Indian School of Business: 2007

Indian Rupee getting hotter day by day

For the first time after nine years, the rupee breached the psychological mark of 40 to touch 39.85 against dollar on September 20, 2007. With US Federal Bank cutting the interest rate by 50 basis points, the rupee has breached the level of Rs. 40 much before than expected by the markets. The main reason being the sudden spurt in capital inflows. BNP Paribas' country treasurer Manoj rane said: "the rupee could touch 38.5 level against dollar by year-end. we can expect the rupee to rise further on the back of strong capital inflows".

Why the US FED rate cut influences our currency?

Typically, when US lowers interest rates, FIIs begin looking for greener pastures like India and China, where they can earn a higher return. When dollar inflows rise into these countries, local currencies in these markets begin to grow stronger. Hence, as a result of US FED rate cut by 50 basis points and also hardened interest rates in India combined with strong capital market, there will be a spurt in FII inflows in short term which will increase the demand for rupee and thereby, rupee will appreciate further. If the dollars coming into India are not compensated by the requirement of importers, the RBI has to intervene into the forex market by buying dollars so as to maintain the current level. But, it has side effect, the increase in money supply and thereby, inflation. Keeping in view the general elections in 2009, the Government cannot afford to neglect inflation management. As the role of RBI is limited in the present circumstances, the Rupee will appreciate further and I expect the rupee to appreciate to a level of Rs. 35 towards the end of current fiscal.

The appreciation of rupee during the current financial year already effected many sectors like IT, textiles, leather industry, pharmaceuticals. This new phenomenon has forced many mid sized software and other exporters to hedge against the foreign currency fluctuations.

With the appreciation of rupee and also acceptability of rupee increasing in the Gulf and South East Asian markets, trading in rupee futures is picking up. In Dubai exchange, rupee futures trading is already picking up.

Inflation is for soft landing - dips to 3.32% for the week ended September 08, 2007

The official Wholesale Price Index for 'All Commodities' (Base: 1993-94 = 100) for the week ended 8th September 2007 rose by 0.1% to 214.7 from its previous week level of 214.4. The annual rate of inflation, calculated on point to point basis, stood at 3.32 percent for the week ended 08/09/2007 (over 09/09/2007 ) as compared to 3.52 percent for the previous week. The annual rate of inflation stood at 5.22 percent as on 09/09/2006 i.e. a year ago. The annual rate of inflation declined due to the larger base of last year.

The index for 'Food Articles' group rose by 0.2 percent due to higher prices of fruits & vegetables, condiments & spices, barley and wheat (1% each). However, the prices of bajra (3%), fish-marine (2%) and maize (1%) declined.

The index for 'Non-Food Articles' group rose by 0.1 percent due to higher prices of fodder (2%) and raw cotton, groundnut seed and cotton seed (1% each). However, the prices of niger seed (6%), soyabean (4%) and raw tobacco and sunflower (2% each) declined.

Central Statistical Organisation revises it inflation figures after two months of releasing the provisional figures. For the week ended 14/07/2007, the final wholesale price index for 'All Commodities’ (Base: 1993-94=100) stood at 213.6 as compared to 212.9 (Provisional) and annual rate of inflation based on final index, calculated on point to point basis, stood at 4.76 percent as compared to 4.41 percent (Provisional) reported earlier.

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GMR is on recruitment drive for CEOs and middle level management positions

The GMR Group has initiated a realignment of its organisational structure to grab future opportunities with both hands while leaving line functions to professionals. Mr. G M Rao, Group's Chairman, has decided to move away from day-to-day operations to take on strategy and big picture roles and also as mentor for senior leaders.

As part of the formula prescribed by McKinsey, four new corporate chairmen will drive the verticals of airports, urban infrastructure and highways, energy and agribusiness, and international business. The new organisational structure will be in place from October 1, 2007. Under this structure, Mr. B. Srinivas, the current MD of Delhi International Airport, will become the chairman of urban infrastructure and highways business, Group director Mr. B V N Rao will be the chairman of the energy vertical, while Mr. G B S Raju will head international business and Hyderabad International Airport MD, Mr. Kiran Gandhi, will take charge of the airport domain.

As per the available information, there will be four CEOs taking charge of Delhi and Hyderabad airport operations, aviation special eocnomic zone and business development. Similarly, divisions of roads, property, urban infrastructure and construction will have their respective CEOs. The group is in the process of a huge recruitment drive to fill these top slots.

The main strengths of the GMR group are

The group has an operating asset base of Rs. 3,600 Crores.
The group plans to invest around Rs. 14,000 crores in the next five to six years.
The GMR Group-led consortium is developing a greenfield airport in Hyderabad, a brownfield airport in Delhi and has won the bid for renovating an airport in Istanbul.
The group has also deep presence in the highways and energy sectors. It wants to enter in the agribusiness in a big way.

Careers - Senior Hydro Professionals

GMR Group is developing medium to large sized hydroelectric projects in Uttaranchal and Arunachal Pradesh in India. These are in various stages of Development. They are looking for professionals with proven experience in hydroelectric projects for it's hydro initiatives. Candidates must have a good understanding of the dynamics of hydroelectric projects and should have relevant experience on some / all aspects of the development including Engineering, Land Acquisition, Environmental and Other Statutory Clearances, Detailed Project Reports, Cost Estimations, Contracts, Project Management and Site Set Up and Management etc. Candidates should be well versed with key aspects of Hydroelectric Project development / construction areas.

Please e-mail your detailed resume or Application Form to careers@gmrgroup.in or rajib.misra@gmrgroup.in

Manufacturing Career in GMR

As a leading producer of agri-products in the rural district of Andhra Pradesh, GMR Group offers exciting career opportunities for professional engineers, quality managers, human resource personnel, environmental experts and project managers. If you would like to be part of the GMR Industries team, please use the application form or mail your resumé to careers@gmrgroup.co.in

Careers in Hyderabad International Airport (Part of GMR Group)

The GMR Hyderabad International Airport offers talented and dynamic professionals excellent career opportunities in technical, commercial and administrative areas of Airport Management. Their people-centric HR policies are geared for professional and personal growth of employees. Customized training programs and workshops designed to bridge competency gaps are conducted regularly. Presently there are openings in the following areas. Please click on each of them to know the details.

Careers in Delhi International Airport (Part of GMR Group) - Advertisement - 30-08-2007

GMR Group's Press Release dated 29-08-2007

GMR Group undertakes a significant restructuring programme to sustain an empowered institution

Inflation further dips to 3.52 percent for the week ended 1st September, 2007

The official Wholesale Price Index for 'All Commodities' (Base: 1993-94 = 100) for the week ended 25th August 2007 rose to 214.4 from its previous week level of 213.6. The annual rate of inflation, calculated on point to point basis, stood at 3.52 percent for the week ended 01/09/2007 (over 02/09/2007 ) as compared to 3.79 percent for the previous week. The annual rate of inflation stood at 5.27 percent as on 02/09/2006 i.e. a year ago. The annual rate of inflation declined due to the larger base of last year.

Central Statistical Organisation revises it inflation figures after two months of releasing the provisional figures. For the week ended 07/07/2007, the final wholesale price index for 'All Commodities’ (Base: 1993-94=100) stood at 213.3 as compared to 212.6 (Provisional) and annual rate of inflation based on final index, calculated on point to point basis, stood at 4.61 percent as compared to 4.27 percent (Provisional) reported earlier.

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Monetary Snapshot - September 13, 2007

The Indian rupee paused in its push towards nine-year highs on Thursday, held mostly steady by a combination of suspected central bank intervention and dollar purchases by oil refiners, traders said. The partially convertible rupee ended at 40.45/46 per dollar, just weaker than Wednesday's close of 40.4475/4550.

"The central bank seems to be defending the 40.40 level, but we are seeing plenty of dollar supplies. So, it seems they would not be able to hold the rupee around this level for long," the chief dealer with a private bank said.

On Wednesday, the Reserve Bank of India said it had bought $11.43 billion in intervention in July -- the month the rupee hit a nine-year high of 40.20 against the dollar. The central bank bought $38.1 billion in intervention in the first seven months of this year.

Traders said there was heavy dollar buying by oil firms to make import payments as oil traded near $80 a barrel. Oil is India's biggest import, and rising prices raise the risk of a wider trade deficit.

Traders expect the rupee to rise in the coming days, helped by a pick up in capital inflows. Foreigners bought nearly $780 million of local shares in the first seven days of September, taking net purchases this year to more than $9.1 billion.

