If I write from China, or Brazil, South Africa, Russia, Mexico or any other so called ‘big emerging market’, do I envy India? Or Indian policymakers and regulators?
If I sat through the East Asian crisis – of which arguably there were several ominous portends (see Richard Duncan’s work for instance) – and watched the Thai story go from being based on ‘solid fundamentals’ to a debt fueled bubble desperately trying to keep pace with re-rated fundamentals, would I envy India? Or Indian policymakers and regulators?
Sure there are limited parallels between India today and East Asia a decade ago. But lets have a peek at them anyway shall we?
Inflows staggering enough to have an apparently visible impact on the exchange rate; dramatic asset price inflation (booming property and construction sectors, heavy real investment requirement in infrastructure upgrades); volatile speculative inflows into capital markets driven by unwinding global positions – some limited parallels – exchange rate depreciation in export competitor (and overseas market, i.e. China).
Perhaps the key parallels as far as I am concerned – if we see East Asia as a monolith: varying degrees of capital account and exchange rate liberalization, high in Korea, Philippines and Indonesia (crisis impact: high), confused and unpredictable in Thailand and Malaysia (crisis impact: high – moderate), low or none at all Hong Kong, Taiwan and China (crisis impact: low – nil); and the piece de resistance – a fundamentally solid growth story chasing (not driving) dizzying expectations of appreciation.
Ok, one more. Almost to the decade, India was contemplating capital account liberalization when the crisis hit next door and the very finance minister who is in office today tabled a proposition in parliament, a consequence of which has been to put off ‘fundamental reforms’ like complete capital and exchange rate liberalization to this day. For India today, as it was a decade ago, is an overwhelmingly poor country whose vast majority neither have the appetite for the kind of ensuing risk such reforms entail nor a rapacious enough desire for the possible rewards.
While the well dressed Indian financial media sells you its version of fundamental bullishness, please keep in mind how we got to this juncture in the first place. Relatively conservative reforms that bore in mind global ramifications at every step and prudential regulation (for instance, gradual liberalization of direct external borrowings). These are perhaps the only parameters within which the kind of ‘fundamental growth’ India has so enviably achieved is possible to do for a large and poor developing country.
Killing the goose that laid the golden eggs (PNs)? That is, India would receive US$9bn instead of US$18bn in hot money the next time Big Ben decides to shave (the Fed rate)? However, it would send an unequivocal message that Indian policymakers and regulators are still acutely aware of the kind of insatiable appetite excess liquidity breeds and the inevitable hangovers that come with it.
‘Striking a balance between keeping foreign investors happy and not having too big an influx of capital’, entails compromises on two fronts. The Indian financial media would do well to pay some heed to the consequences of the latter and let policymakers and regulators deal with the former for a change.
Saturday, October 20, 2007
Thursday, October 18, 2007
Whats the best 'China line'?
The IHT reports on vitrolic EU trade commissioner Mandelson, lashing out at the China juggernaut. The "EU trade chief calls for aggressive action against China".
Which is fine so long as he bears in mind Goldman Sach's "Globalization and Disinflation: can anyone else do a China" - which ostensibly argued Chinese cheap manufacturing and trade surplus is helping contain inflation in credit over-stretched developed Western markets.
www2.goldmansachs.com/insight/research/reports/docs/gepaper.pdf
China itself would much rather focus inwards, by all accounts of the recently held communist party congress, where Hu Jintao's 'scientific development' was much in vogue.
So, what is the best 'China line' in such a context? How might Western trade partners and policymakers respond to inevitable Chinese transformation (read inward orientation)?
This could be an important test case for the objectivity and parsimony of the WTO. Anti dumping measures against China are already a fertile area. China's response has been and is likely to be 'technocratic' at best. Its reach in third country markets (e.g. Africa) which are accorded priviliged access to developed markets, has already met with the chagrin of development economists and free-traders alike. Has the WTO been easy on China? Or is it simply that its core principles (national treatment, MFN) lack the bite to match their bark?
This is a fruitful area of future collaboration and I welcome insight on this multifacted issue.
Which is fine so long as he bears in mind Goldman Sach's "Globalization and Disinflation: can anyone else do a China" - which ostensibly argued Chinese cheap manufacturing and trade surplus is helping contain inflation in credit over-stretched developed Western markets.
www2.goldmansachs.com/insight/research/reports/docs/gepaper.pdf
China itself would much rather focus inwards, by all accounts of the recently held communist party congress, where Hu Jintao's 'scientific development' was much in vogue.
So, what is the best 'China line' in such a context? How might Western trade partners and policymakers respond to inevitable Chinese transformation (read inward orientation)?
This could be an important test case for the objectivity and parsimony of the WTO. Anti dumping measures against China are already a fertile area. China's response has been and is likely to be 'technocratic' at best. Its reach in third country markets (e.g. Africa) which are accorded priviliged access to developed markets, has already met with the chagrin of development economists and free-traders alike. Has the WTO been easy on China? Or is it simply that its core principles (national treatment, MFN) lack the bite to match their bark?
This is a fruitful area of future collaboration and I welcome insight on this multifacted issue.
Sunday, October 7, 2007
Indian Art Reframes
"The real history of modernism hasn't been written yet. It is all about Europe and New York. But that's hardly the whole of modernism. A hundred years from now, people will laugh at these narrow histories."
Amar Kanwar, who recently showed "The Lightning Testimonies," his video installation about sexual violence to Indian women, at Documenta 12 in Kassel, Germany, said that artists in India are "challenged ideologically every step of the way."
"And yet this friction can be a source of great creativity," he added.
"This is an extremely intolerant society, an extremely racist society,"
The Indian art world has more than changed. It has exploded. Prices have increased tenfold since 2002. In the last two years alone, they have nearly doubled.
The auction price of paintings by the older generation of great Indian modernists can easily pass a million dollars, hardly uncommon for leading Western artists but staggering in a country where the average income among the 1.1 billion residents is about $820 a year
http://iht.com/articles/2007/10/07/news/indart.php
Amar Kanwar, who recently showed "The Lightning Testimonies," his video installation about sexual violence to Indian women, at Documenta 12 in Kassel, Germany, said that artists in India are "challenged ideologically every step of the way."
"And yet this friction can be a source of great creativity," he added.
"This is an extremely intolerant society, an extremely racist society,"
The Indian art world has more than changed. It has exploded. Prices have increased tenfold since 2002. In the last two years alone, they have nearly doubled.
The auction price of paintings by the older generation of great Indian modernists can easily pass a million dollars, hardly uncommon for leading Western artists but staggering in a country where the average income among the 1.1 billion residents is about $820 a year
http://iht.com/articles/2007/10/07/news/indart.php
Why can't Russia be normal?
Russia has always been a mystery.
February 5, 2007
http://www.cbc.ca/news/viewpoint/vp_kinsman/20070205.html
After a scary night of lethal fighting in October 1993, when renegade parliamentarians tried to usurp then president Boris Yeltsin, I can remember an anguished TV panellist asking, "Why can't Russians be normal?"
Nothing about those days in Russia fitted anybody's definition of "normal." A totalitarian society and state-controlled economy had flip-flopped in the space of months. Behaviour recently forbidden became mandatory for success, whose very definition turned socialist principles upside down. Moviemaking stopped because fiction could not match everyday drama.
Ragging the puck
Under the shock therapy that accompanied the shift to open markets, too many ordinary Russians were adversely affected while gangsters prospered and sly operators manipulated a new capitalist system for which no legal framework yet existed.
Boris Yeltsin was an earthy populist whose intuition sought three fundamental rights for Russians: To own property, to speak freely, and to elect their government.
But Yeltsin soon lost his hero status. GDP fell by 50 per cent under his watch. Crime doubled.
People wanted a leader who would stop the rot, make them proud again, after the breakup of the USSR, and the depressing inversion of so many lives. In December 1999, Yeltsin resigned in favour of a prime minister rapidly promoted from obscurity, Vladimir Putin.
Shortly afterward, Putin won the presidential election with 52 per cent of the vote.
Putin was elected to stabilize Russia. When President George W. Bush said he looked into Putin's eyes and "saw his soul," Russians laughed because that was the last thing they saw or wanted.
February 5, 2007
http://www.cbc.ca/news/viewpoint/vp_kinsman/20070205.html
After a scary night of lethal fighting in October 1993, when renegade parliamentarians tried to usurp then president Boris Yeltsin, I can remember an anguished TV panellist asking, "Why can't Russians be normal?"
Nothing about those days in Russia fitted anybody's definition of "normal." A totalitarian society and state-controlled economy had flip-flopped in the space of months. Behaviour recently forbidden became mandatory for success, whose very definition turned socialist principles upside down. Moviemaking stopped because fiction could not match everyday drama.
Ragging the puck
Under the shock therapy that accompanied the shift to open markets, too many ordinary Russians were adversely affected while gangsters prospered and sly operators manipulated a new capitalist system for which no legal framework yet existed.
Boris Yeltsin was an earthy populist whose intuition sought three fundamental rights for Russians: To own property, to speak freely, and to elect their government.
But Yeltsin soon lost his hero status. GDP fell by 50 per cent under his watch. Crime doubled.
People wanted a leader who would stop the rot, make them proud again, after the breakup of the USSR, and the depressing inversion of so many lives. In December 1999, Yeltsin resigned in favour of a prime minister rapidly promoted from obscurity, Vladimir Putin.
Shortly afterward, Putin won the presidential election with 52 per cent of the vote.
Putin was elected to stabilize Russia. When President George W. Bush said he looked into Putin's eyes and "saw his soul," Russians laughed because that was the last thing they saw or wanted.
Selling Russia
A state-owned Russian bank is set for a $5bn IPO
Vneshtorgbank, one of Russia’s state-owned banking giants, has gained approval to float up to 25% of its stock in an initial public offering in London and Moscow, scheduled for May, that could raise US$4bn-5bn. The move is consistent with the state capitalist model—seen in previous share offerings at home and abroad by state energy giants Rosneft and Gazprom—which has become a hallmark of President Vladimir Putin’s second term. It is likely to be followed by other share offerings from state-owned banks. Full privatisation is a distant and uncertain prospect, however.
Speaking on the sidelines of the World Economic Forum in Davos on January 24th, Vneshtorgbank (VTB) CEO Andrei Kostin said that his bank planned to hold an initial public offering (IPO) in Russia and London in May this year. He has expressed similar sentiments before, but the credibility of this latest statement is increased by the fact that, according to Mr Kostin, VTB has hired Citigroup, Deutsche Bank and Goldman Sachs to manage the floatation. Mr Kostin says that 22-23% of VTB is likely to be sold during the offering, which should raise Rb120bn (US$4.6bn), although the IPO could dispose of up to 25% of the bank. Russia’s government intends that up to half of the shares will be placed in Moscow and made available to ordinary Russian citizens (in accordance with Mr Putin’s expressed wish).
The VTB IPO only became possible during the Orthodox Christmas period, when Mr Putin signed a decree removing the bank from the list of strategic enterprises that are under ownership restrictions. According to the government’s plan, a further package of VTB shares will be sold in 2010, after which the state will hold only a bare majority in the bank.
