Indian air chief dismisses UK’s ‘iffy’ Harriers

Britain has hit an early obstacle in its bid to sell its fleet of Harrier jump jets after India, the most promising potential buyer, described the aircraft as “iffy” and obsolete.

Air Chief Marshall PV Naik, the head of the Indian Air Force, said on Tuesday he would be looking to acquire modern aircraft of fourth-generation capabilities or better. “The Harrier doesn’t fit into that category,” the Air Chief Marshall said.

His dismissive remarks over the “iffy” Harrier came soon after Air Chief Marshal Sir Stephen Dalton, the chief of the UK air staff, acknowledged the possibility of a sale while paying a visit to India to boost military co-operation and exports.

India is one of the largest arms bazaars in the world and is seeking to modernise its aging, largely Russian-supplied airforce, to face threats from Pakistan and China.

The distinct lack of interest shown in the Harrier, which was decommissioned in the defence review primarily on grounds of cost, will be a blow to ministers who are seeking to generate some much-needed revenue from the disposal.

Air Chief Mashall Naik’s words will particularly sting because the Ministry of Defence has spent more than £500m upgrading the Harrier avionics over the last five years and the jets could potentially remain in service until the mid 2020s.

Peter Luff, defence procurement minister, told the Financial Times this week that he was hopeful of finding a buyer for the Harrier, the pride of the Falklands war, in order to spare them from an untimely demise in a scrap yard or museum.

“There are a number of possibilities....we are looking at the options quite carefully at the moment. There are overseas markets, particularly for the Harrier,” he said.

India, along with the US, is the most likely purchaser, primarily because it bought about 30 Sea Harriers, an earlier variant, in the 1980s. Some are still used to fly off its UK-made aircraft carrier the INS Viraat, which once saw battle as HMS Hermes, the Royal Navy flagship during the Falklands conflict.

Defence collaboration was a key priority for David Cameron early this year as he led a 90-strong delegation of chief executives and cabinet ministers to India seeking to boost to trade.

An alternative is for the US to buy the Harriers to supplement its existing fleet used by the Marine Corps. Versions of the Harrier are also used by Spain and Italy.

The Harrier is one of several items of military hardware axed in the defence review that Britain is seeking to sell. Ministers seeking buyers for Nimrod spy planes, a programme cancelled shortly before the aircraft were coming into service, dozens of Typhoon fighter jets and warships including frigates and aircraft carriers.

Reserve Bank's Subbarao Sees India Inflation `Firmly' in Control by 2012

India’s central bank Governor Duvvuri Subbarao said he expects to bring inflation “firmly” under control in the next one or two years, giving scope to shift the focus of monetary policy to spur economic growth.

“I would hope that in the next one or two years inflation is firmly under control, both from the supply and demand sides, and we are able to run the monetary policy biased more towards growth,” Subbarao said in an interview with Bloomberg-UTV in Mumbai today, a day after raising interest rates for the sixth time in 2010, the most in Asia this year.

For the next three months, the central bank may not raise borrowing costs, Subbarao said yesterday, as nations from Japan to the U.S. consider additional stimulus to support growth. The governor is concerned global liquidity and interest-rate differentials with advanced nations may lead to an “intensification” of capital flows into India, boosting liquidity and exacerbating inflation.

“Inflation will remain an issue in India because of structural problems in agriculture and industry,” said Saugata Bhattacharya, an economist at Axis Bank Ltd. in Mumbai. “The RBI is juggling multiple objectives, and at this point in time, it is probably concerned more about capital inflows.”

India’s benchmark wholesale-price inflation slowed to 8.6 percent in September from a 20-month high of 11 percent in April. Finance Minister Pranab Mukherjee said Oct. 26 the pace of price gains is still double the “ideal” level, hurting purchasing power. The World Bank estimates about 75 percent of Indians live on less than $2 a day.

Inflation Forecast

Subbarao on Nov. 2 forecast inflation to slow to 5.5 percent by March 31 as he boosted the repurchase rate by a quarter-point to 6.25 percent and the reverse repurchase rate by a similar margin to 5.25 percent. He said the Reserve Bank of India’s medium term inflation target is between 4 percent and 4.5 percent.

“Demand pressures are persistent and there are structural factors in food inflation and they will take time to resolve,” Subbarao said in the interview. “So, on the inflation front, even though, it’s moderating, there are persistent concerns.”

Food inflation has remained above 10 percent since June 2009 as the government increased prices it pays farmers for grains, according to the Planning Commission, which sets growth and investment targets in India.

Farm Prices

The government’s minimum support price, or the remuneration it guarantees farmers for their crop, has almost doubled in the past six years for rice, maize and wheat, according to farm ministry data.

Constraints in ports and power also increase the cost of doing business in India, increasing price pressures. The average turnaround time for ships to unload and load cargo at major ports in India is almost four days compared with 10 hours in Hong Kong, India’s finance ministry estimates.