The different macro economic monetary indicators

Bank Rate (Currently this rate, which is that rate at which the RBI lends overnight money to commercial banks ) : 6.0%
Repo Rate ( The repo rate is the rate at which the RBI borrows from the banks) : 7.75%
Reverse Repo Rate (The reverse repo rate is the rate at which banks park their short-term excess liquidity with the RBI): 6.00%
Call Rates (rate of inter-bank call money market where banks borrow funds to meet their RBI reserve requirements) : 5.25% - 6.15% (previous day)
CRR (Indian banks are required to hold a certain proportion of their deposits as cash. This ratio is stipulated by the RBI ): 7.00%
SLR (It is the amount which a bank has to maintain in the form of cash, gold or approved securities. The quantum is specified as some percentage of the total demand and time liabilities of a bank. This percentage is fixed by the Reserve Bank of India. ) : 25.0%
PLR ( The Prime Lending Rate is the interest rate charged by banks to their most creditworthy customers. This rate is fixed by RBI) : 12.75%-13.25%
Savings Bank Rate (Interest rate given on savings bank deposits) : 3.5%
Deposit Rate (Interest rate paid on deposits with the banks) : 7.50%-9.60%

Exchange Rates as on 13-09-2007

INR / 1 USD : 40.4400
INR / 1 Euro : 56.2000
INR / 100 Jap. YEN : 35.3800
INR / 1 Pound Sterling : 82.0100

Source: The Economic Times, RBI

Industrial growth slows down to 7.1% in July, 2007

The Quick Estimates of Index of Industrial Production (IIP) for the month of July 2007 have been released by the Central Statistical Organisation of the Ministry of Statistics and Programme Implementation. The industry has grwon at 7.1% as compared to the level in the month of July 2006. This is the slowest IIP growth in the last eight months. A lower growth can be partly explained by a higher base effect. The cumulative growth for the period April-July 2007-08 stands at 9.6% over the corresponding period of the pervious year.

Alongwith the Quick Estimates of IIP for July 2007, the indices for June 2007 have undergone the first revision and those for April 2007 have undergone the second (final) revision in the light of the updated data received from the source agencies. Even, industrial growth figures for June ‘07 has been revised downwards to 9% this month as against the initial estimate of 9.8% growth.

The adverse effects of rising interest rates and tight monetary policy are evident. Higher rates affected sectors such as automobile and housing the most. As a result production of machinery and transport equipment and non-metallic products which has cement as a major item slowed down. Small sectors like jute and jute products, wood and wood products along with basic metals have recorded outstanding growth in the range of 16-22 %. Besides, power generation rose 7.% on top of a 8.9% growth in July 06.

In terms of industries, as many as thirteen (13) out of the seventeen (17) industry groups (as per 2-digit NIC-1987) have shown positive growth during the month of July 2007 as compared to the corresponding month of the previous year. The industry group ‘Wood and Wood Products; Furniture and Fixtures’ have shown the highest growth of 21.1%, followed by 17.5% in ‘Basic Metal and Alloy Industries’ and 16.1% in ‘Jute and other Vegetable Fibre Textiles (except cotton)’. On the other hand, the industry group ‘Metal Products and Parts, except Machinery and Equipment’ have shown a negative growth of 5.1% followed by 4.6% in ‘Paper & Paper Products and printing, Publishing & Allied Industries’ and 4.1% in ‘Food products’.

As per used-based classification, the impact of interest rate is visible in many sectors. Decceleration in capital goods production in the initial months of FY08 has put a pause button on the five-years rally. Moreover, there is a sharp moderation in intermediate goods to 4.7% as against a growth of 10.7% a year ago. Slowdown in investment activity coupled with a lower intake of raw material reflects a moderation in industrial activity so far this year. Whether the latest figures are just an aberration or a beginning of a southward trend remains to be seen.

Going forward demand will influence the trend. A 3.2% fall in production of consumer durables this month deepened the existing trend in consumption slowdown. Things could look up a little with the festival season demand. But, this could be short-term . Later on, liquidity position, outlook on inflation and Reserve Bank’s measures to deal with the evolving situation will set the tone of consumption demand for the rest of the year.

On investment demand front, the existing situation is not very encouraging . Higher domestic interest rates, steep rise in overseas rates on account of liquidity crunch arising out of sub-prime crisis and a cap on foreign loans may play a spoilsport.

Promoted as Joint Commissioner of Income Tax

Hai Freinds.

Thank you very much for the support given by the viewers of this blog. It has been a wonderful experience to blog. I am a regular reader of The Economic Times and other financial papers regarding the state of our economy, sectoral performances and all macro economic indicators since 1991, when Indian economy has faced balance of payment crisis due to Gulf War and when the Economic Reforms have been initiated by the then FM, Mr. Manmohan Singh. It is a long way since then. Economics was one of my electives in my engineering days in IIT, Kharagpur and I got EX grade in Industrial Economics and I did write one small thesis on "Gulf Crisis and its effect on Indian economy" for the elective.

Coming to professional life in Indian Revenue Service (IRS), I always tried to contribute my best to the Service and the Income Tax Department. As all of you know, the promotion in Government is based purely on seniority and also subject to the vacancies available in that cadre. Based on the seniority, after completion of almost ten years in the service, yesterday, I have been promoted as Joint Commissioner of Income Tax from the level of Deputy Commissioner of Income Tax. The Central Board of Direct Taxes (CBDT), New Delhi, which issues the prmotion and transfer orders posted me in Transfer Pricing in Banglore, Karnataka.

What is Transfer Pricing?

Transfer Pricing is a concept which mainly deals with valuation of cross border transactions between related parties. As per the provisons of Sec. 92CA of the Income Tax Act, 1961,

if any person has entered into an international transaction (transaction between related resident and non-resident persons or associated enterprises) in any financial year, and the Assessing Officer (the Officer who assesses the income of Indian entity) considers it necessary, he refers the computation of the arm’s length price in relation to the said international transaction under to the Transfer Pricing Officer. the Transfer Pricing Officer, after gathering all the material from the assessee (tax payer) or from any other source and after giving due opportunity to the assessee to explain, determines the price at which the transaction should have taken place if both the parties areunrelated or at arm's length principle. There are various methods by which the arm's length price can be determined.

Some of the methods prescribed in the Act for determing arm's length price are:-

comparable uncontrolled price method;
resale price method;
cost plus method;
profit split method;
transactional net margin method;

The Assessing Officer has to apply the most appropriate method relevant to the filed in which the resident or non-resident is dealing. Of course, it will take some time before I can give lectures on Transfer Pricing. The Transfer Pricing is the most happening thing along with International Taxation in my Department as cross border transactions are increasing and also overseas Mergers & Acquisitions are on the raise.

Why Transfer Pricing:-

I will take classic example of software MNCs setting up shop in India. Most of the software companies either susidiaries of parent US or foreign companies or branches of foreign companies are claiming 100% income tax exemption U/s 10A or 10B by setting up their units in STPI areas or SEZs. Now, when these MNCs sell their software products or services to their parent companies or their subsidiaries, they inflate the sale value and claim more profits so that they get more benefit by way of income tax exemption here in India. This also results in claiming more expenditure in the country in which they are residents, thus saving both ways. Hence, the Transfer Pricing Officer (TPO) will determine the correct price at which such transactions take place as if both parties in the transaction are unrelated and the resident company, branch or firm will be denied income tax exemption on the difference between the reflected value of the transaction and the value determined by the TPO.

Thank You.

If you have any doubts on transfer pricing, I hope I can answer some of them. Please e-mail me at pramoneel@yahoo.co.in for answering the questions only on the basic provisions of the Act or on transfer pricing in general, as I am precluded from giving an opinion as I am a Government Servant.

IL&FS, Milestone launch real estate fund

For those who do not have time and where withal and also do not have the knowledge and nitty gritties of the real estate sector, there is a good news from IL&FS Investment Managers and Milestone Capital Advisors who have launched a real estate fund. The brief summary of the fund:-

Description of the Fund: IL&FS-Milestone Fund-I is an yield-driven real estate investment fund based on a structure similar to the real estate investment trusts (REIT). Worldwide it is the most popular investment route for corporates and individuals to invest in real estate.
Scheme: It is a close-ended scheme with a lock in period of four years, with an option to extend the term by a year and if required by one more year.
Fund Size: The fund is targeting a corpus of Rs 1,000 crore, which includes a greenshoe option of Rs 500 crore.
Last Date for Initial Offer: The fund will remain open for subscription till October 30, 2007.
Minimum Investment: It will be the first real estate investment fund in India to offer a low minimum investment commitment of Rs 10 lakh for individuals (in multiples of Rs 5 lakh thereafter) and Rs 1 crore for corporates, with the convenience of draw-down spread over 12 months.
Distribution of Profits: IL&FS-Milestone Fund-I will offer a quarterly yield distribution to investors and property appreciation benefits in the long term. The fund is targeting an annual yield of 11% (pre-tax) and an internal rate of return of 18-20% (pre-tax) with property appreciation.
Portfolio: The funds raised in the initial public offer at par would be invested in office buildings, hospitals, hotels, warehouses and shopping malls. The managers would invest 30 per cent each in retail and office properties, 20 per cent in IT and ITeS and 10 per cent each in warehousing and office properties.

