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.

Related Reports:-

• Press Release - Annual Report 2006-07 - August 30, 2007
• Annual Report 2006-07 - Summary - August 30, 2007
• Complete Annual Report 2006-07 - August 30, 2007

Related Articles:-

• Subprime woes not over yet: RBI - Business Standard - August 31, 2007
• RBI wary of subprime, upbeat on growth - The Economic Times - August 31, 2007
• To fund credit growth, banks must widen base - The Economic Times - August 31, 2007
• RBI remains bullish on economy - Indian Express - August 31, 2007
• Big forex inflows giving jitters - Business Standard - August 31, 2007
• Growth momentum to continue in FY07-08: RBI - The Economic Times - August 30, 2007
• Growth on track but prices may hurt again: RBI - Hindustan Times - August 30, 2007
• Further defaults in US credit market threat to India: RBI - The Hindu - August 30, 2007
• RBI says inflationary concerns persist - Reuters - August 30, 2007

ISB plans big for social ventures

This is an article published in The Economic Times on 30 Aug 2007.

Social entrepreneurship is the latest buzzword on business school campuses world over. Top institutes like Harvard Business School, Stanford-GSB, Oxford University's Said Business School and New York University's Stern School of Business are sharpening their focus on ventures that make a difference to societies and communities. And now the Hyderabad-based Indian School of Business (ISB) is all set to spawn entrepreneurs to address that segment of the population.

The school has just signed an MoU with Cornell University to set up a BOP (Bottom of the Pyramid) Lab within the precincts of ISB's Wadhwani Centre for Entrepreneurship. From Cornell's side the centre is being handled by Stuart Hart, the person credited with generating the idea of BOP along with C K Prahalad. The Wadhwani Centre has already incubated several business ventures since its inception in 2001. But with the BOP Lab ISB wants to set its sights on problems faced by a developing country.

Says ISB deputy dean Ajit Rangnekar, "People usually view problems from the point of view of charity but that is not sustainable in the long run. We want to support ventures that meet social objectives and are also self-sustaining.'' What this means is simple: solve a problem and also generate revenues that can be ploughed back into the business.

Take the Jaipur Foot, which is a great concept but there are limits to how far it can go based on its current business model. "As demand for the Jaipur Foot rises, it needs more donors. A better idea would be to take the Jaipur Foot abroad,'' says Rangnekar, whose school has worked on a plan to create a company to expand the footprint of the Jaipur Foot.

The idea of the BOP Lab is simple: take up issues that concern rural India--such as drinking water, clean energy and housing--and set up companies that solve them. "We have already got an enthusiastic response from companies to contribute capital to fund these ventures. But we'll manage the funds ourselves,'' says Rangnekar.

ISB has approached global and Indian firms to generate initial funding for the centre. It needs at least Rs 1-2 crore. They plan to announce the funding by September-October. "In three years, we aim to make the centre self-sustaining,'' says Rangnekar.

In India every one in five owns a phone

The total number of telephone subscribers has reached 232.87 million at the end of July 2007 as compared to 225.01 million in June 2007. The overall tele-density has increased to 20.52 in July 2007 as compared to 19.86 in June 2007.

In the wireless segment, 8.06 million subscribers have been added in July 2007 while 7.34 million subscribers were added in June 2007. The total wireless subscribers (GSM, CDMA & WLL (F)) base is 192.98 million now. The wireline segment subscriber base stood at 39.89 million with a decline of 0.20 million in July 2007.

Total broadband connections in the country have reached 2.47 million by the end of July, with an addition of 50 thousand links. In July, the GSM subscriber base grew from 135.9 million in June to 141.74 million. This translates into an overall growth of 4.23% over the previous month when the addition was was 5.3 million. The country's top mobile operator, Bharti Airtel, captured 31.58% share of the market. It added 2 million new users and its subscriber base touched 44.76 million.Vodafone Essar added 1.68 million new users to take its user base to 32.43 million to retain the second slot, while state-run BSNL, which is struggling with capacity expansion, added just 0.55 million new users to remain at the third slot with a user base of 28.97 million.

Complete Report:- TRAI's Press Release Dated 24-08-2007

Key Dates for Admissions for the Class of 2009

Admissions Calendar - For Indian Passport Holders

Key Dates for Admissions Academic Year 2008-2009

Admissions Calendar -For Non-Indian Passport Holders

For all international applicants, the rolling application process begins on July 1, 2007 and goes on till Jan 31, 2008. The applicant will be interviewed within one month of the application submission date and will be informed about the decision two weeks from the date of the interview. International candidates may need additional time to arrange for their visas, housing, and financial aid, and to work on their English proficiency, hence they are encouraged to apply early.

