement, negotiations will resume for a market-opening pact between India and EU, ahead of Prime Minister Manmohan Singh and French President Nicolas Sarkozy holding their summit talks in Paris later this month. A team of negotiators from the Commerce Ministry, led by Additional Secretary Rahul Khullar would reach Brussels tomorrow for talks with the EU officials. "We will discuss legal texts on trade in goods, services, investment and Intellectual Property Rights," a senior official said. The two sides have already exchanged their lists of tariff lines for study. The officials would also take stock of the progress made in negotiations since it began in June 2007 in Brussels. It would then be reported to the summit. The annual India-EU summit is scheduled to be held in Paris on September 29- 30. The EU will be represented by France which holds the presidency of the 27-nation bloc. While the deadline for the ambitious FTA with EU has already surpassed and is unlikely to be met by the year-end, officials would strive to speed up the process. 5
"It looks as if it would take at least another year for the negotiations to be wrapped up," he said. The two sides have already held four rounds of talks. India has already concluded negotiations for a FTA with the 10-nation Association of South East Asian Nations (ASEAN). The agreement will be signed in December this year. EU is India's largest economic partner with trade doubling from 40.81 bn dollars in 2003 to 78.48 bn dollars in 2007. The bloc exported goods worth 37.38 bn dollars to India in 2007 while imports were 41.95 bn dollars. Services exports to India in 2007 was 9.56 bn dollars while exports to EU were 7.85 bn dollars.
http://economictimes.indiatimes.com/News/Economy/Foreign_Trade/IndiaEU_trade_talks_to_resume_ahead_of_Paris_summit_/articleshow/3454827.cms
Sectoral News Managed IT Services to touch $2.78 bn by 2010 The India Managed IT Services market is expected to grow at a compoud annual growth rate (CAGR) of 24.9 per cent to become a $2.78 billion (Rs 12,232 crore) industry by 2010, says IDC making it one of the fastest growing markets in the Asia/Pacific region. The total India Managed IT Services market in 2007 was estimated to be $1,170 million (around Rs 5,148 crore) with managed network services accounting for the biggest share of the pie followed by Managed Desktop Services. This represented 20 per cent of the total India domestic IT Services market, which crossed $5 billion revenues in 2007. The report notes that the notion of managed services is no more just hype or an industry buzzword. Initially, the market witnessed large user enterprises adopting infrastructure management services (IMS) as they looked for competent partners to manage their increasingly complex IT infrastructure. Praveen Sengar, Senior Manager, Software and Services Research, IDC India, said: "While engaging in outsourcing contracts, management should have a clear vision on long-term organizational goals along with activities that can be outsourced. A sound process to select the right vendor must be employed, evaluating prospective partners on multiple parameters and not just cost alone." Moving forward, the fastest areas of growth will be Security, Storage and Data Center Services. IDC predicts Security and Storage Services to grow at CAGR of 31 per cent and 28 per cent respectively, over the next three years (2008-2010). Today the market for 6
these services is still nascent. However, their adoption rates are expected to pick up at a fast pace as these services become inevitable for the ‘extended business enterprises’. http://www.business-standard.com/india/storypage.php?tp=on&autono=45868
Real estate developer’s forsee high sector growth: report A latest Ernst & Young survey, titled Realty Pulse, of real estate developers points out that 62% respondents on being asked about the “the current phase of Indian real estate” foresee the Indian real estate sector embarking upon high growth trajectory in the longterm, despite the momentary slowdown witnessed over last 12 months. The qualitative survey, conducted by Ernst & Young across six prominent cities comprising NCR, Mumbai, Pune, Hyderabad, Chennai, Kolkata and Bangalore, forms a part of the FICCI– Ernst & Young Real Estate Report. The survey highlights a vast section of respondents who demonstrated their keenness in foraying into the affordable housing, subject to certain enabling factors like government support, basic infrastructure support and low cost of land. Almost 35% of developers define capital value of affordable housing in the range of Rs1-1.5 million, followed by another 35% developers defining value in the range of Rs1.5-2.5 million. 70% respondents indicated an inclination to expand beyond the ‘obvious eight’ cities (Delhi, Mumbai, Chennai, Hyderabad, Bangalore, Kolkata, Pune and Ahmedabad). They opine that this diversification is an effective hedge against market fluctuations in the obvious eight cities.
