Towards 3rd Issue

An effort by Stockyard in association with mantra consulting group

25th April 2008

Issue 3

towards….

Merge Dream1 Dream2;

www.stockyard.infinities.net

Content How to conquer India Company Search: RIL Economy: ADB Report Economic Forecast 08/09 Business News G7 meet for crisis Industry Analysis Semi conductor Ind. Casting Industry Guest Colum: Inflation Political Radar Tata Group Soros

How to conquer India Probably, we won’t understand the power of our culture and education system. Here is a rare historical document which revel our strength. Document itself is self explanatory.

Editorial A small story….about a cable operator…in 2002...just 6 years before….he was very upset that Set-top boxes have come and Government is unnecessarily tinkering with his operations ,putting in service tax,etc,and he felt it was

unprofitable to function in such a scenario….. And a journey began…… In 2003 he entered Cinema business... …In 2006 he brought IPO …And today, his firm…has become an Entertainment Conglomerate spanning continents and businesses.

Pyramid Saimira and Mr P.S.SamiNathan has turned his small cable operator business into World’s 3rd largest Cinema Operator with nearly 4.5 Lakh seats as of January 2008.

And if He has to be believed…Pyramid will be Number 1 globally by the end of this Year. The group has emerged as a holistic Entertainment supply chain with Market capitalization of more than Rs 900 crore. Company has taken theatres and multiplexes on long leases and is in the process of upgrading them to a uniform high quality experience.

Some of the feathers in cap:  Company is the largest distributer of Movies in India with 65 films this year.  Its Network includes 53 multiplexes with around 800 screens across India, Malaysia, Singapore and North America.  In USA, it has acquired a Theatre Chain, Fun-Asia, the largest Asian theatre chain operating 23 screens in Washington, Chicago and the Bay Area.  More than half of south Indian language films are being distributed by PSTL.PSTL has produced 13 films and plans to produce over 70 films in coming year, at a combines value of over Rs 700 crore,in various languages.  Recently Saimira has entered in a JV with UK-based Spize TV, a DTH platform.  In the next 2 years, the group plans to operate 175 multiplexes with 2,000 screens in India alone. Company is expecting revenue of Rs 1,000 crore this year, from last year’s Rs 166 crore.

This could make it one of the fastest growing companies in the Indian growth story!!!

This is the power of Dream…Are your dreams equally powerful…??? Dreams….Are not those that are seen in deep sleepiness. Dreams born in deep Human consciousness…Dreams born in deep creativity…Sometimes in deep frustration too…. I have always felt a dream in me...Since I remember consciously…and I believe there is a dream in you also…may be in most of our hearts… We have dreams…bit of dreams…in fractions…in pieces…they germinate…sprout…grow a little and finally die down…Why…? Because perhaps we do not sprinkle and water our dreams with love… So, should we all let our dream die an unnatural death….? Or is there a way out…? To let dreams flourish …let them cherish….let them realize…And let them spread in all over the world…touching all the lives… Yes …There is a way out… I have a dream…you have a dream…And for that matter…we all… have wishes, desires ,ambitions and these uncherished dreams…

Let’s merge them together… In SAS Programming …all it takes is few coding to merge big files of GBs……I often think…could we all merge our dreams together…like we merge files in SAS. Just think over it…If we all come together…share our dreams…weed out few contentious jerks from them…and whatever is left out…the cream…the flower…just put them one behind other…just attach all our dreams like a garland …and see our dreams becoming ONE …..A big…bigger…still bigger dream...a MEGA...GIGA DREAM….. Just imagine…looks weird…right..? Still just try once… How does it look……? Possible..? Menifestable…? More beautiful….? Achievable….? And then you ask….How to do it…? Let us all discuss all our dreams…Let us churn out ourselves…put all our dreams…creativities in one basket …stir our mind and conscience……And come closer…and closer….day by day… The Dream is born…it was always here….the delay was in realizing and manifesting it… A dream is about to born in you…and it is crying to be manifested…Do not let it die…just because you did not care….

This issue …3rd in series…is dedicated to the idea of merging our Dreams together…so that we all could realize our dreams in unity…in Oneness. We have a special article on Inflation, contributed by Mr Kankan Paul…Who has tried to bring out all possible explanations on Inflation …the single most challenging issue in Global Economy and society. We have also included an in-depth analysis on Global; Asian and Indian Economy from the perspective of Asian Development Bank.ADB has recently come up with its 300+ pages report on Economy. We have tried to sum-up and provide a gist of it to you. In our equity research section, we have tried to analyze some of TATA Group companies in a fundamental perspective. We also covered a brief outlook and potential of Semiconductor Industry in India for our Industry Analysis.

May all our dreams come together and cherish…Amen.!!! With this note…the Issue is in your hand….

With Love and Affection

Company Search RIL to sell 10% in KG Basin RIL may hive off its KG basin D6 assets into a separate company and offer stake to a foreign player. The gas output from RIL’s D-6 block in the KG basin may rise another 50% to 120 mmscmd after eight new RIL-RNRL case in HC today

discoveries. With the gas projection from KG basin being increased to 120 mmscmd and commercial production just a quarter away, the valuation of the field will go up by 50%. Last year, Goldman Sachs had valued RIL’s D-6 block with 14 trillion cubic feet (tcf) reserves close to $40 billion.

The Bombay High Court on Friday will start hearing (HSA) owns 25% in this block. RIL is setting up a the Reliance Natural Resources (RNRL) Reliance greenfield refinery in Yemen with an initial Industries (RIL) case over the vexed gas supply capacity to process over 50,000 bopd and scale it issue on a day-to-day basis. The outcome of the up to 1,00,000 bopd. It has also sought permission case will have enormous implications for RIL, RNRL to set up petrol pumps there. RIL has proposed and for the entire country as gas production is equal equity participation with partner Hood Oil in slated to begin in a few months. This is because the project. The refinery may commence the court has restrained RIL from selling upto 80 operations by 2011. RIL operates a 33-millionmmscmd of gas to any third party. RIL, not being tonne refinery in Jamnagar and is commissioning able to firm gas contracts, had sought that the stay another 27-million-tonne refinery in the Jamnagar be lifted. Selling gas at $2.34 per mmbtu will halve SEZ, making it among the world’s largest refineries the valuation of the KG-D-6 block. A consortium at a single location. Besides Block 9, RIL has comprising Reliance Industries (RIL) has made a acquired stake in two onshore oil blocks, 34 and significant oil discovery in Yemen. The discovery in 37, in Yemen where it is partnering Hood Oil. Both Block 9 in Qarn Qaymah 2 well is learnt to be blocks measure 7,500 sq km each and are located significant, and RIL is in process of evaluating the along the border with Oman. RIL’s other global potential commercial interest. Block 9 has an exploration assets comprise of two blocks each in output of 10,000 barrels of oil per day (bopd), Oman and Columbia and one each in East Timor operated by Calvalley Petroleum of Canada holding and Australia covering an area of about 38,000 sq a 50% stake. Hood Oil, subsidiary of the Yemen- km. based business group, Hayel Saeed Anam Group RIL planning to enter Rigs manufacturing business Reliance Industries is scouting for a partner to enter into the rig manufacturing business besides investing $2.5 billion to venture into petrocoke gasification. Keen to sort out the rig availability problem that is being faced by the oil and gas industry, RIL would get into oil field services business, which includes rig manufacturing. The company had in October 2007 sought a three-year drilling holiday for exploring nine deep sea blocks it won through NELP auctions due to rig shortage. The proposed rig manufacturing facility would be operational by the end of the current fiscal or at

the beginning of the next financial year. The company would invest $2.5 billion for its petrocoke gasification project, which would replace naphtha as feedstock to its captive power plants at the Jamnagar facility. At present, the fuel for captive plants is sourced from crude oil. Due to surge in price of crude, company is thinking of making fuel by gasification of petrocoke. RIL plans to expand its power generation capacity to 850 MW from 500 MW.