For any further information or assistance please mail the admission section of ISB at admissions@isb.edu

ISB Admission Information Sessions - Part 2

The ISB conducts Information Sessions to reach out to all prospective students. The agenda for each session includes:

• A short film on the ISB (10 mins)
• A presentation on Admissions (50 mins)
• Question and Answer session (60 mins)

Information Session Schedule

India Locations

City: Ernakulam
Hotel: Taj Residency
Date: September 1, 2007
Timings: 5.00 pm - 7.00 pm

Registration: Register

City: Goa
Hotel: Park Plaza
Date: September 9, 2007
Timings: 3.00 pm- 5.00 pm

Registration: Register

International Locations

The ISB admissions team travels with the World MBA Tour and other educational fairs throughout the world. This is a unique opportunity for you to meet representatives of the ISB and discuss your future education and career goals. This year the ISB will not be participating in the WMBA US/Canada tours.You may visit http://www.topmba.com/ to register for the event.
International Tour Schedule

Country : UK
City: London
Day: Saturday
Date: Oct 13, 2007

Admission Information Sessions on Campus

The best way to explore what the ISB has to offer to its students is to visit ISB's sprawling campus on the outskirts of Hyderabad, for an On-Campus Information Session. At these sessions you can learn more about the ISB and about admissions into its Post Graduate Programme in Management (PGP) in particular. You will also get the chance to interact one-on-one with ISB's Admissions Staff and the Class of 2008.

The agenda for each session includes:

• Campus Tour (30 mins)
• A short film on the ISB (7 mins)
• A presentation on Admissions (30 mins)
• Question and Answer session (30- 45 mins)

You are welcome to bring your family/spouse/friends to the information session. However, INR 100 per person should be remitted as registration fee.

Schedule

September 21, 2007 3:00 pm- 5:00 pm Register
October 5, 2007 3:00 pm- 5:00 pm Register
October 26, 2007 3:00 pm- 5:00 pm Register

Class Attendance

Within the limits of class space and schedules, you may also get an opportunity to attend a lecture and experience first-hand the benefits of learning from some of the world’s leading management faculty. Classes are typically scheduled between Monday and Thursday. Please send in your request to attend a class to admissions@isb.edu and the Admissions team will get back to you at the earliest.

Disclaimer:- The above dates are taken from the website of ISB. Please check the dates from the website bfore registering for any excutive education programme.

IBM Consumer Survey Shows Decline of TV as Primary Media Device

A new IBM online survey of consumer digital media and entertainment habits shows audiences are more in control than ever and increasingly savvy about filtering marketing messages.

Survey Methodology and Demographics

Conducted from mid-April through mid-June 2007 by the IBM Institute for Business Value, the Internet survey was split 64 percent female and 36 percent male. It proportionately reached demographic groups 18 years and over with approximately 45 percent surveyed between the ages of 18-34, 25 percent surveyed between ages of 35-44, and 30 percent surveyed age 45 and over. The questionnaire covered 38 questions and generated 885 respondents in the US, 559 respondents in the U.K., 338 respondents in Germany, 263 respondents in Australia and 378 respondents in Japan. Respondents reported a range of household salary levels, though the vast majority was under US $100,000.

The IBM Institute for Business Value survey of more than 2,400 households in the United States, United Kingdom, Germany, Japan and Australia covered global usage and adoption of new multimedia devices and media and entertainment consumption on PCs, mobile phones, portable media players and more.