http://www.livemint.com/2008/09/03165508/Real-estate-developers-forsee.html
Pharma PSUs exceed Q1 sales target by 20% State-owned pharmaceutical companies have overshot their sales target for the first quarter by 20%, thanks to the fund infusion and mandatory purchase preference policy (PPP). Hindustan Antibiotics (HAL), Indian Pharma and Drugs (IDPL), Bengal Chemicals & Pharmaceuticals (BCP), Rajasthan Pharma and Drugs (RDPL) and Karnataka Antibiotics & Pharmaceuticals (KAPL) registered cumulative sales of Rs 132.69 crore for the first quarter ended June 30 against their target of Rs 110.33 crore. For the financial year 2007-08, sales of the five public sector units (PSUs) almost doubled to Rs 524.78 crore compared to Rs 289 crore last year, backed by a substantial rise in sales from PPP. Sales from PPP surged to Rs 180.73 crore for the FY 08' against Rs 45.36 crore in FY 07'.
http://economictimes.indiatimes.com/News/News_By_Industry/Healthcare__Biotech /Pharma_PSUs_exceed_Q1_sales_target_by_20/articleshow/3441895.cms 7
India targets doubling foreign tourist arrivals by 2010 The government has targeted attracting 10 mn foreign tourists by 2010 and add four terminals for pleasure cruise vessels, it announced. "Keeping in mind the very positive tourism trends and the sector's potential for additional employment and revenue generation, we have set a target of 10 million foreign tourist arrivals by 2010," said tourism secretary Shilabhadra Banerjee at a conference on cruise tourism. "If we achieve this target, it would result in an inflow of $9 billion in foreign exchange earnings and create 15 million additional jobs," Banerjee said at the conference organised by industry lobby Federation of Indian Chamber of Commerce and Industry.
The government has also announced its plan to set up cruise terminals at Chennai, Mumbai, Goa and Kochi ports. "The government proposes to give incentives to these ports so they could strike a balance between the high revenue generating cargo ships and cruise ships," said shipping secretary A.P.V.N. Sarma. He said the government was in the process of ironing out certain issues like tax on bunkers and speeding up immigration procedures to boost cruise tourism. India's cruise tourism industry could witness an over three-fold rise in the visit of tourists at Indian ports from the current level of 180,000 to 600,000 by 2010. Tourism secretary Banerjee also underlined the high potential of cruise tourism in the country, saying India recorded a 310 percent increase in cruise tourism visitors between 2002 and 2006. He said while overall tourism arrivals grew at 14.3 percent, foreign exchange receipts increased by 24.3 per cent in 2007. In absolute terms, 5.08 mn foreign tourists visited India and spent $10.73 bn last year. Banerjee said the share of tourism in India's GDP and employment for 2008 is projected at 6.36 per cent and 10.17 per cent, respectively, increasing from 5.83 per cent of the GDP and 8.27 per cent of total employment in 2002-03. http://economictimes.indiatimes.com/articleshowarchive.cms?msid=3444768
Oilmeal exports rise almost fourfold in August Country’s oilmeal exports have nearly quadrupled in August to 4.20 lakh tons on the back of strong demand from overseas markets and prompt supply by domestic traders. 8
The oilmeal exports in August 2007 stood at 1.23 lakh tons. According to the data compiled by Solvent Extractors Association, overall export of oilmeals from April to August has almost doubled to 23.17 lakh, compared with 10.93 lakh tons of last year due to a major increase in the shipments of soybean meal, rapeseed meal and groundnut meal. However, export of other oilmeals such as rice bran extraction and castor seed extraction have decreased during the period, it said. India's oilmeal exports to Vietnam has witnessed a quantum jump to 5.63 lakh tons during April to August from 3.96 lakh tons last year, consisting 4.54 lakh tons of soyameal, 25,997 tons of rapeseed meal and entire 82,981 tons of rice bran extraction from India, the industry body said. Similarly, exports to South Korea and Japan have registered a significant increase.