ECONOMY Asian Outlook Economic activity in developing Asia is expected to remain strong and growth of 7.6% is expected in 2008. This solid performance in an unsteady global economy is underpinned by favorable policy conditions, strong productivity growth, and the ongoing structural transformation of Asian economies. Still, growth projections for 2008 and 2009 are slightly below the recent historical trend in developing Asia. Developing Asia will not be immune to the global economic slowdown, nor will it be hostage to it. Trade channels remain an important conduit for the transmission of shocks from G3 to Asia. As yet, market penetration by Asian suppliers in the PRC’s (China) final goods markets is limited, and strong growth in the PRC will provide only a limited cushion against the G3 downturn. In the past decade, developing Asia has become much more deeply integrated with global financial markets, raising the potential for contagion. But Asia’s financial systems are likely to be spared a credit crunch, though there may be some tightening in credit markets. Asia’s banks, which still dominate private financial markets, are generally well capitalized and there does not appear to be substantial value at risk on their balance sheets. In the near term, the major risk lies not so much in softer growth but in rising commodity prices and accelerating inflation. If inflation expectations are allowed to become ingrained, this could create distortions that damage productivity growth over a protracted period. Though measures to restrict the impact of rising food prices on the poor are understandable, these should not be allowed to jeopardize adjustments that are needed to bring forth additional supply. Extensive subsidies on fuel come at high fiscal cost—a rising burden in several countries—as the gap between domestic retail and border prices widens. Over the medium term, and once developing Asia has passed through the gathering storm of rising commodity prices and inflation, its growth prospects are likely to depend much more on how successfully countries manage their economies and overcome domestic constraints to growth. Developing Asia’s economy is expected to expand by 7.6% in 2008, picking up a shade to 7.8% in 2009. These projections suggest a slowdown from 2007’s outcome, now estimated at 8.7%, the highest in 19 years. Rising food and fuel prices are stoking headline inflation, but economic speed limits have also been tested, with recent output growth straining capacity. If the global slowdown is concentrated in sectors such as electronics, textiles and garments, and toys, as recent data appear to suggest, this

Structural Factors for High crude prices: Production from the Organization of the Petroleum Exporting Countries (OPEC), and non-OPEC production must rise even to meet short-term forecasts of demand. The International Energy Agency (2008) sees demand rising by 1.7 million barrels a day in 2008 with most of the added demand coming from People’s Republic of China, India, and the oil-producing countries of the Middle East themselves. Difficulty in supply keeping up with demand are complex but have to do with domestic political constraints within the OPEC countries and the fact that non-OPEC production has peaked and is set to decline. Alternative fuels such as unconventional sources of oil (tar sands), biofuels, and natural gas are difficult to develop and involve large investments and lags of up to 5 years between investment and production. Transportation services is growing rapidly and despite the development of hybrid engines using combinations of fuel, there is no meaningful short-term substitute for oil-based fuels for transportation services on air, land, or sea. The rising price of oil is closely associated with the price of natural gas as can be seen in sharp increases in fertilizer prices. The price of diammonium phosphate—a fertilizer produced from feedstock of natural gas—has risen from $260 per ton in 2006 (period average) to $768 in February 2008. Higher costs of energy inputs also affect electricity costs for use of pump irrigation systems, tractor and harvester/ thresher fuel costs, and the cost of transporting inputs and outputs related to agricultural production. Food and oil prices move closely together through time in such a way that a rise in oil prices has a statistically significant positive impact on food prices.

Structural factors rising Food prices:

for

would hurt Asian exporters. Rising food and fuel prices could Demand that is driven by high probe developing Asia’s resilience. Countries that are net fuel economic growth and urbanization, particularly in India and the People’s and food importers are likely to be squeezed by adverse Republic of China, and associated movements in their terms of trade; more so, when unit values changes in diets that require more of important export products are weakening, as they now are grain to produce the same amount of calories for consumption. for garments and textiles. Asia’s financial markets are becoming more closely meshed with global markets. Most measures of Supply constraints arising from financial integration, and thus potential contagion, have greatly competition for agricultural land and its conversion, increasing scarcity of strengthened over the past decade. Through these channels, fresh water; and migration of labor Asian borrowers will feel the pinch in international credit from agricultural to nonagricultural markets and Asia’s bourses are likely to experience heightened activities; volatility. Asian banks are still the main originators of domestic Direct competition for key food crops credit, and their leverage and exposure to unsafe securities are for nonfood demand (such as low, the possibility of the credit crunch washing onto Asia’s biofuels) economic shores seems remote. Most Asian economies have Underinvestment in agricultural ample foreign reserves in the event of an unexpected rush to technologies and infrastructure that sell domestic currency. Although the slowdown in global have contributed to slow growth of yields per hectare of agricultural land demand should ease inflation pressures, deep cuts in US interest rates would add to them if Asian economies do not Climate change, which is increasing allow greater flexibility in nominal exchange rates. Lower the incidence of drought and flooding that hit agricultural production. interest rates also tend to make commodities more attractive as assets and so may support high prices, though the effects on Global rice stocks have fallen and are inflation should be transitory. expected to reach 25 year lows at just 70 million tons this year, down from Any passive acceptance by Asia of an upward drift in inflation 150 million tons in 2000 (USDA 2008). could deal a hard blow to long-run productivity growth. Even moderate inflation typically proves costly to get rid off. Trade policies currently greatly distort international price signals in Conversely, price controls and extensive price subsidies, though agriculture and lessen the likelihood they may temporarily corral inflation expectations, are not the of rapid and efficient supply answer and would stymie market adjustment processes. responses. Rice prices are of overwhelming importance in Developing Asia’s exports do respond quickly and in some cases developing Asia because well over strongly to variations in G3 demand. Precise impacts differ 50% of its population relies on rice as depending on the source of the demand shock and trade a staple of consumption, and nearly 70% of agricultural land is given over, structure. Though developing Asia’s economy is not immune to at least seasonally, to rice production. the vicissitudes of global demand, its longer-run growth trajectory will be much more a function of structural and supply-side dynamics. To maintain momentum, countries will have to address and overcome a variety of constraints. In the short run, the impact of the global slowdown is likely to be modest: even a highly unfavorable global scenario that dents growth in developing Asia. Though it is unlikely that price of crude rises will be sustained secularly, the outlook for the next 2 years is for continuing upward pressure. There is also a risk that cost inflation may lead to demands for upward adjustment of money wages or increased fiscal outlays to subsidize food and fuel consumption. The subsequent monetization of the fiscal costs coupled with accelerating wage increases are potential triggers for an inflation spiral of prices and costs.

India Outlook Key structural challenges include establishing a new fiscal adjustment road map, raising labor productivity, and enhancing structural reforms. RBI has been attempting to control money supply growth to maintain price stability, while seeking to ensure credit market and interest rate conditions that support investment in the context of relative stability in the exchange rate. But it has had limited success. The year-on-year money supply growth of 24% (to end-January) remains significantly higher than the target growth rate of 17–17.5% Strong capital inflows have increased money supply, raising inflation pressure and rendering difficult the management of monetary and exchange rate policy. In FY2007, RBI followed a dual-policy approach to allow greater exchange rate flexibility along with ● ● ● intervention in the foreign exchange market. Avoiding a deep downdraft in the next 2 years This led to appreciation of the rupee against will primarily be shaped by the outcomes of the United States (US) dollar, mainly in the three counteracting forces: early months of the fiscal year, and a large keeping food price inflation moderate, accumulation in RBI’s foreign exchange assets Lowering interest rates to sustain high over the full year. While the rupee weakened levels of investment, slightly in the latter part of FY2007, it Containing the fiscal deficit. appreciated by about 13% against the dollar and by about 7% on average for the year in real effective terms. Some development ● ● ● agencies project that global food prices by 2017 could be 20–40% higher than the average of 2002–2006. India has emerged as the largest importer of edible oils in the world with more than 40% of its domestic demand met through imports. Reflecting the tight global situation and affected by domestic supply constraints, food prices have risen faster than overall inflation in recent months. The Government has responded by increasing subsidies on food items, controlling exports, and subsidizing imports. Appreciation of the local currency against the US dollar has hurt Indian exporters. Merchandise exports (on a customs basis) grew by 21.6% in the first 10 months of FY2007 when expressed in US dollars .However; this reflects the sharp appreciation of the rupee more than the actual increase in exports, the growth of which, in rupee terms, was subdued at just 7.7%. The slowdown was evident most notably in chemicals, engineering goods, textiles, and readymade garments and handicrafts. The growth of merchandise imports, at 29.6% in US dollar terms in the first 10 months of FY2007, is also overstated when compared to its rupee value (14.7%). Non-oil imports of capital goods, chemicals, edible oils, and precious and semiprecious stones provided the main stimulus for import growth; rising by 36.1%, while oil imports advanced by 16.5%. The net effect was a near 50% widening of the US dollar trade deficit from a year earlier. Preliminary estimates indicate that the current account deficit will be about 1.9% of GDP, slightly higher than in FY2006. Although the trade deficit widened significantly, it was offset by a strong rise in the inflow of remittances and a growing surplus from exports of services such as software and business services, though their expansion in earnings was reduced from the rapid rates seen in previous years.