The main findings of the survey

• Globally, personal Internet time rivals TV time. Among consumer respondents, 19 percent stated spending six hours or more per day on personal Internet usage, versus nine percent of respondents who reported the same levels of TV viewing. 66 percent reported viewing between one to four hours of TV per day, versus 60 percent who reported the same levels of personal Internet usage.
• Consumers are seeking consolidated, trustworthy content, recognition and community when it comes to mobile and Internet entertainment. Armed with PC, mobile and interactive content and tools, consumers are vying for control of attention, content and creativity. Despite natural lags among marketers, advertising revenues will follow consumers' habits.
• To effectively respond to this power shift, IBM sees advertising agencies going beyond traditional creative roles to become brokers of consumer insights; cable companies evolving to home media portals; and broadcasters and publishers racing toward new media formats. Marketers in turn are being forced to experiment and make advertising more compelling, or risk being ignored.
• "Consumers are demonstrating their desire for both wired and wireless access to content: an average of 81 percent of consumers surveyed globally indicated they've watched or want to watch PC video, and an average of 42 percent indicated they've watched or want to watch mobile video," said Bill Battino, Communications Sector managing partner, IBM Global Business Services.
• The steady growth of consumer adoption of digital music, video, and other entertainment services -- though markets are still small by comparison to traditional media -- show households are no longer "one size fits all," and content providers and marketers must follow suit. 23 percent of respondents reported using a portable music service (e.g., iTunes); seven percent reported having a video content subscription for their mobile phones; 11 percent reported a PC-based music service; and 18 percent reported an online newspaper subscription.
• Saul Berman, IBM Media & Entertainment Strategy and Change practice leader, said, "The Internet is becoming consumers' primary entertainment source. The TV is increasingly taking a back seat to the cell phone and the personal computer among consumers age 18 to 34. Just as the 'Kool Kids' and 'Gadgetiers'(1) have replaced traditional land-lines with mobile communications, cable and satellite TV subscriptions risk a similar fate of being replaced as the primary source of content access."
• Television Viewing Shifts - In the largest digital video recorder market, 24 percent of U.S. respondents reported owning a DVR in their home and watching at least 50 percent of television programming on replay. Surprisingly, 33 percent in the U.S. reported watching more television content than before the DVR. More than twice as many U.K. consumers surveyed use video on demand services than own a DVR, and less than a third of U.K. consumers have changed their overall TV consumption as a result of DVR ownership. In Australia, despite owning a DVR, most respondents prefer live television or replay less than 25 percent of their programming.
• Online Content Trends - Consumers are increasingly contributing to online video or social networking sites: nine percent of German and seven percent of U.S. respondents claim to have contributed to a user-generated content site; 26 percent of U.S. respondents reported contributing to a social networking site. While the numbers were slightly less from other countries like the UK (20 percent) and Japan (9 percent), they are also significant. Australia topped all countries surveyed with 36 percent contributing to social networking sites and nine percent contributing to video content sites. Of those who contributed content, an average of 58 percent worldwide did so for recognition and community, not monetary gain.
• Mobile Content Trends - In the UK, nearly a third of users who watch mobile TV reduced their standard TV set viewing patterns as a result of new mobile device services. 18 percent said they reduced "normal" television by a little and another eight percent reduced "normal" television by a lot; four percent substituted television on their regular TV with their new device altogether. For respondents in Germany who had watched mobile video, 23 percent prefer to view user generated content, and 21 percent prefer video trailers or promotions.

As part of its ongoing consumer research efforts, IBM is making the full survey results available for free download at: www.ibm.com/media/adsurvey07 .

The IBM Institute for Business Value

The Institute provides strategic insights and recommendations that address critical business challenges to help clients capitalize on new opportunities. The Institute is comprised of consultants around the world who conduct research and analysis in 17 industries and across five functional disciplines, including human capital management, financial management, corporate strategy, supply chain management and customer relationship management. IBM has a strong global focus on the media and entertainment industry across all of its services and products, serving all the major industry segments -- entertainment, publishing, information providers, media networks and advertising. For more information on IBM, please visit: http://www.ibm.com/

Source: The wesite of IBM

• Video of the interviews is available at: www.youtube.com/watch?v=TSx2llVmD-8.
• Broadcast-quality video is available for download by journalists at www.thenewsmarket.com/ibm.

Inflation rises to 4.10% for the week ended 11th August, 2007

The official Wholesale Price Index for 'All Commodities' for the week ended 11th August 2007 rose by 0.1 percent to 213.4 from 213.1 for the previous week.

The annual rate of inflation, calculated on point to point basis, stood at 4.10 percent for the week ended 11/08/2007 (over 12/08/2006 ) as compared to 4.05 percent for the previous week. The annual rate of inflation stood at 5.07 percent for the corresponding period of last year.

The increased inflation is due to higher prices of fruits & vegetables (4%), bajra (3%), masur (2%) and gram (1%). However, the prices of moong (5%), mutton (4%), eggs (2%) and urad (1%) declined.

Inflation eases to 4.05% for the week ended 4th August, 2007

India's inflation slowed faster than expected in the first week of August as the prices of fruits, vegetables and other foods eased. The annual rate of inflation stood at 4.05 percent for the week ended Aug. 4, the lowest since the week ended June 16, compared with 4.45 percent the previous week. Analysts had estimated inflation at 4.3 percent. On year-to-year basis, wholesale prices-based inflation dropped by over one percent as it had stood at 5.08 percent during the corresponding period of the previous fiscal.

