By David Blackwell
Published: March 5 2011 01:39 | Last updated: March 5 2011 01:39
When Infrastructure India moved from the full list to Aim last year it had a market capitalisation of £30m ($48.8m) and an interest in two projects – a hydroelectric scheme in Madhya Pradesh and a toll road in central India. This week it completed a transformational reverse takeover that has seen its market capitalisation leap to £120m.
It has a 50 per cent interest in eight more hydroelectric projects and a 38 per cent interest in a fast-growing container processing operation. The company also has more than £30m of cash after a placing at 60½p a share.
The latest projects were bought from Guggenheim Global Infrastructure Company (GGIC), a subsidiary of a US investment company, which now has a 45 per cent stake. The revamped board, which includes directors from GGIC, believes the placing and acquisitions will “materially augment the company’s presence and profile in India”.
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Saturday, March 5, 2011
Friday, March 4, 2011
Budget 2011: Gradual shift to GST track
By Bipin Sapra
The Budget aims at maintaining a sustainable economic growth , while the indirect tax proposals primarily focused on driving the current legislation towards the proposed Goods and Service Tax (GST) regime.
The Budget allays the fears of the industry by retaining the rate of excise duty and service tax at 10%. However, the duty rate on some goods liable to concessional rate of 4% has been increased to 5%. A large number of exemptions have also been withdrawn and excise duty levy of 1% has been introduced on certain goods. However, manufacturers have been given an option to either pay 1% duty without availing input credit or pay 5% duty and avail of credit of input taxes on goods and services. This levy could lead to potential ambiguity on the applicable rate of Countervailing Duty (equal to excise duty) when such notified goods are imported for the purpose of sale in India.
The inclusion of new services, including diagnostic testing and legal consultancy, and expansion in the scope of current taxable services (life insurance services, commercial coaching, business support etc.) in the service tax net has further been done to capture additional revenue lying untapped in the industry. This is aimed at cushioning any post-budget loss of revenue in the current economic fabric.
The introduction of point of taxation (POT) rules is another landmark development. The POT rules are a definitive step towards the GST regime as it envisages a paradigm shift of taxation from a 'payment basis' to 'accrual basis'. However, the proposed shift could entail more working capital requirements for service providers as they will not be allowed to wait for the actual realization of money from their clients to discharge service tax liability. It is important to note that the credit of tax would still be admissible on payment basis only.
Amendments have also been made in the export and import rules of service tax by changing the requirement for certain services from a recipient basis to a performance basis and vice versa.
One of the highlights of this year's Budget is the introduction of self-assessment in the Customs Act, for import and export goods. The proposed amendments provide for a more trust-based compliance management and allow the importer/exporter to self-assess his goods and pay appropriate duty. However, the Customs authorities have been given power to verify such assessment and in case of lapse, issue a speaking order levying appropriate duty.
The Cenvat Credit Rules-2004 has been amended with a view to remove long lasting ambiguities in the system. Some salient changes include amendments in the definition of 'inputs' to provide specific inclusions for goods used for manufacture and providing output services and exclude goods used in construction. Amendments in the definition of 'input service' have been made to exclude services used for personal consumption. Significant changes have also been introduced in the credit rules relating to reversal of credit on the provision of non-taxable and exempted goods and services.
In summary, the new Budget proposals are clearly major stepping stones towards the approaching GST regime. However, the synthesis of these changes with the current legislation will be the litmus test for the final rollout and hence will be keenly watched by the industry.
(Author is Tax Partner, Ernst & Young. Views expressed are personal.)
The Budget aims at maintaining a sustainable economic growth , while the indirect tax proposals primarily focused on driving the current legislation towards the proposed Goods and Service Tax (GST) regime.
The Budget allays the fears of the industry by retaining the rate of excise duty and service tax at 10%. However, the duty rate on some goods liable to concessional rate of 4% has been increased to 5%. A large number of exemptions have also been withdrawn and excise duty levy of 1% has been introduced on certain goods. However, manufacturers have been given an option to either pay 1% duty without availing input credit or pay 5% duty and avail of credit of input taxes on goods and services. This levy could lead to potential ambiguity on the applicable rate of Countervailing Duty (equal to excise duty) when such notified goods are imported for the purpose of sale in India.
The inclusion of new services, including diagnostic testing and legal consultancy, and expansion in the scope of current taxable services (life insurance services, commercial coaching, business support etc.) in the service tax net has further been done to capture additional revenue lying untapped in the industry. This is aimed at cushioning any post-budget loss of revenue in the current economic fabric.
The introduction of point of taxation (POT) rules is another landmark development. The POT rules are a definitive step towards the GST regime as it envisages a paradigm shift of taxation from a 'payment basis' to 'accrual basis'. However, the proposed shift could entail more working capital requirements for service providers as they will not be allowed to wait for the actual realization of money from their clients to discharge service tax liability. It is important to note that the credit of tax would still be admissible on payment basis only.
Amendments have also been made in the export and import rules of service tax by changing the requirement for certain services from a recipient basis to a performance basis and vice versa.
One of the highlights of this year's Budget is the introduction of self-assessment in the Customs Act, for import and export goods. The proposed amendments provide for a more trust-based compliance management and allow the importer/exporter to self-assess his goods and pay appropriate duty. However, the Customs authorities have been given power to verify such assessment and in case of lapse, issue a speaking order levying appropriate duty.
The Cenvat Credit Rules-2004 has been amended with a view to remove long lasting ambiguities in the system. Some salient changes include amendments in the definition of 'inputs' to provide specific inclusions for goods used for manufacture and providing output services and exclude goods used in construction. Amendments in the definition of 'input service' have been made to exclude services used for personal consumption. Significant changes have also been introduced in the credit rules relating to reversal of credit on the provision of non-taxable and exempted goods and services.
In summary, the new Budget proposals are clearly major stepping stones towards the approaching GST regime. However, the synthesis of these changes with the current legislation will be the litmus test for the final rollout and hence will be keenly watched by the industry.
(Author is Tax Partner, Ernst & Young. Views expressed are personal.)
Returns on Ulip pension plans to rise to 6% in FY12
MUMBAI: Returns on Unit-linked pension products are set to rise to 6% next fiscal after the central bank raised benchmark policy rates in 2010-11 to combat inflation.
The Insurance Regulatory and Development Authority , or Irda, the insurance watchdog had benchmarked that returns on these products should be 0.5%, or 50 basis points, over the reverse repo rate, the rate at which the Reserve Bank of India absorbs funds from banks.
The re-verse repo rate is now 5.75% after a series of rate increases. The Irda had mandated a 4.5% return on unit-linked pension plans last year and had also said that rates would be reviewed annually and vary between 3-6%.
Insurance companies are unhappy with the mandated returns saying that offering a guarantee will hurt their profitability. The share of unit-linked pension products in the overall product mix of insurers has fallen sharply. For insurers such as HDFC Life , the share of pension products which contributed over 30% to overall premium income has dropped to less than 1% after September.
“The structure of the product is such that it is a debt product. Why would anyone buy a product which is offering a return of 4.5% or 6% when inflation is at 9-10 % and the economy is growing at 9%? It is not a good proposition both from the insurer and the customer’s point of view,” said Amitabh Chaudhary MD and CEO of HDFC Life.
Compulsory life cover with pension product and an annuity of two-third of the accumulated sum are also discouraging sales for such products ac-cording to insurance firms. In the revised structure, new offerings by private insurance companies have been restricted to only single-premium, Ulips LIC is the only insurer to have a regular premium pension product guaranteeing a 4.5% return on an annual basis.
The Insurance Regulatory and Development Authority , or Irda, the insurance watchdog had benchmarked that returns on these products should be 0.5%, or 50 basis points, over the reverse repo rate, the rate at which the Reserve Bank of India absorbs funds from banks.
The re-verse repo rate is now 5.75% after a series of rate increases. The Irda had mandated a 4.5% return on unit-linked pension plans last year and had also said that rates would be reviewed annually and vary between 3-6%.
Insurance companies are unhappy with the mandated returns saying that offering a guarantee will hurt their profitability. The share of unit-linked pension products in the overall product mix of insurers has fallen sharply. For insurers such as HDFC Life , the share of pension products which contributed over 30% to overall premium income has dropped to less than 1% after September.
“The structure of the product is such that it is a debt product. Why would anyone buy a product which is offering a return of 4.5% or 6% when inflation is at 9-10 % and the economy is growing at 9%? It is not a good proposition both from the insurer and the customer’s point of view,” said Amitabh Chaudhary MD and CEO of HDFC Life.
Compulsory life cover with pension product and an annuity of two-third of the accumulated sum are also discouraging sales for such products ac-cording to insurance firms. In the revised structure, new offerings by private insurance companies have been restricted to only single-premium, Ulips LIC is the only insurer to have a regular premium pension product guaranteeing a 4.5% return on an annual basis.
BSE not so proud of this turnover spike
MUMBAI: Asia’s oldest bourse the Bombay Stock Exchange (BSE) has been witnessing a staff exodus over the past few months with several employees, including the top brass appointed to steer the exchange to new heights, parting ways with the organisation. Non-renewal or expiry of contracts, high top management expenses, improper human resource management, tension with the employees’ union and dwindling market share of the exchange have led to the exit of staff across various levels.
STAFF CHURNING
The BSE has recently asked some employees to leave due to underperformance, said officials from the exchange. Seniors, including James Shapiro, head-corporate strategy and Eric Czervionke, head–index and data, are in the process of quitting the organisation, sources said. Apart from this, Anjan Choudhury, chief technology officer is also in the process of leaving the organisation. While for some, the exchange did not renew contracts, others are leaving on natural expiry of their tenure, they said.