In Rosneft's footsteps
State oil company Rosneft’s July 2006 IPO raised around US$9bn, while Russian gas monopoly Gazprom has become one of the top three energy companies in the world by market capitalisation since the lifting of the so-called ring fence on foreign trading in its shares. But is there really sufficient investor appetite for Russia’s banking sector?
The initial signs seem to suggest that there is. First, there is a dearth of traded Russian bank stocks, and this puts VTB in a strong position. It is, after all, a major player in Russia, holding approximately 10% of total bank sector assets, with 150,000 corporate clients and 1.5m individual depositors. In the first nine months of 2006 it recorded a net profit of US$816m on core revenue of US$2.9bn, with assets at the end of that period of US$49bn. Under three separate brands (VTB, VTB 24 and Promstroibank), it has 158 branches in Russia as well as a strengthening presence in the CIS. The IPO’s proceeds have been earmarked to finance major investments in retail in Russia’s regions, although VTB also has an investment arm, and expansion abroad.
Second, Russia’s banking sector is booming at present, with an annual growth rate of around 40%. VTB 24, for instance, saw its consumer loan portfolio increase from US$107m to US$576m between January and September 2006.
Third, VTB has strong political connections that point to a bright future. The bank’s accumulation of a 5% stake in EADS, the parent company of Airbus, is widely believed to have been done at the Kremlin’s behest with a view to building a strategic alliance between the European aerospace giant and the national champion currently being constructed in Russia under the aegis of state-owned arms export agency Rosoboronexport.
Conforming to type
The proposed VTB IPO will largely resemble the Rosneft/Gazprom model. Up to half the offering is to be placed in Moscow, and there is a clear preference for institutional or private shareholders, rather than strategic ones. Moreover, while a sizeable block of shares is to be made available, the state for the moment has no intention of relinquishing control.
This model has several attractions for Russia’s government. It helps to soak up domestic liquidity, reduce capital flight and build up the Russian stockmarket. At the same time, by listing in London also, it boosts the credibility of VTB (and, by extension, Russia) and gives it access to a much deeper pool of capital. Furthermore, listing on a western exchange marks another small step towards Russia’s integration with the global economic system. The preference for diversified, non-strategic ownership—spread between Russians and foreigners—allows the government to generate late receipts while keeping a lid on the level of operational influence that non-state shareholders will have.
Those participating in the IPO are, in effect, accepting a trade-off: in return for exposure to a company that is likely to remain under government control, and so will not always focus exclusively on maximising profits (consider Gazprom, which is busy building an Olympic resort on Sochi despite ongoing concerns over its medium-term production prospects), they have an investment that promises to be secure and reasonably lucrative. Majority state-ownership offers a cast-iron guarantee that VTB will not be subject to an assault like the one that crippled Yukos; moreover, it holds out the promise of lucrative business—as a state favourite, VTB seems well placed in the next few years to handle M&A deals in the politicised swathes of the Russian economy.
Start of the new wave
In VTB’s wake, other share offerings from state banks are likely to follow. Next in line is the Russian market leader, former state savings bank Sberbank. Its proposed IPO, which would cut the government’s stake from the current 66.6% to 51%, could happen as early as the second half of 2007—and it could raise as much as US$11bn, a figure that would eclipse the Rosneft IPO. The government is also holding out the possibility of part-privatising Rosselkhozbank, which is fully owned by the state, but the time horizon is longer. A third group of state-owned banks—Vneshekonombank (VNB), Rossiisky Bank Razvitiya and Rosekonombank—may be merged before any decisions are made on a privatisation timetable.
According to finance minister Alexei Kudrin, Russia’s government will retain majority control of VTB and Sberbank for at least the next five years. Beyond that horizon, the current government says it envisages the full privatisation of its banks. While this is interesting, it amounts to little more than a statement of aspiration on which the current government will not have to deliver. On current plans, the decisions on relinquishing control are set to fall during the presidency of Mr Putin’s successor, or even the one after next. The surrender of state control is in principle to be desired, but it goes against one of the principal selling points that VTB’s IPO managers will be touting—namely that this is a state bank that can be confident of securing a handsome share of the state’s business.
Vneshtorgbank, one of Russia’s state-owned banking giants, has gained approval to float up to 25% of its stock in an initial public offering in London and Moscow, scheduled for May, that could raise US$4bn-5bn. The move is consistent with the state capitalist model—seen in previous share offerings at home and abroad by state energy giants Rosneft and Gazprom—which has become a hallmark of President Vladimir Putin’s second term. It is likely to be followed by other share offerings from state-owned banks. Full privatisation is a distant and uncertain prospect, however.
Speaking on the sidelines of the World Economic Forum in Davos on January 24th, Vneshtorgbank (VTB) CEO Andrei Kostin said that his bank planned to hold an initial public offering (IPO) in Russia and London in May this year. He has expressed similar sentiments before, but the credibility of this latest statement is increased by the fact that, according to Mr Kostin, VTB has hired Citigroup, Deutsche Bank and Goldman Sachs to manage the floatation. Mr Kostin says that 22-23% of VTB is likely to be sold during the offering, which should raise Rb120bn (US$4.6bn), although the IPO could dispose of up to 25% of the bank. Russia’s government intends that up to half of the shares will be placed in Moscow and made available to ordinary Russian citizens (in accordance with Mr Putin’s expressed wish).
The VTB IPO only became possible during the Orthodox Christmas period, when Mr Putin signed a decree removing the bank from the list of strategic enterprises that are under ownership restrictions. According to the government’s plan, a further package of VTB shares will be sold in 2010, after which the state will hold only a bare majority in the bank.
In Rosneft's footsteps
State oil company Rosneft’s July 2006 IPO raised around US$9bn, while Russian gas monopoly Gazprom has become one of the top three energy companies in the world by market capitalisation since the lifting of the so-called ring fence on foreign trading in its shares. But is there really sufficient investor appetite for Russia’s banking sector?
The initial signs seem to suggest that there is. First, there is a dearth of traded Russian bank stocks, and this puts VTB in a strong position. It is, after all, a major player in Russia, holding approximately 10% of total bank sector assets, with 150,000 corporate clients and 1.5m individual depositors. In the first nine months of 2006 it recorded a net profit of US$816m on core revenue of US$2.9bn, with assets at the end of that period of US$49bn. Under three separate brands (VTB, VTB 24 and Promstroibank), it has 158 branches in Russia as well as a strengthening presence in the CIS. The IPO’s proceeds have been earmarked to finance major investments in retail in Russia’s regions, although VTB also has an investment arm, and expansion abroad.
Second, Russia’s banking sector is booming at present, with an annual growth rate of around 40%. VTB 24, for instance, saw its consumer loan portfolio increase from US$107m to US$576m between January and September 2006.
Third, VTB has strong political connections that point to a bright future. The bank’s accumulation of a 5% stake in EADS, the parent company of Airbus, is widely believed to have been done at the Kremlin’s behest with a view to building a strategic alliance between the European aerospace giant and the national champion currently being constructed in Russia under the aegis of state-owned arms export agency Rosoboronexport.
Conforming to type
The proposed VTB IPO will largely resemble the Rosneft/Gazprom model. Up to half the offering is to be placed in Moscow, and there is a clear preference for institutional or private shareholders, rather than strategic ones. Moreover, while a sizeable block of shares is to be made available, the state for the moment has no intention of relinquishing control.
This model has several attractions for Russia’s government. It helps to soak up domestic liquidity, reduce capital flight and build up the Russian stockmarket. At the same time, by listing in London also, it boosts the credibility of VTB (and, by extension, Russia) and gives it access to a much deeper pool of capital. Furthermore, listing on a western exchange marks another small step towards Russia’s integration with the global economic system. The preference for diversified, non-strategic ownership—spread between Russians and foreigners—allows the government to generate late receipts while keeping a lid on the level of operational influence that non-state shareholders will have.
Those participating in the IPO are, in effect, accepting a trade-off: in return for exposure to a company that is likely to remain under government control, and so will not always focus exclusively on maximising profits (consider Gazprom, which is busy building an Olympic resort on Sochi despite ongoing concerns over its medium-term production prospects), they have an investment that promises to be secure and reasonably lucrative. Majority state-ownership offers a cast-iron guarantee that VTB will not be subject to an assault like the one that crippled Yukos; moreover, it holds out the promise of lucrative business—as a state favourite, VTB seems well placed in the next few years to handle M&A deals in the politicised swathes of the Russian economy.
Start of the new wave
In VTB’s wake, other share offerings from state banks are likely to follow. Next in line is the Russian market leader, former state savings bank Sberbank. Its proposed IPO, which would cut the government’s stake from the current 66.6% to 51%, could happen as early as the second half of 2007—and it could raise as much as US$11bn, a figure that would eclipse the Rosneft IPO. The government is also holding out the possibility of part-privatising Rosselkhozbank, which is fully owned by the state, but the time horizon is longer. A third group of state-owned banks—Vneshekonombank (VNB), Rossiisky Bank Razvitiya and Rosekonombank—may be merged before any decisions are made on a privatisation timetable.
According to finance minister Alexei Kudrin, Russia’s government will retain majority control of VTB and Sberbank for at least the next five years. Beyond that horizon, the current government says it envisages the full privatisation of its banks. While this is interesting, it amounts to little more than a statement of aspiration on which the current government will not have to deliver. On current plans, the decisions on relinquishing control are set to fall during the presidency of Mr Putin’s successor, or even the one after next. The surrender of state control is in principle to be desired, but it goes against one of the principal selling points that VTB’s IPO managers will be touting—namely that this is a state bank that can be confident of securing a handsome share of the state’s business.
Russia revives links with Africa
Russia set its sights on Africa several centuries later than other European countries. But it no longer wants to miss its chance.
Moscow's love affair with Africa began in the 1960s and reached its peak at the beginning of the 1980s. This was the time when the USSR was ready to provide all kinds of help - from building factories to military aid - in exchange for an anti-American stance.
"In recent years, Africa has become very visible in Russia," says Anna Brazhkina, editor-in-chief of New Africa magazine. "It would be difficult to find an African country that Russian companies have not tried to co-operate with. This is almost tantamount to an expansion, although it is not quite an expansion."
According to rough estimates, the investments of four companies alone - Rusal, Nornikel, Alrosa and Renova - in Sub-Saharan Africa constitute about $5m. Others are also active, including metal group Evraz, oil giant Lukoil and a number of banks. The Russian firms that are particularly active in Africa are those involved in exploration and production of mineral resources - known as "upstream" companies.
Raw materials
Renova is one of the most dynamic Russian players in Africa. Its largest African project is the development of a manganese deposit in the Kalahari Desert.
Renova's head, Viktor Vekselberg, member of the International Investment Council for South Africa, is known to local journalists as Mr South Africa in Russia.
So far, according to Anna Brazhkina, Russian companies in Africa are interested mostly in raw materials, rather than investment in infrastructure projects. But, to all appearances, this could soon change.
Rusal, the leading producer of aluminium in Russia and the second-largest in the world, is maintaining its presence in Africa despite the kidnapping of six of its staff in Nigeria in June.
Aluminium production, like so many other foreign projects in Africa, is extremely energy-intensive.
Yet 92% of its rural population and 42% of the urban population do not have access to uninterrupted energy supplies.