Food prices declined as flood waters receded in the north, east and northeast. These areas were swamped in annual monsoon flooding that caused an unexpected spiral in food prices in the last week of July. The Reserve Bank of India may keep borrowing costs unchanged as inflation was below its 5 percent target for the ninth week.

The index of food articles declined 0.7 percent, led by a 6.5 percent fall in the index of vegetables and a 4.8 percent drop for the benchmark for fruits and vegetables, according to the report. Poultry and meat prices fell 0.5 percent in the week.

The revised estimates by CSO say that the inflation rate for the week ended June 9 was unchanged at 4.28 percent. The government revises the inflation rate after a delay of two months on additional price data.

Inflation was hovering between 4.0 percent and 4.50 percent for the past two months, with the lowest figure at 4.03 percent during the week ended June 16. The wholesale price index, on which inflation is based, declined by 0.1 percent to 213.1 points during the week under review from 213.4 percent in the previous week, the data showed. The Reserve Bank of India (RBI), has already increased the cash reserve ratio (CRR) for the commercial banks from 6.50 per cent to 7.0 percent aiming to curb inflationary pressures on economy through withdrawing excess liquidity from the banking system.

Strong rupee may shave off USD 30 bn in Indian exports

By now, it's well known that India's software industry has been hit by the rising rupee and the problem will only rise if the currency maintains its upward climb against the dollar. But what was probably not known is that IT would be the biggest loser while other sectors, which have been crying foul due to cheaper greenbacks, might see a smaller dent, thanks to lower dependence on imported raw material and clients.

A study commissioned by commerce ministry has revealed that even if exports grow 20 percent this year, the appreciation of the currency from Rs 44 to a dollar to Rs 40.50 is expected to result in a Rs 53,000 crore or USD 13 billion loss. After IT, the rupee appreciation will have the biggest impact on the profitability of meat, spices and textiles exporters followed by leather and gems and jewellery. Pharma, plantations and construction sector are expected to have a moderate impact, while engineering goods and chemicals may not be affected much.

The study said rupee appreciation has rendered 11,000 people employed in textiles and garment firms jobless during March-June this year, while another 1,900 were unemployed in the leather sector. But overall, exports are going to result in net addition of jobs, though there would be sectors with lower exports which see lower employment numbers. And, if the currency continues to rise against the dollar - which accounts for 70 percent of the export invoices - the unemployment problem will accentuate. What's more, surveys conducted for the study have revealed that there has been considerable loss of business across sectors with those that depend more on imports for their raw material needs, hit the most. So, it's the gems exporters in Mumbai and Surat, who import nearly 75 percent of their raw materials, who are expected to be hurt most, followed by silk (over 70 percent dependence on imported raw material) and machine tools and electronics (around 45 percent each). With costs rising, it's only natural that profitability would be hit. While the biggest dent has been to the IT sector - as is evident from the first quarter results of Infosys, Wipro and Satyam - the report has predicted that profitability could fall by as much as 250 percent while textile companies would be hit by up to 150 percent, leather (75-80 percent) and gems and jewellery (60-70 percent).

Sources said the impact would have been lowered a little thanks to a package of measures including higher duty remission, cheaper export insurance and subsidised loans that was announced by the government earlier this month.

Source: The Economic Times

FDI inflows register unprecedented growth of 185% during the first quarter

During the financial year 2006-07, the FDI equity inflows have been US $ 15.7 billion as compared to US $ 5.5 billion received during 2005-06. This is a growth of 185% as compared to the previous year. This is also the first time that FDI equity inflows into India have crossed the US $ 10 billion mark. If reinvested earnings and other capital inflows are also included, the total inflows in 2006-07 add up to US$ 19.5 billion compared to US$ 7.7 billion during the same period last year showing a growth of 153%.

During the first quarter of the Financial Year 2007-08, the FDI inflows have been US$ 4.9 billion as against US$ 1.7 billion received during the corresponding quarter of 2006-07, registering a growth of more than 185%. The first six months of the current calendar year (January-June 2007) have witnessed FDI inflows of US$ 11.4 billion as against US$ 3.6 billion received during the same period in 2006.This indicates a growth of 218%.