Economic forecast for 2008/09 Forecast Economic growth will likely moderate further to 8.0% in FY2008. Overall GDP growth in FY2009 is predicted to return to around 8.5%, nudged along by a broadbased pickup in spending. Even though growth has faltered, Assumptions: the economy has built up considerable momentum in recent years and this sense of dynamism should help pull up the pace The domestic food supply position will again. However, major macroeconomic challenges need to be remain tight but manageable in FY2008, but improve in FY2009 met in order to ensure that the current deceleration remains mild in the face of turmoil in global financial markets and of RBI and the federal Government will the marked economic slowdown in industrial countries. The take all steps necessary to contain inflation in FY2008, largely because of growth outcomes in the economy over the next 2 years will the general elections due by early 2009 depend in part on the timing and scope for relaxing the present tight monetary policy. Exactly when this will be Monetary conditions will be relatively more accommodative during FY2009 feasible will be determined by success in containing inflation, which in turn depends on two uncontrollable factors: the Substantial revisions in domestic price outturn in domestic food production and the course of of petroleum products will likely be made only in FY2009 (that is, after the international commodity prices. Growth in international elections) commodity prices is expected to flatten in FY2008 and fall in FY2009, taking the pressure off inflation and allowing The rupee/dollar exchange rate will remain relatively stable throughout the domestic demand to pick up in FY2009. Private consumption period. expenditure will remain relatively buoyant in FY2008 at just over 6%, supported by continued strong wage gains in a skillsshort formal economy, larger income tax exemptions, the debt waiver for farmers given in the FY2008 budget, higher prices for cash crops in the rural economy, and higher pay for civil servants. Government consumption expenditure also will rise to support the ambitious social sector development agenda of the 11th Plan. Reinvestment of corporate profits, capital inflows, and credit availability will continue to support investment growth. While investor enthusiasm remains high, drawing on a broad range of new business opportunities and high capacity utilization in existing plants, expansion in fixed investment is projected to slow in FY2008. It will account for about half of the decline in economic growth, although this will be partly offset by some cyclical building of inventories. Postponement of launching initial public offerings in early 2008 is one indicator that the expansion plans of many Indian companies are being scaled back. Much of the deceleration in investment is expected to be due to a slowing in property development. Easing of lending rates and revival of the consumer durable goods sector and construction activities are important for achieving a pickup in industrial growth. But despite the current slowdown in demand, lending rates cannot be reduced because stabilizing inflation at a moderate level remains the priority of RBI during FY2008, even at the cost of growth. A more accommodative monetary policy stance is expected only after the general elections. After that, RBI is likely to move to ease its tight policy stance by reducing policy rates if food inflation is relatively well controlled. A fall in borrowing costs, together with growing consumption demand, would lift industrial production in FY2009 after an initial hitch in FY2008. Agricultural growth will continue to be driven by monsoons until better infrastructure and institutional set-ups are in place. The 11th Plan emphasis on agriculture, coupled with a Rs2,800 billion($70 billion) target set for agricultural credit in FY2008, as well as a host of reform measures for agriculture and water resource management announced in the FY2008 budget,

Downside Risks: Monetary management may have to deal with the possibility of supply shocks beyond the 2007 and 2008 sowing seasons. The loan waiver can be effective in augmenting food supply provided that farmers are also supported with a comprehensive package of technology, services, and public policies related to input and output pricing. Rising food prices, especially of commodities consumed by the broad public, would damp their general purchasing power and GDP growth. In the event of high food prices, monetary conditions would need to remain tight, and the assumed move to lower lending rates would not occur and growth would be less. The global slowdown may more adversely affect India’s engineering and other high-end exports as well as earning from sales of software and other business services than projected. While this would raise the negative impact of “net exports,” the main damage would be seen in the erosion of the exuberant business outlook. If the larger part of the private sector turns cautious and waits to see what happens next, investment and growth would fall below those projected.

2.6% of GDP.

should take hold and lead to the needed improvement in agricultural performance in FY2009. Domestic prices, especially of food and fuel, will be critical in determining wholesale price inflation, which is projected to be at a moderate level of 4.5% in FY2008. Inflation pressures, however, will persist as the domestic output of foodgrains and vegetables is expected to remain tight in FY2008 due to subdued sowing of the winter crop in October 2007. The tight supply position of wheat, pulses, edible oil, and coarse cereals appears due to diversification to cash crops and water shortages in parts of the country. Easing of international prices of nonfuel commodities, including foodgrains, will help in augmenting domestic supply. Several low-profit-margin exports such as textiles and handicrafts were hurt from rupee appreciation in 2007, but exports of more sophisticated products such as capital-intensive manufactured goods, as well as sales of business services, continued to expand. The rupee– dollar exchange rate is assumed to remain relatively stable during FY2008 and FY2009. Exports are therefore expected to grow at about 16–18%, partly due to the sizable share in the total (nearly 20%) of refined petroleum products, whose prices are on the rise. Markets other than the US are also opening up to India’s high-tech service exports such as information and communications technology and business process outsourcing, which provide a cheaper source of supply to increasing demand from industrial economies. Indian exporters have started diversifying to other major export markets, notably Europe, People’s Republic of China, and the rest of Asia. Import growth will continue to be rapid, reflecting both high international oil prices and expansion in non-oil imports, especially of capital goods and intermediates that have become necessary to sustain high levels of investment. These factors have been incorporated in the projection of a widened current account deficit, which is likely to be around 2.2–

Challenges to development Over the past decade, India has undergone a transformation and climbed to a high growth path as macroeconomic and structural reforms reduced regulation, improved the business environment, and opened the economy to greater competition. It still needs to focus on certain key areas with the potential to push growth to a higher plateau. The most crucial are enhancing the policy and regulatory framework to encourage the private sector and reining in fiscal deficits. A dynamic private sector that creates jobs, increases productivity, and invests in the economy plays a crucial role in bolstering growth. Removing the bottlenecks to private sector growth and competition in India could well generate an additional 2% of GDP growth. All levels of government need to reengineer their laws and procedures to reduce barriers to entry of firms into any product area; modernize out-dated and excessive regulations, including more flexibility in the labor code; eliminate the roadblocks that hinder free interstate movement of goods to achieve a competitive national market; and end the present lengthy process required to restructure or close bankrupt companies. Archaic management structures and institutions still prevail in much of the daily working of government. Thus reengineering needs to be introduced into institutions at all levels by adopting the management and operating techniques so successfully developed by India’s computer software and business services industries. These changes would be especially effective at the level of local government. Fiscal consolidation, by targeting combined state and federal government deficits, including off-budget and contingent liabilities, is essential to create the fiscal space for essential social and infrastructure spending. The Government’s decision—to keep domestic prices artificially suppressed in response to rising international food and oil prices—has distorted product prices and generated large, annual offbudget liabilities that are rapidly escalating the already heavy deadweight of interest payments. Aligning food prices with the international market would raise farmers’ incomes and set prices that will not distort land allocation to crops. A similar move for oil will likewise give consumers the right price signal to save energy and demand more energy-efficient products. A part of the saving from ending these subsidies could then be available for direct cash payments in welltargeted safety net programs. This would eliminate the large diversions and losses involved in the present price subsidy schemes. Declining labor productivity is a key issue in sustaining India’s long-term growth. Defined as output per worker, labor productivity dropped from an average of 5.8% during the period from FY1993 through FY1998 to 3.6% during the period from FY1999 through FY2004. One reason is an increasing shortage of appropriate skills.