CONTACT DETAILS

IL&FS Investment Managers Limited

Mumbai

The IL&FS Financial Centre

Plot No. C - 22, G Block,

Bandra Kurla Complex,

Bandra (East),

Mumbai 400 051

Phone: +9122-2653 3333 / 2653 3232

Fax: +9122-2653 3056

Bangalore

Aum Plaza

1st FloorNo 76, 3rd Cross

Residency Road

Bangalore 560 025

India

Phone: +9180-4034 3333

Fax: +9180-4034 3310

Contact Email: sanjay.mitra@ilfsindia.com

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India lags Lanka, Bangladesh in labour efficiency

The United States remained the most productive economy in 2006 in terms of labour productivity per person, far outstripping its nearest rivals among other developed economies, the ILO said in its fifth edition of bienniel report titled "Key Indicators of the Labour Market".

US workers added 63,885 dollars (46,890 euros) of value to the economy per person, way ahead of its nearest competitors Ireland (55,986 dollars), Luxembourg (55,641 dollars), Belgium (55,235 dollars) and France (54,609 dollars).

However, the ILO noted that this is chiefly because Americans work more hours per year than in most other developed countries. When productivity is measured in terms of value added per hour worked, Norway came top with a level of 37.99 dollars -- though the US does then come second with 35.63 dollars.

In South Asia, including Bangladesh, India, Pakistan, Nepal and Sri Lanka, productivity rose by around 50 per cent during the same decade, the report said. However, India's labour productivity, which is pegged at $6,587, is way behind Sri Lankan's productivity level of $11,320, Pakistan's $8,247 and Bangladesh's $43,315.

South-east Asia includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam while East Asia comprises China, Hong Kong, Japan, South Korea and Taiwan.

But South-east Asia sharply reduced its rate of vulnerable employment - defined as when a worker is at risk of falling back into poverty - by 5.7 percentage points to 59.2 per cent. That put the region ahead of South Asia at 78.2 per cent but behind East Asia at 56.2 per cent.

Increases in productivity are mainly the result of companies combining capital, labour and technology better, the report said. A lack of investment in people, equipment and technology can lead to an under-utilization of the productive potential of labour.

Rising productivity levels in Asia are a boon and not a threat to the world economy, as growing prosperity spurs a demand for products made elsewhere in the world, the International Labour Organisation said. "Some see the impressive growth of productivity in Asia and South East Asia as a threat, but let me stress that it is in fact a positive trend for the world economy," said ILO employment executive director Jose Salazar-Xirinachs. "As their middle classes grow, they earn more money, they consume more goods and services, so these regions will become consumers for goods and services produced in Western countries and in the rest of the world," he added.

View the Complete Report

Key Indicators of the Labour Market (5th Edition) - ILO

Download the complete Report -

Key Indicators of the Labour Market (5th Edition) - ILO

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Estimates of GDP by Economic Activity for the First Quarter of Current Fiscal

Quarterly GDP at factor cost at constant (1999-2000) prices for Q1 of 2007-08 is estimated at Rs 7,23,132 crore, as against Rs. 6,61,335 crore in Q1 of 2006-07, showing a growth rate of 9.3 per cent over the corresponding quarter of previous year.

The economic activities which registered significant growth in Q1 of 2007-08 over Q1 of 2006-07 are, manufacturing, electricity, gas & water supply, construction, trade, hotels, transport and communication, financing, insurance, real estate and business services, and community, social and personal services.

According to the information furnished by the Department of Agriculture and Cooperation (DAC), which has been used in compiling the estimate of GDP from agriculture in Q1 of 2007-08, the crops rice, wheat, coarse cereals and pulses during the Rabi season (which ended in June, 2007) of 2006-07 recorded growth rates of (-) 6.4 per cent, 8.0 per cent, 17.1 per cent, and 11.4 per cent, respectively over the corresponding season in the previous agriculture year. Among the commercial crops, the production of oilseeds declined by 11.3 per cent during the rabi season of 2006-07, while the production of cotton and sugarcane recorded growth rates of 22.7 per cent and 22.8 per cent, respectively during the agriculture year 2006-07.

According to the latest estimates available on the Index of Industrial Production (IIP), the index of mining, manufacturing and electricity, registered growth rates of 3.2 per cent, 11.9 per cent and 8.3 per cent, respectively during Q1 of 2007-08, as compared to the growth rates of 3.6 per cent, 11.7 per cent and 5.3 per cent in these sectors during Q1 of 2006-07. The key indicators of construction sector, namely, cement and finished steel registered growth rates of 6.8 per cent and 7.7 per cent, respectively during Q1 of 2007-08, as against the growth rates of 10.2 per cent and 10.3 per cent, respectively in Q1 of 2006-07.

Among the services sectors, the key indicators of railways, namely, the net tonne kilometers and passenger kilometers have shown growth rates of 2.6 per cent and 5.1 per cent, respectively during Q1 of 2007-08. In the transport and communication sectors, the production of commercial vehicles, cargo handled at major ports, cargo handled by the civil aviation, passengers handled by the civil aviation and the total stock of telephone connections (including WLL and cellular) registered growth rates of 6.6 per cent, 14.3 per cent, 11.6 per cent, 21.8 per cent and 47.0 per cent, respectively during Q1 of 2007-08 over Q1 of 2006-07. The other key indicators, namely, aggregate bank deposits, and bank credits have shown growth rates of 26.1 per cent, and 25.9 per cent, respectively during Q1 of 2007-08 over Q1 of 2006-07.

Source: The Press Note of PIB dated 31-08-2007

Tentative Interview Dates - Class of 2009

As per the website of ISB, the tentative interview dates are as follows

Cycle-1

Pune - 25 - 27 October, 07
Chennai - 25 - 27 October, 07
Kolkata - 26 - 27 October, 07
New Delhi - 30 October - 03 November, 07
Bangalore - 22 - 24 November, 07
Mumbai - 15 - 17 November, 07
Hyderabad - 05 - 30 November, 07
International - 05 - 30 November, 07

Cycle-2

Pune - 21 - 22 December, 07
Chennai - 27 - 29 December, 07
Kolkata - 28 - 29 December, 07
New Delhi - 01 - 05 January, 08
Bangalore - 09 - 12 January, 08
Mumbai - 16 - 19 January, 08
Hyderabad - 20 - 31 January, 08
International - 20 - 31 January, 08

These are tentative dates and are subject to change without any notice in view of circumstances beyond Adcom control. Decision of the Admissions Committee is final. Interview calls are usually emailed a week prior to the interview dates.

All the best for the Class of 2009

Want big bucks? Try the realty sector

The following is the gist of article published by rediffnews.com on the emerging career opportunities in the real estate sector.

In the back drop of DLF raising India's biggest IPO, the Bombay Stock Exchange introducing an index for it, with foreign investment of $10 billion is expected to flow into the sector over the next 12-18 months and with the sector growing at 30-plus per cent in the next few years, the realy sector is slowly on its way towards consolidation and transparency.

The growth potential of real estate is immense for people looking to make a career in it. Among college students, graduates and working professionals -- especially those with management, engineering and architecture backgrounds -- realty studies are fast becoming a favourite.

Enrolments are increasing in institutes offering short-term diploma courses as well as in colleges offering real estate specialisation in their Master's programme. P.S.N. Rao, professor at the SPA, says that on an average 20 of the 75 students from the Masters in Planning program choose to do a thesis on real estate. "This figure was negligible when the course was introduced as an elective 10 years ago," he adds.

Dedicated institutes have sprung up and management schools have introduced specialised courses on the subject to cater to the increasing demand. Indian School of Business (ISB), Hyderabad, launched a course titled 'Property Finance and Investment' last year. The Pune-based Indian Institute of Real Estate (IIRE), affiliated with the National Association of Realtors (NAR), a leading association of realtors in the US, had 10 students when it was launched in 2001. "Today, we get more than 3,000 enquiries per month for our online course," says Suresh Malkani, founder and academic dean, IIRE.