"When the energy situation stabilises, other projects will follow, such as telecoms and mining," says Igor Yurgens, chairman of the board of directors of the Renaissance Capital Bank and former vice-president of the Russian Union of Industrialists and Entrepreneurs.
"Russia is unlikely to undertake mega-projects, such as the Aswan Dam, but its nuclear energy expertise could prove useful. By helping Africa, we are also helping ourselves."
Risk and reward
Russian banks are also moving into Africa. The Vneshtorgbank has opened the first Angolan bank to have predominantly foreign ownership.
In the meantime, the Renaissance Capital already owns 25% of the shares in Ecobank, one of the most advanced Nigerian banks, with branches in 11 African countries.
The Renaissance Bank is actively promoting the idea of Russian investment in Africa and is even about to launch an African investment fund.
Today, the risks of epidemics, corruption and wars scare Russian investors in Africa. But they are getting used to the idea that these problems are not going to just go away in the near future.
Mark Buzuk thinks that rumours of corruption in Africa are vastly exaggerated. But many analysts think that the lack of transparency in African business often helps companies from those countries where bribing foreigners is not punished by law.
"The USSR used to be an important player in Africa," says Igor Yurgens. "The Soviet Union put an emphasis on grand industrial projects and helping the developing countries in their fight against imperialism, but in the process we built a broad network.
"Thus, for example, many African leaders are graduates of Soviet universities."
But Anna Brazhkina thinks that old connections will be of little use: "Russian companies know very little about Africa and attach too much importance to old ties and old friendships."
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6897865.stm
Moscow's love affair with Africa began in the 1960s and reached its peak at the beginning of the 1980s. This was the time when the USSR was ready to provide all kinds of help - from building factories to military aid - in exchange for an anti-American stance.
"In recent years, Africa has become very visible in Russia," says Anna Brazhkina, editor-in-chief of New Africa magazine. "It would be difficult to find an African country that Russian companies have not tried to co-operate with. This is almost tantamount to an expansion, although it is not quite an expansion."
According to rough estimates, the investments of four companies alone - Rusal, Nornikel, Alrosa and Renova - in Sub-Saharan Africa constitute about $5m. Others are also active, including metal group Evraz, oil giant Lukoil and a number of banks. The Russian firms that are particularly active in Africa are those involved in exploration and production of mineral resources - known as "upstream" companies.
Raw materials
Renova is one of the most dynamic Russian players in Africa. Its largest African project is the development of a manganese deposit in the Kalahari Desert.
Renova's head, Viktor Vekselberg, member of the International Investment Council for South Africa, is known to local journalists as Mr South Africa in Russia.
So far, according to Anna Brazhkina, Russian companies in Africa are interested mostly in raw materials, rather than investment in infrastructure projects. But, to all appearances, this could soon change.
Rusal, the leading producer of aluminium in Russia and the second-largest in the world, is maintaining its presence in Africa despite the kidnapping of six of its staff in Nigeria in June.
Aluminium production, like so many other foreign projects in Africa, is extremely energy-intensive.
Yet 92% of its rural population and 42% of the urban population do not have access to uninterrupted energy supplies.
"When the energy situation stabilises, other projects will follow, such as telecoms and mining," says Igor Yurgens, chairman of the board of directors of the Renaissance Capital Bank and former vice-president of the Russian Union of Industrialists and Entrepreneurs.
"Russia is unlikely to undertake mega-projects, such as the Aswan Dam, but its nuclear energy expertise could prove useful. By helping Africa, we are also helping ourselves."
Risk and reward
Russian banks are also moving into Africa. The Vneshtorgbank has opened the first Angolan bank to have predominantly foreign ownership.
In the meantime, the Renaissance Capital already owns 25% of the shares in Ecobank, one of the most advanced Nigerian banks, with branches in 11 African countries.
The Renaissance Bank is actively promoting the idea of Russian investment in Africa and is even about to launch an African investment fund.
Today, the risks of epidemics, corruption and wars scare Russian investors in Africa. But they are getting used to the idea that these problems are not going to just go away in the near future.
Mark Buzuk thinks that rumours of corruption in Africa are vastly exaggerated. But many analysts think that the lack of transparency in African business often helps companies from those countries where bribing foreigners is not punished by law.
"The USSR used to be an important player in Africa," says Igor Yurgens. "The Soviet Union put an emphasis on grand industrial projects and helping the developing countries in their fight against imperialism, but in the process we built a broad network.
"Thus, for example, many African leaders are graduates of Soviet universities."
But Anna Brazhkina thinks that old connections will be of little use: "Russian companies know very little about Africa and attach too much importance to old ties and old friendships."
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/6897865.stm
India's Emergence 4
Foreign investors using PNs to bypass Indian regulations: IMF
: Foreign investors are using Participatory Notes (PNs) to bypass domestic regulations to invest in India's equity markets, the International Monetary Fund (IMF) has said in a report. "Many international investors are able to acquire exposure to Indian markets while avoiding India's regime of restriction on foreign participation through an increasing number of channels, particularly as derivatives markets have grown," IMF's Global Financial Stability report said. Foreign investors, including hedge funds, are gaining entry into the Indian equity market through purchase of PNs offered by registered FIIs, the report said, adding they allow "offshore participants to gain exposure to Indian equities without registering as an FII". Other channels through which foreign investors are increasing their exposure in the Indian markets without complying with domestic laws include derivatives and Foreign Currency Convertible Bonds (FCCBs). The IMF report said investments through different channels often make it difficult to distinguish between foreign direct investment and portfolio inflows. Pointing out that FCCBs are packaged into "structured credit products, such as credit-linked notes and collateralized debt obligations", it said. Further, while offshore Indian subsidiaries purchase the debt component, the equity is being picked up by hedge funds and other international investors. For Indian companies, it added, "access to low-cost financing through FCCBs is worth this minor dilution in their equity stake".
: Foreign investors are using Participatory Notes (PNs) to bypass domestic regulations to invest in India's equity markets, the International Monetary Fund (IMF) has said in a report. "Many international investors are able to acquire exposure to Indian markets while avoiding India's regime of restriction on foreign participation through an increasing number of channels, particularly as derivatives markets have grown," IMF's Global Financial Stability report said. Foreign investors, including hedge funds, are gaining entry into the Indian equity market through purchase of PNs offered by registered FIIs, the report said, adding they allow "offshore participants to gain exposure to Indian equities without registering as an FII". Other channels through which foreign investors are increasing their exposure in the Indian markets without complying with domestic laws include derivatives and Foreign Currency Convertible Bonds (FCCBs). The IMF report said investments through different channels often make it difficult to distinguish between foreign direct investment and portfolio inflows. Pointing out that FCCBs are packaged into "structured credit products, such as credit-linked notes and collateralized debt obligations", it said. Further, while offshore Indian subsidiaries purchase the debt component, the equity is being picked up by hedge funds and other international investors. For Indian companies, it added, "access to low-cost financing through FCCBs is worth this minor dilution in their equity stake".
India's Emergence3
India Inc skirts ECB norms under FDI garb
24 Sep, 2007, 0310 hrs IST,Deepshikha Sikarwar, TNN
NEW DELHI: Lack of money is no obstacle. Lack of an idea is an obstacle. Trust India Inc never to be short of ideas when it comes to money. It has found a way to beat external commercial borrowing (ECB) worries, like interest rate cap and end-use restrictions. Companies are using offshore entities to borrow abroad and transfer the funds to the parent as FDI. Real estate firms, which are barred from raising ECBs, are also taking this route.
“There is an increasing trend of Indian groups setting up presence overseas in order to retain the flexibility which was available prior to the amendment of the ECB regulations. However, it is critical that such overseas presence carries bona fide business activity,” says PricewaterhouseCoopers financial services tax practice head Punit Shah.
Overseas lenders, sold on the India growth story, are more than willing to oblige. They even help in setting up the special purpose vehicles.
A large number of such deals, which are technically within the ambit of the law, are being structured now. The deals have an inbuilt buy-back clause wherein the Indian company agrees to buy back the equity after 3-5 years depending on the tenure of the foreign debt raised by overseas arm. Most of these overseas arms are being set up in tax havens like Mauritius.
“Although this can be regarded as round tripping, so long as there is no tax evasion or breach of the foreign investment regulations, this is legal. From a commercial perspective, this benefits promoters more than the Indian company or its shareholders because the promoters can get more control of their companies and command a higher premium in case of an eventual sellout to an MNC or acquirer,” says Majmudar & Co managing partner Akil Hirani.
Raising debt abroad had become hard for corporates, especially those that do not have strong balance sheet, after RBI slashed the maximum interest they could pay. In May, the RBI had cut the interest rate cap from 200 basis points above Libor to 150 bps for loans with 3-5-year maturity. For more than five years, the ceiling was lowered by 100 bps to Libor plus 250 bps. Also, ECB of more than $20 million is allowed only for foreign expenditure.
According to RBI data, net ECB disbursements accounted for a third (around $15 billion) of the total net capital inflows of $45 billion in fiscal 06-07. ECBs are currently capped at $22 billion, but net inflows are around $15 billion. ECB approvals have picked up during the first quarter and amounted to $8.7 billion during April-June 2007, compared to $4.4 billion in the same period of the previous fiscal.
24 Sep, 2007, 0310 hrs IST,Deepshikha Sikarwar, TNN
NEW DELHI: Lack of money is no obstacle. Lack of an idea is an obstacle. Trust India Inc never to be short of ideas when it comes to money. It has found a way to beat external commercial borrowing (ECB) worries, like interest rate cap and end-use restrictions. Companies are using offshore entities to borrow abroad and transfer the funds to the parent as FDI. Real estate firms, which are barred from raising ECBs, are also taking this route.
“There is an increasing trend of Indian groups setting up presence overseas in order to retain the flexibility which was available prior to the amendment of the ECB regulations. However, it is critical that such overseas presence carries bona fide business activity,” says PricewaterhouseCoopers financial services tax practice head Punit Shah.
Overseas lenders, sold on the India growth story, are more than willing to oblige. They even help in setting up the special purpose vehicles.
A large number of such deals, which are technically within the ambit of the law, are being structured now. The deals have an inbuilt buy-back clause wherein the Indian company agrees to buy back the equity after 3-5 years depending on the tenure of the foreign debt raised by overseas arm. Most of these overseas arms are being set up in tax havens like Mauritius.
“Although this can be regarded as round tripping, so long as there is no tax evasion or breach of the foreign investment regulations, this is legal. From a commercial perspective, this benefits promoters more than the Indian company or its shareholders because the promoters can get more control of their companies and command a higher premium in case of an eventual sellout to an MNC or acquirer,” says Majmudar & Co managing partner Akil Hirani.
Raising debt abroad had become hard for corporates, especially those that do not have strong balance sheet, after RBI slashed the maximum interest they could pay. In May, the RBI had cut the interest rate cap from 200 basis points above Libor to 150 bps for loans with 3-5-year maturity. For more than five years, the ceiling was lowered by 100 bps to Libor plus 250 bps. Also, ECB of more than $20 million is allowed only for foreign expenditure.