Business news Dabur Pharma sells its stake Dabur Pharma is selling 73.27 % stake to Fresenius Kabi (Singapore) Pte Ltd for an undisclosed amount. The Singapore firm would purchase the stake at Rs 76.50 an equity share from the promoters and certain other shareholders of the company. At present, Dabur Group’s promoters - the Burman family - hold 65 per cent stake in the pharma company. Last year, Dabur had sold its nononcology formulations business, mostly comprising cardiac and anti-diabetes drugs, to Ahmedabad-based Alembic for Rs 159 crore. In 2003, the company had hived off its pharmaceutical division from the FMCG business. Dabur is trying to consolidate itself in FMCG space. Fresenius Kabi Pte is a unit of Germany-based healthcare firm Fresenius SE, which makes anti-cancer drugs. Dabur’s strong pipeline of oncology drugs synergises well with the German parent company. The Indian pharma company had recently launched its rectum cancer injection Irinotecan in the US its fourth product in the North American market. Dabur also has an agreement with Thailand’s Government Pharmaceutical Organization to supply a generic version of an anti-cancer product, Docetaxel. Anti-cancer drugs worth $10 billion is set to go off patent in the next few years and with only a few generic players in the global market, the acquisition makes it a good buy for Fresenius.

Wipro FY’08 net up 11% at Rs 3,283 crore Consolidated total income: Rs 20,397 crore (Rs15,271.4 cr) Consolidated Net Profit: Rs 3,282.9 cr (11.57 % increase) Net Profit (4th Quarter) : Rs 880 crore ( Rs 856.1 crore) Total income (4th Quarter) : Rs 5,777.2 crore (Rs4,395.9 cr)

Indian Bank Results Net Interest Income for Q4 Rs 513 crore against Rs573 cr Net Interest Income for Year : Rs1872 cr against Rs759 cr Net Profit : Q4 242 Crore against Rs 235 crores Net Profit: Rs 1008.74 crore against Rs 759 crore

Impact of CRR Hike The rupee may slightly appreciate and bond prices could harden further by 7-10 basis points, following the Oil hike at in the Cash Reserve Crude $120 / Bl Ratio (CRR) by the RBI. The rupee may tend to appreciate in the short But the rising price Saudi Arabia plans toterm. increase its production ofcapacity global crude, trade deficit, by fivewidening million barrels per dayslowing (bpd) down of capital overall cooling by 2012. OPEC flows aimedand to the boost production down of the economy may the rupee to capacity by nine million bpdcause by 2020. Current weaken in the medium hikebpd. has OPEC output stands atterm. aboutThe 32 CRR million now expectations a hike in and Evenraised though OPEC has of promised to repo increase reverse repo incapacity, the monetary on April 29. production the policy long-term supply increase does not resolve the main factors CRR thatHike are underpinning prices now. A weakening US dollar has spurred oil demand The CRR hike of 50 basis points in 2 stages, one because dollar-priced oil becomes cheaper for on 26th April and another on 10th May. Likely to buyers holding stronger foreign currencies. reduce Net Interest Margin by 5 basis points. Global supply worries were stoked after Would suck out Rs 18,500 crore from the Anglo-Dutch oil group Royal Dutch Shell banking system. Banks do not earn any interest reported an output loss of 169,000 bpd from on CRR deposits. Year 2008-09 is likely to be sabotage of its key pipelines in southern more difficult for banks, especially on margins, Nigeria. Shell said on Monday that it might not for Government banks and on loss of income be able to honor oil contracts for April and from forex and collateralized debt obligations May after the attacks. If oil prices remain (CDO) provisions for private banks. above $100 per barrel, inflation could surpass 9 percent in the third of 2008 and Bank earnings could bequarter impacted for most average overbanks 7.5 perowing cent into2008/09 government the 60-75 basis points cut in lending rates. Rising inflation and weakening demand could impact volume growth. The key risks to the sector are a rise in interest rates, deteriorating retail asset quality and a further slowdown in loans and fees. In the current situation, with demand for credit on a slide, credit growth could be just about an average of 20% this year. Public sector banks might see multiple pressure points from Basel 2 implementation, loan waivers, labour demands and an inability to respond to interest rate signals appropriately. Total hit on the banking system is expected to be about Rs 750-900 crore. Private banks may see a loss of Rs 300 crore.

Infosys Results Consolidated net profit of Rs 4,659 crore for the year ended March 31, a 20.82 per cent growth over the corresponding period a year ago. Infosys had a consolidated net profit of Rs 3,856 crore for the year ended March 31, 2007.

New Merger policy in Telecom The Government on Tuesday said that no mergers and acquisitions of telecom licenses would take place if the number of service providers reduces below four in a circle consequent upon the M&A. Prior approval of DOT for the M&A of the licenses is necessary and the combined market share of the merged entity shall not be greater than 40 per cent in terms of subscriber base or in terms of revenue.

The consolidated total income rose to Rs 17,396 crore for the year ended March 31, 2008 from Rs 14,265 crore in the year-ago period. The company declared a final dividend of Rs 7.25 on shares of Rs 5 each (145 per cent) and a special dividend of Rs 20 pe r share (400 per cent on an equity share of face value of Rs 5). Besides, Infosys has decided to increase the dividend payout ratio to up to 30 per cent of net profits effective from fiscal 2009, the company added. For the quarter ended March 31, the group reported a net profit of Rs 1,249 crore as compared to Rs 1,144 crore for the quarter ended March 31, 2007. Total income increased to Rs 4,681 crore for the quarter ended March 31, this year from Rs 3,891 crore f or the corresponding quarter a year ago.

Ban on cement exports to dent majors’ toplines With the government banning cement exports, revenues of major cement exporters will be dented by about Rs 1,000 crore. Two cement exporters, Ultratech and Ambuja Cement, in separate statements to the Bombay Stock Exchange on Monday, said their revenues are likely to be impacted. Ambuja Cement said the company exported about 1.32 million tonne of cement worth about Rs 277.48 crore in FY 2007. Similarly, Ultratech’s 10% revenues come from cement exports. Going by Ultratech’s nine-month turnover, 10% would come to about Rs 392 crore, approximately. Hence, the two Companies, together, will take a hit of more than Rs 670 crore. India exported about 3.5 million tonne cement last year. And with international cement prices at about Rs 2,500 per tonne, the Companies will take a revenue hit of about Rs 875 crore. However, if we include the ban on clinkers as well, then there will be a revenue hit of about Rs 1,000 crore to Rs 1,200 crore. The manufacturers based in the western region, especially Gujarat, would be the worst hit, as 91% of India’s exports are from the state. With almost 3.3 million tonnes flowing back to the region due to the export ban, we see a pricing decline in the western region, which are currently at Rs 231 a bag.