Economists at JPMorgan Chase & Co. and DBS Group Holdings Ltd. expect the Reserve Bank to resume monetary policy tightening in the first quarter of 2011. The central bank’s next rate decisions are scheduled for Dec. 16 and Jan. 25.

India’s 12-year bonds gained today for a sixth day after Subbarao said that immediate action on rates is unlikely unless there are unforeseen events. The yield fell one basis point, or 0.01 percentage point, to 8 percent as of the 5 p.m. close in Mumbai.

The Bombay Stock Exchange’s Sensitive Index gained 0.6 percent to 20,465.74 led by lenders including State Bank of India and HDFC Ltd. The rupee strengthened 0.1 percent to 44.35 per dollar as of the 5 p.m. close in Mumbai and reached 44.2350, the strongest level since Oct. 20.

Policy Stance

India is pausing rate increases amid the greatest concentration of monetary-policy action by leading central banks since the first week of October 2008, when they met in emergency sessions to fight the global financial crisis.

The U.S. Federal Reserve started a two-day meeting yesterday to consider pumping additional stimulus into the world’s largest economy. The Fed may today announce a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

The Bank of Japan cut rates on Oct. 5 and brought forward the date of its next policy meeting to Nov. 4 and 5 to discuss purchases of exchange-traded funds and real-estate investment trusts.

“We are watching it very closely,” Subbarao said. “If the quantitative easing is beyond what’s expected, beats expectation on either side, then there could be more flows or some outflows, depending on how it’s designed.”

Since Subbarao’s first rate increase on March 19, the spread between India’s debt due in a decade and 10-year Treasuries widened 121 basis points, or 1.21 percentage points, to 541 today. The gap, which has averaged 317 in the past decade, reached a 10-year high of 567 basis points on Oct. 20.

Higher yields spurred an unprecedented $10 billion inflow into rupee debt this year. Overseas funds also poured a record $25 billion into Indian stocks on prospects of faster growth in the South Asian nation, strengthening the currency and driving the Sensitive Index, or Sensex, to near a record.

Since Jan. 1, the rupee has risen 4.9 percent against the dollar while the Sensex has jumped 17 percent.

Dollar Drops to Lowest Since January Versus Euro on Fed Easing, Yen Falls

The dollar touched a nine-month low versus the euro after the Federal Reserve said it will pump more money into the economy by boosting asset purchases to spur inflation and employment, debasing the world’s reserve currency.

The greenback swung between gains and losses as the Fed said it will buy $600 billion under quantitative easing, fueling speculation about responses by other central banks. The European Central Bank and Bank of England are scheduled to meet tomorrow, and the Bank of Japan meets Nov. 5.

“Quantitative easing is by its nature corrosive to the value of the currency,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $20 trillion in assets under administration. “The larger the quantitative easing measure, the worse it is for the dollar.”

The dollar was little changed at $1.4026 per euro at 2:32 p.m. in New York, from $1.4034 yesterday. It touched $1.4179, matching a low reached Jan. 26. The dollar rose 1 percent to 81.48 yen, from 80.63. The Japanese currency dropped against all major currencies on speculation the Fed’s plan will increase demand for higher yielding assets.

The Fed plans to buy Treasuries through June, expanding record stimulus and risking its credibility in a bid to reduce unemployment and avert deflation. Policy makers, who said new purchases will be about $75 billion a month, “will adjust the program as needed to best foster maximum employment and price stability,” the Fed’s Open Market Committee said in a statement in Washington. The central bank kept its pledge to keep interest rates low for an “extended period.”

Dollar Index

The Dollar Index, which IntercontinentalExchange Inc. uses to track the dollar against the currencies of six major U.S. trading partners including the euro and yen, had declined 1.4 percent this year before the Fed’s statement. It has fallen 13 percent since reaching a 2010 high of 88.708 on June 7.

The yen has gained even after Japan’s effort to curb its advance on Sept. 15, when the Finance Ministry acknowledged intervening in the market by selling the currency.

Economists’ forecasts for the size of the purchase ranged from $500 billion to $2 trillion.

A cheaper dollar would boost U.S. growth by helping American exports, while strengthening currencies abroad and threatening European and Japanese expansion. Group of 20 finance ministers and central bankers pledged last month to avoid “competitive devaluation of currencies.”

Fed Funds

The Fed has held the benchmark interest rate at a record- low range of zero to 0.25 percent since December 2008 to spur the economy. It bought $1.75 trillion of securities in its first round of quantitative easing, which ended in March, to help bring down interest rates on mortgages and consumer loans. The purchases included mortgage-backed securities and $300 billion in Treasuries.

Rates for 30-year mortgages fell from 6.46 percent in October 2008 to 4.71 percent in December 2009 and a record low 4.19 percent last month. Even so, new home sales are hovering near the all-time low annual rate of 282,00, reached in May.

The dollar has fallen 9 percent versus the euro since Aug. 27, when Fed Chairman Ben S. Bernanke said in a speech in Jackson Hole, Wyoming, the central bank would “do all that it can” to sustain the recovery.