“A few expatriates who had joined two years ago would be leaving their positions to return to their respective home countries after successfully completing their assigned tasks in the first phase of the transformation of the BSE. Anjan Chaudhary will be leaving the BSE after completing his contract in March 2011. His replacement has already been hired,” said an official from the exchange.
The BSE had earlier hired experienced professionals like James Shapiro, Nehal Vora, Sayee Srinivasan, and Rahul Parulekar to strengthen its senior management. Shapiro joined the exchange along with other senior officials like Sayee Srinivasan, who came from Chicago Mercantile Exchange and is currently head of product strategy; former law and compliance director of DSP Merrill Lynch , Nehal Vora is head of planning and policy while Rahul Parulekar, who was managing director with Citigroup Global Markets is currently designated as chief business officer and head of markets at the BSE.
Other senior officials across various departments who have quit the organisation over the past one year include CFO LP Aggarwal, HR head Prasanna Rao, legal head Sunil Kapadia, company secretary Vishvesh Bhagat, chief general managers AA Tirodkar, Kevin D’Souza, and senior or additional general managers Sanjay Saksena, Vinay Pai, Kalyan Bose, Mayank Mehta, Rekha Karnik and Saji Cherian. In the past couple of years, the BSE has seen exit of some highprofile top executives. Prominent among them were chief executive officer Rajnikant Patel and chairman Shekhar Datta, chief operating officer Mahesh Soneji, and non-executive chairman Jagdish Capoor.
COST RATIONALISATION
Over two dozen employees from middle and junior levels have also quit due to mounting resentment, after the exchange embarked upon cost-cutting, including freezing dearness allowance despite surging inflation. However, when contacted the exchange declined to comment on any freeze in dearness allowance.
The exchange is carrying out cost-cutting measures at the middle and junior levels to rationalise the overall staff expense after they hired senior staff for exorbitant salaries. BSE’s shareholder director Vivek Kulkarni, who resigned a few months ago, in his letter to the capital market regulator Sebi wrote about the alleged high HR cost.
“The BSE now has around 10 people in its top management, whereas earlier there was just the CEO. I am not sure if the top heavy management has made any difference. Very high unjustified human resource expenses without any corresponding benefits are a cause for concern,” he wrote in his letter. The BSE’s employee costs rose to around Rs 56 crore for the financial year ending March 2010 compared with Rs 29 crore at the end of March 2009.
STAFF CHURNING
The BSE has recently asked some employees to leave due to underperformance, said officials from the exchange. Seniors, including James Shapiro, head-corporate strategy and Eric Czervionke, head–index and data, are in the process of quitting the organisation, sources said. Apart from this, Anjan Choudhury, chief technology officer is also in the process of leaving the organisation. While for some, the exchange did not renew contracts, others are leaving on natural expiry of their tenure, they said.
“A few expatriates who had joined two years ago would be leaving their positions to return to their respective home countries after successfully completing their assigned tasks in the first phase of the transformation of the BSE. Anjan Chaudhary will be leaving the BSE after completing his contract in March 2011. His replacement has already been hired,” said an official from the exchange.
The BSE had earlier hired experienced professionals like James Shapiro, Nehal Vora, Sayee Srinivasan, and Rahul Parulekar to strengthen its senior management. Shapiro joined the exchange along with other senior officials like Sayee Srinivasan, who came from Chicago Mercantile Exchange and is currently head of product strategy; former law and compliance director of DSP Merrill Lynch , Nehal Vora is head of planning and policy while Rahul Parulekar, who was managing director with Citigroup Global Markets is currently designated as chief business officer and head of markets at the BSE.
Other senior officials across various departments who have quit the organisation over the past one year include CFO LP Aggarwal, HR head Prasanna Rao, legal head Sunil Kapadia, company secretary Vishvesh Bhagat, chief general managers AA Tirodkar, Kevin D’Souza, and senior or additional general managers Sanjay Saksena, Vinay Pai, Kalyan Bose, Mayank Mehta, Rekha Karnik and Saji Cherian. In the past couple of years, the BSE has seen exit of some highprofile top executives. Prominent among them were chief executive officer Rajnikant Patel and chairman Shekhar Datta, chief operating officer Mahesh Soneji, and non-executive chairman Jagdish Capoor.
COST RATIONALISATION
Over two dozen employees from middle and junior levels have also quit due to mounting resentment, after the exchange embarked upon cost-cutting, including freezing dearness allowance despite surging inflation. However, when contacted the exchange declined to comment on any freeze in dearness allowance.
The exchange is carrying out cost-cutting measures at the middle and junior levels to rationalise the overall staff expense after they hired senior staff for exorbitant salaries. BSE’s shareholder director Vivek Kulkarni, who resigned a few months ago, in his letter to the capital market regulator Sebi wrote about the alleged high HR cost.
“The BSE now has around 10 people in its top management, whereas earlier there was just the CEO. I am not sure if the top heavy management has made any difference. Very high unjustified human resource expenses without any corresponding benefits are a cause for concern,” he wrote in his letter. The BSE’s employee costs rose to around Rs 56 crore for the financial year ending March 2010 compared with Rs 29 crore at the end of March 2009.
US equities slip despite strong jobs data
Friday 21.05 GMT. Stocks are lower after surging oil prices return to haunt a market that has taken slightly better-than-expected US jobs data in its stride.The FTSE All-World index is down 0.4 per cent, dragged lower by a 0.7 per cent slide for the S&P 500 in New York. Anxiety sees gold recovering a big chunk of Thursday’s fall.
Wall Street had briefly opened marginally higher after the US economy was shown to have generated 192,000 jobs in February against forecasts for a 185,000 gain. The unemployment rate fell from 9 per cent to 8.9 per cent.The jobs report is the latest in a slew of upbeat data that over the past couple of sessions had helped investors all but shrug off geopolitical concerns emanating from the Middle East and North Africa.Bulls were quick to portray Friday’s labour survey as a data sweet spot: robust enough to suggest the economic recovery is strengthening but, naturally for their purposes, not so robust that the Federal Reserve should consider tightening interest rates. A fall in Treasury yields supports this reasoning.But equity gains were fleeting with some traders disappointed that ebullient job “whisper” numbers – which may have been behind Thursday’s 1.7 per cent Wall Street bounce – had not been met, and as attention again turned to the rising oil price.“We so held hostage to Libya and oil right now, it’s hard to draw too many conclusions from trading,” said John Schlitz, chief US market technician at Instinet, an agency brokerage.
Nymex-traded crude breached $104 a barrel for the first time since September 2008 as dealers were spooked by reports of more fighting in Libya and civil unrest elsewhere in the region, with Friday usually the day when tensions are at their height.
Chatter in the market over recent days was that oil had lost some of its sentiment-determining heft. But that was easy to say when the price was pausing for breath. The action on Friday suggests that now investors have got the non-farm payrolls data out of their system, crude supply worries have moved back into focus.
Europe
Europe – Bourses opened with gains, as dealers discounted Wall Street’s drive higher into its close overnight. But these were lost as the US turned tail in its new session. The FTSE Eurofirst 300 fell 0.7 per cent and London’s FTSE 100 lost 0.2 per cent, as energy groups continued to reap the reward of the higher oil price, while banks struggled.
Commodities – Oil is showing signs that the bulls are still in command, as Mideast supply worries fester. Brent crude is up 1 per cent to $115.98 a barrel, while the US-based Nymex product is up 2.9 per cent to $104.81, having at one point touched $104.32.
Gold is rebounding after suffering a battering on Thursday, when it dropped nearly $25 from its peak, when broader market optimism encouraged the rejection of perceived haven bets. But risk aversion is back on Friday, again powering the precious metal, up 0.8 per cent to $1,427 an ounce. The industrial metal complex is slightly lower, following the drop in risk appetite, with copper down 0.3 per cent at $4.47 a pound.
Forex
Forex – It was initially deathly dull in the currency markets with traders unwilling to enter new positions ahead of the US jobs data. And there was surprisingly little movement in most major crosses once the news broke. The dollar index is down 0.1 per cent and near a four-month low at 76.37 and the euro is holding near its best levels since November on ECB rate hike expectations, currently $1.3958, up 0.1 per cent.
Rates
Rates – Core bond yields are moving lower as haven flows overpower any economic recovery-related selling. The benchmark 10-year US Treasury is down 7 basis points at 3.48 per cent.
The five-year “breakeven” spread, which measures the premium to own inflation-protected notes, is down 3 basis points to 2.21 per cent, suggesting a pull-back in growth hopes.
Asia Pacific
Asia-Pacific – Shares rose, paced by airlines and shipping groups, as more stable oil prices during the Asian session and positive US economic data overnight raised investors’ spirits.
The FTSE Asia Pacific index is up 1.1 per cent, with Tokyo’s Nikkei 225 up 1 per cent on renewed optimism about the global economic recovery and as the yen’s fall on Thursday encouraged buying of exporters.
Firmer resources stocks boosted Sydney by 1.2 per cent, while another day of net foreign fund buying pushed Korea’s Kospi index up 1.7 per cent. Korean builders rebounded on easing concerns over losses due to halted construction work in Libya.
Cathay Pacific Airways and China Southern Airlines rose strongly in Hong Kong, rebounding from the recent sell-off on fears of surging fuel prices. The Hang Seng index added 1.4 per cent, while the mainland’s Shanghai Composite closed near a four-month high, up 1.4 per cent, as banks were in demand.