Orchid Chemical After much sensation and hype over Solrex bid for 12.8% of Orchid Chemical, for the first time, Ranbaxy on 22nd April admitted that Solrex was a partnership between two of its wholly owned subsidiaries – Solus Pharmaceuticals Ltd and Rexcel Pharmaceuticals Ltd. According to Indian regulations, the acquisition of a 15 per cent stake in a firm by persons other than the founder or the founder-group would trigger a mandatory open offer for a further 20 per cent. If that happened, then Orchid’s current management would have had to give up control to Ranbaxy. Therefore, the business alliance with Ranbaxy could put an end to Orchid’s fear for now. Ranbaxy has similar strategic stakes of just under 15 per cent in other pharma companies, including Krebs Biochemicals and Industries Ltd and Jupiter Bioscience Ltd. On the alliance with Orchid, Mr Malvinder Singh said the companies were looking to leverage on each other’s strengths with Orchid having strong presence in antibiotic cephalosporin formulations.

“Orchid is a niche player in the global pharmaceutical industry with an impressive track record, particularly in sterile products. We are pleased to enter into this long-term strategic alliance with Orchid. The agreement will be mutually beneficial and synergistic, allowing both organisations to leverage each others inherent strengths.” Commenting on the alliance, Mr K. Raghavendra Rao, Managing Director, Orchid, said, “We are happy to join hands with Ranbaxy, India’s largest pharmaceutical company. Ranbaxy’s global scale and market reach and Orchid’s advanced development and manufacturing capabilities would expand the business of both companies. We believe that this will be a win-win arrangement for both companies”.

towards….?

G 7 meets for Crisis

earnings reports their investments at risk of loss. Firms should also establish ``fair value estimates'' for the complex assets that investors have shunned and boost their capital as needed.

Finance

chiefs from the G7 nations signaled

concern on the dollar's slide and said the global economic slowdown may worsen amid an ``entrenched'' credit squeeze. The officials downgraded their outlook for the world economy from that of two months ago, blaming the U.S. housing recession, credit-market turmoil, commodity prices and inflation pressures. The dollar has lost 8 percent against the euro and 6 percent versus the yen since February.

European Central Bank has left its unchanged at a six-year high of 4 percent amid inflation at a 16year high. Growth differentials are still stacked up against the dollar and since there's no sign

``The turmoil in global financial markets remains entrenched and more protracted than we had anticipated,'' the officials said in their statement. ``Near-term global economic prospects have weakened.''

Policy makers laid out a 100-day plan to strengthen regulation of capital markets. They urged financial companies to ``fully'' disclose in their mid-year

whatsoever that the group is about to intervene, that clears the way for further dollar weakness. The U.S. currency reached a record low of $1.5913 against the euro this week. The dollar is expected to reach $1.60 per euro. The G-7 again urged China to allow ``accelerated appreciation'' in its currency, while acknowledging its recent rise through 7 per dollar for the first time since a fixed exchange rate ended in 2005. With the credit squeeze now in its ninth month, the G-7 highlighted ``downside risks'' to growth in a ``challenging and uncertain environment.''

Industry Analysis Semiconductor Industry

The

Indian semiconductor design services

industry is projected to grow at a compounded annual growth rate (CAGR) of 21.7 per cent to $10.96 billion in 2010, from the current level of $6 billion. The industry is expected to clock a revenue of $7.3 billion by 2008-end. The key factors that position India as a favored destination for semiconductor and embedded designs are the growing expertise and capabilities in end-to-end design, intellectual property (IP) development, a strong pool of engineers, emergence of outsourced third party design services companies and cost effective products. The market for very large scale integration (VLSI), hardware/board design and embedded software industry and the market dynamics between the members of the eco-system — have presented a tremendous growth potential to the Indian semiconductor industry. Indian industry growth is three times more than the global growth rate of around 7 per cent. Industry’s structure is changing as the proximity between the third party service providers and original equipment manufacturers (OEMs) for end-to-end product designs is increasing in the country. Companies are moving up the value chain from mere project execution

to end-to-end development of products. An increase in jobs from 129,900 in 2007 to 218,800 in 2010, a CAGR increase of 18.8 per cent is anticipated in the Industry. At present, the bulk of the jobs are in the embedded software (82 per cent) followed by VLSI design (11 per cent) and hardware/board (7 per cent). A large chunk of the industry product design space is occupied by general consumer electronics and the wireless handset area (mobile technology). In the VLSI design projects executed in 2007, 14 per cent was portable wireless products, 33 per cent pertained to consumers and 31 per cent was telecom networking products. In another couple of years, lot of designs will shift from the present 90 and 65 nanometres to 45 nanometres. Secondly, the growing domestic market would boost the industry as the consumption of electronic products in the country is estimated to increase. The industry is still nascent. Start-ups and early stage companies need a different handholding, tremendous support is needed from the government for nurturing technology output by smaller companies. The industry will have to constantly evolve, upgrade and innovate while keeping the costs down in order to stay cost competitive in the global market.

Casting Industry According to an Engineering Export Promotion Council data on steel prices, the domestic price of pig iron on April 3 was $850 a tonne (inclusive of VAT and excise) and the domestic price in China was $606-613 a tonne. Iron ore is the raw material for pig iron. Huge quantities of India’s iron ore exports go to China. The Chinese Government now encourages export of value-added products and

has levied 25 per cent duty on coke and primary steel product exports. The steel plants need 0.8 tonne of coke to melt one tonne of steel. Most of the casting exporters enter into annual contracts with their overseas buyers. If the buyer sources castings from China too, then the Chinese have a 25 per cent cost advantage in raw material over the Indian manufacturer. Thus, the competitiveness of Indian foundries, the fourth largest casting producer in the world, has been affected.

Guest Column Inflation: India and the Global Economy

Recently i.e. on 4

th

April Government of India had

Why inflation suddenly increased (i.e. the causes.)? Is it only an Indian phenomenon right

published the data on Annual Inflation for the

now or happening globally? If possible, what

week ended on 22nd March and we observed that

could be the possible solution for controlling the

it had touched 7.07%, the highest in the last three

inflation?

years.

We will discuss regarding all the aforesaid issues

This is a bad news for everyone, starting from the

one by one.

general Indian population to the Indian policy makers. But this is definitely a good news for the

First let’s see the recent inflation figures in India.

politicians in the opposition parties as it is a good

The year 2008 started with 3.79% of inflation rate

tool that can be used against the ruling

for week ended on 5th January. As the year

government especially in the election year.

progressed inflation got doubled and crossed 7%

But we will discuss here only the issues related to –

mark.

Week ended on Annual Inflation Percentage increase 1st March

5.11%

-

8th March

5.92%

15.85%

15th March

6.68%

12.84%

22nd March

7.07%

5.84%

If you notice carefully then you find out that within

Indian political scenario is very much vulnerable to

three months annual inflation has gone up by

inflation and you will find each and every

around 87%. This is really shocking because our

newspaper publishing it with grandeur.

Now the question is that why this sudden increase? According to Economics there is no phenomenon

Truly there are several reasons behind this sharp

that is the result of a single incident or situation.

rise

in

prices.

Let’s

explore

those.

table showing the increase in wholesale pricesof different items .

Products

Percentage increase on annual basis

Iron and Steel

27%

Minerals in general

41.5%

Edible Oils

21.1%

Cereals

8%

Vegetables

11.4%

Milk

10%

Dairy Products

9%

Cement

12.2%

Mineral Oil and Coal 9%

Hence prices of almost all essential commodities have gone up. Specially Iron and Steel and Oil prices have shot up like nothing; prices of wheat, rice, corn, soyabean, soyabean oil, palm oil, non-ferrous metals are also of main concern. The metallic minerals have gone up by around 38% in a week. Just take a look into the data published by IMF (International Monetary Fund). Its commodity price index showed increase in food prices in February by 65%, metal prices by 70% and petroleum prices by 175.7% since 2005!

As far as the reason is concerned for this price hike rising demand of the developing nations especially India and China, production shortfall, higher crude oil prices in the international market are of prime importance. Chinese economy has grown by more than 10% on an average throughout the last two years. Indian economy is growing at a pace of more than 8% on an average per year (9.4% in 2006-07, expected 8.7% in 2007-08). But agriculture, infrastructure etc. are not growing at the same pace especially in India.

Let’s take a look on the agricultural situation world wide.