‘On the Back Foot’

“The quantitative easing story got credible in the wake of Bernanke’s speech at Jackson Hole,” said Richard Franulovich, a senior currency strategist at Westpac Banking Corp. in New York. “Ever since, the dollar has been on the back foot, it has been hit across the board.”

Bernanke added in a speech in Boston on Oct. 15 that additional monetary stimulus might be warranted because inflation is too low and unemployment too high. The jobless rate has been 9.5 percent or higher for 14 straight months. The central bank’s preferred price measure, which excludes food and fuel, was unchanged in September from the prior month and was up 1.2 percent from a year earlier, the smallest gain since September 2001. The Fed has a mandate to promote maximum employment and price stability.

The Fed also began a program in August to reinvest principal payments on its mortgage holdings into long-term government debt to keep money from being drained out of the financial system. It has bought $64.82 billion.

Economists in a Bloomberg News survey forecast the Fed would announce a plan to purchase at least $500 billion of long- term securities in a program called quantitative easing. Fifty- three of 56 said policy makers would begin a new round of unconventional easing. Twenty-nine forecast a pledge to buy $500 billion or more, while another seven predicted $50 billion to $100 billion in monthly purchases without a specified total.

Other estimates for the size of renewed asset-purchases ranged from $1 trillion at Bank of America-Merrill Lynch to $2 trillion at Goldman Sachs Group Inc.

Fed’s More Aggressive Move May Not Go Far Enough

For much of the last year, there were three basic camps on what the Federal Reserve should be doing.

One focused on the risks of the Fed’s taking more action to help the economy. This camp — known as the hawks, because of their vigilance against inflation — worried that the Fed could be sowing the seeds of future inflation and that any further action might cause global investors to panic.

Another camp — the doves — argued instead that the Fed had not done enough: inflation remained near zero, and unemployment near a 30-year high.

In the middle were Ben Bernanke and other top Fed officials, who struggled to make up their minds about who was correct. For months, they came down closer to the hawks and did little to help the economy. On Wednesday, they effectively acknowledged that they had made the wrong choice.

The risks of inaction have turned out to be the real problem.

The recovery has not been as strong as the Fed forecast. Businesses became more cautious about hiring after the European debt crisis in the spring. State governments began cutting workers around the same time, and the flow of federal stimulus money began to slow. Since May, the economy has lost 400,000 jobs.

Now — six months later, with Congress unlikely to spend more — the Fed is getting more aggressive. (And, yes, the idea that the doves are the advocates for aggression is indeed a bit odd.) Having long ago reduced its benchmark short-term interest rate to zero, the Fed will again begin buying bonds, as it did last year, to reduce long-term interest rates, like those on mortgages. Lower rates typically lead to more borrowing and spending by households and businesses.

Of course, the risks of taking action have not gone away. The new policy could eventually cause inflation to spike. All else equal, a policy that encourages more spending will cause prices to rise. And if investors begin to think that a dollar tomorrow will be worth much less than one today, they may refuse to lend money at low interest rates, undercutting the whole point of the bond purchases. Separately, the Fed, like any bond buyer, could end up losing money on the purchases, worsening the federal budget deficit.

What’s striking about the last six months, however, is how much more accurate the doves’ diagnosis of the economy has looked than the hawks’.

Early this year, for example, Thomas Hoenig, president of the Kansas City Fed and probably the most prominent hawk, gave a speech in Washington warning about the risks of an overheated economy and inflation. Mr. Hoenig suggested that the kind of severe inflation that the United States experienced in the 1970s or even that Germany did in the 1920s was a real possibility.

When he gave the speech, annual inflation was 2.7 percent. Today, it’s 1.1 percent.

The doves, on the other hand, pointed out that recoveries from financial crises tended to be weak because consumers and businesses were slow to resume spending. Around the world over the last century, the typical crisis caused the jobless rate to rise for almost five years, according to research by the economists Carmen Reinhart and Kenneth Rogoff. By that timetable, the unemployment rate would rise for a year and a half more.

Perhaps the clearest case for more action came from within the Fed itself. In June, an economist at the San Francisco Fed published a report analyzing how aggressive monetary policy should be, based on past policy and on the current levels of unemployment and inflation.

As a benchmark, it looked at the Fed’s effective interest rate, taking into account the actual short-term rate as well as any bond purchases to reduce long-term rates. Because the short-term rate was zero and the Fed bought bonds in 2009, the report judged the effective interest rate to be below zero — about negative 2 percent.

And what should the effective rate have been, based on the economy’s condition? Negative 5 percent, the analysis concluded. In other words, the Fed wasn’t buying enough bonds.

All the while, global investors have continued to show no signs of panicking. If anything, as the economy weakened over the summer, investors became more willing to lend money to the United States, viewing its economy as a safer bet than most others.

After the Fed’s announcement on Wednesday, many of the hawks who warned about inflation earlier this year repeated those warnings anew.

The Cato Institute, citing a former vice president of the Dallas Fed, said the new program would “sink” the economy. Mr. Hoenig provided the lone vote inside the Fed against the bond purchases.