According to RBI data, net ECB disbursements accounted for a third (around $15 billion) of the total net capital inflows of $45 billion in fiscal 06-07. ECBs are currently capped at $22 billion, but net inflows are around $15 billion. ECB approvals have picked up during the first quarter and amounted to $8.7 billion during April-June 2007, compared to $4.4 billion in the same period of the previous fiscal.
Rupee 2
Knitting hub Tirupur hit by rise of Re1 Jun, 2007 l 0223 hrs IST l Rajesh Chandramouli/TIMES NEWS NETWORK
TIRUPUR: Never has Balu, 35, been so restless. The apparel exporter's problem is simple, but seemingly looks un-ending: the fast appreciating value of the rupee against the dollar. Result: Losses and more losses. Balu's is not an isolated case in Tirupur, one of India's biggest hubs for knitting units and one that had been flourishing not very long ago. Hundreds of Balus are wondering why it is that they have been hit so badly. Balu, like many of the small exporters in Tirupur, operates with a profit margin of 7%. Unfortunately for him, the rupee has appreciated by more than 8% in six weeks. He now browses various financial portals to know the dollar-rupee rate, thinking that some day (within the contract period with his buyer), the rupee will lose some of its strength. "Small and medium entrepreneurs will be particularly hit by the rupee appreciation because they do not hedge their risks, largely due to lack of awareness," an exporter says. Bonheur Fabs was set up by Balu in April 2005. In April 2007, on a visit to France, he signed and sealed contracts with Stokomani, TCF and Gemo of France, three big names in garment buying. Thankfully for Balu, his contracts with two of the three are pegged against the euro, but painfully, one is a dollar denominated contract. "A couple of days back I told my buyer that we need to re-negotiate the terms of the contract for Spring-Summer 2008 (shipments for which need to start in November). I am not sure if they will be amenable to the idea. I have also asked them for a euro denominated contract. I am yet to hear from them," Balu said, and adds that if the client insists on the continuation of the contract, then there is a strong chance that he may be wiped out. "I have spoken to my friends in the trade. Many of them are in deep trouble and if the trend continues, they may shut shop. The smarter ones are doing service rather than business here ," he says. R Shivram, executive director, Royal Classic Mills (a fully integrated player), said that a lot of orders have been cancelled by the exporters in the area. "As an exporter, we have relationships with our regular buyers. With these people, we can't cancel contracts, instead we are operating our plants at a marginal loss. The RBI and the government are not providing information on the forex front, so there's a lot of uncertainty," he added. A Saktivel, president of Tirupur Exporters Association (TEA), agrees. "Never have we seen such chaos on the forex front. The RBI had always intervened and adjusted the exchange rates. The orders which are already booked by exporters are causing losses and new ones are moving to neighbouring countries. If this trend continues, some of the smaller units will close," he said.
TIRUPUR: Never has Balu, 35, been so restless. The apparel exporter's problem is simple, but seemingly looks un-ending: the fast appreciating value of the rupee against the dollar. Result: Losses and more losses. Balu's is not an isolated case in Tirupur, one of India's biggest hubs for knitting units and one that had been flourishing not very long ago. Hundreds of Balus are wondering why it is that they have been hit so badly. Balu, like many of the small exporters in Tirupur, operates with a profit margin of 7%. Unfortunately for him, the rupee has appreciated by more than 8% in six weeks. He now browses various financial portals to know the dollar-rupee rate, thinking that some day (within the contract period with his buyer), the rupee will lose some of its strength. "Small and medium entrepreneurs will be particularly hit by the rupee appreciation because they do not hedge their risks, largely due to lack of awareness," an exporter says. Bonheur Fabs was set up by Balu in April 2005. In April 2007, on a visit to France, he signed and sealed contracts with Stokomani, TCF and Gemo of France, three big names in garment buying. Thankfully for Balu, his contracts with two of the three are pegged against the euro, but painfully, one is a dollar denominated contract. "A couple of days back I told my buyer that we need to re-negotiate the terms of the contract for Spring-Summer 2008 (shipments for which need to start in November). I am not sure if they will be amenable to the idea. I have also asked them for a euro denominated contract. I am yet to hear from them," Balu said, and adds that if the client insists on the continuation of the contract, then there is a strong chance that he may be wiped out. "I have spoken to my friends in the trade. Many of them are in deep trouble and if the trend continues, they may shut shop. The smarter ones are doing service rather than business here ," he says. R Shivram, executive director, Royal Classic Mills (a fully integrated player), said that a lot of orders have been cancelled by the exporters in the area. "As an exporter, we have relationships with our regular buyers. With these people, we can't cancel contracts, instead we are operating our plants at a marginal loss. The RBI and the government are not providing information on the forex front, so there's a lot of uncertainty," he added. A Saktivel, president of Tirupur Exporters Association (TEA), agrees. "Never have we seen such chaos on the forex front. The RBI had always intervened and adjusted the exchange rates. The orders which are already booked by exporters are causing losses and new ones are moving to neighbouring countries. If this trend continues, some of the smaller units will close," he said.
Rupee
Rupee could become major Asian currency TIMES NEWS NETWORK [ WEDNESDAY, APRIL 04, 2007 03:22:21 AM]
MUMBAI: A day after an expert committee made out a case on Monday for making the rupee fully convertible before the end of 2008, foreign broking firms have said that the Indian currency could emerge as a dominant one in Asia. Once the rupee becomes fully convertible, foreign forex broking firms feel that the local currency holds the potential to become the most dominant Asian currency within a decade. The upshot of this could be the launch of several new financial products. UK-based RP Martin group has recently floated a forex broking firm in India, called Normans Martin Brokers. It is a joint venture between Normans Ross and the RP Martin group, with the latter having a 40% stake. The firm is based out of Mumbai which is home to the largest financial market in India. David Caplin, the CEO and MD of the RP Martin group said, “We decided to venture into this business in India, considering that the rupee could become fully convertible in the near future. We plan to introduce products such as futures and options apart from interest rate swaps for local players.” He added that the Indian economy, by itself though still not fully globalised, is quite strong and robust enough to handle a fully convertible rupee. This could be attributed to the well-enforced judiciary and the democratic set up. Given that full convertibility is brought in, domestic forex broking firms will have to look at consolidating between themselves since the move could invite the entry of newer players from overseas markets. According to some bankers, there may not be a pressing need to make the rupee fully convertible, until the time the contours are specified. For instance, there could be areas demarcated like OBUs where transactions could be allowed. The regulations for these segments could be different, they say. The expert committee has said that key deficiencies of the financial market component, in India, include the absence of a liquid currency market and a full range of currency derivatives. What it wants to see, in India, is a currency spot market with a minimum transaction size of Rs 10 million, accessible to all financial firms. Besides, an Indian rupee settled exchange traded currency derivatives should also be created with trading in futures, options and swaps on currencies, accessible to all it says.
MUMBAI: A day after an expert committee made out a case on Monday for making the rupee fully convertible before the end of 2008, foreign broking firms have said that the Indian currency could emerge as a dominant one in Asia. Once the rupee becomes fully convertible, foreign forex broking firms feel that the local currency holds the potential to become the most dominant Asian currency within a decade. The upshot of this could be the launch of several new financial products. UK-based RP Martin group has recently floated a forex broking firm in India, called Normans Martin Brokers. It is a joint venture between Normans Ross and the RP Martin group, with the latter having a 40% stake. The firm is based out of Mumbai which is home to the largest financial market in India. David Caplin, the CEO and MD of the RP Martin group said, “We decided to venture into this business in India, considering that the rupee could become fully convertible in the near future. We plan to introduce products such as futures and options apart from interest rate swaps for local players.” He added that the Indian economy, by itself though still not fully globalised, is quite strong and robust enough to handle a fully convertible rupee. This could be attributed to the well-enforced judiciary and the democratic set up. Given that full convertibility is brought in, domestic forex broking firms will have to look at consolidating between themselves since the move could invite the entry of newer players from overseas markets. According to some bankers, there may not be a pressing need to make the rupee fully convertible, until the time the contours are specified. For instance, there could be areas demarcated like OBUs where transactions could be allowed. The regulations for these segments could be different, they say. The expert committee has said that key deficiencies of the financial market component, in India, include the absence of a liquid currency market and a full range of currency derivatives. What it wants to see, in India, is a currency spot market with a minimum transaction size of Rs 10 million, accessible to all financial firms. Besides, an Indian rupee settled exchange traded currency derivatives should also be created with trading in futures, options and swaps on currencies, accessible to all it says.
Arming India
A global scramble to sell military hardware to India
By Heather Timmons and Somini Sengupta
Thursday, August 30, 2007
NEW DELHI: India is developing a military appetite to match its growing economic power, and defense contractors are scrambling to profit.
As the country overhauls its largely Soviet-era military arsenal, it could spend as much as $40 billion over the next five years purchasing everything from artillery to submarines to tanks, analysts estimate.
In particular, American defense contractors are now aggressively pursuing bids after decades of Cold War alliances and sanctions kept India off limits.
In terms of "potential for growth, India is our top market," said Richard Kirkland, the Lockheed Martin president for South Asia.
Whether American defense contractors can turn that potential into profits will depend on how they meet a host of challenges, including competition from other Western suppliers and, especially, Russian companies.
The Indian spending spree kicked into high gear this week when the Ministry of Defense called for bids to fill an order for 126 fighter jets, a contract worth 420 billion rupees, or $10.2 billion.
Anxious to create a domestic defense industry, India is requiring foreign suppliers to match any bids they win with a sizable commitment to manufacture goods in India. In the case of the fighter jets, the winning bidder needs to promise to produce components here worth half the jets' price. American companies are now busily pairing up with locals.
So far, most of these partnerships are in the earliest stages, little more than agreements to collaborate on future projects. Raytheon and the electronics division of the Indian giant Tata Power signed an agreement to cooperate on unspecified future projects in February.
The same month, Boeing made a similar agreement with the Indian engineering firm Larsen & Toubro to develop new projects. And Northrop Grumman signed on with the Bangalore firms Bharat Electronics and Dynamatic Technologies to investigate joint opportunities.
Indeed, the interest in India goes beyond the weapons. In addition to defense, India has booming markets in civilian aviation, shipping and infrastructure, providing opportunities for the logistics and security units of American defense companies.
Walter Doran, president of Raytheon Asia, and a former commander of the U.S. Pacific Fleet, predicts that India may be "one of our largest - if not our largest - growth partner over the next decade or so."
The hefty increase in military spending reflects India's changing view of itself. India, like "all aspiring nations, is seeking its place on the world's stage," Admiral Sureesh Mehta, the Indian Navy chief of staff, said at a conference of naval officers in Delhi in July.
India is positioning itself as a policeman of nearby waterways, particularly the Indian Ocean. "If you look at the rim from West Asia to Asia Pacific, that entire area accounts for over 70 percent of the traffic of the petroleum products for the whole world," Sitanshu Kar, spokesman for the Defense Ministry, said. "We have a role to play to ensure that these sea lanes are secure."
Some items on the Indian military's list signal an Indian desire to play a greater role beyond its shores. For example, the Indian Navy purchased the amphibious transport ship Trenton from the United States and renamed it the Jalashva. The Jalashva operates helicopters that can be deployed to evacuate Indian nationals from a foreign country, to deliver humanitarian aid, or to intervene militarily in conflict zones.