In 2007-08 wheat production is estimated to be lower at 74.81MMT (million metric tons) lower than last year’s output of 75.81MMT, which indicates that government may import wheat this year also, at least there is a high possibility. Rice and maize productions are estimated at 94.08MMT and 16.78MMT respectively; both figures are more than those of their previous years. According to the US Department of Agriculture – Name

of 2007-08 estimated production in MMT (million metric Change

crops

tons)

year

Wheat

605.0

+1.9%

Coarse Grains

1056.2

+7.8%

Milled Rice

422.9

+1.11%

Oilseeds

390.1

- 4.4%

Cotton

118.9

- 2.6%

Soyabean

219.85

- 7.34%

w.r.t

previous

Though Soyabean production has increased in India. But this increase is not very much and moreover in case of each and every crop the major exporting countries are facing increasing demand internally, hence they are reducing the amount that they are supposed to export.

Rice: World and India

Recently China, Egypt, Vietnam, India have either curbed their rice exports or increased the tax on export due to increase in the domestic consumption. Thailand has expressed its tight domestic situation and curbed the export by more than half to 1.2 MMT. On the other side the situation of rice is not good in Philippines; the Department of Agriculture and National Food Authority has asked the Filipinos to eat more unpolished whole rice grain to cut down on imports. Philippines, world’s largest importer of rice, is set to buy around 100,000 MMT of rice from the US. Already they have bought approx. 1.1 MMT of rice from Vietnam. This will definitely drive the price upward in the international market and also in domestic market in Philippines. An already rice future contract has risen to record price on 4th April in Chicago Board of Trade (CBOT).

In India the situation is odd. Though India is the second largest rice producer in the world, we are facing a serious hike in rice price, twice the minimum export price has been increased but still situation is bad. This is because the government didn’t attempt to buy sufficient amount of rice from the farmers and replenish the food stocks. Moreover due to packing restrictions low priced coarse variety rice goes to Africa, Sri

Lanka and Bangladesh through “hawala” route; this has increased recently and the government hasn’t taken any action against this.

Wheat: World and India The US is the major producer, after her Argentina, China, Kazakhstan, Ukraine, Russia and Australia are there as important producers and exporters. Two consecutive droughts in the last two years in Australia hampered the wheat exports very much along with floods in Argentina. China has imposed restrictions on exports of wheat flour, following Ukraine and Russia. Last week Friday price of Wheat May futures shot up by 5% as there is chance that due to a mix of dry and wet weather the US wheat production could take a hit. If it happens the wheat prices in the market will definitely go up by leaps and bounds. Coming to the Indian situation, as I have already mentioned that this year the wheat production is expected to be lower than that of the last years; due to increase in consuming population and as more people are getting habituated in having wheat based food products it is surely that the wheat consumption will increase this year. Again the general trend is around 12.5% of the output is not

considered for consumption on the account of seed, feed and wastage. Government has already fixed the minimum support price (MSP) for wheat as Rs.1000 per quintal. But a problem is that the Pakistani farmers have demanded Rs.1000 per 40 kg of procurement price which could antagonize farmers in India and it could happen that while competing with ITC and Cargill in procurement FCI (Food Corporation of India) may face problem in achieving procurement target for the year which will result in buying wheat from international market at increased price. This also happened in the last year. The domestic wheat production is expected to take a hit due to hailstorms after 4th April across the north, northwest and northeast India.

Oil and Oilseeds: India mainly imports the edible oils, around 4 MMT

between the US and Venezuela, the US and Iran

of palm oil and 2 MMT of soyabean oil. Recently

and also decrease in Russian production have led

the price of Crude Palm Oil (CPO) in the Malaysian,

to the rise. Recently the value of the US$ has also

largest producer, market climbed to record high of

decreased somewhat led to the rise. On 17th March

4000 Malaysian Ringgits (MYR) and it could go

NYMEX Crude hit a record US$111.80 per barrel

upward to at least 4500 MYR. Soyabean Oil is also

and also US$ lowered to 1.5903 Euro.

expected to grow more than US$1500 per metric

Coming to the Indian scenario, Indian Crude Basket

ton in the US, everything depends upon the

consists of average of Oman and Dubai Sour Grade

weather. The price rise is generally due to demand

Crude and Brent Sweet Grade crude in the ratio of

– supply mismatch as Chinese demand has

59.8:40.2 since fiscal year 2006-07. Each year India

increased steadily.

imports around 76% of its crude oil requirements which costs it around US$50 billion. Rise in the

Crude oil is increasing due to increased demand

crude price combining with Rupee appreciation by

from China, India and other developing countries

around 13% has result an extra burden on the

especially BRIC nations along with the US, due to

Indian coffer by around 4%. Recently the

speculation over demand – supply mismatch and

government had increased the fuel prices also to

finally geopolitics. Recently supply from the OPEC

release by some amount.

(Organization

of

the

Petroleum

Exporting

Countries) has reduced. Moreover increased tension in Middle East Asia, tensed relation

Metallic Minerals: Prices of different types of steel has increased by more than 65% w.r.t. that of last year. Last year mild steel was priced at an average of around Rs.27000 per ton and now it is priced at around Rs.45000 per ton as the steel plants have increased the prices of steel twice. According to them prices of iron ore and coking coal were hiked. It is true, because NMDC (National Mineral Development Corporation) has increased the price by around 40% during this fiscal year. Not only in India but also in the International market iron ore prices are very high as BHP Billiton Ltd. and Rio Tinto are charging higher price for iron ore from Asian buyers as freight premium. Also Companhia Vale do Rio Doce, Brazilian mining giant has contracted with the Chinese and Japanese steel producers on 65% to 71% higher price. Power shortage in the mining area and increasing demand due to construction boom from the Chinese companies are major reasons for this price increase. Hence more and more Asian companies are going for iron ore from Australia rather than from Brazil as freight cost has increased. Hence mining companies are charging for freight premium. Coking coal price is soaring due to three main reasons – lost production in Australia, Chinese export curb and power shortage in South African mines. Storms in Queensland has resulted in a loss of 15 MMT of coal production that probably won’t come to the market and China has imposed export restrictions after winter storms. Last year Australian coking coal was priced at US$98 per MT for Japanese steelmakers, this year it is US$258 per MT whereas Australian thermal coal was US$55 per MT and now US$110 per MT.

Industrial Growth in India: Prices of essential commodities are already on fire and in such a situation industrial growth is falling in India. I’m giving the growth of the six core sectors as was in December 2007 – Sectors

Weight (%) in IIP

Dec-06 % growth

Apr-Dec 06- Apr- Dec 07Dec-07 07 08 % growth % growth % growth

Crude Petroleum

4.17

10.7

-1.58

6

0.3

Refinery Products

2

10.8

2

13.2

7.5

Coal

3.22

2.9

8.4

4.6

4.9

Electricity

10.17

9.1

3.8

7.5

6.6

Cement

1.99

8

3.9

10.3

7.2

5.13

10.2

5.1

11.4

5.6

26.7

9

4

8.9

5.7

Finished (Carbon) Overall

Steel

Notice that crude petroleum and refinery products, these two sectors’ growth had fallen too much which is enough too creates pressure on the supply of petroleum products, fertilizers and that is leading towards price rise, finally inflation. When our country is growing at an average of 8% every year, disposable income of people are growing at a fast pace, people are spending in perishable goods, durable goods and real estate heavily, the core sectors are expected to grow at more than 8% in every quarter. Only then the supply demand mismatch can be solved to some extent. Now just look at the following tables for the industrial growth in the 2008 – Sector

Weight (%) in IIP* Crude petroleum 4.17 Refinery products 2 Coal 3.22 Electricity 10.17 Cement 1.99 Finished steel 5.13 (Carbon) Overall 26.7

Growth in % Jan-07

Jan-08

4.7 11.2 9.9 8.3 7.2 8.5 8.3

-0.2 5.3 4.8 3.3 5.2 5.5

Apr-Jan 06-07 5.9 13 5.2 7.6 9.9 11.1

Apr07-08 0.3 7.3 4.8 6.3 7 5.1

4.2

8.9

5.5

Jan

Sector

Weight Feb-08 Feb-07 AprFeb Apr-Feb (%) % growth % growth 07-08 06-07 in IIP % growth % growth Crude petroleum 4.17 2.30 4.90 0.40 5.80 Refinery products 2.00 5.80 11.30 7.20 12.80 Coal 3.22 11.70 6.50 5.60 5.30 Electricity 10.17 9.60 3.30 6.60 7.20 Cement 1.99 12.40 5.80 7.50 9.50 Finished steel (carbon) 5.13 8.20 13.60 5.00 11.30 Overall 26.70 8.70 7.60 5.60 8.70 Though in February the core six sectors grew overall but the petroleum and steel sectors are still underperforming. Can they be penalized for their underperformance that is leading to inflation? After months of underperformance how the steel plants, the iron ore mines can go for price increase? They are defending themselves that in the international market price is increasing, but are performing like the international players?