It’s always possible that the critics are correct and that, this time, inflation really is just around the corner. But there is still no good evidence of it.

Some economists are optimistic that it has finally found the right balance. Manoj Pradhan, a global economist at Morgan Stanley, pointed out that bond purchase programs lifted growth in Europe and the United States last year — and a broadly similar approach also helped end the Great Depression. “There are no guarantees,” Mr. Pradhan said, “but the historical precedents certainly suggest it will work.”

Others, though, wonder if the program is both too late and too little. “I’m a little disappointed,” said Joseph Gagnon, a former Fed economist who has strongly argued for more action. The announced pace of bond purchases appears somewhat slower than Fed officials had recently been signaling, Mr. Gagnon added, which may explain why interest rates on 30-year bonds actually rose after the Fed announcement.

One thing seems undeniable: the Fed’s task is harder than it would have been six months ago. Businesses and consumers may now wonder if any new signs of recovery are another false dawn. And although Mr. Bernanke quietly credits the stimulus program last year with being a big help, more stimulus spending seems very unlikely now.

Unfortunately, in monetary policy, as in many other things, there are no do-overs.

Sugar Cane Farmers in India Seek Higher Price, May Delay Supply to Mills

Sugar cane farmers in Uttar Pradesh, India’s biggest grower, are seeking higher prices than rates set by the state government today, likely forcing mills to delay processing the crop, according to two farmers’ groups.

Growers in the northern state that is home to more than 100 mills will withhold supplies if factories don’t pay at least 280 rupees ($6.3) per 100 kilograms, said Rakesh Tikait, national spokesman of Bharatiya Kisan Union. Mills paid an average 285- 290 rupees last year.

“Mills must pay higher than the government price as they did last year,” Tikait said by telephone. “Farmers will sell to whoever pays them a higher price.”

Delayed output in the world’s second-biggest producer may hinder plans by the nation’s mills to ship as much as 3 million metric tons, adding to global supply concerns. Raw sugar in New York has more than doubled since reaching a 13-month low on May 7 on concern adverse weather will pare output in Brazil, Russia, China and Pakistan.

“There is a fair amount of deficit in the market,” said Michael McDougall, a senior vice president at Newedge USA, in a telephone interview from New York yesterday. The rally in prices “shows that the market needs Indian sugar.”

Uttar Pradesh government today increased prices mills must pay growers to as much as 210 rupees for the season started Oct. 1, from 170 rupees last year. Vivek Saraogi, managing director of Balrampur Chini Mills Ltd., India’s second-biggest producer, said in July that he expected prices of 175 to 180 rupees.

Producers in Uttar Pradesh pay a so-called state-advised price. The rate, aimed at shielding 4 million cane farmers, is usually higher than the floor rate set by the federal government.

Price Talks

“Mills will have to discuss with farmers to arrive at a solution,” Avdhesh Mishra, president of the Cane Committees’ Association, said by phone. “As per the current mood of the farmers, they’re unlikely to sell at the state-advised price.”

While sugar is the best performer on the Reuters/Jefferies CRB Index of 19 raw materials in the past six months, wholesale prices in India have slumped 24 percent this year amid forecasts of output exceeding demand for the first time in three years.

“At current domestic sugar prices, it may not be feasible to pay the cane price” fixed by Uttar Pradesh, Abinash Verma, director general of the Indian Sugar Mills Association, said in a phone interview. “If prices stay at current levels, it is difficult for mills to pay the state-advised price for cane.”

Last year, a price dispute delayed crushing by as much as four weeks in the northern state. Thousands of growers, holding cane stems, held demonstrations in November near the parliament, seeking 280 rupees, more than double the benchmark rate of 130 rupees set by the federal government.

“When jaggery makers are not making losses, how come mills are losing money,” said Bharatiya Kisan Union’s Tikait. “They make profit by selling by-products such as alcohol and molasses. We won’t even allow mills to process imported raw sugar.”

Jaggery, a traditional unrefined sugar, is a concentrated product of cane juice, without separation of the molasses and crystals, and can vary from golden brown to dark brown in color.

Subbarao Says India May Not Increase Rates for Next Three Months

India’s central bank said it probably won’t raise interest rates in the next three months after tightening monetary policy the most in Asia this year.

“Immediate future rate action is unlikely barring some shocks,” Reserve Bank of India Governor Duvvuri Subbarao said at a press conference in Mumbai yesterday after increasing benchmark rates for a sixth time in 2010. “The question is what is immediate future? I would believe it is three months.”

India’s 12-year bonds gained the most in more than two months on Subbarao’s guidance as nations from Japan to the U.S. consider additional monetary stimulus to support economic growth. The prospective pause comes as Subbarao said that global liquidity and rate differentials with advanced nations may lead to an “intensification” of capital flows into India.

“At this point the RBI has almost ruled out action in the next policy decision,” said Shubhada Rao, Mumbai-based chief economist at Yes Bank Ltd. “There are uncertainties on the horizon, especially the impact of global quantitative easing on capital flows to India.” India’s central bank is scheduled to announce its next rate decision on Dec. 16.