India is virgin territory for U.S. defense companies. Decades of Cold War-era distrust, when India aligned itself with the Soviet Union, followed by sanctions that President Bill Clinton passed after India tested nuclear weapons in 1998, made India a no-go area for American companies.
Under the administration of President George W. Bush, sanctions have been lifted and military ties have deepened. Joint exercises between the United States and India are at an all-time high.
In July came what has been widely described as a turning point in Indian-U.S. relations, when the two governments announced a controversial civilian nuclear energy agreement. The deal signals the Bush administration's commitment, made two years ago, to "help India become a major world power."
Despite the closer political ties between Washington and New Delhi, many defense industry analysts say winning big orders in India will be a slog for the Americans.
In many cases, United States companies will compete directly against India's traditional supplier, Russia, which already has manufacturing agreements in place here.
Russia is still India's principal arms supplier, and is in negotiations for some $10 billion in contracts, including a countrywide air defense system.
"The Russians are going to get quite a bit of this business," predicts Andrew Brooks, an aerospace analyst at the International Institute for Strategic Studies, which is based in London.
The U.S. Congress could present another hurdle for U.S. companies. Lawmakers could prohibit the sale of the most advanced military equipment, Brooks said.
European defense companies are also making inroads: BAE Systems signed a deal in 2004 to supply India with 66 Hawk training aircraft, and plans to build two-thirds of them in India.
But the American military and U.S. companies are winning some deals. Lockheed Martin is in final negotiations to sell India six C-130J Hercules cargo planes for $1 billion. It will be the largest American military sale to India to date.
The $10 billion jet order is attracting many of the world's biggest defense players. The Indian Defense Ministry has asked Lockheed Martin and Boeing to bid, as well as Saab, which makes the Gripen fighter, and the European team building the new Eurofighter jet. They will all bid against the Russian Aircraft Corporation, known as RAC, which owns the developer of the MiG fighter jets the Indian Air Force operates now.
While U.S., European and Israeli companies and governments are openly announcing their desire to compete for India's business, the Russians have been more discrete. At the recent Delhi naval conference, Western companies took out booths, sponsored meals and cocktail hours, and had dozens of their name-tagged employees working the crowd. Several representatives from the United States military also attended. But a Russian presence was hard to find.
Major General Alexander Burov, the military attaché for the Russian Embassy in New Delhi, said that he could not comment on any commercial deals. Burov did make a point of noting that the chief of Russian land forces had recently visited India, stopping in Agra and Goa. Several calls and a fax to another number at the embassy that Burov had said could answer questions about defense orders were not answered, nor were calls to the New Delhi number for RAC.
In some corners of the Indian military, officers are split by age between pro-American and pro-Russian technology, according to American officers who have regular contact with Indian officers. Older servicemen are likely to pull for buying from Russia, younger servicemen for buying from the United States, they say.
United States companies have no illusions about their Russian competitors. Randy Belote, a spokesman for Northrup Gruman, said: "It's difficult to unseat an incumbent."
By Heather Timmons and Somini Sengupta
Thursday, August 30, 2007
NEW DELHI: India is developing a military appetite to match its growing economic power, and defense contractors are scrambling to profit.
As the country overhauls its largely Soviet-era military arsenal, it could spend as much as $40 billion over the next five years purchasing everything from artillery to submarines to tanks, analysts estimate.
In particular, American defense contractors are now aggressively pursuing bids after decades of Cold War alliances and sanctions kept India off limits.
In terms of "potential for growth, India is our top market," said Richard Kirkland, the Lockheed Martin president for South Asia.
Whether American defense contractors can turn that potential into profits will depend on how they meet a host of challenges, including competition from other Western suppliers and, especially, Russian companies.
The Indian spending spree kicked into high gear this week when the Ministry of Defense called for bids to fill an order for 126 fighter jets, a contract worth 420 billion rupees, or $10.2 billion.
Anxious to create a domestic defense industry, India is requiring foreign suppliers to match any bids they win with a sizable commitment to manufacture goods in India. In the case of the fighter jets, the winning bidder needs to promise to produce components here worth half the jets' price. American companies are now busily pairing up with locals.
So far, most of these partnerships are in the earliest stages, little more than agreements to collaborate on future projects. Raytheon and the electronics division of the Indian giant Tata Power signed an agreement to cooperate on unspecified future projects in February.
The same month, Boeing made a similar agreement with the Indian engineering firm Larsen & Toubro to develop new projects. And Northrop Grumman signed on with the Bangalore firms Bharat Electronics and Dynamatic Technologies to investigate joint opportunities.
Indeed, the interest in India goes beyond the weapons. In addition to defense, India has booming markets in civilian aviation, shipping and infrastructure, providing opportunities for the logistics and security units of American defense companies.
Walter Doran, president of Raytheon Asia, and a former commander of the U.S. Pacific Fleet, predicts that India may be "one of our largest - if not our largest - growth partner over the next decade or so."
The hefty increase in military spending reflects India's changing view of itself. India, like "all aspiring nations, is seeking its place on the world's stage," Admiral Sureesh Mehta, the Indian Navy chief of staff, said at a conference of naval officers in Delhi in July.
India is positioning itself as a policeman of nearby waterways, particularly the Indian Ocean. "If you look at the rim from West Asia to Asia Pacific, that entire area accounts for over 70 percent of the traffic of the petroleum products for the whole world," Sitanshu Kar, spokesman for the Defense Ministry, said. "We have a role to play to ensure that these sea lanes are secure."
Some items on the Indian military's list signal an Indian desire to play a greater role beyond its shores. For example, the Indian Navy purchased the amphibious transport ship Trenton from the United States and renamed it the Jalashva. The Jalashva operates helicopters that can be deployed to evacuate Indian nationals from a foreign country, to deliver humanitarian aid, or to intervene militarily in conflict zones.
India is virgin territory for U.S. defense companies. Decades of Cold War-era distrust, when India aligned itself with the Soviet Union, followed by sanctions that President Bill Clinton passed after India tested nuclear weapons in 1998, made India a no-go area for American companies.
Under the administration of President George W. Bush, sanctions have been lifted and military ties have deepened. Joint exercises between the United States and India are at an all-time high.
In July came what has been widely described as a turning point in Indian-U.S. relations, when the two governments announced a controversial civilian nuclear energy agreement. The deal signals the Bush administration's commitment, made two years ago, to "help India become a major world power."
Despite the closer political ties between Washington and New Delhi, many defense industry analysts say winning big orders in India will be a slog for the Americans.
In many cases, United States companies will compete directly against India's traditional supplier, Russia, which already has manufacturing agreements in place here.
Russia is still India's principal arms supplier, and is in negotiations for some $10 billion in contracts, including a countrywide air defense system.
"The Russians are going to get quite a bit of this business," predicts Andrew Brooks, an aerospace analyst at the International Institute for Strategic Studies, which is based in London.
The U.S. Congress could present another hurdle for U.S. companies. Lawmakers could prohibit the sale of the most advanced military equipment, Brooks said.
European defense companies are also making inroads: BAE Systems signed a deal in 2004 to supply India with 66 Hawk training aircraft, and plans to build two-thirds of them in India.
But the American military and U.S. companies are winning some deals. Lockheed Martin is in final negotiations to sell India six C-130J Hercules cargo planes for $1 billion. It will be the largest American military sale to India to date.
The $10 billion jet order is attracting many of the world's biggest defense players. The Indian Defense Ministry has asked Lockheed Martin and Boeing to bid, as well as Saab, which makes the Gripen fighter, and the European team building the new Eurofighter jet. They will all bid against the Russian Aircraft Corporation, known as RAC, which owns the developer of the MiG fighter jets the Indian Air Force operates now.
While U.S., European and Israeli companies and governments are openly announcing their desire to compete for India's business, the Russians have been more discrete. At the recent Delhi naval conference, Western companies took out booths, sponsored meals and cocktail hours, and had dozens of their name-tagged employees working the crowd. Several representatives from the United States military also attended. But a Russian presence was hard to find.
Major General Alexander Burov, the military attaché for the Russian Embassy in New Delhi, said that he could not comment on any commercial deals. Burov did make a point of noting that the chief of Russian land forces had recently visited India, stopping in Agra and Goa. Several calls and a fax to another number at the embassy that Burov had said could answer questions about defense orders were not answered, nor were calls to the New Delhi number for RAC.
In some corners of the Indian military, officers are split by age between pro-American and pro-Russian technology, according to American officers who have regular contact with Indian officers. Older servicemen are likely to pull for buying from Russia, younger servicemen for buying from the United States, they say.
United States companies have no illusions about their Russian competitors. Randy Belote, a spokesman for Northrup Gruman, said: "It's difficult to unseat an incumbent."
Life begins at 60 for Indian economy
Can life begin at 60 for the sprightly Indian economy?
By Amartya Sen
Published: August 14 2007 03:00 Last updated: August 14 2007 03:00
Pablo Picasso once remarked: "One starts to get young at the age of 60." Something rather like that seems to be happening to India right now, at least on the economic front. There is much more sign of life there today than could be seen when political independence came to the ancient land in 1947, when its strait-laced economy moved at a slow and imperturbable pace - the famous 3 per cent rate of growth. The feebleness of the economic pace was in sharp contrast with the speed of political change in the new republic: India became overnight the first poor country in the world to be a full-scale democracy.
Democracy has indeed flourished well in India since then, withfew hiccups and with regular and orderly elections, free and flourishing media, independence of the judiciary and, no less importantly, the willingness of ruling parties to vacate office when defeated in general elections, rather than calling in the army. This would be remarkable enough for any poor country, particularly one the size of India, but it was a much harder task in a land of so many important languages (each with its long and proud history) and such diversity of distinct religions (all placed under a secular but tolerant umbrella). Secularism has been threatened from time to time by sectarian groups, but massive support for secularism across India has asserted itself repeatedly.
On the economic side, India's comparative success is rather new. Some changes came slowly and the growth rate of the economy did move up to 5 per cent a year in the 1980s, which was much faster than in the early decades of independence, not to mention during a century of colonial semi-stagnation. But the decisive moment for the radical changes that have made the Indian economy so dynamic today occurred in the early 1990s, led by reforms introduced by Manmohan Singh, then the newly appointed finance minister (he has been prime minister since 2004, after a period out of office in between). It is useful to ask, in taking a long view of the Indian economy, what changes were needed in India and what really happened over the period of gradual transformation initiated by the reforms of the early 1990s.
India faced two huge problems of governance. The first one was government over-activity in areas of work in which its presence was overbearing, but where its ability to mess things up was truly gigantic. The so-called "licence Raj" made business initiatives extremely difficult and put them at the mercy of bureaucrats (large and small), thereby powerfully stifling enterprise while nurturing corruption. The going has sometimes been rough but the direction of policy change has been unmistakable from the early 1990s onwards (if still a little slow in many assessments), endorsed even by successor governments run by other political parties.