Wall Street had briefly opened marginally higher after the US economy was shown to have generated 192,000 jobs in February against forecasts for a 185,000 gain. The unemployment rate fell from 9 per cent to 8.9 per cent.The jobs report is the latest in a slew of upbeat data that over the past couple of sessions had helped investors all but shrug off geopolitical concerns emanating from the Middle East and North Africa.Bulls were quick to portray Friday’s labour survey as a data sweet spot: robust enough to suggest the economic recovery is strengthening but, naturally for their purposes, not so robust that the Federal Reserve should consider tightening interest rates. A fall in Treasury yields supports this reasoning.But equity gains were fleeting with some traders disappointed that ebullient job “whisper” numbers – which may have been behind Thursday’s 1.7 per cent Wall Street bounce – had not been met, and as attention again turned to the rising oil price.“We so held hostage to Libya and oil right now, it’s hard to draw too many conclusions from trading,” said John Schlitz, chief US market technician at Instinet, an agency brokerage.
Nymex-traded crude breached $104 a barrel for the first time since September 2008 as dealers were spooked by reports of more fighting in Libya and civil unrest elsewhere in the region, with Friday usually the day when tensions are at their height.
Chatter in the market over recent days was that oil had lost some of its sentiment-determining heft. But that was easy to say when the price was pausing for breath. The action on Friday suggests that now investors have got the non-farm payrolls data out of their system, crude supply worries have moved back into focus.
Europe
Europe – Bourses opened with gains, as dealers discounted Wall Street’s drive higher into its close overnight. But these were lost as the US turned tail in its new session. The FTSE Eurofirst 300 fell 0.7 per cent and London’s FTSE 100 lost 0.2 per cent, as energy groups continued to reap the reward of the higher oil price, while banks struggled.
Commodities – Oil is showing signs that the bulls are still in command, as Mideast supply worries fester. Brent crude is up 1 per cent to $115.98 a barrel, while the US-based Nymex product is up 2.9 per cent to $104.81, having at one point touched $104.32.
Gold is rebounding after suffering a battering on Thursday, when it dropped nearly $25 from its peak, when broader market optimism encouraged the rejection of perceived haven bets. But risk aversion is back on Friday, again powering the precious metal, up 0.8 per cent to $1,427 an ounce. The industrial metal complex is slightly lower, following the drop in risk appetite, with copper down 0.3 per cent at $4.47 a pound.
Forex
Forex – It was initially deathly dull in the currency markets with traders unwilling to enter new positions ahead of the US jobs data. And there was surprisingly little movement in most major crosses once the news broke. The dollar index is down 0.1 per cent and near a four-month low at 76.37 and the euro is holding near its best levels since November on ECB rate hike expectations, currently $1.3958, up 0.1 per cent.
Rates
Rates – Core bond yields are moving lower as haven flows overpower any economic recovery-related selling. The benchmark 10-year US Treasury is down 7 basis points at 3.48 per cent.
The five-year “breakeven” spread, which measures the premium to own inflation-protected notes, is down 3 basis points to 2.21 per cent, suggesting a pull-back in growth hopes.
Asia Pacific
Asia-Pacific – Shares rose, paced by airlines and shipping groups, as more stable oil prices during the Asian session and positive US economic data overnight raised investors’ spirits.
The FTSE Asia Pacific index is up 1.1 per cent, with Tokyo’s Nikkei 225 up 1 per cent on renewed optimism about the global economic recovery and as the yen’s fall on Thursday encouraged buying of exporters.
Firmer resources stocks boosted Sydney by 1.2 per cent, while another day of net foreign fund buying pushed Korea’s Kospi index up 1.7 per cent. Korean builders rebounded on easing concerns over losses due to halted construction work in Libya.
Cathay Pacific Airways and China Southern Airlines rose strongly in Hong Kong, rebounding from the recent sell-off on fears of surging fuel prices. The Hang Seng index added 1.4 per cent, while the mainland’s Shanghai Composite closed near a four-month high, up 1.4 per cent, as banks were in demand.
Mahindra fixes Stallio's glitches
CHENNAI: The two-wheeler division of Mahindra & Mahindra has cranked up R&D surveillance of its parts and vendors to resolve the clutch and gear-shift problem that hit its first motorcycle Stallio within a month of its launch last October. The company, which halted production to fix hardness in the clutch and gearshift in some of its bikes, will relaunch the 100 cc Stallio with the necessary changes in June. The problem, says Anoop Mathur, president-two-wheeler sector, M&M, was "variability in some parts that led to this issue on a small percentage of bikes in the field". In other words, "some components of the bike did not perform according to "standard expectation". That inconsistency resulted in a couple of complaints.
"When we launched the Stallio we had great demand and we were ramping up production and supplies through October and November," says Mathur. "Mid December we received some feedback on hardness of clutch and related difficulty in gear shifting in some of the motorcycles. Although this was not a sizable number, we immediately went into analysis mode." The company decided to scale down production of the bike sometime in mid January and a month later says it has fixed the issue "from vendor to end product".
M&M's two-wheeler division kicked off with scooters which has done well for the company totting up total numbers of over 200,000 units since its entry into two-wheelers. When the Stallio's problem cropped up, the company roped in Engines Engineering, the Italian group company that was involved in the design of the Stallio to make sure there were no design defects or manufacturing faults. Its in-house R&D team led the effort and when both design and manufacturing emerged clean, they went "back right to the starting point of the production of that part tracing it to its final installation in the bike" to sort out the problem.
The company decided to settle the issue instead of waiting for the number of complaints to snowball because it's new in the motorcycle market and is more interested in building long-term brand credibility than short-term numbers. With its star debutant Mojo due this festive season, the brand needed to take "pre-emptive action" to establish its credentials. "We have taken necessary action which will take care of all future production," says Mathur. "We expect to be back in full production soon as we have also been facing some component shortages and are resolving this as we speak."
Analysts say the company's decision to halt production is a smart move. "The good thing about the Stallio is that M&M didn't sell too many vehicles before taking action so there weren't too many bikes on the road for the problem to be noticed on a large scale before it was rectified," says Mahantesh Sabarad, senior analyst with Mumbai-based Fortune Financial Services. He says glitches are not a big deal in the two-wheeler market where the established players fix bugs long after a product has sold considerable numbers in the market. "Two-wheeler buyers don't upgrade to a higher product within the same brand, they upgrade to a car," says Sabarad. "The 100 cc bike market is a commodity market. There's not much brand behaviour there."
"When we launched the Stallio we had great demand and we were ramping up production and supplies through October and November," says Mathur. "Mid December we received some feedback on hardness of clutch and related difficulty in gear shifting in some of the motorcycles. Although this was not a sizable number, we immediately went into analysis mode." The company decided to scale down production of the bike sometime in mid January and a month later says it has fixed the issue "from vendor to end product".
M&M's two-wheeler division kicked off with scooters which has done well for the company totting up total numbers of over 200,000 units since its entry into two-wheelers. When the Stallio's problem cropped up, the company roped in Engines Engineering, the Italian group company that was involved in the design of the Stallio to make sure there were no design defects or manufacturing faults. Its in-house R&D team led the effort and when both design and manufacturing emerged clean, they went "back right to the starting point of the production of that part tracing it to its final installation in the bike" to sort out the problem.
The company decided to settle the issue instead of waiting for the number of complaints to snowball because it's new in the motorcycle market and is more interested in building long-term brand credibility than short-term numbers. With its star debutant Mojo due this festive season, the brand needed to take "pre-emptive action" to establish its credentials. "We have taken necessary action which will take care of all future production," says Mathur. "We expect to be back in full production soon as we have also been facing some component shortages and are resolving this as we speak."
Analysts say the company's decision to halt production is a smart move. "The good thing about the Stallio is that M&M didn't sell too many vehicles before taking action so there weren't too many bikes on the road for the problem to be noticed on a large scale before it was rectified," says Mahantesh Sabarad, senior analyst with Mumbai-based Fortune Financial Services. He says glitches are not a big deal in the two-wheeler market where the established players fix bugs long after a product has sold considerable numbers in the market. "Two-wheeler buyers don't upgrade to a higher product within the same brand, they upgrade to a car," says Sabarad. "The 100 cc bike market is a commodity market. There's not much brand behaviour there."
India Jan local fuel sales up 6 pct y/y-govt
India's local oil product sales in January rose an annual 6 %, slower than the previous month as increased power generation and late winter rains softened diesel use, official data showed on Friday. Local oil product sales, a proxy for domestic oil demand in Asia's third-largest oil consumer, rose
to 12.05 million tonnes in January, the data showed. In December India's oil product demand rose an annual 7.9 %.
India has revised down its annual growth rate in fuel demand for this fiscal year to 4.7 % from 5.7 % as a normal monsoon after last year's drought dampened diesel demand from agriculture, which uses it for water pumps to irrigate land.
India is expected to consume 144.35 million tonnes of refined products in the current fiscal compared to initial estimates of 146.08 million tonnes, the data showed.
Diesel sales, which make up over a third of refined products consumption, rose an annual 6.3 % -- slower than the previous month.
For a table on India's oil products sales, imports and exports, see
Petrol sales growth quickened in January to an annual 8.9 % versus 8.7 % in December, indicating that a 26.3 % jump in car sales had offset the impact of a petrol price hike.
India's crude imports declined an annual 25.4 % to 11.29 million tonnes or about 2.67 million barrels per day (bpd) in January, when refiners processed 8.7 % more crude at 3.6 million bpd.
The data for January does not include estimated imports and exports for Reliance's export-focused 580,000 bpd refinery at Jamnagar, in western India.