Yields on India’s most-traded debt due 2022 fell six basis points, or 0.06 percentage point, to 8.01 percent, the lowest level since September, at close of trading in Mumbai yesterday. The rupee appreciated 0.2 percent to 44.3775 per dollar, rising the most in a week, while the Bombay Stock Exchange’s Sensitive Index was little changed at 20,345.69.

India’s Move

India joined Australia in increasing borrowing costs amid the greatest concentration of monetary-policy action by leading central banks since the first week of October 2008, when they met in emergency sessions to fight the global financial crisis.

Subbarao boosted the repurchase rate by a quarter-point to 6.25 percent and the reverse repurchase rate by a similar margin to 5.25 percent. Australia’s central bank Governor Glenn Stevens raised the overnight cash rate target a quarter point to 4.75 percent in Sydney yesterday. It was the RBA’s first move in six months.

The U.S. Federal Reserve started a two-day meeting yesterday to consider pumping additional stimulus into the world’s largest economy. The Fed may today announce a plan to buy at least $500 billion of long-term securities, according to economists surveyed by Bloomberg News.

About 18 hours after the Fed’s move, the Bank of England will announce the result of its monetary policy meeting. The European Central Bank will go public with its decision 45 minutes later.

The Bank of Japan cut rates on Oct. 5 and brought forward the date of its next policy meeting to Nov. 4 and 5 to discuss purchases of exchange-traded funds and real-estate investment trusts.

Inflation Woes

Subbarao’s priority is to slow the fastest inflation after Argentina in the Group of 20 nations and protect the purchasing power of 75 percent of Indians who live on less than $2 a day. Consumer prices rose 11.1 percent in Argentina in September, while CPI for industrial workers gained 9.9 percent in India.

“Based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low,” Subbarao said.

He said “concerted” policy actions by the central bank will help slow benchmark wholesale-price inflation to 5.5 percent by March 31 from 8.6 percent in September. Subbarao forecast India’s $1.3 trillion economy may expand 8.5 percent in the year ending March 31, the fastest pace in three years.

‘Capital Inflows’

“Inflation will probably slow soon and the RBI is increasingly concerned about high capital inflows and rupee appreciation,” Vishnu Varathan, Singapore-based Asia economist at Capital Economics Ltd., said in a note yesterday. He said the Reserve Bank may increase borrowing costs one more time by a quarter-point in early 2011.

Since Subbarao’s first rate increase on March 19, the spread between India’s debt due in a decade and 10-year Treasuries widened 117 basis points, or 1.17 percentage points, to 537 yesterday. The gap, which has averaged 317 in the past decade, reached a 10-year high of 567 basis points on Oct. 20.

Higher yields spurred an unprecedented $10 billion inflow into rupee debt this year. Overseas funds also poured a record $25 billion into Indian stocks on prospects of faster growth in the South Asian nation, strengthening the currency and driving the Sensitive Index, or Sensex, to near a record.

Since Jan. 1, the rupee has risen 4.6 percent against the dollar while the Sensex has jumped 16.5 percent.

Exporters’ Protest

The climb threatens software exporters including Infosys Technologies Ltd., which said last month the currency’s move will “kill” them. Infosys said it suffers a 0.4 percentage- point drop in its operating margin for every 1 percent of appreciation in the rupee versus the dollar.

Subbarao said “excess global liquidity” along with the “significant” growth and interest-rate differentials between advanced countries and India may result in an “intensification” of capital flows into India.

“We will take action as warranted with a view to mitigating any potentially disruptive effects of lumpy and volatile capital flows and sharp movements in domestic liquidity conditions, consistent with the broad objectives of price and output stability,” Subbarao said.

The central bank, which last intervened to buy or sell rupees in the market in 2009, says that the currency’s strength will be limited by the nation’s deteriorating trade balance. The current-account deficit widened to a record $13.7 billion in the three months through June, the Reserve Bank said Sept. 30.

Even so, the bank isn’t in favor of the currency appreciating past 43 against the dollar, a finance ministry official with direct knowledge of the matter said on Oct. 15.

Cotton Clothing Price Tags to Rise

Synthetic linings. Smaller buttons. Less Italian fabric. And yes, even more polyester. Unusually high cotton prices have apparel makers scrambling to keep down costs, but consumers be warned: cotton clothing will be getting more expensive.

“It’s really a no-choice situation,” said Wesley R. Card, president and chief executive of the Jones Group, the company behind Anne Klein, Nine West and other brands. “Prices have to come up.”

The Bon-Ton chain is raising prices on its private-label fashion items by as much as a dollar this spring, and prices will go up further next fall. And it is switching from 100 percent cotton in items like sweaters to more acrylic blends. Levi’s says it has already increased prices and may push them further north next year. And Hanesbrands, the maker of Champion, Hanes and Playtex, says price increases will be in place by February, and prices could go up further if cotton prices remain where they are.