But India also had a second problem that needed to be addressed urgently. This was the problem of government under-activity in fields in which it could achieve a great deal. There has been a sluggish response to the urgency of remedying the aston- -ishingly under-emphasised social infra-- structure - for example, the need to build many more schools, hospitals and rural medical centres - and developing a functioning system of accountability, supervision and collaboration for public services. To this can be added the neglect of physical infrastructure (power, water, roads, rail), which required both governmental and private initiatives. Large areas of what economists call "public goods" have continued to be under-emphasised.
The radical changes in the 1990s did little to remedy the second problem. If things have begun to change here too (though rather slowly), a part of the credit for ushering in that change must go to India's democratic politics. There is a growing appreciation of the electoral relevance of the unfulfilled basic needs of people (related to schools, healthcare, water supply and other facilities) and there are also pressures generated by better-informed media discussions and by the activities of civil society movements demanding elementary rights.
So where does India stand now, after all this? The economic growth rate, now about 8 per cent (sometimes touching 9 per cent), is, of course, agreeably high, but the sharing of the benefits that flow from this is still remarkably unequal. Poverty rates have fallen, but are nowhere near what could have been achieved had the distributional side got more attention. Some failures are huge, such as continuing undernourishment, particularly of children, and of course the continuing scandal of a quarter of the population (including half of all women) remaining illiterate in a country with such high-technology achievements based on excellent specialised training and practice. A democratic country can hardly want to maintain a divisiveness that makes it part California and part sub-Saharan Africa.
The unequal distribution of the benefits of economic progress is not unrelated to continuing gaps on the social side, since the human capabilities that make it easy for people to use the new economic opportunities can be vastly enlarged by enhanced public services, such as universal - and good - school education, efficient and accessible public healthcare and good epidemiology. Remedying this calls for much more economic resources and better organised public services.
This is not, however, an argument for considering economic growth to be unimportant. Indeed, quite the contrary, since economic growth also generates government resources that can be powerfully used precisely to expand public services.
Government revenue will grow very fast if it keeps pace with the rapid growth of the economy. In fact, government revenue has persistently grown faster than the growth of gross domestic product: in 2003-04, the economic growth of 6.5 per cent was exceeded by revenue growth of 9.5 per cent and in 2004-05 to 2006-07, the growth rates of 7.5 per cent, 9.0 per cent, and 9.4 per cent have been respectively bettered by the expansion rates of government revenue (in "real terms", that is, corrected for price changes) of 12.5 per cent, 9.7 per cent and 11.2 per cent. Money will continue to flow very rapidly into the government's hands and what is critically important is to use these resources intelligently where they are most needed.
When Picasso said we start to get young as we turn 60, he also expressed the bleak belief that it may be "too late" by then. But changing the neglect of public goods and public services isin no way too late for a country that has already done so much with youthful energy. With a bit more deliberation and purpose, the best may be yet to come.
By Amartya Sen
Published: August 14 2007 03:00 Last updated: August 14 2007 03:00
Pablo Picasso once remarked: "One starts to get young at the age of 60." Something rather like that seems to be happening to India right now, at least on the economic front. There is much more sign of life there today than could be seen when political independence came to the ancient land in 1947, when its strait-laced economy moved at a slow and imperturbable pace - the famous 3 per cent rate of growth. The feebleness of the economic pace was in sharp contrast with the speed of political change in the new republic: India became overnight the first poor country in the world to be a full-scale democracy.
Democracy has indeed flourished well in India since then, withfew hiccups and with regular and orderly elections, free and flourishing media, independence of the judiciary and, no less importantly, the willingness of ruling parties to vacate office when defeated in general elections, rather than calling in the army. This would be remarkable enough for any poor country, particularly one the size of India, but it was a much harder task in a land of so many important languages (each with its long and proud history) and such diversity of distinct religions (all placed under a secular but tolerant umbrella). Secularism has been threatened from time to time by sectarian groups, but massive support for secularism across India has asserted itself repeatedly.
On the economic side, India's comparative success is rather new. Some changes came slowly and the growth rate of the economy did move up to 5 per cent a year in the 1980s, which was much faster than in the early decades of independence, not to mention during a century of colonial semi-stagnation. But the decisive moment for the radical changes that have made the Indian economy so dynamic today occurred in the early 1990s, led by reforms introduced by Manmohan Singh, then the newly appointed finance minister (he has been prime minister since 2004, after a period out of office in between). It is useful to ask, in taking a long view of the Indian economy, what changes were needed in India and what really happened over the period of gradual transformation initiated by the reforms of the early 1990s.
India faced two huge problems of governance. The first one was government over-activity in areas of work in which its presence was overbearing, but where its ability to mess things up was truly gigantic. The so-called "licence Raj" made business initiatives extremely difficult and put them at the mercy of bureaucrats (large and small), thereby powerfully stifling enterprise while nurturing corruption. The going has sometimes been rough but the direction of policy change has been unmistakable from the early 1990s onwards (if still a little slow in many assessments), endorsed even by successor governments run by other political parties.
But India also had a second problem that needed to be addressed urgently. This was the problem of government under-activity in fields in which it could achieve a great deal. There has been a sluggish response to the urgency of remedying the aston- -ishingly under-emphasised social infra-- structure - for example, the need to build many more schools, hospitals and rural medical centres - and developing a functioning system of accountability, supervision and collaboration for public services. To this can be added the neglect of physical infrastructure (power, water, roads, rail), which required both governmental and private initiatives. Large areas of what economists call "public goods" have continued to be under-emphasised.
The radical changes in the 1990s did little to remedy the second problem. If things have begun to change here too (though rather slowly), a part of the credit for ushering in that change must go to India's democratic politics. There is a growing appreciation of the electoral relevance of the unfulfilled basic needs of people (related to schools, healthcare, water supply and other facilities) and there are also pressures generated by better-informed media discussions and by the activities of civil society movements demanding elementary rights.
So where does India stand now, after all this? The economic growth rate, now about 8 per cent (sometimes touching 9 per cent), is, of course, agreeably high, but the sharing of the benefits that flow from this is still remarkably unequal. Poverty rates have fallen, but are nowhere near what could have been achieved had the distributional side got more attention. Some failures are huge, such as continuing undernourishment, particularly of children, and of course the continuing scandal of a quarter of the population (including half of all women) remaining illiterate in a country with such high-technology achievements based on excellent specialised training and practice. A democratic country can hardly want to maintain a divisiveness that makes it part California and part sub-Saharan Africa.
The unequal distribution of the benefits of economic progress is not unrelated to continuing gaps on the social side, since the human capabilities that make it easy for people to use the new economic opportunities can be vastly enlarged by enhanced public services, such as universal - and good - school education, efficient and accessible public healthcare and good epidemiology. Remedying this calls for much more economic resources and better organised public services.
This is not, however, an argument for considering economic growth to be unimportant. Indeed, quite the contrary, since economic growth also generates government resources that can be powerfully used precisely to expand public services.
Government revenue will grow very fast if it keeps pace with the rapid growth of the economy. In fact, government revenue has persistently grown faster than the growth of gross domestic product: in 2003-04, the economic growth of 6.5 per cent was exceeded by revenue growth of 9.5 per cent and in 2004-05 to 2006-07, the growth rates of 7.5 per cent, 9.0 per cent, and 9.4 per cent have been respectively bettered by the expansion rates of government revenue (in "real terms", that is, corrected for price changes) of 12.5 per cent, 9.7 per cent and 11.2 per cent. Money will continue to flow very rapidly into the government's hands and what is critically important is to use these resources intelligently where they are most needed.
When Picasso said we start to get young as we turn 60, he also expressed the bleak belief that it may be "too late" by then. But changing the neglect of public goods and public services isin no way too late for a country that has already done so much with youthful energy. With a bit more deliberation and purpose, the best may be yet to come.
India's Emergence2
Dollar inflows put govt in a bind6 Oct, 2007, 0439 hrs IST,Gayatri Nayak, TNN
The record forex inflows into the country have led to a strange paradox. The government appears to be borrowing more from the market to protect the rupee than for spending on development projects. For the first time, the government may raise more money from the market through issuance of bonds under the market stabilisation scheme (MSS) - which is designed to tackle capital inflows. This fiscal may well see bond issuance under this scheme exceed the normal borrowing programme of the government, which is aimed at meeting revenue and capital expenditure. On Thursday, the government revised the ceiling for outstanding bond issuance under the MSS from Rs 1,50,000 crore to Rs 2,00,000 crore for this fiscal. This could mean potentially fresh issuance of market stabilisation bonds of up to Rs 1,35,000 crore with the balance (over Rs 60,000 crore) being the outstanding of the previous fiscal. Compared to this, the normal government borrowings after discounting for repayments work out to Rs 1,10,827 crore. It is clear, therefore, that if the current trend of capital flows is sustained, the government will end up borrowing more to protect the rupee rather than for other expenditure. The Reserve Bank of India (RBI) has mopped up close to $48.6 billion since April this year. Yet, the Indian currency has gained over 10% against the dollar. The government and the central bank have taken recourse to borrowing more to stem the rise of the currency since the policy options available to them are limited. Non-intervention would mean the rupee gaining even more, which in turn hurts the exporting community in terms of their competitiveness. The fallout could then be job losses in several segments. The market stabilisation scheme was introduced by the government and RBI in early 2004 to tackle strong capital inflows. Bonds issued under this scheme by the government are used exclusively for sterilising inflows. Sterilisation implies mopping up of excess rupee funds through sale of bonds as a consequence of the central bank buying forex, which is brought into the country. Both the normal borrowings and borrowings under the MSS involve sale of bonds at market-linked rates. For the buyers of these bonds, both qualify for statutory liquidity ratio (SLR) status and refinance can also be availed of from the central bank. However, under MSS, typically the bonds are of shorter tenors ranging from three months to two years while the tenor of bonds sold for conventional borrowings could be as long as 30 years. Though RBI acts as a debt manager for the government, the proceeds from the sale of bonds under the conventional borrowing programme flow to the government's coffers. However, the proceeds from the sale of bonds under MSS are held in a separate identifiable cash account by the government (reflected as equivalent cash balances held by the government with RBI) and are appropriated only for the purpose of redemption or buyback of the treasury bills or dated securities issued under the MSS. A crucial difference is that, while the conventional market borrowings are reckoned for the calculation of the gross fiscal deficit in the sovereign budget, the MSS figures as part of total public debt. The interest paid out on MSS bonds is, however, accounted for in the budget. With the government sticking to its fiscal prudence limits and considering the buoyant revenues, chances of the government overshooting the normal borrowings target appear to be slim. In the case of MSS, the government reviews the target once a certain threshold level is reached. Though the government set a target of Rs 1,50,000 crore at the beginning of the fiscal, the threshold level of Rs 1,35,000 crore was breached by the end of six months itself. The final amount that will be raised under the MSS would depend on pace of forex inflows. The amount absorbed under the MSS which touched Rs 78,906 crore on September 2, 2005, declined to about Rs 32,000 crore in February 2006 after the unwinding of nearly Rs 47,000 crore due to tight liquidity in the market. As part of unwinding, fresh issuances under the MSS were suspended between November 2005 and April 2006. In several subsequent auctions during 2006-07, only partial amounts were accepted under the MSS. Subsequently, the amount absorbed under the MSS rose again to Rs 62,974 crore in March 2007. As of end-September, this amount touched Rs 1,31,473 crore. With the central bank now out of the primary market for government bonds, the stock of bonds in its own books is depleting, which to an extent hampers its flexibility in day-to-day liquidity management. The MSS has, however, come in handy for the central bank, adding flexibility to liquidity management.