A number of real estate MNCs have already set up shop in India; more are following suit. Home-grown firms, too, are joining the fray, pushing up the demand for qualified personnel. "There is an immense dearth of trained manpower in this sector," says Nirmal Purushottam, principal, Yajnas Academy of Real Estate Management, Hyderabad. His views are backed by Haresh Motirale, senior manager, marketing and sales, G:Corp Properties, Mumbai, who completed a course from the IIRE in 2002. "A specialised course definitely gives you an edge over those who haven't done it," he says.

Besides the technical essentials, realty education focuses on management studies. "Realty management courses give students a managerial perspective and help them understand finance and marketing," says Purushottam. Industry watchers say the day is not far when campus recruitments will become the norm in the real estate sector. "Our students are posted in companies like Tischman Speyer, JLLM and Macquarie Group," says Bhuvana Ramalingam, director (communications), ISB. "They are offered positions like general manager and senior manager."

Consider Delhi-based Anu Punj, 23, a graduate from the SPA with specialisation in Housing. She was snapped up immediately after her course by Emmar-MGF, a leading realty MNC. She is working as an assistant manager (planning) in the firm now.

Master's courses are generally comprehensive, covering several aspects related to housing and real estate. Says Madhu Bharti Sharma, head of the Department of Housing at CEPT, "The Programme of Planning, with Housing as a specialisation, covers housing policy, housing requirement, housing finance, land economics, real estate development and various methods of development (commercial, residential, resorts and leisure)."

Expect five-figure salaries at the entry level. As the property market gets more organised and competition intensifies, the figures are bound to get better.

The ISB, in partnership with two London-based schools, has instituted the country's first Research Chair in Real Estate and Urban Studies, besides forming a Real Estate Club to promote realty education.

Full Article:-

Want big salaries? Try the realty sector - Rediff News - September 07, 2007

India tops the Forbes Asia-Pacific Fabulous 50 List with 12 companies

Forbes has announced the Asia Fab 50 list for 2007. The 3rd Annual Fabulous 50 list the most best of biggest listed companies from the Asia-Pacific region. Acer from

Taiwan has topped the list, with Indian companies Bharat Heavy Electricals (BHEL) and Bharti Airtel at the 2nd the 3rd slots respectively. Bajaj Auto Limited which figured in the list in 2006 at the 2nd position has failed to make it as one of the fabulous 50 companies of the region, whereas the public sector heavy electricals giant of the country, BHEL has jumped up 2 slots to replace Bajaj as the second most fabulous company in the Asia Pacific region for this year. Two companies from the TATA group are on the list - TCS at #40 and Tata Steel at #41. Twelve companies in the list are of Indian, the largest representation by any country. 10 companies are on the list from Taiwan, out of which Acer has occupied the first slot. China has been placed third with seven businesses including China Mobile and Lenovo Group.

"With a relatively young population of 1.1 billion, India has its own huge market," the US magazine said.

"Companies such as ICICI Bank, HDFC Bank and Bharti Airtel are growing fast by reaching out to the country's rural customers, not to Western markets."

Other companies on the list include some of Asia's most well-known brands such as Hong Kong carrier Cathay Pacific Airways and video game console maker Nintendo of Japan.

Methodology:-

To compile list, Forbes looked at long-term profitability, sales and earnings growth, stock price appreciation and projected earnings for every company in the region with revenues or market capitalization of at least $5 billion.

Waiting in the Wings:-

As per the Forbes website, if the recent results continue, Kotak Mahindra Bank and Suzlon Energy from India may contend for the Fab 50 list next year. Please watch out.

Complete Report : Forbes Third Annual Asia Pacific Fabulous 50 - 2007

The Fabulous 50

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Inflation rate comes down to 3.79% for the week ended 25th August

The official Wholesale Price Index for 'All Commodities' (Base: 1993-94 = 100) for the week ended 25th August 2007 rose remained unchanged at its previous week level of 213.6 (Provisional).

The annual rate of inflation, calculated on point to point basis, stood at 3.79 percent for the week ended 25/08/2007 (over 26/08/2006 ) as compared to 3.94 percent (Provisional) for the previous week. The annual rate of inflation stood at 5.27 percent as on 26/08/2006 i.e. a year ago. The annual rate of inflation declined due to the larger base of last year.

The index for 'Food Articles' group declined by 0.2 percent to 223.3 (Provisional) from 223.7 (Provisional) for the previous week due to lower prices of maize, fish-marine, wheat and fruits & vegetables (1% each). However, the prices of moong, condiments & spices and eggs (1% each) moved up.

The index for 'Non-Food Articles' group rose by 0.1 percent to 209.9 (Provisional) from 209.7 (Provisional) for the previous week due to higher prices of sunflower (5%) and raw cotton (3%). However, the prices of raw rubber (11%), raw silk (4%), castor seed and soyabean (2% each) and rape & mustard seed, copra and raw jute (1% each) declined.

Central Statistical Organisation revises it inflation figures after two months of releasing the provisional figures. For the week ended 30/06/2007, the final wholesale price index for 'All Commodities’ (Base: 1993-94=100) stood at 212.8 as compared to 212.5 (Provisional) and annual rate of inflation based on final index, calculated on point to point basis, stood at 4.42 percent as compared to 4.27 percent (Provisional) reported earlier.

However, Union Finance Minsiter, Mr. Chidambaram told reporters that outlook on inflation is of caution, given that international crude oil prices have reached 74 dollars per barrel.

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Talent Crunch Hits HR while the role of HR is also transforming

Amid the issue of overall talent crunch in skilled manpower, the real challenge facing before India Inc. - the shoratge of HR professionals. Industry estimates show that for every 50-75 people recruited, one HR job is created. However, comapred to the jobs being created each year, the number of HR professionals seems minuscule.

In 2007 alone, approximately 3,37,000 employees are expected to join the software

and services sector, for which around 4,500 HR professional will be required. However, there are only handful of institutes that offer exclusive courses in HR, of which Tata Institute of Social Sciences(TISS), XLRI and SCMHRD are most popular. These three institutes put together produce approximately 200 students each year. This supply-demand mismatch in the IT sector alone is indicative of the larger picture. Experts say India will require 28,000 competent HR professional next year, but there seems to be little happening on the supply side.

The industry attribute the shortage to mindset issues. Students prefer specialisations in finance and marketing over HR, as Management trainess at the first level in HR get comapred to their counterparts in finance and sales department and the main reason being the lack of recognition.

Another issue is the increased level of attrition in HR. Addressing the issue of ‘Managing Attrition & Aspirations’ at two-day International Management Institute (IMI) HR Summit on August 30, Rachna Bhanot, Head (Strategic HR), IBM Daksh said, “Attrition is the result of lack of alignment of various aspirations of industry, organization and individual. So there is a need for alignment between aspirations of these three stakeholders to get a win-win situation… The role of HR managers is now changing from personnel management to talent management where they manage competency, succession and performance.” The two-day summit was centered on the theme ‘Managing Talent for Global Competitiveness: Issues and Challenges’.

The two day HR Summit also saw an Inter B-School paper competition on the issues of ‘Taking HR from the Backroom to the Boardroom’, ‘Attrition: A Blessing in Disguise?’ and ‘Does the IT/ITeS industry need Unions?’ IMI short-listed the teams for the final round out of 156 entries from different business schools. On the occasion, papers were presented by the teams including the Indian Institute of Management (IIM), Kozikode; Indian School of Business (ISB), Hyderabad; Indian Institute of Foreign Trade (IIFT), Delhi; Institute of Rural Management Anand (IRMA), Gujarat; and International Management Institute (IMI), Delhi.

Sangeeta Sabharwal, CEO of executive search firm, Confiar India, in her address at HR Summit, said that the role of HR professionals was next only to the CEO’s role in importance. Elaborating on HR’s role, Ms Sabharwal said, “Earlier it was finance and marketing that was next to CEO’s role but it’s HR now.” She was of view that the role of HR is now more than only tackling personnel and emotional issues: HR must deal with the much bigger issue of managing talent. “Human capital is increasingly becoming the source of value creation for organizations so it is very important to mange the talent.”