Diesel exports fell 70.6 % in January, while petrol exports were down 42.5 % from a year ago. Oil products import rose 57.4 % while exports fell 44.3 % from a year ago.
to 12.05 million tonnes in January, the data showed. In December India's oil product demand rose an annual 7.9 %.
India has revised down its annual growth rate in fuel demand for this fiscal year to 4.7 % from 5.7 % as a normal monsoon after last year's drought dampened diesel demand from agriculture, which uses it for water pumps to irrigate land.
India is expected to consume 144.35 million tonnes of refined products in the current fiscal compared to initial estimates of 146.08 million tonnes, the data showed.
Diesel sales, which make up over a third of refined products consumption, rose an annual 6.3 % -- slower than the previous month.
For a table on India's oil products sales, imports and exports, see
Petrol sales growth quickened in January to an annual 8.9 % versus 8.7 % in December, indicating that a 26.3 % jump in car sales had offset the impact of a petrol price hike.
India's crude imports declined an annual 25.4 % to 11.29 million tonnes or about 2.67 million barrels per day (bpd) in January, when refiners processed 8.7 % more crude at 3.6 million bpd.
The data for January does not include estimated imports and exports for Reliance's export-focused 580,000 bpd refinery at Jamnagar, in western India.
Diesel exports fell 70.6 % in January, while petrol exports were down 42.5 % from a year ago. Oil products import rose 57.4 % while exports fell 44.3 % from a year ago.
Thursday, March 3, 2011
Traders build 'short' bets as they see Nifty moving in a band
MUMBAI: Stock traders are taking a new bet based on a belief that the relief rally may be a shortlived one and that the spiralling crude price will trigger a sell-off whenever stocks move up.
Derivatives analysts say that institutional investors are writing calls at higher levels, pocketing good premium while going long on Bank Nifty which they bet may outperform the market in the near term. High inflation, tight liquidity and a hawkish interest rates view have led to a derating of bank stocks over the past three months. But bankers say that the liquidity position would improve in April, when demand for funds drop.
This, together with banks’ ability to pass on higher interest rate to borrowers, could revive bank counters. Traders have been building long futures positions in stocks, like ICICI Bank , SBI , IDBI, Bank of Baroda and OBC. “The Bank Nifty has seen a good long build-up in the past two days, at an average price of around 10600-10650 ,” said Manoj Murlidharan , AVP-derivatives at broking firm IIFL India. “We expect the Bank Nifty to outperform in the short term and anticipate it to go up to 11500 levels,” he added.
On Thursday, the Bank Nifty closed at 10914.50, up marginally by 0.27% from its previous close. There has been fresh addition of almost 70,000 shares in open interest in the Bank Nifty futures while the open interest in Nifty futures shed by almost 4.5 lakh shares. Some traders are unwinding Nifty futures, selling Nifty call option and using the money received from premium to go long on the Bank Nifty. Many in the market are resorting to a different trading strategy. Here, traders are selling call options of strike 5700 and put options 5300 on the lower side, which bets on a range-bound of the Nifty. This is known as “short strangle” .
The “short strangle” strategy entails selling a put option with a lower strike and selling a call option with a higher strike price with the same expiration date. This is a limited profit strategy, where a maximum profit accrues if the index ranges between the strike prices of the options sold. At expiry, both the options positions off set each other and the option writer pockets the entire premium from the two trades.
But the big downside is that losses on such positions can be unlimited if the market moves sharply up or down. “Brokers as well as select institutions are entering into short strangles to receive high premium . But, the risk is that volatility could increase in the next few days due to fluctuations in global crude prices ,” said Shailesh Kadam , AVP-Derivatives , PINC. So, its a high risk, high reward game and retail investors should stay out of it, he said.
Derivatives analysts say that institutional investors are writing calls at higher levels, pocketing good premium while going long on Bank Nifty which they bet may outperform the market in the near term. High inflation, tight liquidity and a hawkish interest rates view have led to a derating of bank stocks over the past three months. But bankers say that the liquidity position would improve in April, when demand for funds drop.
This, together with banks’ ability to pass on higher interest rate to borrowers, could revive bank counters. Traders have been building long futures positions in stocks, like ICICI Bank , SBI , IDBI, Bank of Baroda and OBC. “The Bank Nifty has seen a good long build-up in the past two days, at an average price of around 10600-10650 ,” said Manoj Murlidharan , AVP-derivatives at broking firm IIFL India. “We expect the Bank Nifty to outperform in the short term and anticipate it to go up to 11500 levels,” he added.
On Thursday, the Bank Nifty closed at 10914.50, up marginally by 0.27% from its previous close. There has been fresh addition of almost 70,000 shares in open interest in the Bank Nifty futures while the open interest in Nifty futures shed by almost 4.5 lakh shares. Some traders are unwinding Nifty futures, selling Nifty call option and using the money received from premium to go long on the Bank Nifty. Many in the market are resorting to a different trading strategy. Here, traders are selling call options of strike 5700 and put options 5300 on the lower side, which bets on a range-bound of the Nifty. This is known as “short strangle” .
The “short strangle” strategy entails selling a put option with a lower strike and selling a call option with a higher strike price with the same expiration date. This is a limited profit strategy, where a maximum profit accrues if the index ranges between the strike prices of the options sold. At expiry, both the options positions off set each other and the option writer pockets the entire premium from the two trades.
But the big downside is that losses on such positions can be unlimited if the market moves sharply up or down. “Brokers as well as select institutions are entering into short strangles to receive high premium . But, the risk is that volatility could increase in the next few days due to fluctuations in global crude prices ,” said Shailesh Kadam , AVP-Derivatives , PINC. So, its a high risk, high reward game and retail investors should stay out of it, he said.
Mid, small-cap exposure dents diversified funds
NEW DELHI: Diversified stock funds lagged the benchmark Sensex in February, as exposure to mid- and small-cap shares and sectors like capital goods hurt net asset values, or NAVs.
Diversified funds fell 4.66% on an average during the month, compared with a 2.75% fall in the Sensex, data from global fund tracker Lipper, a Thomson Reuters company, showed.
"There is no predictability at all, there are no sectoral moves... sometimes it (market) is getting impacted by global cues," said TP Raman, managing director at Sundaram Mutual Fund.
Equity diversified funds with significant exposure to mid- and small-cap firms bore the brunt as the BSE Mid-cap index declined 7.2% and the small-cap index dropped 7.8% in February.
Though money managers have reduced exposure to such stocks in recent months, these companies still accounted for more than 30% of assets as of January-end, Morningstar India data showed.
Exposure to capital goods - a favourite with fund managers - which accounted for nearly a quarter of assets, also affected NAVs as the sectoral index fell 8.3% during February.
"Funds with higher exposure to realty, healthcare, capital goods and auto sectors took a harder knock on their chin during the month," said Dhruva Raj Chatterji, senior research analyst at Morningstar India.
Among sectoral funds, schemes which bet on pharma stocks lost 6.9% in February, as the healthcare index posted a drop of 8.32%.
Diversified equity funds had 6.6% of their assets allocated to cash at end-January, their highest level since February 2010, data showed.
Fund managers have increased their allocation to cash, as a spate of corruption scandals, high inflation and rising crude oil prices dented sentiment and led to a fall in key indices.
"It appears that some of the funds which took larger cash calls during the correction may also have buffered themselves a bit amidst the turmoil," Mr Chatterji said.
Indian fixed income funds investing in government debt saw net values rise 0.67% in February, as the yield on the actively traded benchmark bond fell eight basis points in the month.
India's gold exchange-traded funds (ETFs) gained 3.8% in February as the price of the yellow metal jumped on the back of political turmoil in Libya.
On the continuous charts in India, gold futures ended February at 20,923 per 10 grams, up 5% for the month. -Reuters
Diversified funds fell 4.66% on an average during the month, compared with a 2.75% fall in the Sensex, data from global fund tracker Lipper, a Thomson Reuters company, showed.
"There is no predictability at all, there are no sectoral moves... sometimes it (market) is getting impacted by global cues," said TP Raman, managing director at Sundaram Mutual Fund.
Equity diversified funds with significant exposure to mid- and small-cap firms bore the brunt as the BSE Mid-cap index declined 7.2% and the small-cap index dropped 7.8% in February.
Though money managers have reduced exposure to such stocks in recent months, these companies still accounted for more than 30% of assets as of January-end, Morningstar India data showed.
Exposure to capital goods - a favourite with fund managers - which accounted for nearly a quarter of assets, also affected NAVs as the sectoral index fell 8.3% during February.
"Funds with higher exposure to realty, healthcare, capital goods and auto sectors took a harder knock on their chin during the month," said Dhruva Raj Chatterji, senior research analyst at Morningstar India.
Among sectoral funds, schemes which bet on pharma stocks lost 6.9% in February, as the healthcare index posted a drop of 8.32%.
Diversified equity funds had 6.6% of their assets allocated to cash at end-January, their highest level since February 2010, data showed.
Fund managers have increased their allocation to cash, as a spate of corruption scandals, high inflation and rising crude oil prices dented sentiment and led to a fall in key indices.
"It appears that some of the funds which took larger cash calls during the correction may also have buffered themselves a bit amidst the turmoil," Mr Chatterji said.
Indian fixed income funds investing in government debt saw net values rise 0.67% in February, as the yield on the actively traded benchmark bond fell eight basis points in the month.
India's gold exchange-traded funds (ETFs) gained 3.8% in February as the price of the yellow metal jumped on the back of political turmoil in Libya.