Now let us come to the financial sector. What can be their role in causing inflation? Yes, there is its role. Has anyone of you ever noticed the central bank interest rates of different countries especially developed ones and the currency conversion rates?

Last month US dollar was decreasing w.r.t. almost all the major currencies including Indian Rupee. Now just think carefully, in the US the 90 – day rate is 1.28% and in India it is 7%. With this massive rate differential generally there is a trend of carry trading. What is that? It is borrowing money from a country where the borrowing cost is low i.e. the interest rate that you have to pay on borrowing the money is low and then investing the money in a country where return is high i.e. the interest rate on getting back the money is high. Hence there will be lots of capital inflow in the country where interest rate is high. Same is happening to India. Big investors and FIIs are borrowing from the US and investing in India and earning the interest rate differential. Hence capital inflow in India is increasing heavily causing increase in the money supply finally leading to inflation. Last month when Indian Rupee was appreciating against US Dollar carry traders were discouraged as such appreciation was decreasing their earnings from carry trading. But Indian Rupee appreciation was hurting Indian exports, hence the central bank (RBI) interfered and also due to easing out of the speculation of credit crunch through out the world lead to a stop on that appreciation. Now US Dollar is appreciating against the Indian Rupee and giving a chance to the carry traders to increase the trading and capital inflow to India. Hence we saw that inflation is not only creating problem in India but it is a global problem now. Just take a look – Countries

Annual Inflation Rate (%) Annual Inflation Rate (%) (CPI based) 2006

(CPI based) 2008

China

0.9

8.3

Singapore

1.2

6.3

Japan

-0.1

0.7

Hong Kong

1.2

6.1

India

4.6

5.4

Sweden

0.6

3.1

Germany

1.8

2.8

Spain

3.9

4.3

Australia

2.8

3.0

Russia

10.5

12.0

Britain

2.0

2.5

South Africa

3.8

9.3

Brazil

5.4

4.5

United States

3.5

3.9

Now the question is what is the solution? As per Economics there cannot be a particular solution to any economic problem, each and every problem has its own disadvantage and hence it is difficult to prescribe a particular solution to this inflation problem. But still now we can discuss some of the measures. First the point here is that this problem is a combination of both demand – supply mismatch and increasing money supply. So we need to concentrate on both these issues. Regarding the essential commodities the Indian Government already has curbed the exports of rice, trying to stop hoarding; export of cement is also under consideration along with an import of around 11.5 MMT of cement from Pakistan at a cheaper rate (in Pakistan cement price is Rs.170 – Rs.175 per 50 kg whereas in India it is Rs.230 – 235). FCI should achieve the target regarding buying enough wheat and rice from the farmers so that it can build its buffer stock. But this is a very difficult task to achieve, it seems and India may have to procure wheat from the international market again. In this regard I want to let you know that the government has allocated a minimum support price (MSP) for wheat at Rs.1000 per quintal which is double w.r.t what was paid last year but less than by at least Rs.150 per quintal w.r.t. the market price. Hence the government can pay an advance to the farmers after a month on the basis of the amount purchased from them so that the farmers can be attracted towards government procurement. This is already a method that FCI adopts for sugarcane. Another solution that already the government is considering – using a call option to hedge against the rising global prices so that if it has to buy in future it can buy at a rate lesser than the prevailing market rate. This measure can act as a deterrent to the farmers’ willingness to sell wheat to the private players rather than the government. Secondly the government had withdrawn the import duty from the crude edible oils and reduced the duty from the refined oils. Though this has brought down the wholesale prices of the edible oils through out the country but it will definitely increase the fiscal deficit. Third is to ban the export of iron ore at least temporarily, this will lead to increase in domestic supply and also the government will be able to add at least Rs.2000 crores to its exchequer in the form of excise duty. Also government should ask the NMDC to reduce the raw material price otherwise the steel producers will not be able to reduce the steel prices. Fourth is about increasing the industrial production especially the petroleum and crude oil sector, iron and steel sector and cement sector. A reduction in the growth of these sectors will definitely hamper not only the physical growth but also the fiscal growth of the nation. The fifth solution about which I’m going to discuss is the most common monetary regulation and that is increasing the central bank interest rate or technically Cash Reserve Ratio (CRR) from 7.75% to 8% or more

whatever the RBI suits better. But will that reduce the capital flow through FII path? Recently ASSOCHAM Chairman Mr. Venugopal Dhoot suggested adopting this path immediately. I feel his opinion is purely superficial without analyzing the situation deeply. Also one suggestion that he had given – ban of the commodity futures trading. I feel this is the most absurd solution that a person like him can give. I don’t know how, being the Chairperson of a top most industrial body, a person can suggest such an absurd solution. Since I am not supposed to discuss the benefits or the necessities of futures trading of commodities here in this article, I just only want to mention that taking such a decision by the Indian government will not only create chaos in the market but it will be of no use, it will make the pricing mechanism of the commodities, including the essential ones, very much inefficient and the “AAM AADMI” will bear the brunt, not persons like Mr. Venugopal Dhoot. Once I read an article in the Business Standard, and the writer suggested amending the RBI Act, so that finally the Indian Rupee can be allowed to appreciate against the US Dollar freely, which will finally discourage the carry traders to trade and thus the capital inflow can be controlled through the FII path. Well I am really not very sure about this solution. Could anyone from the readers please throw some light on this issue? In the above article I have just tried to throw some light on the current burning issue of inflation, which is not only a national but international problem and caused by not only the domestic abnormalities but also by the international ones. If anyone of you has any further suggestions regarding the causes and solutions to the problem of inflation please suggest us.

Contributed By Kankan Paul (+91 9962752791) Commodity Mantra

Political Radar

President Pratibha Patil passed national flags in Mexico without bowing .She passed by both the flags of India as well as Mexico without bowing as is necessary under the protocol of both India and Mexico. She perhaps did not know the basic protocol, a president must have known. For this she was deliberately insulted by 15 senators of Mexico causing embarrassments for Indian Officials.

China will execute almost 400 people during the

Olympics

Beijing

this August, leading human rights watchdog

Amnesty International has alleged. "According to reliable estimates, on (an) average China secretly executes around 22 prisoners every day -- that's 374 people during the Olympic Games," Amnesty's British director Kate Allen said in a statement. In its annual report on worldwide executions, the human rights group said on Tuesday that Iran remains the country with the second highest number of executions, and that the number had nearly doubled from the year before. The 377 inmates included a man stoned to death for committing adultery. The United States was fifth in the rankings with 42 executions.

The execution of Indian national

Sarabjit Singh,

sentenced to

death for his alleged involvement in bomb attacks in Pakistan, has not been postponed further, a presidential spokesman said on Saturday, April 19th.The hanging of Sarabjit was deferred for 30 days by President Pervez Musharraf last month so that Pakistan's new government could review his case following an appeal for clemency from the Indian government. Sarabjit was originally set to be executed on April 1. Government of India has asked for help in the matter from US President Bush.