Higlights of FDI inflows till May, 2007:-

• Major Sectors - Services, Telecom, Electrical Equipments, Real Estate and Transportation are the 5 major sectors receiving FDI inflows in 2007-08.
• Top Inflows - M/s. Vodafone (Mauritius) (US$ 801 million) (telecom), M/s. Matsushita Electric Works, Japan, (US $ 342 million) (electrical products), M/s. GA Global Investments Ltd., (US$ 258 million) (National Stock Exchange), M/s. EMAAR Holdings, Mauritius (US$ 204 million) (Real estate construction), M/s. L B India Holdings Mauritius Ltd. (US$ 118 million) (Real Estate) are the top foreign investments received during the current financial year.
• Leading Regions - Delhi Regional Office of RBI registered inflows of US$ 1.3 billion amounting to around 36% of the total inflows during the year. Mumbai, Bangalore, Chennai, and Hyderabad are the other major regions, which have received FDI inflows. The five regions mentioned above constitute two-thirds of the total inflows received.
• Top Investing Countries - The total inflows received from the top 5 investing countries during the first two months of the financial year are US$ 2.9 billion. Major investment (US$ 1.9 billion) during 2007-08 came from Mauritius. The other major countries investing are Japan, Cyprus, USA, and Singapore.

Source: Ministry of Commerce & Industry

Direct tax collections buoyant on continued economic growth

Direct tax collections during fiscal 2007-08 have recorded a growth of 44.39% up to 15th August, 2007. Tax collections stood at Rs.59,210 crore, up from Rs.41,006 crore during the same period last fiscal.

Corporate tax recorded a growth of 52.25% at Rs.33,164 crore, up from Rs.21,783 crore during last fiscal, while personal income tax (including FBT, STT and BCTT) grew by 35.57% at Rs.25,989 crore, up from Rs.19,170 crore last fiscal. Securities Transaction Tax (STT) grew by 36.30% at Rs.2,495 crore and Banking Cash Transaction Tax (BCTT) grew by 29.71% at Rs.207 crore.

The continued buoyancy in direct tax collections is a reflection of the robust growth in the economy, better tax compliance and improved tax administration.

Source: Press Release at incometaxindia.gov.in

ISB - Upcoming Executive Programs - September & October, 2007

The ISB regularly offers short term executive education programs for career development. These details are collected from the website of ISB. The upcoming programs for the month of September & October, 2007 are as under.

1. Leadership Skills for Top Management - September 10-14, 2007

Programme: Assess one’s leadership competencies, develop an insight required to bring about change in one’s self and therefore in leading the organisation.
Who should attend: CEOs and heads of major functions from medium to large public and private business.
Faculty: Clive Rubery – Visiting faculty, London Business School
Venue Details: Indian School of Business
Fee: INR 150000

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Register

2. Business of Fashion: Consumer-centric Branding Strategies - September 14-17, 2007

Programme: The purpose of the programme is to understand the fundamental structural shift that is taking place in our global economy, from production-driven to consumer-driven economies and how brands are essential platforms for communicating across cultures and building lasting value in this businesses environment.

While branding strategies were thought to be the special domain of luxury brands, the dominance of the consumer generates a new branding business model which embraces all levels of pricing and styling. This expansion of the reach of branding has given birth to a new set of methodologies and metrics for mining and measuring brand value and its influence on purchasing decisions as well as its impact on business development.

Consequently this programme will place an emphasis on new applied and proven methods to ensure that your brands are aligned with your actual and target consumers. This is essential if the brands are to remain relevant and resonate, thereby creating value for all.

Consumer-centric branding requires a shift from a, “If we build it they will come” mindset to a “What will they like us to build” mindset. This programme, using actual case studies from the instructors practice, will provide both the how to formulate and strategize objectives approach, as well as how to drive and realise solutions using consumer-certified methods and metrics to build a sustainable competitive advantage.

Who should attend: Senior management and owners from Manufacturing & Retail, Fashion Designers, Exporters and those in Decision Making positions in the Apparel business who are looking to understand Branding as a Business Strategy presented as an Applied Science.
Faculty: William D’Arienzo, Founder and CEO, Wm. D’Arienzo Associates, Inc., Princeton, NJ; Senior Lecturer, Fashion Institute of Technology (FIT), NewYork

Venue Details: Indian School of Business
Fee: INR 90000

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3. Venture Capitalist Development Programme - October 6-11, 2007

Programme: The intense six day programme will develop future venture capitalists who will later shape deals that result in innovative, high growth companies, thus returning high multiples to investors and creating more jobs, opportunities and successful companies.

Who should attend: Professionals seeking to make a career shift to VC; Analyst and Associates at VC/PE firms; CPAs and Lawyers servicing VC/PE firms and their clients; Professionals in commercial banks, insurance companies and other similar fund-of-fund organisations, who manage or advise investment into VC/PE funds.

Faculty: John Mullins
Venue Details: Indian School of Business
Fee: INR 50000

Details
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4. Stepping into Leadership - October 7-10, 2007

Programme: This programme will provide an array of insights and opportunities to front - line managers on managerial and interpersonal skills in order to help him / her to cope with the expectation from customers, senior managers, external suppliers and their subordinates.