On the continuous charts in India, gold futures ended February at 20,923 per 10 grams, up 5% for the month. -Reuters
Wednesday, March 2, 2011
India most profitable market for StanChart
MUMBAI: For the first time ever, India has emerged as the most profitable market for Standard Chartered Bank. Profits from the bank's Indian operations have touched $1.19 billion, up 13% from last year's $1.06 billion.
Until last year, Hong Kong was the largest market for StanChart in terms of profits. This year the profits from the special administrative region of China at $1.10 billion are behind that of India. StanChart, which has a presence in 70 markets globally, now generates one fifth of its profits from India.
The results for 2010 are part of the bank's global balance sheet which has the calendar year as the accounting year. For 2010, the bank has reported a 19% jump in profit before tax to $6.12 billion on income of $16.06 billion, an increase of 6% over the previous year. The bank has announced dividend of 69.15 cents per share, an increase of 9% over last year.
StanChart, which led several deals last year including Bharti's acquisition of Zain Telecom and refinance of Tata Corus acquisition finance, has also been the market leader in M&A.
Its income from wholesale banking at $1.5 billion was more than three times consumer banking results ($493 million). In India, the bank's balance sheet grew 18-20% to $20 billion during the year.
"Our performance this year is not exceptional, it is in keeping with the consistent growth that we have posted record income and record profits as we gained market share," said Neeraj Swaroop, country head, India. He pointed out that the bank had recorded a five-year compounded annual growth rate of 38% in profits and 28% in income.
The 153-year-old bank, which was the first multinational to list in India following an Indian Depository Receipt issue, is also among the few banks that fall within RBI's description of systemically important - a term used for banks whose assets are more than 0.25% of the banking industry's assets. RBI in its discussion paper on the presence of multinational banks in India had said that systemically important multinational banks should preferably operate in India in the form of wholly-owned subsidiaries rather than branches. Swaroop said his bank would be sending its comments on the issue of wholly-owned subsidiaries to RBI by March 7.
Until last year, Hong Kong was the largest market for StanChart in terms of profits. This year the profits from the special administrative region of China at $1.10 billion are behind that of India. StanChart, which has a presence in 70 markets globally, now generates one fifth of its profits from India.
The results for 2010 are part of the bank's global balance sheet which has the calendar year as the accounting year. For 2010, the bank has reported a 19% jump in profit before tax to $6.12 billion on income of $16.06 billion, an increase of 6% over the previous year. The bank has announced dividend of 69.15 cents per share, an increase of 9% over last year.
StanChart, which led several deals last year including Bharti's acquisition of Zain Telecom and refinance of Tata Corus acquisition finance, has also been the market leader in M&A.
Its income from wholesale banking at $1.5 billion was more than three times consumer banking results ($493 million). In India, the bank's balance sheet grew 18-20% to $20 billion during the year.
"Our performance this year is not exceptional, it is in keeping with the consistent growth that we have posted record income and record profits as we gained market share," said Neeraj Swaroop, country head, India. He pointed out that the bank had recorded a five-year compounded annual growth rate of 38% in profits and 28% in income.
The 153-year-old bank, which was the first multinational to list in India following an Indian Depository Receipt issue, is also among the few banks that fall within RBI's description of systemically important - a term used for banks whose assets are more than 0.25% of the banking industry's assets. RBI in its discussion paper on the presence of multinational banks in India had said that systemically important multinational banks should preferably operate in India in the form of wholly-owned subsidiaries rather than branches. Swaroop said his bank would be sending its comments on the issue of wholly-owned subsidiaries to RBI by March 7.
Henkel India's MD quits
CHENNAI: Jayant K Singh, the managing director of Henkel India, has resigned from the board of directors under mysterious circumstances. Domenicoluca Mammola, the CFO of the company, has been elevated as the joint MD.
Company sources said that Singh resigned on February 23 and the necessary filings were made with the regulators. However, there has been no filing with the stock exchanges about the exit of Singh.
Even on Tuesday Henkel said that its board met on February 8 and "authorised Jayant Singh or its CFO Domenicoluca Mammola to negotiate and finalise the proposal to dispose the movable assets of the hair care division of Henkel".
"Between February 8 and now, there has been a lot of change at Henkel. The German parent (which holds 50.97% in the company), wants to bring in changes within to facilitate the restructuring process which is currently on. There are allegations within the company that Singh did not resign, instead he was asked to leave on performance related issues," sources said.
Singh could not be reached for comment. He joined Henkel India in February 2009 with over 15 years experience in the fast moving consumer goods (FMCG) industry across a number of blue-chip organisations including Procter & Gamble, Mars, Gillette and GlaxoSmithkline.
A spokesperson for the company said Jayant K Singh resigned as the MD and director of Henkel India with effect from February 22 and the board accepted it. "Therefore, the position of Jayant K Singh as managing director and director of Henkel India shall stand terminated as of February 22 (or such earlier date as may be agreed between Jayant Singh and Henkel India)."
Henkel India, a joint venture between Tamil Nadu Petroproducts and Henkel AG of Germany, is in the throes of change where it has mandated HSBC to restructure its Indian operations, which includes the sale of some of its businesses or the company as a whole.
Company sources said that Singh resigned on February 23 and the necessary filings were made with the regulators. However, there has been no filing with the stock exchanges about the exit of Singh.
Even on Tuesday Henkel said that its board met on February 8 and "authorised Jayant Singh or its CFO Domenicoluca Mammola to negotiate and finalise the proposal to dispose the movable assets of the hair care division of Henkel".
"Between February 8 and now, there has been a lot of change at Henkel. The German parent (which holds 50.97% in the company), wants to bring in changes within to facilitate the restructuring process which is currently on. There are allegations within the company that Singh did not resign, instead he was asked to leave on performance related issues," sources said.
Singh could not be reached for comment. He joined Henkel India in February 2009 with over 15 years experience in the fast moving consumer goods (FMCG) industry across a number of blue-chip organisations including Procter & Gamble, Mars, Gillette and GlaxoSmithkline.
A spokesperson for the company said Jayant K Singh resigned as the MD and director of Henkel India with effect from February 22 and the board accepted it. "Therefore, the position of Jayant K Singh as managing director and director of Henkel India shall stand terminated as of February 22 (or such earlier date as may be agreed between Jayant Singh and Henkel India)."
Henkel India, a joint venture between Tamil Nadu Petroproducts and Henkel AG of Germany, is in the throes of change where it has mandated HSBC to restructure its Indian operations, which includes the sale of some of its businesses or the company as a whole.
Monday, February 28, 2011
Indian business mildly positive about budget
Indian business broadly welcomed a budget that contained few surprises but lacked the sort of big push on reform necessary to disperse the clouds over the countries’ markets.
The benchmark Sensex index, which had declined by 13.7 per cent this year, rose by up to 3.2 per cent as Pranab Mukherjee, finance minister, delivered his budget speech, before falling back to close up by less than 1 per cent.
Govind Sankaranarayanan, chief financial officer of Tata Capital, the financial services arm of the Indian conglomerate, said: “Overall, most parts of industry should not be unhappy with this budget”.
The combined effect of souring sentiment towards emerging markets internationally and concerns over corruption scandals and stubbornly high inflation at home have weighed on Indian markets since late 2010.
The surge in oil prices brought on by convulsions in the Arab world added to unease that saw the Sensex suffer its steepest one-day fall in 16 months on Thursday.
While Mr Mukherjee’s plans calmed investors’ pre-budget nerves, it added little detail to expectations that the government would lift caps for foreign investment in sectors such as retail and insurance.
Rujan Panjwani, president of Edelweiss Capital, a Mumbai-based financial services group, said: “It was not a bad budget but for a change in mood you need some mega-shift to happen”.
Analysts and executives were cheered by the government’s commitment to trim the fiscal deficit to 4.6 per cent of gross domestic product this year from an estimated 5.1 per cent last year, even if there were some questions as to whether the target was realistic.
Jairaj Purandare, executive director in India at PwC, the auditor, said: “Given the backdrop of what’s been happening in the country these past few months, I think the finance minister would have been under great pressure to give in to different lobbies.
“Overall, he’s done a pretty good job.”
Ridham Desai, Morgan Stanley’s India strategist, welcomed as the budget’s “biggest positive impact on sentiment” the decision to allow foreigners who meet the market regulator’s “know-your-customer” requirements to invest in domestic mutual funds.
He said in a research note: “This opens up a new source of funding for the current account deficit as well as for Indian equities”.
Analysts also welcomed a doubling to $40bn the limit on foreign funds’ permitted holdings of Indian corporate bonds, as well as changes to taxes on dividends to encourage companies with foreign subsidiaries to repatriate profits.
There was, however, doubt for some sectors.
The IT industry, a mainstay of Indian international expansion, saw no extension of a tax holiday for software parks and no clarification on rules for services exporters, in what Ernst & Young described as a “dampener” for the sector on a day of otherwise good news.
Arun Nanda, a regional chairman of the Confederation of Indian Industry, summed up business reaction with his verdict: “Overall: better than we had expected.”
The benchmark Sensex index, which had declined by 13.7 per cent this year, rose by up to 3.2 per cent as Pranab Mukherjee, finance minister, delivered his budget speech, before falling back to close up by less than 1 per cent.
Govind Sankaranarayanan, chief financial officer of Tata Capital, the financial services arm of the Indian conglomerate, said: “Overall, most parts of industry should not be unhappy with this budget”.
The combined effect of souring sentiment towards emerging markets internationally and concerns over corruption scandals and stubbornly high inflation at home have weighed on Indian markets since late 2010.