Monarchy in super Democracy

Rahul Gandhi, the crown Prime Minister of India is roaming all across the nation to understand the pulse of India. To be precise, he wants to know the real problems and challenges that hound the India nation. It is ironical that people who are going to rule this country do not know the country. All second generation leaders be it Rahul,Priyanka,Navin Jindal,Jyotiraditya Scindhia,Manvendra Singh, Umar Abdullah, and many more…are all born with silver spoons…The challenge is how are they going to rule this nation..How much do they know about it…Nothing literally? All Oxford, Boston or Stanford –return Political NRIs, people who spent their childhood playing Squash and Golf in marquee lawns of London AND who probably would be ruling the nation down the line are actually illiterate in the sense that their interaction with India…as it is …is very low and it would be practically difficult for them to function in a way, they should… It is hance, very appreciable that Mr Rahul Gandhi is trying to understand India in all nooks and corners. He must know India that is beyond 10 Janpath, Columbian Beaches or may be Delhi metro….. Why only Rahul …all our politicians in Z-++ security should come on streets , roam villages…night out on suburbs leaving their cordon security …this is the only way to understand India of 1 billion+ people and how difficult life has been for them all along.

You know why we are unable to solve even the most basic issues of common men. Because people at the helm of affairs do not understand that unless they travel by state buses they would never understand why a bus with 48 tender kids got drowned in Narmada river in Vadodra and why no state help could reach them until 2 hours when all those who could be saved were drowned. They didn’t die…they were killed. Most of the people on our roads do not die by accident…they got killed by state machinery. Mr Praful Patel,our Minister of aviation has a great sense of economics. Ask him and he will tell you why we have uncomfortable food inflation. His answer “North Indian are consuming more of Rice and South Indians more of wheat” so please do not blame Government to be poorly handling the

fiasco. Rather it is you to be blamed. Great economics Mr Patel!!!. So at least Mr Rahul is trying to understand India from deep within its roots. It is more crucial that he learns that India as a nation has become almost Hopeless and things down the lanes….distant from the top echelons of power and luxury is very very ugly. It is in this ugliness that a common Indian is living his life…throughout the 50 years of Indian nation. In these 50 years, there has nothing that has changed for many people in this nation. They are still living in same ugliness The Supreme Court, in a significant verdict on Thursday, and darkness. upheld the law enacted by the Union Government providing 27 per cent quota for Other Backward Classes in Central I believe perhaps…this was the educational institutions such as IITs/IIMs from the academic something that has lacked in all year 2008-09. The court, however, made it clear that creamy our Leaders that they do not layer should be excluded from the socially and educationally know the fundamental glooms of

OBC

India.

backward classes. The court said that the definition of

At least Mr Rahul Gandhi is trying to understand that.

in Section 2(g) of the Act shall be read as ‘SEBC’ other than SC/ST determined by Central Government, and if the determination is with respect to caste, creamy layer shall be excluded.

Kudos Mr Rahul Gandhi!!!! And also to concept of before job training.

TATA Group Companies: A research of Group Companies TATA POWER Tata Power is India’s largest private sector power utility with installed capacity in excess of 2,300 mw. Over 600 mw new capacity is likely to be added during FY09, with another 8,000 mw capacity to be added over the next five years including a 4,000-mw UMPP at Mundra. TPL has acquired a 30% stake in two major Indonesian coal producers to assure future fuel requirements. It is emerging as an integrated player in India's power sector with investments in power generation, INDIAN HOTELS

transmission, distribution and fuel supplies (coal mining and transport). Meeting the time and cost deadlines while executing the long gestation projects is a big challenge as the costs of equipment and project implementation services have gone up substantially. Even after the successful completion of its projects, TPL has to manage the regulatory environment well to ensure sufficient return on its investments.

Indian Hotels runs the largest domestic hotel chain with 71 hotels and an inventory of 10,487 rooms. It enjoys presence across wide range of hotels right from deluxe properties to budget. This puts the company in a bright spot and helps it take advantage of the growing tourism industry in India. _Besides, the company has 14 properties overseas and is expanding its global footprint via acquisitions and greenfield ventures. This is likely to result in greater brand recognition

abroad. Its recent entry into lucrative segment of business jets will help the company to take advantage of growing opportunities in this space. Its revenue is greatly dependent on India, where average room rates are expected to see a decline beyond FY09 when supply starts coming in. Rising real estate costs have greatly reduced the return on capital on new properties in major cities.

TATA TEA The company has taken initiatives to introduce different variants of tea. It has also forayed into bottled water and other beverages. This is likely to help it transform itself from a tea company to a beverages company. Acquisitions, geographic expansion and new products are the way to go for Tata Tea, which is already the second largest integrated tea company in the world. Its retail foray through ‘Chai Unchai’ beverage stores is

likely to open a new route of growth for the company. Tata Tea operates in a labourintensive tea industry, which has long gestation periods. This can be an imepdiment in improving operational efficiency. The company will have to grapple with the increase in raw material prices. The appreciation in the rupee is likely to drag profitability of the international businesses.

TATA COMMUNICATIONS Utilisation of existing infrastructure to deliver valueadded services is a sound proposition for Tata Communications. The company recently tied up with Telsima to provide WiMAX services in the country. It has also launched its global telepresence network service to offer virtual meeting solutions. These initiatives will fuel future revenue growth. Tata Comm’s strategy to build global tie-ups for high-end technologies will help it keep pace

with the fast-changing technology scenario and improve its global presence. Tata Comm needs to increase focus on deploying managed services, given the stiff competition in domestic as well as global enterprise data space from bigger telecom operators. The company has to improve operational processes in order to increase customer base for its broadband and other services rapidly.

TATA CHEMICALS

The recent acquisition of US-based General Chemicals has consolidated position of Tata Chemicals (TCL) in the global soda ash market. Post-acquisition, TCL has become the second largest soda ash manufacturer in the world with majority of the production coming from cheaper natural sources. This goes well with its overall global strategy. TCL is already on an expansion spree for its inorganic chemicals and fertilisers plants in India. This will help it to strengthen its domestic presence. TCL is

setting up a 30,000-litres-per-day ethanol plant and has ventured into wholesaling of fresh agricultural produce. This diversification would help in mitigating risk from slowdown in the core business. TCL has to see through an effective integration strategy of its soda ash business with the overseas acquisition. Managing overall growth of the company will be a tough task given the diversification into new business domains.

VOLTAS

Voltas is a market leader in central airconditioning and climate control business in India, besides being a major player in booming West Asia. It is also India's leading distributor and re-seller of textile and mining equipment. Recently it went through a corporate restructuring which has transformed it into a leaner and competitive player. The demand for central A/Cs and climate control systems is booming, thanks to

rapid growth in retail, real estate and hospitality sectors. It has also got a boost from strong capex in textile, mining and retail sectors where it supplies forklifts. Being a capital goods supplier, it's highly prone to an economic downturn. It faces strong competitors across its product portfolio. The consumer air-conditioner business continues to be a drag on the company's profitability.

Soros: Most serious financial crisis of the lifetime Global financial system is relying on a false paradigm that the financial Markets tend towards equilibrium and deviations from the equilibrium are random. I disagree with this and propose a different paradigm that is based on the concept of

reflexivity.

Right now, we have not just one of these situations connected with the housing market, but what I call a ‘super bubble’.

A reflexive relationship is bidirectional; with both the cause and the effect affecting each another in a situation that renders both functions causes and effects.

Reflexivity is discordant with equilibrium theory, which stipulates that markets move towards

{Reflexivity refers to circular relationships between cause and effect.}. equilibrium and that non-equilibrium fluctuations are merely random noise that will soon be corrected. In equilibrium theory, prices in the long run at equilibrium reflect the underlying fundamentals, which are unaffected by prices. Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced set of fundamentals then proceed to change expectations, thus influencing prices; the process continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards disequilibrium--a case in which every outcome is uniquely different from the past in a visible absence of equilibrium.}

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