http://economictimes.indiatimes.com/News/Economy/Foreign_Trade/Oilmeal_export s_rise_almost_fourfold_in_August/articleshow/3459548.cms
News Round – Up Growing economy to boost India’s banking system: RBI The Committee on Fuller Capital Account Convertibility (Chairman SS Tarapore), which submitted its report in July 2006 had, inter alia, recommended a broad timeframe of a fiveyear period, to be implemented in three phases for a fuller capital account convertibility, viz, 2006- 07 (Phase I), 2007-08 and 2008-09 (Phase II) and 2009-10 and 2010-11 (Phase III). A further liberalisation of capital account transactions is expected to result in a larger twoway flows of capital in and out of the country. In a regime of fuller capital account convertibility, banks will be expected to undertake transactions in multiple currencies, acting as channels for the flow of funds in and out of the country when they are enabled to receive deposits and raise borrowing from both residents and non-residents and lend and invest in both domestic and foreign jurisdictions. Likewise, non-resident banks and financial institutions are expected to undertake similar transactions. The non-financial entities having links with the banking system would also conduct transactions in multiple currencies when they borrow lend and invest overseas. All these types of transactions add to the risks of the banking system that are not so evident in a less open domestic banking system. Thus, the banking system in a freer capital account regime would be exposed to enhanced risks in terms of currency risk, 9
counter party credit risk, transfer risk, legal risk, risk of regulatory arbitrage, risk in derivatives transactions and reputation risk. This underscores the need for risk management capabilities in the banking system. Freer capital regime would also require improvement in the liquidity management and disclosure practices by financial institutions as they would be encouraged to diversify funding sources to contain maturity mismatches and improve debt-equity mix. http://www.financialexpress.com/news/Growing-economy-to-boost-Indias-bankingsystem-RBI/357397/
Bharti, RIL among 10 Indian cos in Forbes Asia's Fabulous 50 Ten Indian companies led by the likes of state-run Bharat Heavy Electricals, telecom major Bharti Airtel and Mukesh Ambani-led Reliance Industries have made their way into the Forbes' list of 50 best listed companies in the Asia-Pacific region. The 'Asian Fabulous 50' ranking is topped by Taiwan-based computer maker Acer, while BHEL and Bharti Airtel are the top ranked Indian companies at the overall fifth and sixth spots. Acer is followed by Chinese steel maker Angang Steel, Taiwan's Asustek Computer and Indonesia's Bank Rakyat Indonesia at the second, third and fourth spots, respectively. Among Indian firms, BHEL and Bharti Airtel are followed by private sector lender HDFC Bank (22), IT bellwether Infosys (25), diversified conglomerate ITC (27), engineering and infrastructure firm Larsen & Toubro (30), auto maker Mahindra & Mahindra (34), Reliance Industries (39), world's sixth largest steel maker Tata Steel (44) and software exporter Wipro (46). Among countries, China has the maximum representation with 13 firms, while India comes second with its 10 companies. "Indian companies once again had a strong showing, with 10 making our cut. Infosys and Wipro, perennial top performers, are back for the fourth year. Reliance Industries, Bharat Heavy and Larsen & Toubro are back for the third year. "Consumer-oriented companies such as Bharti Airtel, HDFC Bank, Mahindra & Mahindra and ITC are growing with India's middle class," the magazine said in an accompanying report. The list is based on long-term profitability, sales and earnings growth, stock price appreciation and projected earnings for every company in the region with revenues or market capitalisation of at least five billion dollars.
http://economictimes.indiatimes.com/articleshow/3444490.cms 10