The buzzword ‘Outsourcing in recruitment process’ was another issue that got attention during the panel discussion. While addressing the issue, Mr Amitava Saha, Head (Talent Acquisition) First Source, said, “There is abundant talent but not enough to match up to the increasing number of jobs which leads to Recruitment Process Outsourcing (RPO). Outsourcing is spreading like a virus in India and our country is a preferred destination for RPO.” On the other hand outlining the future of RPO, Mr Rajiv Gupta predicted that, “India will lead the global RPO industry and an Indian RPO provider will be among the top three global RPOs by 2012.”

Closing the session, IMI Director Dr C S Venkata Ratnam in his concluding message highlighted the need to hire and integrate the talent of different skills. He said, “While hiring talent companies face lots of conflicts and to reduce these conflicts companies need to hire people with different skills. So don’t hire the clones. I think the role of a manager is similar to a conductor of an orchestra, where different kind of talents and instruments integrate with perfect harmony to create melodious music.”

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Indian GDP grows at 9.3% during April-June of 2007

Continuing the upswing on the strength of the good showing by manufacturing sector, the economy grew by 9.3 per cent during the April-June quarter of the current financial year, when comapred to 9.6 per cent recorded during comparable period last year. India continues to be the second fastest growing economy after China which grew by 11.5% over the same period. India is now a $1 trillion economy after a growth spurt in the past four years second only to China's hot pace of expansion among major economies.

The highlights of the growth story are

The manufacturing sector grew by 11.9 per cent which is lower than 12.3 per cent recorded during the first quarter of 2006-07.
The services sector too maintained double digit growth, as demand, in particular, for telecommunications services, residential apartments and office space, air travel and financial services continued to rise. Trade, hotels, transport and communication registered a growth rate of 12 per cent. And, maintaining the trend seen in recent years, “trade, hotels, transport and communication” accounted for a fourth of the GDP (26.8%).
Growth in agriculture, forestry and fishing was 3.8 per cent, compared to 2.8% in the same period last year. That notwithstanding, the share of agriculture in the total domestic output continues to decline. Indeed, the value of output of “agriculture, forestry & fishing” declined to 17.7% in the quarter under review, from 18.6% in the corresponding period of 2006-07.
Mining and quarrying sector grew by 3.2 per cent.
Finance, insurance, real estate and business services grew at 11 per cent during the quarter.
The wholesale price index for food articles, fish, minerals, manufactured products, electricity and all commodities has risen by 8 per cent, 3.4 per cent, 13 per cent, 5.7 per cent, 2.4 per cent and 5.4 per cent respectively during the quarter.
The consumer price index for industrial workers rose 6.3 per cent in the quarter.

The forecast for full year remains largely optimistic: finance minister P Chidambaram expects growth in the full year to be 9%, making it third successive year of about 9% growth. His argument being that growth has been driven by domestic consumption and investments. In the coming months, however, economists expect the growth rate to dip a little and close the year around the 9% mark. The Reserve Bank of India, in contrast, is relatively conservative, maintaining that the real GDP growth this fiscal would be 8.5%.

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Corporate India attracts IAS talent pool - a degree from IIT, IIM or ISB an added advantage

This is an article published in The Economic Times on September 02, 2007 regarding the reverse drain of talent from the Government's prestigious service IAS (Indian Administrative Service) to the private corporate sector. The main reason are high disaprity in pay between government and private sectors in recent years, low recognition and inability of the Government to encourage the talent, uniform rules for promotion independent of their ability and skills and last, but not the least, not enough job satisfaction.

In this reagrd, I want to tell my story. I have completed my B.Tech in Electrical Engineering from IIT, Kharagpur in the year 1993, when the IT boom has just started. I got a campus offer in TCS, but I denied the offer and joined as Technical Officer in ECIL (another campus offer) in Hyderabad so that I can prepare for civil services. The salary offered at TCS was around Rs. 8,000 p.m., in ECIL I used to get around Rs. 5,500 p.m. in the year 1994 and when I joined as Assistant Commissioner of Income Tax (ACIT) in the Indian Revenue Service (IRS) in 1997, I used to get around Rs. 8,000 p.m i.e. the parity between the I.T. sector and government salary in late 90s was almost 1:1 or 1:2 at maximum. Now, if you take the reccent salaries of fresh graduates from IITs, they are hovering around Rs. 15 lakhs per year on an average, where as now the entry level salary for an IRS officer is around Rs. 2 lakh per annum, making the ratio at almost 1:15. Now, you see the glaring disparity between the government salary in All India and Central Services, recruited through a rigorous and year long process through Civil Services Examination, conducted by UPSC , followed by interview, attracting the best talent in India.

Indian corporates have started discovering a huge talent pool — the coveted Indian Administrative Service (IAS). In fact, more and more mid-career IAS officers have been abandoning their white ambassador cars to jump into the private sector bandwagon as companies such as Reliance Industries, GMR Group, DLF, McKinsey, PricewaterhouseCoopers (PwC), Infrastructure Development Finance Company(IDFC) etc. are wooing the government babus to handle key projects.

Unlike the earlier recruits, the officers who have recently been hired with fat pay packages of Rs 50 lakh to Rs 3 cr per year, are not assigned mere liaison work with the government, but are asked to carry out difficult project implementation tasks.

What’s more, the officers with IIT and IIM backgrounds, or those with specialised degrees from foreign universities have a clear edge to grab opportunities at the private sector.

Whereas Assam cadre IAS officer O P Agarwal of the 1979 batch joined IDFC in August this year, Dhiraj Mathur, an MP cadre officer, is joining PWC this September. Significantly, Mr Agarwal who served as a joint secretary in urban development ministry till recently, completed his masters in transport from MIT.

Rajkamal, a 1994 batch Chhattisgarh cadre IAS who completed his MBA from Indian School of Business, Hyderabad, resigned from the service to join McKinsey. A Gujarat cadre IAS officer Jayant Parimal recently joined Reliance Industries. A 1986 batch West Bengal cadre Ravi Kant, who holds a degree in civil engineering from IIT Roorkee and masters degree in economics from University of Manchester, UK, joined Ramky Group. He is now the MD of one of the group companies — Ramky Enviro Engineers.

Significantly, the buzz is that many IAS officers who are either on deputation with private companies or on long leave, may quit the services soon, SundayET has learnt. It’s also learnt that Anil Kumar Kutty, a joint secretary in the ministry of power, has received an offer of Rs 1.5 cr per year from a power company. Mr Kutty, who has been on leave for the last two years, could not be contacted. Not all of them need to quit.

Some of them even go to private companies on deputation. A Kerala cadre IAS from 1992 batch Sanjeev Kaushik, who holds an MBA degree from London Business School, has taken leave from the government to work with Lehman Brothers.

Inflation Trends During the Current Fiscal

Based on the statistics provided by the official website of Central Statistical Organisation, I have prepared the following graph indicating the Annual Rate of Inflation based on point-to-point basis or year-on-year basis. For Example, the inflation rate for the week ended 16/06/2007 is calculated by considering the Wholesale Price Index (WPI) for all commodities as on 16/06/2007 (211.90) and corresponding figure a year back i.e. on 17/06/2006 (203.50), by calculating the percentage increase of the WPI over the year at 4.13 percent [(211.90-203.50)/203.50*100] and by rounding off (and not truncating) the result into two decimal points.

If you see the trend in inflation, the rate of inflation has been declining from the beginning of the current fiscal till 16/06/2007, before being range bound between 4 to 4.50 percent, thanks to various credit squeezing measures taken by RBI. The major contributor to inflation is the rise prices of food articles, which hits every common man. Hence, it is all the more important to contain the inflation. With the second real estate boom on the corner, with agriculture becoming unviable due to high prices of land combined with the shoratge of agricultural labour force, with the reducing return on agriculture invetsment and with the rising cost of living, the acreage under vegaetables and fruits is declining in Telgana region of Andhra Pradesh. Similar may be the scenario in all other states. If this continues, there is no surprise that the prices for vegetables, fruits, diary products and other essential agriculture prducts will rise.

The RBI wants to keep the inflation rate below 5 percent during the current fiscal. Its medium term objective is to reduce the inflation to 4-4.50 percent on sustained basis, as per the economic outlook report of the RBI rleased on August 31, 2007. The RBI has raised the Prime Lending Rate (the benchmark lending rate), Cash Reserve Ratio and Reverse Repo Rate (the rate at which the banks lend from RBI for shortage of short term funds) during the current financial year to suck the excess liquidity out of the system as well as to reduce the money supply in the market. It has also cautioned the banks to go slow on their lending spree for high risk areas like real estate and reatil sectors. The press release of RBI's Annual Report 2006-07 says "On the sources side, growth of bank credit remained high, although there was some moderation. Demand for bank credit was largely broad-based with agriculture, industry and personal loans absorbing 14 per cent, 36 per cent and 24 per cent, respectively, of incremental expansion in overall non-food credit during 2006-07. Growth of credit to sectors such as real estate remained high, albeit with some moderation. In order to maintain asset quality, the Reserve Bank further tightened the provisioning requirements in respect of sectors witnessing high growth in credit".