Other apparel makers say they have held the line on prices this year, but next year will be different. The V. F. Corporation, the maker of 7 for All Mankind and The North Face, says most brands will probably cost more next year, and its cotton-heavy jeans lines are particularly susceptible to increases. Jones says its increases could be in the high single digits or more.

The problem is a classic supply and demand imbalance, with the price of cotton rising almost 80 percent since July and prices expected to remain high. “World cotton production is unlikely to catch up with consumption for at least two years,” said Sharon Johnson, senior cotton analyst with the First Capital Group, in an e-mail.

Cotton inventories had been low because of weak demand during the recession. This summer, new cotton crops were also depleted because of flooding in Pakistan and bad weather in China and India, all major cotton producers.

But demand from China, in particular, was rising. And as the economic recovery in the United States began, apparel makers and retailers placed orders for more inventory, spurring even more demand. As prices rose, speculators entered the market, driving prices even higher.

“So far, it has shocked even the most veteran traders,” said Mike Stevens, an independent cotton analyst in Mandeville, La., in an e-mail. “It has resulted in panic buying by mills worldwide in order to ensure that they can keep their doors open.”

As of Tuesday morning, the price of cotton (measured by cotton futures for December delivery) had hit a record high on worries that cold weather in China might have damaged some crops.

Cotton’s swooping increase has some apparel companies switching production to countries with lower labor costs or milder customs charges. Lululemon Athletica, the sportswear company, is moving some manufacturing from China to Vietnam, Cambodia and Bangladesh, where wages are lower, and Bon-Ton is benefiting from reduced-duty production in Egypt and Nicaragua.

Manufacturers are also thinking smaller, examining whether a button or a thread can be replaced with a cheaper one, or whether the overall material mix can be changed so it is not so cotton heavy.

“They are taking purchase orders from the retailer and having this conversation with them, saying, ‘Look, I can’t deliver this garment for a dollar this year when it cost me a dollar twenty-five to make it up,’ ” said Andrew Tananbaum, the chief executive of Capital Business Credit, which finances apparel makers and other importers. “ ‘So would you take this garment if it had not cotton but acrylic?’ ”

Mr. Card, of the Jones Group, said the company had “whole teams” looking for more cost-effective materials that did not reduce quality. “That’s all they do,” Mr. Card said.

Liz Claiborne, which makes brands like Juicy Couture and Kate Spade, said it is also playing with some of the materials it uses. One example, said Jane Randel, a spokeswoman, would be shifting from some imported Italian fabrics to “suppliers who produce their own raw materials or yarns.” The company may also reassess its contracts for so-called component materials — like buttons and trims — she said in an e-mail.

At Bon-Ton, retail prices for the private-label clothes have increased about 5 to 8 percent so far this year, said Steve Villa, senior vice president of private brand at the company. Bon-Ton has been turning to different formulations, including sweaters blended with different rayons and synthetic fibers, to avoid further increases.

“At some point, you adopt a different process that maybe will yield some cost savings or you are faced with passing that through,” Mr. Villa said.

Of course, as apparel makers increase the price of cotton goods and also try to reduce their reliance on cotton, there are some risks.

For starters, neither the apparel makers nor the retailers are certain that shoppers will be willing to pay more for cotton goods. “It’s an unanswered question at this point,” said Robert K. Shearer, chief financial officer of the V. F. Corporation.

And — to the disfavor of many fashion purists — with prices unlikely to fall for some time, there could be wider popular acceptance of fabrics like polyester.

“We may be training a new generation to be far more accepting of synthetic fibers, which is likely to hurt cotton’s market share in the long run,” said Ms. Johnson, the analyst with the First Capital Group.

India May Drop Experience Rule to Let Local Shipyards Bid on Large Vessels

India may lift restrictions on local shipbuilders bidding for state contracts to make container ships and oil tankers to help them compete with Korean and Chinese yards, an official with direct knowledge of the matter said.

The shipping ministry wants to drop a clause that requires yards to have prior experience building large vessels, the official said today, asking not to be identified as the matter is confidential. Indian shipbuilders may be selected if their bid is within 15 percent of the lowest offer, the official said, citing a note circulated to the cabinet.

The proposal is likely to be cleared by cabinet ministers in six weeks, the official said. Maushumi Chakravarty, spokeswoman for the shipping ministry, declined to comment.

The proposals could help local shipbuilders such as Bharati Shipyard Ltd. and ABG Shipyard Ltd. compete internationally by letting them gain experience of building larger vessels. State- controlled Shipping Corp. of India Ltd. may order vessels worth as much as $8 billion over five years as it doubles capacity, according to Mantrana Maritime Advisory Pvt.

ABG Shipyard climbed 4.6 percent to 474.8 rupees in Mumbai trading, compared with a 1.6 percent gain in the benchmark Sensitive Index. Bharati rose 1.2 percent to 267.65 rupees and Pipavav Shipyard Ltd., India’s biggest shipbuilder by market value, climbed 1.4 percent to 89.25 rupees.