Who should attend: Front line managers

Faculty: Mitchell Watkins – Visiting faculty, London Business SchoolS Ramnarayan – ISB
Venue Details: Indian School of Business
Fee: INR 75000

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Register

5. Marketing Investments: Achieving Financial Discipline - October 24-27, 2007

Programme: Anyone who is involved and interested in managing and evaluating ROI including general managers, finance managers, marketing managers, product or services managers, brand managers, communications managers, advertising managers, sales managers, pricing managers, and managers of new products or new services.

Who should attend: Anyone who is involved and interested in managing and evaluating ROI including general managers, finance managers, marketing managers, product or services managers, brand managers, communications managers, advertising managers, sales managers, pricing managers, and managers of new products or new services.
Faculty: Don Sexton – Columbia
Venue Details: Indian School of Business
Fee: INR 75000

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6. ISB -Kellogg Global Advanced Management Programme: For Global Leadership - October 26-November 1, 2007

Programme: Address the key concerns of top management; Transform the performance of both, the participants who attend, and the organisations they represent in this highly competitive global business environment.

Who should attend: Top management gearing up for the challenges ahead in the highly competitive global business environment.

Faculty: Faculty from Kellogg & ISB
Venue Details: Indian School of Business
Fee: INR 500000

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Register

7. Perpetuating the Family Enterprise - October 29-November 2, 2007

Programme: Explore best practices tried and tested over 20 years in dealing with complex issues that come into play while balancing the needs of the business with the needs of the family.

Who should attend: Leaders of family firms, next generation leaders, independent directors and advisors

Faculty: John Ward – KelloggKavil Ramachandran – ISB
Venue Details: Indian School of Business
Fee: INR 150000

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Register

8. Strategic Talent Management - October 30-November 2, 2007

Programme: This programme will help participants to use talent management as a strategic tool for achieving competitive advantage.

Who should attend: Senior and top leadership in organisations responsible for talent management.

Faculty: Andrew Mayo – Independent Consultant from UK

Venue Details: Indian School of Business

Fee: INR 75000

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Register

Disclaimer:- The above dates are taken from the website of ISB. Please check the dates from the website bfore registering for any excutive education programme.

High Attrition Rate Continues To Plague Services: ASSOCHAM Survey

Unabated level of attrition rate continues to plague India Inc and spreading fast from IT and ITes to other service sectors such as civil aviation, financial services, retail and engineering, according to an ASSOCHAM Eco Pulse Study. The highlights of the study are:-

• While the attrition rate in IT and ITes sector has slowed by 10 per cent to fall in the range of 25-30 per cent in the year 2007 as compared to 35-40 per cent rate in previous year but the services sector at the crucial juncture of their growth including civil aviation, financial services and retail are facing tough times in retaining their staff.
• Big time consolidation in the civil aviation sector has fuelled attrition to an unmanageable level of 46 per cent as the pilots and cabin crew spot opportunities in growing demand by domestic as well as foreign airlines.
• Dearth of professionals, technical nature of operations, increasing finance-KPOs and attractive salary packages have led to rising job hopping at entry and middle level in the financial services sector. The attrition level has increased from 32 per cent in the year 2006 to 44 per cent in the current year.
• Banking, trading and real estates are facing maximum problem due to the job changing by the human resource.
• Massive expansion in the retail sector is accompanied with rapidly increasing attrition rate to even to the extent of 50 per cent in few cases. The companies now prefer to sign bonds for three years as they are imparting them the necessary training and specialized knowledge of retail functions.
• Growth in construction activities in the economy has led to surge in demand for engineers, resulting into increase in their movement across companies at rate of 25 per cent. The engineering companies are sorting to pay hikes and growth assurance, to curtail the attrition level.
• Level of attrition rate in the manufacturing sector has remained almost same at 20 per cent in 2007 as previous year. The functional areas like those of production, maintenance and safety controls, bear highest attrition problem.
• Loss of intellectual property is one of the most challenging problems faced by the companies as an upshot of attrition. Hospitality, IT, hospitals, engineering sectors are worst affected sectors in terms of intellectual property loss especially in absence of any laws to protect interest of an organization from employee turnover.
• The Study has found that the maximum of attrition is taking place among the employees who are in age group of 26 to 30 years. It found that the segment of employees who are most vulnerable to change are with experience range between 2 to 4 years.
• The most stable chunk of employees is found to be in age 39 to 45 years as they find themselves to be unsettled in their jobs and companies that they have been associated.
• Attrition trend also reveals that women employees are less prone to frequent job changing than their male counterparts. For every 10 males jumping the fence by changing the job, there was only 2 females crossing over.
• The immediate gains in salary package was found to be responsible for job change in almost all the sectors, however the growth potential remains an important reason prompting employee movement.