The Government also took various fiscal and supply-side measures to contain inflation during the latter part of 2006-07. These measures taken by the Government and RBI contained inflation to a certain extent. With the Indian economy integrating with world economy, with Indian economy's robust growth attracting foreign inflows, it becomes difficult to contain inflation with the monetary measures alone. We have to effectively manage startegies for supply side managment of inflation by increasing the productivity of our industry, encouraging imports and also transforming to full capital account covertibilty gradually so that our foreign inflows and foreign exchange reserves are utilised properly to control inflation and rupee appreciation.

Inflation declines to 3.94% for the week ended 18th August, 2007

The official Wholesale Price Index for 'All Commodities' (Base: 1993-94 = 100) for the week ended 18th August 2007 rose by 0.1 percent to 213.6 (Provisional) from 213.4 (Provisional) for the previous week.

The annual rate of inflation, calculated on point to point basis, stood at 3.94 percent for the week ended 18/08/2007 (over 19/08/2006 ) as compared to 4.10 percent for the previous week. The annual rate of inflation stood at 5.12 percent as on 19/08/2006 i.e. a year ago. The annual rate of inflation declined due to the larger base of last year. In fact, the index for 'food articles' has increased by 0.9% due to higher prices of fish-inland (5%), masur (2%) and milk, fruits & vegetables, bajra and gram (1% each). The index for manufactured items has declined by 0.1% during the week.

Central Statistical Organisation revises it inflation figures after two months of releasing the provisional figures. For the week ended 23/06/2007, the final wholesale price index for 'All Commodities’ (Base: 1993-94=100) stood at 212.4 as compared to 212.0 (Provisional) and annual rate of inflation based on final index, calculated on point to point basis, stood at 4.32 percent as compared to 4.13 percent (Provisional) reported earlier.

RBI releases Annual Report for 2006-07 & outlook for 2007-08

The RBI has released its Annual Report for the year 2006-07 on 30-08-2007. The highlights of the press release are as under:-

Overall Performance

During 2006-07, the Indian economy exhibited acceleration in growth, led by manufacturing and services sector activities, supported by increase in domestic savings and investment. However this growth was accompanied by inflationary pressures on account of rising capacity utilisation, strong growth in monetary and credit aggregates, demand-supply gaps in domestic production of foodgrains and oilseeds, and firm global commodity prices.
Strong growth in general and of the industrial sector in particular enabled the corporate sector to maintain high profitability. This, in turn, resulted in buoyant tax collections and played a major role in improving public finances.
The growth process was facilitated by financial market conditions, which remained orderly, barring a few episodes of volatility. However, interest rates in various segments of the financial market hardened to some extent.
Strong growth led to a widening of the trade deficit. Nonetheless, the current account deficit, as per cent of GDP, remained unchanged from the previous year since the widening of the merchandise trade deficit was offset to a large extent by the continuing buoyancy in net invisibles surplus.
Large capital flows led by external commercial borrowings and net foreign direct investment (FDI) inflows resulted in large accretion to foreign exchange reserves.
Real GDP growth accelerated from 9.0 per cent during 2005-06 to 9.4 per cent during 2006-07. The growth, thus, averaged 8.6 per cent per annum during the four-year period ended 2006-07. Real GDP growth during the Tenth Five Year Plan period averaged 7.6 per cent per annum, the highest in any Plan period. Acceleration in the growth rate during 2006-07 was attributable to buoyancy in the industrial and services sectors, which exhibited double-digit growth (11.0 per cent each). Higher growth in the industry and services sectors more than offset the deceleration in the agricultural sector. Growth in the agricultural sector decelerated from 6.0 per cent in 2005-06 to 2.7 per cent in 2006-07, partly on account of uneven rainfall during the South-West monsoon and partly due to the base effect.

Monetary Developments

Money supply (M3) increased by 21.3 per cent (Rs. 5,80,733 crore) during 2006-07 as compared with 17.0 per cent (Rs. 3,96,878 crore) during 2005-06. Amongst the major components, time deposits exhibited a growth of 23.2 per cent (Rs. 4,41,913 crore) during 2006-07 as compared with 15.3 per cent (Rs. 2,53,056 crore) during 2005-06. Higher growth in time deposits could be attributed to factors such as higher interest rates on bank deposits and availability of tax benefits under Section 80C for bank deposits.
On the sources side, growth of bank credit remained high, although there was some moderation. Demand for bank credit was largely broad-based with agriculture, industry and personal loans absorbing 14 per cent, 36 per cent and 24 per cent, respectively, of incremental expansion in overall non-food credit during 2006-07. Growth of credit to sectors such as real estate remained high, albeit with some moderation. In order to maintain asset quality, the Reserve Bank further tightened the provisioning requirements in respect of sectors witnessing high growth in credit.
Banks’ SLR investments, as a proportion of their net demand and time liabilities (NDTL), declined further to 28.0 per cent by end-March 2007 (close to the prescribed ratio of 25 per cent) as the expansion in investments did not keep pace with the expansion in the NDTL.
Net foreign assets remained the key driver of reserve money and the Reserve Bank continued to modulate market liquidity through operations under the liquidity adjustment facility (LAF), issuance of securities under the market stabilisation scheme (MSS) and use of the cash reserve ratio (CRR).
Headline inflation firmed up from 4.0 per cent, y-o-y, on April 1, 2006 to 5.9 per cent on March 31, 2007 with an intra-year high of 6.7 per cent on January 27, 2007 and a low of 3.7 per cent on April 15, 2006. Both demand and supply side factors added to inflationary pressures during 2006-07. Demand pressures emanated from both high investment and consumption demand, strong growth in credit and monetary aggregates, and elevated asset prices. Supply side pressures emerged from demand-supply gaps in domestic production of major foodgrains and oilseeds amidst rising global prices. Although there was some improvement in domestic agricultural production during 2006-07, the production of major foodgrains has exhibited stagnation over the past few years. For instance, the production of rice, wheat and pulses during 2006-07 was still lower than the previous peaks touched during 2001-02, 1999-2000 and 1998-99, respectively. Consumer price inflation rose from 4.9-5.3 per cent in March 2006 to 6.7-9.5 per cent in March 2007, mainly reflecting the impact of higher food prices. In order to contain inflation and to stabilise inflationary expectations, the Reserve Bank persevered with the policy of pre-emptive actions and gradual withdrawal of monetary accommodation, using various instruments at its disposal flexibly. Between the second half of 2004 and July 31, 2007, the repo and the reverse repo rates were increased by 175 basis points and 150 basis points, respectively. In addition, the cash reserve ratio was raised by 250 basis points (including the increase of 50 basis points effective August 4, 2007). The Government also took various fiscal and supply-side measures to contain inflation during the latter part of 2006-07.

Balance of Payments

India’s balance of payments in 2006-07 reflected a number of positive features. Merchandise trade continued to exhibit robust growth during 2006-07, although there was some loss of pace from the strong growth of 2005-06.
Net capital inflows to India remained buoyant (4.9 per cent of GDP), far exceeding the current account deficit. Higher capital flows could be attributed to the strengthening of macroeconomic fundamentals, greater investor confidence and ample global liquidity.
Net FDI inflows from abroad of US $ 19.4 billion exceeded FII inflows (net) during 2006-07 aggregating US $ 3.2 billion.
The debt flows (net) at US $ 25.0 billion were led by external commercial borrowings reflecting strong investment demand. Net capital flows, after financing the current account deficit, led to accretion of US $ 36.6 billion, excluding valuation changes, to foreign exchange reserves during 2006-07.

Financial Markets

Financial markets remained orderly during 2006-07, barring some episodes of volatility, especially during the second half of March 2007. Capital inflows and movements in Government cash balances continued to be the key drivers of liquidity conditions and overnight interest rates.
Interest rates in the various market segments hardened during the year, broadly in tandem with the pre-emptive monetary tightening measures taken by the Reserve Bank.
By and large, the exchange rate of the Indian rupee exhibited two-way movement with respect to the main reserve currencies during 2006-07.
The stock market remained buoyant with the benchmark indices reaching record highs during 2006-07 amidst intermittent corrections. The primary segment of the capital market exhibited buoyant conditions.