The record forex inflows into the country have led to a strange paradox. The government appears to be borrowing more from the market to protect the rupee than for spending on development projects. For the first time, the government may raise more money from the market through issuance of bonds under the market stabilisation scheme (MSS) - which is designed to tackle capital inflows. This fiscal may well see bond issuance under this scheme exceed the normal borrowing programme of the government, which is aimed at meeting revenue and capital expenditure. On Thursday, the government revised the ceiling for outstanding bond issuance under the MSS from Rs 1,50,000 crore to Rs 2,00,000 crore for this fiscal. This could mean potentially fresh issuance of market stabilisation bonds of up to Rs 1,35,000 crore with the balance (over Rs 60,000 crore) being the outstanding of the previous fiscal. Compared to this, the normal government borrowings after discounting for repayments work out to Rs 1,10,827 crore. It is clear, therefore, that if the current trend of capital flows is sustained, the government will end up borrowing more to protect the rupee rather than for other expenditure. The Reserve Bank of India (RBI) has mopped up close to $48.6 billion since April this year. Yet, the Indian currency has gained over 10% against the dollar. The government and the central bank have taken recourse to borrowing more to stem the rise of the currency since the policy options available to them are limited. Non-intervention would mean the rupee gaining even more, which in turn hurts the exporting community in terms of their competitiveness. The fallout could then be job losses in several segments. The market stabilisation scheme was introduced by the government and RBI in early 2004 to tackle strong capital inflows. Bonds issued under this scheme by the government are used exclusively for sterilising inflows. Sterilisation implies mopping up of excess rupee funds through sale of bonds as a consequence of the central bank buying forex, which is brought into the country. Both the normal borrowings and borrowings under the MSS involve sale of bonds at market-linked rates. For the buyers of these bonds, both qualify for statutory liquidity ratio (SLR) status and refinance can also be availed of from the central bank. However, under MSS, typically the bonds are of shorter tenors ranging from three months to two years while the tenor of bonds sold for conventional borrowings could be as long as 30 years. Though RBI acts as a debt manager for the government, the proceeds from the sale of bonds under the conventional borrowing programme flow to the government's coffers. However, the proceeds from the sale of bonds under MSS are held in a separate identifiable cash account by the government (reflected as equivalent cash balances held by the government with RBI) and are appropriated only for the purpose of redemption or buyback of the treasury bills or dated securities issued under the MSS. A crucial difference is that, while the conventional market borrowings are reckoned for the calculation of the gross fiscal deficit in the sovereign budget, the MSS figures as part of total public debt. The interest paid out on MSS bonds is, however, accounted for in the budget. With the government sticking to its fiscal prudence limits and considering the buoyant revenues, chances of the government overshooting the normal borrowings target appear to be slim. In the case of MSS, the government reviews the target once a certain threshold level is reached. Though the government set a target of Rs 1,50,000 crore at the beginning of the fiscal, the threshold level of Rs 1,35,000 crore was breached by the end of six months itself. The final amount that will be raised under the MSS would depend on pace of forex inflows. The amount absorbed under the MSS which touched Rs 78,906 crore on September 2, 2005, declined to about Rs 32,000 crore in February 2006 after the unwinding of nearly Rs 47,000 crore due to tight liquidity in the market. As part of unwinding, fresh issuances under the MSS were suspended between November 2005 and April 2006. In several subsequent auctions during 2006-07, only partial amounts were accepted under the MSS. Subsequently, the amount absorbed under the MSS rose again to Rs 62,974 crore in March 2007. As of end-September, this amount touched Rs 1,31,473 crore. With the central bank now out of the primary market for government bonds, the stock of bonds in its own books is depleting, which to an extent hampers its flexibility in day-to-day liquidity management. The MSS has, however, come in handy for the central bank, adding flexibility to liquidity management.
India's Emergence
India should opt for full convertibility: Meghnad Desai19 Sep, 2007, 1739 hrs IST, PTI
MUMBAI: India should opt for full convertibility of rupee, Lord Meghnad Desai, member of House of Lords said. "Putting off the day of full convertibility is costing dearly the small and medium enterprises and retail depositors since they cannot access better opportunities availed by bigger companies," he observed. He was speaking at the Bank of Baroda Centenary Year Maharaja Sayaji Rao Gaekwad III Memorial Lecture last night. "India should move to full capital convertibility, since all the arguments against such a step are even more strained than ever," he said. Even if the Asian crisis was any reason for not moving faster, the way in which central banks have handled the 2001, 2004 and now 2007 financial shocks, we know if crisis occur they can be handled, he said. He conceded there could be some risks involved but pointed out that no country is immune to risks in financial markets. What we have to know is how to handle risks," he said. Lord Desai said he was very impressed by the manner in which the RBI handled the upward pressure on the rupee, and the mature way in which Indian business has taken the stronger rupee in its stride rather than rush to Delhi to have the policy reversed. He also referred to large forex reserves saying there is now a cushion against sudden withdrawal of funds. India has a huge forex reserve which it does not know what to do with. "Perhaps, if it was explained to the Left parties that large sums of money were shoring up US Treasury bills, it may vote for full convertibility as an anti-imperialist gesture," he said.
Re ends at 9-yr high on Fed rate cut19 Sep, 2007, 1756 hrs IST, REUTERS
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MUMBAI: The rupee hit a nine-year high on Wednesday as a sharp cut in interest rates by the US Federal Reserve increased appetite for emerging market assets and a surging stock market attracted capital inflows. Dealers said the rupee's gains were capped by heavy dollar-buying intervention by the central bank. The rupee ended at 40.20/21 per dollar, having risen to 40.18 during trade, its highest since May 1998. The rupee gained more than half a percent from Tuesday's close of 40.48/49, and has risen more than 10 percent this year. The currency's previous high of 40.20 was hit in July. "Exporters got panicky and were selling their dollars throughout the day, and inflows are expected to be robust as evident by the soaring stock markets," said V Soundarajan, a currency trader at UCO Bank. "I expect the rupee to break past the 40 per dollar mark before the end of this month," he said. The stock market rose 4.2 percent, its biggest gain in 15 months, to a record-high close on hopes that the US rate cut would help steady global credit markets and see foreigners return to emerging markets such as India. As well, Tuesday's cuts in US interest rates raised India's interest rate premium over the United States to 300 basis points, which traders said would attract more capital inflows and add to the rupee's momentum. But those inflows complicate policy for the Reserve Bank of India, which has been intervening as the rupee rose this month and stepped in again as the currency neared its highs. "They bought at every level. I think they are going to protect it," a chief dealer with a foreign bank said. A Reserve Bank of India spokeswoman said the central bank did not comment on the day-to-day movements on the exchange rate. Data this month showed the central bank bought $11.4 billion in intervention in July, when the rupee was last near current levels, taking its dollar purchases in 2007 to 38.1 billion. The US Federal Reserve lowered its benchmark federal funds target rate by 50 basis points to 4.75 per cent to shore up the world's largest economy against a housing slowdown and credit market turmoil. It also cut the discount rate it charges for direct loans to banks by a half-point to 5.25 per cent.
MUMBAI: India should opt for full convertibility of rupee, Lord Meghnad Desai, member of House of Lords said. "Putting off the day of full convertibility is costing dearly the small and medium enterprises and retail depositors since they cannot access better opportunities availed by bigger companies," he observed. He was speaking at the Bank of Baroda Centenary Year Maharaja Sayaji Rao Gaekwad III Memorial Lecture last night. "India should move to full capital convertibility, since all the arguments against such a step are even more strained than ever," he said. Even if the Asian crisis was any reason for not moving faster, the way in which central banks have handled the 2001, 2004 and now 2007 financial shocks, we know if crisis occur they can be handled, he said. He conceded there could be some risks involved but pointed out that no country is immune to risks in financial markets. What we have to know is how to handle risks," he said. Lord Desai said he was very impressed by the manner in which the RBI handled the upward pressure on the rupee, and the mature way in which Indian business has taken the stronger rupee in its stride rather than rush to Delhi to have the policy reversed. He also referred to large forex reserves saying there is now a cushion against sudden withdrawal of funds. India has a huge forex reserve which it does not know what to do with. "Perhaps, if it was explained to the Left parties that large sums of money were shoring up US Treasury bills, it may vote for full convertibility as an anti-imperialist gesture," he said.
Re ends at 9-yr high on Fed rate cut19 Sep, 2007, 1756 hrs IST, REUTERS
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MUMBAI: The rupee hit a nine-year high on Wednesday as a sharp cut in interest rates by the US Federal Reserve increased appetite for emerging market assets and a surging stock market attracted capital inflows. Dealers said the rupee's gains were capped by heavy dollar-buying intervention by the central bank. The rupee ended at 40.20/21 per dollar, having risen to 40.18 during trade, its highest since May 1998. The rupee gained more than half a percent from Tuesday's close of 40.48/49, and has risen more than 10 percent this year. The currency's previous high of 40.20 was hit in July. "Exporters got panicky and were selling their dollars throughout the day, and inflows are expected to be robust as evident by the soaring stock markets," said V Soundarajan, a currency trader at UCO Bank. "I expect the rupee to break past the 40 per dollar mark before the end of this month," he said. The stock market rose 4.2 percent, its biggest gain in 15 months, to a record-high close on hopes that the US rate cut would help steady global credit markets and see foreigners return to emerging markets such as India. As well, Tuesday's cuts in US interest rates raised India's interest rate premium over the United States to 300 basis points, which traders said would attract more capital inflows and add to the rupee's momentum. But those inflows complicate policy for the Reserve Bank of India, which has been intervening as the rupee rose this month and stepped in again as the currency neared its highs. "They bought at every level. I think they are going to protect it," a chief dealer with a foreign bank said. A Reserve Bank of India spokeswoman said the central bank did not comment on the day-to-day movements on the exchange rate. Data this month showed the central bank bought $11.4 billion in intervention in July, when the rupee was last near current levels, taking its dollar purchases in 2007 to 38.1 billion. The US Federal Reserve lowered its benchmark federal funds target rate by 50 basis points to 4.75 per cent to shore up the world's largest economy against a housing slowdown and credit market turmoil. It also cut the discount rate it charges for direct loans to banks by a half-point to 5.25 per cent.
EU and China
The China trade syndrome
Oct 4th 2007From The Economist print edition
Europe's next big globalisation row will be over trade with China
EUROPE'S political leaders are bracing themselves for a big new row about global competition: over China. The China threat has become well-embedded as a motif of American politics, with a stash of China-bashing bills always lurking in Congress. But Europeans have taken longer to wake up to China's rise. That is partly because fears of globalisation at first meant worrying mainly about people moving from central Europe westwards and factories moving in the other direction, suggests Katinka Barysch, at the London-based Centre for European Reform. While Americans were talking about “the China price”, she says, “we were still talking about the Polish plumber.”