The surge in oil prices brought on by convulsions in the Arab world added to unease that saw the Sensex suffer its steepest one-day fall in 16 months on Thursday.
While Mr Mukherjee’s plans calmed investors’ pre-budget nerves, it added little detail to expectations that the government would lift caps for foreign investment in sectors such as retail and insurance.
Rujan Panjwani, president of Edelweiss Capital, a Mumbai-based financial services group, said: “It was not a bad budget but for a change in mood you need some mega-shift to happen”.
Analysts and executives were cheered by the government’s commitment to trim the fiscal deficit to 4.6 per cent of gross domestic product this year from an estimated 5.1 per cent last year, even if there were some questions as to whether the target was realistic.
Jairaj Purandare, executive director in India at PwC, the auditor, said: “Given the backdrop of what’s been happening in the country these past few months, I think the finance minister would have been under great pressure to give in to different lobbies.
“Overall, he’s done a pretty good job.”
Ridham Desai, Morgan Stanley’s India strategist, welcomed as the budget’s “biggest positive impact on sentiment” the decision to allow foreigners who meet the market regulator’s “know-your-customer” requirements to invest in domestic mutual funds.
He said in a research note: “This opens up a new source of funding for the current account deficit as well as for Indian equities”.
Analysts also welcomed a doubling to $40bn the limit on foreign funds’ permitted holdings of Indian corporate bonds, as well as changes to taxes on dividends to encourage companies with foreign subsidiaries to repatriate profits.
There was, however, doubt for some sectors.
The IT industry, a mainstay of Indian international expansion, saw no extension of a tax holiday for software parks and no clarification on rules for services exporters, in what Ernst & Young described as a “dampener” for the sector on a day of otherwise good news.
Arun Nanda, a regional chairman of the Confederation of Indian Industry, summed up business reaction with his verdict: “Overall: better than we had expected.”
First Deep-Water Drilling Permit Issued Since Spill
WASHINGTON — The Interior Department said Monday that it had approved the first new deepwater drilling permit in the Gulf of Mexico since the BP explosion and spill last spring, a milestone after a period of intense uncertainty for industry and a wholesale remaking of the nation’s system of offshore oil and gas regulation.
Michael R. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said that Noble Energy had been granted permission to resume drilling in 6,500 feet of water off the coast of Louisiana.
Work on the well was suspended, along with virtually all other drilling activity in water deeper than 5,000 feet, immediately after the Deepwater Horizon accident last April 20. The disaster killed 11 rig workers and spewed nearly five million barrels of oil into the ocean.
Still, there was no indication that drilling in the gulf would return anytime soon to levels preceding the BP well blowout.
Mr. Bromwich made clear that each new permit would be closely reviewed on a well-by-well basis and that the old system of rapid approvals of drilling permits had been permanently changed. Noble Energy said it expected to resume drilling by late March.
Approval of the Noble Energy application comes as oil prices are rising in response to unrest in the Middle East and North Africa and many in Congress and in industry are complaining of burdensome rules that are thwarting the development of domestic energy resources.
The interior secretary, Ken Salazar, plans to testify before Congress this week in defense of his department’s budget and is certain to face harsh questioning about why it has taken so long to resume drilling in the gulf.
Judge Martin Feldman, of the United States District Court for the Eastern District of Louisiana, recently ordered the Obama administration to move quickly on permits for new deepwater wells in the gulf, saying that the continuing delays were “increasingly inexcusable.”
But in a conference call with reporters, Mr. Bromwich said that there were “absolutely no politics associated with the approval of this application.” He also said that the decision to grant Noble Energy the drilling permit was not a response to Judge Feldman’s order; he said the department disagreed with the ruling and was preparing a legal response.
It is not clear how quickly federal regulators will move to on the six pending deepwater drilling permits or how soon the normal flow of applications will resume after a nearly yearlong halt to deepwater activity.
“We are taking these applications to drill as they come in,” Mr. Bromwich said. “Industry has been waiting for signals that in fact deepwater drilling will be allowed to resume and many will take this as that signal.”
“I have no idea how quickly new applications to drill will be filed,” he added. “I have no idea how long it will take to approve the next one or the next one after that or the next one after that.”
Mr. Bromwich noted that Noble’s permit was the first in deep water since the BP accident but that 37 shallow-water applications had been approved over the last 10 months.
The decision was cautiously welcomed by the oil industry.
Gary Luquette, president of Chevron’s North America exploration and production, called the permit “a step in the right direction.” But he added, “It is time for the government to clear the backlog of deepwater drilling permit applications so industry can create the energy, jobs and economic growth our nation needs so badly.”
Lee Hunt, president of the International Association of Drilling Contractors, said the industry was seeking clarity on the pacing of additional permits. “A permit for any well prohibited by the moratorium represents progress,” he said. “The question now is how quickly will they proceed to approve other permits that are awaiting approval.”
Mr. Hunt said that six deepwater permits were awaiting federal approval and that the industry could put 33 projects back in operation if companies could obtain permits.
At least six rigs affected by the drilling moratorium, imposed last June, have left the gulf to drill elsewhere.
Mr. Bromwich said that Noble had met new safety and environmental rules that were put in place after the spill and had a contract with a company that was capable of capping a blowout and handling a discharge of as much as 69,000 barrels a day — roughly the same volume of oil that leaked from the crippled BP well for nearly three months.
The emergency well-capping system will be furnished by the Helix Well Containment Group, which Mr. Bromwich said was capable of meeting the government’s spill response requirements for the Noble Energy well.
Mr. Salazar and Mr. Bromwich were briefed in Houston on Friday by Helix executives and representatives of another group developing a new oil spill response system. The second group, a consortium of Exxon Mobil, Chevron, Shell, ConocoPhillips and BP, has developed a system meant to cap a well in up to 8,000 feet of water and collect 60,000 barrels of spilled oil a day.
The consortium is also working on a second system that by the end of the year will be capable of operating in up to 10,000 feet and contain 100,000 barrels a day.
Randall B. Luthi, former director of offshore drilling regulation at the Interior Department and now president of the National Ocean Industries Association, a drillers’ trade group, said the approval came at a critical moment. “With all the world-complicating factors, including rising oil prices, political turmoil in the Middle East and the loss of jobs in the Gulf of Mexico, this decision offers hope,” he said.
Jack Gerard, president of the American Petroleum Institute, sounded a less magnanimous note. “This slow-moving process continues to stifle domestic production and puts thousands of jobs at risk in the gulf and around the country,” he said.
Senator Mary Landrieu, the Louisiana Democrat who has pressed the administration to begin issuing deepwater permits at a steady clip, called the permit “long overdue,” adding “I hope that this permit is the first of many to come, and I will continue to use every lever at my disposal to ensure that it is.”
Michael R. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, said that Noble Energy had been granted permission to resume drilling in 6,500 feet of water off the coast of Louisiana.
Work on the well was suspended, along with virtually all other drilling activity in water deeper than 5,000 feet, immediately after the Deepwater Horizon accident last April 20. The disaster killed 11 rig workers and spewed nearly five million barrels of oil into the ocean.
Still, there was no indication that drilling in the gulf would return anytime soon to levels preceding the BP well blowout.
Mr. Bromwich made clear that each new permit would be closely reviewed on a well-by-well basis and that the old system of rapid approvals of drilling permits had been permanently changed. Noble Energy said it expected to resume drilling by late March.
Approval of the Noble Energy application comes as oil prices are rising in response to unrest in the Middle East and North Africa and many in Congress and in industry are complaining of burdensome rules that are thwarting the development of domestic energy resources.
The interior secretary, Ken Salazar, plans to testify before Congress this week in defense of his department’s budget and is certain to face harsh questioning about why it has taken so long to resume drilling in the gulf.
Judge Martin Feldman, of the United States District Court for the Eastern District of Louisiana, recently ordered the Obama administration to move quickly on permits for new deepwater wells in the gulf, saying that the continuing delays were “increasingly inexcusable.”
But in a conference call with reporters, Mr. Bromwich said that there were “absolutely no politics associated with the approval of this application.” He also said that the decision to grant Noble Energy the drilling permit was not a response to Judge Feldman’s order; he said the department disagreed with the ruling and was preparing a legal response.
It is not clear how quickly federal regulators will move to on the six pending deepwater drilling permits or how soon the normal flow of applications will resume after a nearly yearlong halt to deepwater activity.
“We are taking these applications to drill as they come in,” Mr. Bromwich said. “Industry has been waiting for signals that in fact deepwater drilling will be allowed to resume and many will take this as that signal.”
“I have no idea how quickly new applications to drill will be filed,” he added. “I have no idea how long it will take to approve the next one or the next one after that or the next one after that.”
Mr. Bromwich noted that Noble’s permit was the first in deep water since the BP accident but that 37 shallow-water applications had been approved over the last 10 months.
The decision was cautiously welcomed by the oil industry.
Gary Luquette, president of Chevron’s North America exploration and production, called the permit “a step in the right direction.” But he added, “It is time for the government to clear the backlog of deepwater drilling permit applications so industry can create the energy, jobs and economic growth our nation needs so badly.”
Lee Hunt, president of the International Association of Drilling Contractors, said the industry was seeking clarity on the pacing of additional permits. “A permit for any well prohibited by the moratorium represents progress,” he said. “The question now is how quickly will they proceed to approve other permits that are awaiting approval.”
Mr. Hunt said that six deepwater permits were awaiting federal approval and that the industry could put 33 projects back in operation if companies could obtain permits.
At least six rigs affected by the drilling moratorium, imposed last June, have left the gulf to drill elsewhere.