Outlook for 2007-08

Available information so far indicates continuation of the growth momentum during 2007-08 at a strong pace with the impulses of growth getting more broad-based. Steady increases in the rate of gross domestic saving and investment, consumption demand, addition of new capacity as well as more intensive and efficient utilisation/capitalisation of existing capacity are expected to provide support to growth during 2007-08. For monetary policy purposes, the Reserve Bank, in its Annual Policy Statement (April 2007), placed the real GDP growth for 2007-08 at around 8.5 per cent, assuming no further escalation in international crude prices and barring domestic or external shocks. The Reserve Bank in its First Quarter Review of the Annual Statement of Monetary Policy in July 2007 retained its projection of real GDP growth at around 8.5 per cent, barring domestic and external shocks
In view of the lagged and cumulative effects of monetary policy on aggregate demand and assuming that supply management would be conducive, capital flows would be managed actively and in the absence of shocks emanating in the domestic or global economy, the Reserve Bank in its Annual Policy Statement noted that the policy endeavour would be to contain inflation close to 5.0 per cent in 2007-08. . Assuming that aggregate supply management will continue to receive public policy attention and that a more active management of the capital account will be demonstrated, the outlook for inflation in 2007-08 in the First Quarter Review remained unchanged. Accordingly, it was indicated in the Review that holding headline inflation within 5.0 per cent in 2007-08 assumed priority in the policy hierarchy; while reinforcing the medium-term objective to condition policy and perceptions to reduce inflation to 4.0-4.5 per cent on a sustained basis.

Monetary Management

Expansion of money supply (y-o-y) as on August 3, 2007 was higher (21.7 per cent) than a year ago (19.3 per cent) and also higher than the indicative projection of 17.0-17.5 per cent set out in the Annual Policy Statement. Growth in aggregate deposits accelerated, led by time deposits. Bank credit witnessed some moderation from the strong pace of the preceding three years. Growth of non-food credit of scheduled commercial banks was 23.6 per cent, y-o-y, as on August 3, 2007 as compared with 32.5 per cent a year ago. Commercial banks’ investments in SLR securities, as per cent of their net demand and time liabilities, at 28.6 per cent were marginally higher than those at end-March 2007, but below those of 31.1 per cent a year ago. Growth of reserve money as on August 10, 2007 at 26.9 per cent (19.6 per cent adjusted for the first round impact of the increase in the CRR) was higher than a year ago (17.2 per cent), mainly on account of accretion to the Reserve Bank’s net foreign assets.
Headline inflation, based on movements in the wholesale price index (WPI), moderated to 4.1 per cent, y-o-y, on August 11, 2007 from 5.9 per cent at end-March 2007 and 5.1 per cent a year ago. Inflation for all the three sub-groups of the WPI eased from their end-March levels. However, consumer price inflation continued to exceed wholesale price inflation mainly on account of higher food prices. Although inflation has eased since end-March 2007, inflationary pressures could potentially persist for several reasons. There are concerns regarding further hardening of international commodity prices, in particular, oil prices. Moreover, the possibility of inflationary pressures from domestic factors such as strong growth in monetary aggregates, elevated asset prices and large capital flows with implications for domestic liquidity conditions need to be recognised. Accordingly, a continuous vigil supported by appropriate policy actions by all concerned would be needed to maintain price stability so as to anchor inflationary expectations on a sustained basis.
The likely evolution of macroeconomic and financial conditions indicates an environment supportive of sustaining the current growth momentum in India. The domestic outlook continues to be favourable and would dominate the dynamic setting of monetary policy in the period ahead.
Increases in global food prices reflected a shortfall in global production and the rising demand for non-food uses such as bio-fuels. Reflecting the sustained uptrend in major food prices, the food price index (compiled by the IMF) reached a 26-year high in June 2007 - the highest since early 1981.

Decling Growth in Agricultural Sector

Against the backdrop of the hardening trends in global food prices, there is an urgent need to take measures to accelerate the growth in Indian agriculture, especially food crops. Although the share of agriculture in overall GDP declined over the years from around 40 per cent in 1980-81 to below a fifth in 2006-07, it continues to play an important role in the Indian economy. Since the mid-1990s, however, the growth of the agricultural sector decelerated from an annual average of 4.7 per cent per annum during the 1980s to 3.1 per cent during the 1990s and further to 2.2 per cent during the Tenth Plan period.
The reduction in agricultural growth since the mid-1990s could be attributed to stagnant/declining yields, which, in turn, reflect a variety of factors such as declining investment, lack of proper irrigation facilities, inadequate other infrastructural facilities, inadequate attention to R&D for developing high yielding varieties of seeds, absence of major technological breakthroughs, improper use of fertilisers/nutrients and institutional weaknesses. In view of stagnation in the production of major foodgrains, there may be a need to refocus production efforts in alternative potential areas with suitable agro-climatic conditions, rather than the traditional areas, particularly in the case of rice and wheat.
As Indian agriculture continues to be heavily dependent on the monsoon, the need for enhancing the irrigation potential to meet the growing water requirements of farmers and to impart stability to agricultural production and yield assumes greater emphasis. More focus needs to be placed on agricultural research in the coming years as the success so far has been restricted to select crops. A growing disparity between the actual and the potential yields points to a crucial gap between research and extension. There is an urgent need to revive the extension system so that it is able to respond to the emerging demands of renewed agricultural growth.
In order to bring marketing reforms, there is a need to take forward the process of implementing Agricultural Produce Marketing Committee (APMC) Act in all the States. There is also a need to have an appropriate legislative framework that is conducive to participatory organisations. In view of significant weather and price risks, appropriate risk mitigation policies would need to be put in place to provide relief to distressed farmers as well as enhance efficiency of production.
While agricultural growth is envisaged at four per cent per annum during the Eleventh Plan, the Planning Commission’s projections suggest that the production of foodgrains needs to increase by 2-2.5 per cent per annum. The production of non-foodgrains will, thus, have to expand at a much higher rate to achieve the overall target of four per cent which will necessitate substantial development of activities such as horticulture, dairy, poultry, and fishery. This would require a revolution on the lines of the green revolution of the 1970s.
Inclusive growth calls for greater financial inclusion with, inter alia, enhanced and easy access to institutional credit. The programme for financial inclusion initiated by the Reserve Bank in collaboration with banks and several State Governments by adopting modern technology needs to be intensified and expanded urgently. In view of small and fragmented farm holdings, the population dependent upon agricultural activity and incomes will have to increasingly rely on non-farm sources of income in future. Thus, diversification towards activities such as poultry, food processing and other rural industries will be critical for the betterment of living standards in rural areas.
While there has been rapid integration of the Indian economy with the global economy since the early 1990s, the pace of progress on intra-regional integration within the country needs to be quickened to enable the rural areas to reap the benefits of higher growth.

Industry and Infrastructure

The rebound in industrial production that started during 2002-03 continued during 2006-07 resulting from increased domestic and external demand. Modernisation of the capital stock, reduction/rationalisation of import tariffs and other taxes, increased openness of the economy, higher foreign direct investment inflows, greater competitive pressures, increased investment in information and communication technology and greater financial deepening are contributing to productivity gains in industry.
The manufacturing sector has recorded robust growth, despite several infrastructure deficiencies. It is imperative to augment the existing infrastructure facilities, particularly roads, ports and power, to provide the enabling environment for industry to prosper.
There has been mixed progress in the infrastructure sector so far. The telecom sector has witnessed high growth as reflected in the accelerated spread of mobile telephony in the country. Railways and ports have also witnessed some improvement. However, progress remains less than adequate in other sectors such as power, coal, water, roads, urban infrastructure and rural infrastructure.
Urban infrastructure is a vital element in the growth process. Studies show that increase in the size of urban agglomerations is associated with large productivity gains. These gains emanate from the proximity to the product as well as labour markets, which provide savings in trade and transport costs on the one hand and the availability of skilled labour on the other. Efficient functioning of cities of all sizes is essential for improving the overall efficiency. Improvements in the provision of water, transport, sanitation, health and education facilities in urban areas are also essential for the welfare of the poor.
The High Level Committee on Infrastructure headed by the Prime Minister has estimated that an investment of Rs.14,50,000 crore during the Eleventh Plan would be required to develop world class infrastructure. This would require a substantial increase in spending on infrastructure by both the public and privates sectors from the current levels of 4.6 per cent of GDP to almost 8 per cent of GDP every year.