Appreciating rupee did not deter hiring spree by softwrae companies

As per the report of Assocham, IT sector along with other sectors continued with its hiring spree during April-July this fiscal, despite being hit hard by the appreciating rupee, which ate into the profitability of a majority of sectors.

The highlights of the study are:-

• IT jobs constituted nearly 24 per cent of over 1.47 lakh vacancies listed on job portals and in newspapers during the period, followed by financial services at 14.5 per cent and sales and business development at 13.5 per cent, it added. The IT sector provides employment to over 1.6 million people directly and to about 4 million indirectly.
• The engineering sector constituted 8.7 per cent of the employment opportunities created during the said period. Job opportunities in sales and business development have beaten financial services openings listed on job portal. While the former had a 15 per cent share, the latter accounted for about 11.5 per cent.
• "Though, robust growth of economy has created numerous vacancies, severe shortage of the talented workforce and high attrition rates continue to plague the industry," Assocham President Venugopal N Dhoot said in a statement.
• Major demand for the finance personnel emanated from sectors like banking and real estate, which are estimated to hire 1.40 lakh recruits this fiscal. Human resource or administration portfolios accounted for seven per cent openings. HR professionals constituted just about 1.5 per cent of the total graduates, indicating a limited choice for firms in the sector. Manufacturing sector comprised just 6.75 per cent of the vacancies, it added. Other professions such as medical, law, media, airlines and ticketing among others constituted almost 19.5 per cent of the positions advertised.

Source: The Economic Times - August 14, 2007

The cause and effect of US sub-prime crisis

Before discussing the effects of US sub-prime crisis on Asian and European capital markets, we have to understand what is US sub-prime market? How it has affected other markets.

What is US sub-prime market?

In short, sub-prime (lending market) refers to the home loan market catering to the persons whose credit rating is low due to which they will not get a regular loan at prime lending rate as announced by US Federal Bank. The sub-prime rates are much higher than prime lending rates. Presently for a 30 year loan, prime lending rate is in the range of 4 to 51/2 percent and sub-prime interest rates are higher by 200 to 300 basis points over the prime lending rate as the risk is more for the borrower. The lower the credit score and the smaller the down-payment, the higher are the interest rates. However, the entire structure of rates and fees is higher at sub-prime lenders to cover the greater risk and higher costs of sub-prime lending. By its nature, a higher percentage of sub-prime than of prime loans go into default. Sub-prime lending costs are also higher because more applications are rejected and marketing costs are higher.

A sub-prime lender is one who lends to borrowers who do not qualify for loans from mainstream lenders. The interest rate they charge are are uniformly higher than those quoted by mainstream lenders. A subprime borrower is one who cannot qualify for prime financing terms but can qualify for subprime financing terms. The failure to qualify for prime financing is due primarily to low credit scores. In US, every borrower is given credit rating depending on his income levels, past payment history etc. A very low score will disqualify for a softer loan. Some other factors can also influence the decision of the financier, including purpose of loan and property type.

The development of the sub-prime market has made mortgages (and home ownership) available to a segment of the population that otherwise would have been shut out of the market. That’s the good news.

Why sub-prime market is in the news?

In US housing prices have been moving up from the year 2000 onwards till the end of 2005. American housing prices have not seen a similar pace of growth since 1979. During this period, all the borrowers went aggessively into the sub-prime lending market. But, during this period, the US Federal Bank either raised or kept constant the interest rates and most of sub-prime lending is based on floating interest rate mechanism. With the raising interest rates, the repayment amount by the sub-prime lenders has gone up. Coupled with this is the slump in home prices from the end of 2005 to the end of 2006 which was the biggest year over year drop. The banks and mortgage lenders are scrambling for creative ways to keep people in their homes but the subprime market is already teetering and foreclosures are on the rise. With the rising interest burden, subprime lenders have lately suffered widespread mortgage defaults in the United States, sparking fears the trend will dampen consumer spending and overall US growth. It is estimated that there are a potential $100bn (£50bn) worth of sub-prime mortgage defaults, from less than credit-worthy borrowers, mainly in the US.

Why investors in Asian and European markets fear sub-prime crisis in US?