Mr. Bromwich said that Noble had met new safety and environmental rules that were put in place after the spill and had a contract with a company that was capable of capping a blowout and handling a discharge of as much as 69,000 barrels a day — roughly the same volume of oil that leaked from the crippled BP well for nearly three months.
The emergency well-capping system will be furnished by the Helix Well Containment Group, which Mr. Bromwich said was capable of meeting the government’s spill response requirements for the Noble Energy well.
Mr. Salazar and Mr. Bromwich were briefed in Houston on Friday by Helix executives and representatives of another group developing a new oil spill response system. The second group, a consortium of Exxon Mobil, Chevron, Shell, ConocoPhillips and BP, has developed a system meant to cap a well in up to 8,000 feet of water and collect 60,000 barrels of spilled oil a day.
The consortium is also working on a second system that by the end of the year will be capable of operating in up to 10,000 feet and contain 100,000 barrels a day.
Randall B. Luthi, former director of offshore drilling regulation at the Interior Department and now president of the National Ocean Industries Association, a drillers’ trade group, said the approval came at a critical moment. “With all the world-complicating factors, including rising oil prices, political turmoil in the Middle East and the loss of jobs in the Gulf of Mexico, this decision offers hope,” he said.
Jack Gerard, president of the American Petroleum Institute, sounded a less magnanimous note. “This slow-moving process continues to stifle domestic production and puts thousands of jobs at risk in the gulf and around the country,” he said.
Senator Mary Landrieu, the Louisiana Democrat who has pressed the administration to begin issuing deepwater permits at a steady clip, called the permit “long overdue,” adding “I hope that this permit is the first of many to come, and I will continue to use every lever at my disposal to ensure that it is.”
Asian Stocks Rise as U.S. Incomes, Falling Oil Boost Optimism; Honda Gains
Asian stocks rose for a third day as falling oil prices and U.S. data showing higher personal incomes boosted confidence in global economic growth prospects.
Honda Motor Co., Japan’s second-biggest carmaker, gained 1.3 percent in Tokyo as the yen also weakened. Sony Corp. Japan’s largest electronics exporter, advanced 0.7 percent. BHP Billiton Ltd., the world’s No. 1 mining company and Australia’s largest oil producer, climbed 0.7 percent in Sydney. Rival Rio Tinto Group rose 0.8 percent as copper prices advanced for the third straight session in New York yesterday.
The MSCI Asia Pacific Index added 0.5 percent to 138.24 at 9:32 a.m. in Tokyo. The gauge, which advanced 0.6 percent in February, dropped 2.1 percent last week as political unrest swept the Middle East.
“Although there’s still uncertainty about what’s happening in North Africa and the Middle East, easing crude futures are supportive” for the stock market, said Fumiyuki Nakanishi a strategist at Tokyo-based SMBC Friend Securities Co. “The data continues to show the economy is steadily improving.”
Japan’s Nikkei 225 Stock Average gained 0.8 percent. Australia’s S&P/ASX 200 Index rose 0.2 percent ahead of a central bank decision on interest rates. Markets in South Korea are closed today.
Futures on the Standard & Poor’s 500 Index rose 0.2 percent today. The index advanced 0.6 percent in New York yesterday after reports showed personal income improved more than economists expected and a measure of U.S. business conditions rose to its highest level in more than 22 years.
U.S. Incomes
In the U.S., incomes climbed 1 percent in January, exceeding the median forecast of economists surveyed and the most since May 2009, according to figures from the Commerce Department yesterday in Washington.
The Institute for Supply Management-Chicago Inc. said yesterday its business barometer rose to 71.2 in February, the highest level since July 1988, from 68.8 in January. Figures greater than 50 signal expansion. The gauge, which was projected to fall, exceeded every estimate of economists surveyed by Bloomberg News.
The MSCI Asia Pacific Index lost 0.2 percent through yesterday in 2011, compared with gains of 5.5 percent by the S&P 500 and 3.9 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.8 times estimated earnings on average, compared with 13.8 times for the S&P 500 and 11.4 times for the Stoxx 600.
Crude oil for April delivery declined 0.9 percent to settle at $96.97 a barrel in New York yesterday, the biggest daily drop since Feb. 11, after Saudi Arabia offered to make up for supplies lost because of unrest in Libya.
Yen Relief
The yen’s depreciation should also give a lift to Japan’s exporters today, SMBC’s Nakanishi said.
The currency fell to as low as 81.98 against the dollar, compared with 81.66 at the close of stock trading in Tokyo yesterday. Against the euro, Japan’s currency weakened to 113.35 from 112.39. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
Honda Motor Co., Japan’s second-biggest carmaker, gained 1.3 percent in Tokyo as the yen also weakened. Sony Corp. Japan’s largest electronics exporter, advanced 0.7 percent. BHP Billiton Ltd., the world’s No. 1 mining company and Australia’s largest oil producer, climbed 0.7 percent in Sydney. Rival Rio Tinto Group rose 0.8 percent as copper prices advanced for the third straight session in New York yesterday.
The MSCI Asia Pacific Index added 0.5 percent to 138.24 at 9:32 a.m. in Tokyo. The gauge, which advanced 0.6 percent in February, dropped 2.1 percent last week as political unrest swept the Middle East.
“Although there’s still uncertainty about what’s happening in North Africa and the Middle East, easing crude futures are supportive” for the stock market, said Fumiyuki Nakanishi a strategist at Tokyo-based SMBC Friend Securities Co. “The data continues to show the economy is steadily improving.”
Japan’s Nikkei 225 Stock Average gained 0.8 percent. Australia’s S&P/ASX 200 Index rose 0.2 percent ahead of a central bank decision on interest rates. Markets in South Korea are closed today.
Futures on the Standard & Poor’s 500 Index rose 0.2 percent today. The index advanced 0.6 percent in New York yesterday after reports showed personal income improved more than economists expected and a measure of U.S. business conditions rose to its highest level in more than 22 years.
U.S. Incomes
In the U.S., incomes climbed 1 percent in January, exceeding the median forecast of economists surveyed and the most since May 2009, according to figures from the Commerce Department yesterday in Washington.
The Institute for Supply Management-Chicago Inc. said yesterday its business barometer rose to 71.2 in February, the highest level since July 1988, from 68.8 in January. Figures greater than 50 signal expansion. The gauge, which was projected to fall, exceeded every estimate of economists surveyed by Bloomberg News.
The MSCI Asia Pacific Index lost 0.2 percent through yesterday in 2011, compared with gains of 5.5 percent by the S&P 500 and 3.9 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.8 times estimated earnings on average, compared with 13.8 times for the S&P 500 and 11.4 times for the Stoxx 600.
Crude oil for April delivery declined 0.9 percent to settle at $96.97 a barrel in New York yesterday, the biggest daily drop since Feb. 11, after Saudi Arabia offered to make up for supplies lost because of unrest in Libya.
Yen Relief
The yen’s depreciation should also give a lift to Japan’s exporters today, SMBC’s Nakanishi said.
The currency fell to as low as 81.98 against the dollar, compared with 81.66 at the close of stock trading in Tokyo yesterday. Against the euro, Japan’s currency weakened to 113.35 from 112.39. A weaker yen boosts the value of overseas income at Japanese companies when converted into their home currency.
Indian Tax Cuts, Spending Leave RBI With Burden to Check Prices
India’s plans to lower income taxes, increase wages and boost spending risk fueling price gains that will force the central bank to raise interest rates further.
Finance Minister Pranab Mukherjee yesterday unveiled plans to increase spending by 13.4 percent to 12.6 trillion rupees ($278.3 billion) for the financial year starting April 1. The government is boosting incomes through wider exemptions from individual tax payments, reduced costs for some housing loans and the allocation of 1.44 trillion rupees in subsidies.
“The budget hasn’t done enough to curb price pressures and the central bank may have to continue to do the heavy lifting to slow inflation,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “More rate actions are in the offing starting this month.”
Prime Minister Manmohan Singh’s government faces five state elections this year and said last week that its “foremost” priority is to curb inflation, which reduces purchasing power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day. The central bank has raised its benchmark rate seven times in the past year and signaled more increases at its last meeting in January.
Stocks Gain
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 0.7 percent yesterday and bonds gained as the government pledged to trim its budget shortfall. The Sensex has lost 13 percent this year, making it the world’s third-worst performing benchmark index, on concern government measures to quell inflation will hurt economic growth.
India’s $1.3 trillion economy expanded 8.2 percent last quarter, making it the fastest-growing major economy after China, government figures showed yesterday. The benchmark wholesale- price inflation rate averaged 9.4 percent in the nine months through December, the most in the past decade, the finance ministry said in a report on Feb. 25.
Singh’s budget must be approved by India’s parliament, where the ruling coalition has been battling opposition protests over corruption allegations for months. The final parliament session of 2010 was the least productive in 25 years.
Even as he reduced the income-tax burden, Mukherjee moved to boost levies in other areas that might contribute to price pressures. The finance chief included more services under the tax net to lift revenue. Taxes would now be collected from air- conditioned restaurants, hotels, airlines and hospitals.
Drug Prices
He also imposed an excise duty of 10 percent on branded garments and raised the levy on drugs, textiles and medical equipment to 5 percent from 4 percent. Cipla Ltd., an Indian drugmaker, plans to pass on the increase in excise duty on medicines to customers, its Chief Financial Officer S. Radhakrishnan said yesterday.
“I doubt the budget has anything very concrete to dent inflation,” said Samiran Chakraborty, a Mumbai-based chief economist at Standard Chartered Plc. “The burden of controlling inflation will be more on the monetary policy in the near term.”