This mythical figure, branded a public menace to the French people just before they voted down the draft EU constitution, appeared in 2005, during a previous anti-globalisation spat. There was a xenophobic edge to the talk of invasion by low-paid, lightly regulated workers from the EU's newest members. But the debate quickly drifted into pantomime. The Polish tourist board hired a beefy model to pose as a plumber, promising that he was staying in Poland, and inviting tourists to come and admire him. A row about China threatens to be far more serious.
A chat about globalisation at an informal summit of European leaders in Lisbon later this month will be one possible flashpoint for the new row. Another will be a planned EU-China summit in November. In the words of one official, the EU may soon be “nostalgic” for quarrels over Polish plumbers. Three linked China problems are now causing big ructions.
The first is one of sheer scale. Low-key policies that seemed adequate a couple of years ago have struggled to keep pace with the explosive growth of trade. Two-way trade between the EU and China expanded by over 20% last year to a total value of €254 billion ($319 billion), and the trade balance has swung sharply in China's favour. Compared with America, the EU has shunned confrontation, preferring dialogue with China over such concerns as the deficit or intellectual property. But this calm approach may be a harder sell when the bilateral trade deficit with China is running at an average of €15m an hour.
The second problem is that China ignores gentle hints to stick to commitments it made when it joined the World Trade Organisation. The charges are numerous: there are perennial (and hard to prove) accusations about state subsidies and a failure to guard against the theft of intellectual property. A bleak report by the EU Chamber of Commerce in China notes a fresh threat: the unequal treatment of foreign companies by newly muscular Chinese regulators. Chinese officials are even accused of diverting EU energies into “process”—endless argument over when and with whom meetings will take place. It does not help that many commissioners fall for this nonsense, tripping over each other in their eagerness to visit China and meet the right officials. The 27 member countries are worse, eagerly undermining agreed positions in a quest for national advantage.
The third problem is China's currency, the yuan, which has lost about 40% of its value against the euro since 2000, making Chinese exports ever cheaper. President Nicolas Sarkozy of France loudly argues that euro-area governments should join forces with the European Central Bank (ECB) and back American demands for the Chinese to let their currency appreciate (it is still loosely pegged to the dollar). But the sad reality is that any finger-wagging by the Europeans might serve only to expose their impotence. Noting the euro's steady rise against the yuan, several American analysts conclude that the Chinese have taken a deliberate decision to allow Europe to foot the bill for any small concessions they may offer to America on the yuan.
Superficially, this impotence is odd. As a single trading block, the EU is by some way China's largest trading partner. Every year, more Chinese diplomats are posted to Brussels to study EU regulations (there are said to be four Chinese officials whose sole task is to monitor the European Parliament).
Divide and rule
But China knows perfectly well that the EU functions only rarely as a single block. It has learnt from experience how easy it is to divide the Europeans on tough political questions such as their arms embargo on China. Moreover, EU citizens cannot even agree on whether China is an economic threat or an opportunity. Some countries, such as Germany and Sweden, make lots of money selling machine tools and other capital goods to China. In southern Europe, businessmen complain vociferously that their traditional exports such as shoes and textiles are being killed by China. In eastern Europe, businesses built on (relatively) cheap labour fear China mightily.
Once a China row starts, camps will quickly form. Unsurprisingly, France is likely to lead calls for “negative reciprocity”: ie, slamming markets shut unless China heeds EU demands. Britain will take the opposite view, arguing for open markets as desirable in themselves. British officials are hostile to calls for action against “sovereign funds” flush with the cash of foreign governments, seeing these calls as another recipe for protectionism. Germany may be the swing voter in such cases.
Yet regardless of the economics, an argument can be made that it may become politically impossible for Brussels to seem inactive on China without further damaging fragile support for free trade. Already, complaints about Chinese goods being dumped at below production cost take up an inordinate amount of time (recent footling disputes have involved light bulbs and tinned satsumas). One response may be to go after China on non-footling disputes, but strictly within the context of enforcing rules and legally binding commitments. This could mean taking China to the WTO a lot more often. That could prove bumpy, but less so than an outbreak of xenophobic China-panic that no amount of pantomime can soothe.
Oct 4th 2007From The Economist print edition
Europe's next big globalisation row will be over trade with China
EUROPE'S political leaders are bracing themselves for a big new row about global competition: over China. The China threat has become well-embedded as a motif of American politics, with a stash of China-bashing bills always lurking in Congress. But Europeans have taken longer to wake up to China's rise. That is partly because fears of globalisation at first meant worrying mainly about people moving from central Europe westwards and factories moving in the other direction, suggests Katinka Barysch, at the London-based Centre for European Reform. While Americans were talking about “the China price”, she says, “we were still talking about the Polish plumber.”
This mythical figure, branded a public menace to the French people just before they voted down the draft EU constitution, appeared in 2005, during a previous anti-globalisation spat. There was a xenophobic edge to the talk of invasion by low-paid, lightly regulated workers from the EU's newest members. But the debate quickly drifted into pantomime. The Polish tourist board hired a beefy model to pose as a plumber, promising that he was staying in Poland, and inviting tourists to come and admire him. A row about China threatens to be far more serious.
A chat about globalisation at an informal summit of European leaders in Lisbon later this month will be one possible flashpoint for the new row. Another will be a planned EU-China summit in November. In the words of one official, the EU may soon be “nostalgic” for quarrels over Polish plumbers. Three linked China problems are now causing big ructions.
The first is one of sheer scale. Low-key policies that seemed adequate a couple of years ago have struggled to keep pace with the explosive growth of trade. Two-way trade between the EU and China expanded by over 20% last year to a total value of €254 billion ($319 billion), and the trade balance has swung sharply in China's favour. Compared with America, the EU has shunned confrontation, preferring dialogue with China over such concerns as the deficit or intellectual property. But this calm approach may be a harder sell when the bilateral trade deficit with China is running at an average of €15m an hour.
The second problem is that China ignores gentle hints to stick to commitments it made when it joined the World Trade Organisation. The charges are numerous: there are perennial (and hard to prove) accusations about state subsidies and a failure to guard against the theft of intellectual property. A bleak report by the EU Chamber of Commerce in China notes a fresh threat: the unequal treatment of foreign companies by newly muscular Chinese regulators. Chinese officials are even accused of diverting EU energies into “process”—endless argument over when and with whom meetings will take place. It does not help that many commissioners fall for this nonsense, tripping over each other in their eagerness to visit China and meet the right officials. The 27 member countries are worse, eagerly undermining agreed positions in a quest for national advantage.
The third problem is China's currency, the yuan, which has lost about 40% of its value against the euro since 2000, making Chinese exports ever cheaper. President Nicolas Sarkozy of France loudly argues that euro-area governments should join forces with the European Central Bank (ECB) and back American demands for the Chinese to let their currency appreciate (it is still loosely pegged to the dollar). But the sad reality is that any finger-wagging by the Europeans might serve only to expose their impotence. Noting the euro's steady rise against the yuan, several American analysts conclude that the Chinese have taken a deliberate decision to allow Europe to foot the bill for any small concessions they may offer to America on the yuan.
Superficially, this impotence is odd. As a single trading block, the EU is by some way China's largest trading partner. Every year, more Chinese diplomats are posted to Brussels to study EU regulations (there are said to be four Chinese officials whose sole task is to monitor the European Parliament).
Divide and rule
But China knows perfectly well that the EU functions only rarely as a single block. It has learnt from experience how easy it is to divide the Europeans on tough political questions such as their arms embargo on China. Moreover, EU citizens cannot even agree on whether China is an economic threat or an opportunity. Some countries, such as Germany and Sweden, make lots of money selling machine tools and other capital goods to China. In southern Europe, businessmen complain vociferously that their traditional exports such as shoes and textiles are being killed by China. In eastern Europe, businesses built on (relatively) cheap labour fear China mightily.
Once a China row starts, camps will quickly form. Unsurprisingly, France is likely to lead calls for “negative reciprocity”: ie, slamming markets shut unless China heeds EU demands. Britain will take the opposite view, arguing for open markets as desirable in themselves. British officials are hostile to calls for action against “sovereign funds” flush with the cash of foreign governments, seeing these calls as another recipe for protectionism. Germany may be the swing voter in such cases.
Yet regardless of the economics, an argument can be made that it may become politically impossible for Brussels to seem inactive on China without further damaging fragile support for free trade. Already, complaints about Chinese goods being dumped at below production cost take up an inordinate amount of time (recent footling disputes have involved light bulbs and tinned satsumas). One response may be to go after China on non-footling disputes, but strictly within the context of enforcing rules and legally binding commitments. This could mean taking China to the WTO a lot more often. That could prove bumpy, but less so than an outbreak of xenophobic China-panic that no amount of pantomime can soothe.
Swimming with Friends
Five-nation naval exercise begins
By Subir Bhaumik BBC News, Calcutta
The navies of the United States, Australia, India, Japan and Singapore have begun a massive naval exercise, codenamed "Malabar", in the Bay of Bengal.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/south_asia/6977376.stm
By Subir Bhaumik BBC News, Calcutta
The navies of the United States, Australia, India, Japan and Singapore have begun a massive naval exercise, codenamed "Malabar", in the Bay of Bengal.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/south_asia/6977376.stm
Quadrilateral Initiative
New 'strategic partnership' against China
By Mahmud Ali BBC News
Ships, aircraft and submarines from four countries begin week-long war games in the Bay of Bengal on 4 September.
It is the first flexing of muscles by the newly-formed "Quadrilateral Initiative", which brings together the US, Japan, India and Australia.
Many analysts see the manoeuvres as efforts by a democratic coalition to "contain" rising Chinese power.
Japanese Prime Minister Shinzo Abe arrived in Delhi, offering substantial economic and commercial assistance if India agreed to anchor "an Asian arc of freedom" stretching across the Indian and Pacific Oceans and providing a democratic bulwark - presumably against non-democratic powers.
Defence papers issued by all four governments have described China as a potential threat, and that combined with the launch of the Quad suggest a pattern of alliance-building activities that China cannot ignore.
Perhaps as a sign of things to come, 1,600 Chinese troops travelled to Russia's Ural mountains to join several thousand mostly Russian troops in "Peace Mission 2007" manoeuvres in August.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/south_asia/6968412.stm
By Mahmud Ali BBC News
Ships, aircraft and submarines from four countries begin week-long war games in the Bay of Bengal on 4 September.
It is the first flexing of muscles by the newly-formed "Quadrilateral Initiative", which brings together the US, Japan, India and Australia.
Many analysts see the manoeuvres as efforts by a democratic coalition to "contain" rising Chinese power.
Japanese Prime Minister Shinzo Abe arrived in Delhi, offering substantial economic and commercial assistance if India agreed to anchor "an Asian arc of freedom" stretching across the Indian and Pacific Oceans and providing a democratic bulwark - presumably against non-democratic powers.
Defence papers issued by all four governments have described China as a potential threat, and that combined with the launch of the Quad suggest a pattern of alliance-building activities that China cannot ignore.
Perhaps as a sign of things to come, 1,600 Chinese troops travelled to Russia's Ural mountains to join several thousand mostly Russian troops in "Peace Mission 2007" manoeuvres in August.
Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/south_asia/6968412.stm
Know thy game
More life may trickle out of men through thought, than through a gaping wound
- Thomas Hardy
- Thomas Hardy
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