“If you have delivered one large ship, then there is a track record,” said Anand Sharma, a director at the Mumbai- based industry consultant. “These firms can then go to the market and seek more business.”

Shipbuilding Growth

Prime Minister Manmohan Singh’s government is keen to develop shipbuilding to pare reliance on overseas suppliers and to help grow exports. The nation wants to raise its share of the global shipbuilding market to 5 percent from 1.25 percent by 2017, Shipping Secretary K. Mohandas said on Sept 28.

Shipping Corp., the nation’s largest sea-cargo carrier, operated 80 vessels at the end of March. The Mumbai-based company has previously ordered ships from yards including South Korea’s Hyundai Heavy Industries Co. and Daewoo Shipbuilding & Marine Engineering Co. and China’s Jinling Shipyard, according to its website.

The shipping line is set to order new vessels as world trade rebounds from last year’s global recession. Global trade volumes will rise 9 percent this year and 6.3 percent in 2011, according to estimates by the Washington-based International Monetary Fund. They shrank 11.3 percent last year.

India’s economy, Asia’s third-largest after Japan and China, has averaged 8.5 percent growth over the past five years. That’s helped the country double its share of world trade to 1.5 percent, according to the nation’s trade ministry.

India May Keep Nuclear Law, Won't Shield General Electric as Obama Visits

India is unlikely to alter its nuclear law to shield General Electric Co. and other U.S. equipment suppliers from accident claims, derailing hopes of deals during President Barack Obama’s visit starting Nov. 6.

“There is no question of tweaking or changing the law -- that’s not possible,” Prithviraj Chavan, minister for science and technology, said in an interview yesterday. Rules will be set to define the responsibility of each stakeholder, he said.

U.S. companies have refrained from signing contracts for a share of $175 billion of nuclear power projects planned in India, which wants to boost atomic generation 13-fold by 2030. India enacted a bill in August that makes suppliers such as GE, whose equipment generates about one-third of the world’s power, potentially liable in the event of a nuclear accident.

Prime Minister Manmohan Singh’s government added the clause allowing compensation claims against suppliers to gain enough lawmaker votes to pass the bill before Obama’s visit.

The South Asian nation set a 15 billion rupee ($337 million) cap on payouts by state-owned Nuclear Power Corp. of India, with the government responsible for damages beyond that. After paying compensation, the atomic power monopoly can seek money from suppliers for defective equipment or material.

Unavoidable Risk

“This is the risk the American companies have to take,” said Bharat Karnad, a security analyst at the New Delhi-based Centre for Policy Research. “There is no way around it. The parliamentary act on nuclear liability overrides any obligation India may have, like the Convention on Supplementary Compensation for Nuclear Damage.”

India, which signed the convention in Vienna last week, needs suppliers, including GE Hitachi Nuclear Energy and Westinghouse Electric Co., to meet its nuclear power generation target. The signing is a positive step that provides an internationally established system of liability protection for the benefit of all parties, GE said in an e-mailed statement Oct. 29. Westinghouse and France’s Areva SA didn’t respond to e- mails seeking comment.

U.S. companies, trailing their French and Russian state- owned rivals, which have sovereign backing, have held talks with India’s nuclear operator.

“We’ve had a series of discussions with the U.S. suppliers and we are confident that some kind of agreement will be worked out,” Jagdeep Ghai, finance director at Nuclear Power, said Oct. 30.

France, Russia

Areva, the world’s biggest maker of atomic reactors, is awaiting French parliamentary and regulatory approvals to sign contracts with Nuclear Power. Russian companies won orders for as many as 16 nuclear reactors from India during Prime Minister Vladimir Putin’s visit to the country in March.

India won access to atomic fuels and technology in September 2008 after the 45-member Nuclear Suppliers Group lifted a three-decade ban on exports to the country on a proposal made by former President George W. Bush after the two countries signed a civilian nuclear accord.

“The main story is we have fulfilled all the commitments made to President Bush in 2005,” Chavan said, referring to obligations under the Indo-U.S. nuclear agreement. “We are hopeful that all companies will come and do business with us.”

In Air Cargo Business, It’s Speed vs. Screening, Creating a Weak Link in Security

It is an essential lubricant of the global economy — the multibillion-dollar air cargo industry, which every day carries millions of express packages of every shape and size around the world, parcels that can include things as diverse as an electronic component and a human body part.

But the discovery last week that terrorists had used United Parcel Service and FedEx to ship two explosive devices has set off a debate over what can be done to improve cargo security without damaging a business built on getting packages anywhere, quickly and cheaply.

The Obama administration is expected to announce measures soon to tighten the screening of air cargo, an area long viewed by experts as a weak link in post-9/11 security procedures. But several transportation experts say that placing a 100 percent screening requirement on cargo carriers — like the one that now exists for cargo placed on passenger airlines — would cause the system of express air delivery to grind to a halt.