1. Investor Worries

Investors are worried about a global credit crunch as more banks and investment funds around the world reveal their exposure to the slumping US subprime, or high-risk, home loan sector, analysts said. The fear is that banks will suspend normal lending practices as they move to cover their losses, thereby restricting access to credit for investors and companies. Central banks across the world have since last week pumped tens of billions of dollars into the banking system, offering loans at lower rates to commercial banks to forestall a credit crunch that could damage economic growth.

Reportedly, the interest rates are lowest in Japan with cheaper yen loans. Global financial players, who had borrowed in low-interest yen to invest elsewhere, dumped stocks on fear of rise of the yen and reports of trouble in the biggest US mortgage lender, Countrywide Financial Corp. While Countrywide took an $ 11.5 billion emergency loan, the US Federal Reserve stepped in to pump in $5 billion to prevent liquidity crunch. In fact, US central bank has infused $76 billion into troubled banks till thursday .

2. Hedge Funds

Many say that the main culprits in this crisis are hedge funds and not the banks. Hedge funds typically borrow money to invest (and they've often borrowed shares and other securities too). But terms and conditions apply to their loans: lenders tell the hedge funds the debt must not rise above a specified proportion of the total fund. It would be like your bank telling you that your mortgage can't rise above 90% of the value of your house. Now what would happen if the value of your house fell? You would have to find some cash to repay some of the mortgage to ensure it was still not above 90% of the new lower value. The losses they've endured on some investments trigger the need to repay cash to prevent their loans breaching their terms. One way for hedge funds to find cash is to sell shares. Note that this does not mean the hedge funds are insolvent - they just need cash, and the easiest way to find it is to sell shares, pushing down the prices. This potentially could make the market getting into a vicious circle of falling prices, cash requirements and more falling prices.

3. Lending dries up

All kinds of bank lending have been affected by the failure of the sub-prime market. This is because the whole market in second-hand debt has been paralysed by the sub-prime problems. This affects the banks, who are sitting on debt they'd like to sell on, but can't. And it affects corporate borrowers, particularly the kind of borrowers who have been using debt to finance highly-leveraged takeovers. Those takeovers have helped prop up the stock market, and if they now evaporate, the stock market will probably fall.

4. The real economy

Finally, the tightening of credit conditions in the US housing market and beyond may have real economic effects that depress corporate profits. The pace of takeovers using borrowed money may slow down a bit. The world has been very dependent on US consumer spending. If that diminishes as the housing market and stock markets dive, then companies are in a pickle, the world over.

Indian and Global market scenario

Amid a crisis of confidence, the 30-share Sensex plunged 642.70 points (more than 4%) - the largest single-day fall in over four months - to close at 14,358.21 on Thursday. The 50-share Nifty tubmled 191.60 points to finish at 4,178.60. Key Asian markets were awash with red - the South Korean, Taiwanese and Indonesian indices closed around 5-7% lower. Australian home loan group RAMS said it had failed to roll over $5 bn in debt due to the US credit crunch, sending Sydney stocks down 5%. Seoul, which was closed on Wednesday, plunged 6.35%.

According to the provisional data, FIIs have net sold around Rs. 3,100 crore on Thursday in Indian bourses. Hedge funds are now being made out to be the root cause of this mayhem in the markets. Dealers said, as quoted in the Economic Times, the 5-10% decline in frontline stocks like Reliance and Tata Steel indicated distress sales by hedge funds that are facing problems in other markets. As quoted by ET, a Moragn Stanley strategy note isuued to the clients said market participants " do not fully appreciate that India is excessively reliant on external sources of risk capital and that these suppliers of risk capital tend to be indiscriminate in their behaviour in times of turbulence".

In this entire turmoil, who gets benefited? the exporters. When the demand for dollar raises by way of sale proceeds of stocks to be taken out from India by FIIs and Hedge Funds in dollars, the Rupee will depreciate against US dollar. In fact, the rupee dipped on Thursday by 1.5% to 41.36 level per dollar. When the inflows surges, rupee appreciates and when outflows surge, rupee depreciates.

Related Articles:-

• US housing sector - a bubble? - The Hindu - February 04, 2002
• US Housing Sector is Crashing, False Housing and Jobs statistics to eventually benefit Gold - The Market Oracle - February 23, 2007
• US housing difficulties cause for concern but no systemic threat: Moody's - breitbart.com - July 24, 2007
• Sub-prime crisis hits world markets - presstv.ir - August 16, 2007
• Sub-prime crisis 'won't hit growth' - Gulf Daily News - August 17, 2007
• What's behind the market turmoil - BBC News - August 17, 2007
• Hedge funds threatened in world turmoil - telegraph UK - August 17, 2007