Services

The sustained strength of manufacturing activity, strong growth in tourism, improvements in the telecommunications, buoyancy in IT and BPO sectors, robust growth of the construction sector, acceleration in deposit and credit growth and opening up of the insurance sector have buoyed the services sector in recent years.
The impressive performance of the services sector was attributable largely to the availability of skilled and cheap labour. However, the sustained acceleration in the services and the manufacturing activities is leading to incipient pressures on the supply of good quality skilled labour. While its demographic profile places the country favourably in terms of manpower availability, there are reports of emerging talent supply shortages. In order to reap the benefits of the demographic dividend, substantial expansion and reforms in the education sector would be needed on an urgent basis.

Fiscal Policy

The process of fiscal consolidation in Central Government finances under the rule-based framework of the FRBM has been characterised by front-loaded reduction in deficit indicators in 2004-05, pause in 2005-06 and resumption of the process in 2006-07.
The fiscal correction process is budgeted to continue during 2007-08. With the gross fiscal deficit budgeted at 3.3 per cent of GDP in 2007-08, the FRBM target of 3.0 per cent by 2008-09 appears feasible. The revenue deficit is budgeted at 1.5 per cent of GDP for 2007-08; the FRBM path envisages elimination of revenue deficit in 2008-09.
Adherence to the FRBM target would require a reduction of 1.5 per cent in the revenue deficit/GDP ratio during 2008-09.
Maintaining the current buoyancy in tax revenues over a higher base needs to be continued with sustained effort in the light of high income growth. The scope for deepening fiscal empowerment further through improved tax revenues lies in maintaining a moderate structure of tax rates and broadening the base without affecting the growth momentum of the economy.
The Government’s policy of reprioritising expenditure has led to higher outlays for the social sector. The shares of public expenditure on education and health in India are, however, still low by international standards. Reprioritisation of expenditures towards social sectors along with higher capital outlays would promote fiscal discipline without restricting operational efficiency of the Government. Higher public spending on social services would improve the social infrastructure and provide productivity gains.

External Sector

India’s linkages with the global economy are getting stronger, underpinned by the growing openness of the economy and the two way movement in financial flows. The ratio of merchandise exports to GDP has been rising since the early 1990s reflecting growing international competitiveness. At the same time, import intensity has been rising steadily as domestic entities have expanded access to internationally available raw material and intermediate goods as well as quality inputs for providing the cutting edge to domestic production and export capabilities.
Structural shifts in services exports, led by software and other business services, and remittances have imparted stability and strength to India’s balance of payments. The net invisible surplus has offset a significant part of the expanding trade deficit and helped to contain the current account deficit to an average of one per cent of GDP since the early 1990s.
Capital flows (net) have remained substantially above the current account deficit and have implications for the conduct of monetary policy and macroeconomic and financial stability. Like India, several other countries are facing a similar situation of excess foreign exchange inflows which is affecting monetary management in these countries as well. However, monetary management at the current juncture in India is more complex than in other EMEs for several reasons. First, domestic interest rates are higher than the return on foreign exchange reserves, which leads to quasi-fiscal costs. Second, although the fiscal deficit and public debt have declined in recent years in India, by international standards, they still remain high. This restricts the flexibility available to fiscal policy to keep inflation relatively low. Third, in India, the real sector has been liberalised over the years which constrains the ability to take administrative measures with regard to supply management. At the same time, several policy rigidities persist, inhibiting the rapid and flexible adjustments that are needed by the demands of a well-functioning market economy.
Further, in India, the banking system has been gradually deregulated and the conduct of monetary policy is largely through the use of market-based instruments. This restricts the ability to use administrative instruments such as prescribing deposit and lending rates, which some other countries may be able to use. Moreover, some countries are managing capital account more actively than before.
Finally, it is also necessary to recognise that India is one of the few emerging market economies (EMEs) to record current account deficits, along with a significantly high trade deficit.There has been a significant liberalisation of the policy framework with regard to capital outflows over the past few years. The policy regime for capital outflows is designed keeping the specific country context in view, especially characteristics of the real sector, and not merely the contextual level of inflows and extant absorptive capacity of the economy.
First, the current regime of outflows in India is characterised by liberal but not incentivised framework for corporates to invest in the real economy outside India, including through the acquisition route. The regime has served the country well since Indian corporates are increasingly able to establish synergies with overseas units; to make up for lack of scale that has been a legacy problem in India, and to quickly acquire domain knowledge through acquisition.
Second, significant liberalisation of outflows by individual households has been implemented following recommendation of the Committee on Fuller Capital Account Convertibility (Chairman: Shri S. S. Tarapore, 2006). However, the international experience shows that resident individuals often precede overseas investors in initiating outflows when the perceptions in regard to domestic economy’s performance or stability appear to turn adverse. Further, more favourable tax treatment, if any, on investments from foreign destinations relative to domestic investments provides a compelling incentive for round tripping.
Third, as regards the regime for outflows through financial intermediaries, the approach is characterised by caution and quantitative stipulations whereby both prudential considerations and compulsions of management of capital account are relevant.

Financial Sector

During 2006-07, the Reserve Bank continued to fine tune the regulatory and supervisory initiatives. In order to ensure asset quality, prudential measures were further tightened through increases in the provisioning requirements and risk weights in respect of specific sectors.
The focus of the various prudential and supervisory measures was on anchoring financial stability while providing flexibility to the financial system. In order to further strengthen the domestic banking sector and to conform the banking sector with international best practices, commercial banks will migrate to Basel II norms in a phased manner from the year ending March 2008. Although implementation of Basel II poses a significant challenge to both banks and the regulators, it also offers two major opportunities to banks, viz., refinement of risk management systems and improvement in capital efficiency.

Monetary Policy

In view of the incipient inflationary pressures, the stance of monetary policy progressively shifted from an equal emphasis on price stability along with growth (October 2004/April 2005) to one of reinforcing price stability with immediate monetary measures and to take recourse to all possible measures promptly in response to evolving circumstances (January 2007). Concomitantly, the Reserve Bank has taken pre-emptive monetary measures beginning mid-2004 to contain inflation and inflationary expectations.
The major policy challenge for monetary policy during the recent period has been to manage the transition to a higher growth path while containing inflationary pressures so that potential output and productivity are firmly entrenched to sustain growth. Monetary measures, supported by supply side and fiscal measures, have helped in containing inflation and anchoring inflation expectations while supporting the growth momentum.
The Reserve Bank’s self-imposed medium-term ceiling on inflation at 5.0 per cent has had a salutary effect on inflation expectations and the socially tolerable rate of inflation has come down. In recognition of India’s evolving integration with the global economy and societal preferences in this regard, the resolve, going forward, would be to condition policy and expectations for inflation in the range of 4.0–4.5 per cent. This would help in maintaining self-accelerating growth over the medium-term, keeping in view the desirability of inflation at around 3 per cent to ensure India’s smooth global integration.
The conduct of monetary policy has turned out to be more complex in recent years for a variety of reasons. Globalisation has brought in its train considerable fuzziness in reading underlying macroeconomic and financial developments, obscuring signals from financial prices and clouding the monetary authority’s gauge of the performance of the real economy. There is considerable difficulty faced by monetary authorities across the world in detecting and measuring inflation, especially inflation expectations. The operation of monetary policy in India is also constrained by some uncertainties in the transmission of policy signals to the economy.
Monetary policy in India has also to contend with the burden of challenges emanating from other sectors. First, fiscal imbalances remain large by international standards and have to be managed in a non-disruptive manner. Second, the enduring strength of foreign exchange inflows complicates the conduct of monetary policy. Third, in India, levels of livelihood of a large section of the population are inadequate to withstand sharp financial fluctuations which impact real activity. Accordingly, monetary policy has also to take into account the effect on these segments of the economy of volatility in financial markets, often related to sudden shifts in capital flows. Fourth, limitations on the elasticity of aggregate supply domestically impose an additional burden on monetary policy, particularly in the short term. While open trade has expanded the supply potential of several economies, it does not seem to have had any significant short-term salutary effect on supply elasticities.
Persisting supply shocks to prices of commodities and services to which headline inflation is sensitive can exert a lasting impact on inflation expectations. Faced with longer term structural bottlenecks also in supply, with less than adequate assurance of timely, convincing and demonstrated resolution, monetary policy has to respond appropriately. The burden and the dilemmas, in fact, are greater in the event of a structural supply problem on account of its persistent effects on inflation. Managing structural change, while keeping inflation low and stable, without dampening the growth momentum is the quintessential challenge to monetary policy in the period ahead.

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