Those experts note that most shipments carried by air — about 80 percent — come from frequent customers who have longstanding relationships and security programs in place. The greatest risks, they say, involve “one-off” packages by random customers, like the recent explosive-laden shipments from Yemen headed to Chicago that initially eluded detection.

“You cannot stop the flow of time-sensitive air freight,” said Yossi Sheffi, the director of the Center for Transportation and Logistics at the Massachusetts Institute of Technology. “It is simply not realistic.”

Officials at the Transportation Security Administration declined Monday to discuss what new steps might be imposed. But aides on Capitol Hill said they expected the Obama administration to demand physical inspection of certain “high risk” cargo carried on all-cargo flights, particularly shipments coming from nations where terror groups are known to operate, like Yemen.

The administration is also considering demanding more notice about the contents on cargo flights bound for the United States, so officials can perhaps intervene to request additional screening before a flight takes off. The current requirement for cargo manifests is four hours before the flight is scheduled to arrive.

Experts say air cargo poses unique dilemmas because of the vast volume of packages and the patchwork system of regulations governing inspections. In addition, air cargo moves both on airlines that carry only freight and on passenger planes. And the freight industry is by no means uniform. There are giant players like FedEx and U.P.S. and hundreds of small companies.

For now, freight carried on all-cargo planes does not have as stringent screening requirements as freight on passenger planes. Also, foreign carriers that bring cargo into the United States operate by their own sets of rules, which vary significantly from country to country.

“The issue is you don’t have a seamless set of standards that apply globally from end to end in the global network with the same level of sensitivity,” said Robert W. Mann Jr., an aviation industry expert in Port Washington, N.Y.

Still, T.S.A. officials emphasized Monday that even with the latest incident, air cargo security has improved in recent years, as demanded by Congress, particularly on domestic passenger flights, where cargo is now always inspected for threats before it is loaded.

“We have taken significant steps to strengthen the security of international air cargo,” John S. Pistole, the T.S.A. administrator, said in a statement. “T.S.A. will continue to evolve our security procedures.”

Every day, 20 million pounds of cargo, or 16 percent of the total freight carried by air into or out of the United States, are transported by passenger planes, according to the International Air Cargo Association. The vast majority, or 84 percent, is carried on cargo planes.

“Screening all these packages is not as easy as screening passengers — it’s a much more difficult thing to do and do effectively,” said Edmund S. Greenslet, the publisher of The Airline Monitor, an industry trade publication. “It’s the weak link in the whole airline system.”

The air cargo system is built into the way many companies do business. Medtronic, the world’s biggest producer of medical devices, for example, built a distribution center near a FedEx hub in Memphis to send out thousands of devices like spinal implants and heart pacemakers daily to hospitals worldwide.

The way cargo is packed also makes it difficult to inspect. For example, many containers of goods headed to the United States arrive at airports shrink-wrapped and are given an exemption from the inspection requirement, said Stephen M. Lord, director of homeland security and justice at the Government Accountability Office.

ONGC eyes Angolan assets of Exxon and Total

India’s largest oil group is considering acquiring ExxonMobil’s and Total’s oil assets in Angola, in the latest effort by the state-run group to secure overseas resources to help the country achieve its double-digit growth aspirations.

R.S. Sharma, chairman of Oil and Natural Gas Corp, told the Financial Times on Monday that he had met members of the Angolan government in New Delhi to discuss a number of opportunities, including buying the assets of the US and French oil majors. However, the Indian executive stressed that talks were at a very early stage and he did not specify how much ONGC would invest.

José Botelho de Vasconcelos, Angola’s oil minister, said Exxon and Total were planning to exit the country’s Block 31 oilfield and he added that the Angolan state-run Sonangol oil group was looking for new partners.

India’s growing dependence on energy imports has led the government to urge state-run groups to make at least one overseas acquisition this year, a move that is forcing Indian groups to join China in considering investment opportunities in countries such as Sudan and Angola.

However, in spite of the government’s push for more foreign deals, none of the big Indian state-run groups has been able to seal a deal in the past 18 months as they suffer competition from their financially stronger Chinese rivals.

“The competition from Chinese giants makes life for Indian companies much harder,” said an oil and gas analyst. “If the government wants state-run companies to buy assets, they need to give the oil and gas groups greater freedom to operate and compete with the Chinese.”

The last big deal made by a state-run group was ONGC’s acquisition of Imperial Energy, a London-listed company with most of its assets in Russia, for $2.1bn nearly two years ago.

This year, ONGC has been in talks to buy energy assets in Vietnam and Russia, but failed to reach an agreement on either front. Meanwhile, state-owned Oil India and Indian Oil Corp made a joint $642m take­over bid for Gulfsands Petroleum, which the Syria-focused oil explorer rejected.

“India desperately needs more oil and gas to help the country boost its growth and build the roads and infrastructure that the nation badly needs,” said Anjan Roy, an oil expert at the Federation of Indian Chambers of Commerce and Industry.

“Indian companies are trying to buy new assets and develop new ones in India but, at the moment, the country isn’t meeting its energy requirement targets.”