From the next financial year, incomes below 180,000 rupees won’t be taxed, higher than the previous threshold of 160,000 rupees. Mukherjee also announced a 1 percent interest-rate subsidy for housing loans up to 1.5 million rupees and said the government will give cash to the poor to buy kerosene.
Rail Fares
India’s state-controlled railway operator last week said it will leave passenger and freight charges unchanged to help tackle inflation that accelerated to the fastest in a decade.
“The central bank is getting some help from the budget but not very much,” said Leif Eskesen, an economist at HSBC Holdings Plc in Singapore. “It has to carry the burden on really addressing the near-term inflation pressures.”
The finance ministry estimates GDP may grow as much as 9.25 percent in the year starting April 1. The government estimates growth in revenue will outpace outlays, forecasting the budget deficit will narrow to 4.6 percent of gross domestic product in the financial year starting April 1 from 5.1 percent of GDP in the previous year.
“The budget may be difficult to deliver in practice as growth assumptions are quite optimistic and they are relying on a significant compression of non-planned spending including a decline in the subsidy bill,” HSBC’s Eskensen said. “If delivered as planned, it will be contractionary. There may be more subsidy outlays later in the year.”
Deficit Reduction
Mukherjee cut taxes and stepped up government spending in 2008 and 2009 to provide stimulus worth more than 4 percent of GDP to cushion the Indian economy from the impact of the global financial crisis.
If the 4.6 percent fiscal deficit target “is met, then it will be a massive withdrawal of stimulus,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai. “It will be largest fiscal consolidation, if it is done, in the history of India.”
The government plans debt sales of 4.17 trillion rupees in the next financial year, less than the estimated 4.47 trillion rupees this year. Yields on benchmark 10-year government bonds were at 8.02 percent late yesterday in Mumbai, compared with the two-year high of 8.25 percent reached on Jan. 10, according to data compiled by Bloomberg.
The Reserve Bank is next expected to release its monetary policy decision on March 17. Governor Duvvuri Subbarao on Feb. 26 declined to comment on whether the central bank would take interest-rate action between scheduled monetary policy announcement days.
“Growth will slow down next year as the Reserve Bank of India tightening takes effect,” said Dharmakirti Joshi, a Mumbai-based economist at Crisil Ltd., the local unit of a Standard & Poor’s Ratings Services. “The government is taking steps to ease inflation in the budget and the RBI, on its part, will raise interest rates further.”
Finance Minister Pranab Mukherjee yesterday unveiled plans to increase spending by 13.4 percent to 12.6 trillion rupees ($278.3 billion) for the financial year starting April 1. The government is boosting incomes through wider exemptions from individual tax payments, reduced costs for some housing loans and the allocation of 1.44 trillion rupees in subsidies.
“The budget hasn’t done enough to curb price pressures and the central bank may have to continue to do the heavy lifting to slow inflation,” said Sonal Varma, an economist at Nomura Holdings Inc. in Mumbai. “More rate actions are in the offing starting this month.”
Prime Minister Manmohan Singh’s government faces five state elections this year and said last week that its “foremost” priority is to curb inflation, which reduces purchasing power in a nation where the World Bank estimates more than three-quarters of the people live on less than $2 a day. The central bank has raised its benchmark rate seven times in the past year and signaled more increases at its last meeting in January.
Stocks Gain
The Bombay Stock Exchange’s Sensitive Index, or Sensex, rose 0.7 percent yesterday and bonds gained as the government pledged to trim its budget shortfall. The Sensex has lost 13 percent this year, making it the world’s third-worst performing benchmark index, on concern government measures to quell inflation will hurt economic growth.
India’s $1.3 trillion economy expanded 8.2 percent last quarter, making it the fastest-growing major economy after China, government figures showed yesterday. The benchmark wholesale- price inflation rate averaged 9.4 percent in the nine months through December, the most in the past decade, the finance ministry said in a report on Feb. 25.
Singh’s budget must be approved by India’s parliament, where the ruling coalition has been battling opposition protests over corruption allegations for months. The final parliament session of 2010 was the least productive in 25 years.
Even as he reduced the income-tax burden, Mukherjee moved to boost levies in other areas that might contribute to price pressures. The finance chief included more services under the tax net to lift revenue. Taxes would now be collected from air- conditioned restaurants, hotels, airlines and hospitals.
Drug Prices
He also imposed an excise duty of 10 percent on branded garments and raised the levy on drugs, textiles and medical equipment to 5 percent from 4 percent. Cipla Ltd., an Indian drugmaker, plans to pass on the increase in excise duty on medicines to customers, its Chief Financial Officer S. Radhakrishnan said yesterday.
“I doubt the budget has anything very concrete to dent inflation,” said Samiran Chakraborty, a Mumbai-based chief economist at Standard Chartered Plc. “The burden of controlling inflation will be more on the monetary policy in the near term.”
From the next financial year, incomes below 180,000 rupees won’t be taxed, higher than the previous threshold of 160,000 rupees. Mukherjee also announced a 1 percent interest-rate subsidy for housing loans up to 1.5 million rupees and said the government will give cash to the poor to buy kerosene.
Rail Fares
India’s state-controlled railway operator last week said it will leave passenger and freight charges unchanged to help tackle inflation that accelerated to the fastest in a decade.
“The central bank is getting some help from the budget but not very much,” said Leif Eskesen, an economist at HSBC Holdings Plc in Singapore. “It has to carry the burden on really addressing the near-term inflation pressures.”
The finance ministry estimates GDP may grow as much as 9.25 percent in the year starting April 1. The government estimates growth in revenue will outpace outlays, forecasting the budget deficit will narrow to 4.6 percent of gross domestic product in the financial year starting April 1 from 5.1 percent of GDP in the previous year.
“The budget may be difficult to deliver in practice as growth assumptions are quite optimistic and they are relying on a significant compression of non-planned spending including a decline in the subsidy bill,” HSBC’s Eskensen said. “If delivered as planned, it will be contractionary. There may be more subsidy outlays later in the year.”
Deficit Reduction
Mukherjee cut taxes and stepped up government spending in 2008 and 2009 to provide stimulus worth more than 4 percent of GDP to cushion the Indian economy from the impact of the global financial crisis.
If the 4.6 percent fiscal deficit target “is met, then it will be a massive withdrawal of stimulus,” said Jahangir Aziz, an economist at JPMorgan Chase & Co. in Mumbai. “It will be largest fiscal consolidation, if it is done, in the history of India.”
The government plans debt sales of 4.17 trillion rupees in the next financial year, less than the estimated 4.47 trillion rupees this year. Yields on benchmark 10-year government bonds were at 8.02 percent late yesterday in Mumbai, compared with the two-year high of 8.25 percent reached on Jan. 10, according to data compiled by Bloomberg.
The Reserve Bank is next expected to release its monetary policy decision on March 17. Governor Duvvuri Subbarao on Feb. 26 declined to comment on whether the central bank would take interest-rate action between scheduled monetary policy announcement days.
“Growth will slow down next year as the Reserve Bank of India tightening takes effect,” said Dharmakirti Joshi, a Mumbai-based economist at Crisil Ltd., the local unit of a Standard & Poor’s Ratings Services. “The government is taking steps to ease inflation in the budget and the RBI, on its part, will raise interest rates further.”
Agriculture reform key to India budget
India is to embark on an overhaul of its struggling farm sector in an effort to cool rising food prices that have landed the country with the highest inflation of any leading Asian economy.
Pranab Mukherjee, India’s finance minister, put the rural economy at the heart of a national budget on Monday, saying ridding the farm sector of crippling supply bottlenecks would be his “focus” in the coming fiscal year.
A market-neutral budget supporting agriculture, welfare schemes and the extension of banking services to more people was designed to dispel any sense that the Congress party-led government was in drift after a series of high profile corruption scandals.
Yet its timidity was met with widespread criticism for failing to push forward a reform agenda.
Lord Desai, the economist and UK Labour peer, said: "It's a disappointing budget. The government has lost direction. All Pranab Mukherjee is doing is treading water.
“The government has decided to abandon the urban middle class and go to the rural areas."
Rajiv Kumar, the director of the Federation of Indian Chambers of Commerce and Industry, described the budget as"pro-growth" but holding no bold outcomes.
The 74-year-old finance minister assured parliament that India would hit 9 per cent growth next year, and cut its fiscal deficit to 4.6 per cent.
He warned that India needed to invest far more in agriculture to boost productivity and enlarge storage facilities to help reduce the spiralling prices of fruit and vegetables.
He announced a credit flow target of Rs4,750bn ($105bn) to the agriculture sector and offered a 3 per cent interest subsidy to farmers.
The finance minister stressed the need to achieve balanced nutrition in a country where severe malnutrition afflicts a large number of people, and to combat the degradation of the nation’s soil.
An immediate reduction in food prices is key to Manmohan Singh, India’s prime minister, in meeting a target of bringing inflation down to 7 per cent or below by the end of next month. Inflation was 8.2 per cent in January, while food prices were rising 11 per cent.
Mr Singh will be hoping that the measures announced on Monday will help knock down what he calls “the kingpin of India’s price structure” – high agricultural commodity prices.
Rising food prices in a country where an estimated 60 per cent of the 1.2bn population live off the land are one of Mr Singh’s worst problems of his second term in office. His government has been beset by price bubbles in such crops as onions and sugar that have hurt urban and rural populations.
Confronting a structural shift in the agricultural economy, where supply shortages, rising costs and market distortions have created unpopular price pressures, is one of New Delhi’s top priorities.
Duvvuri Subbarao, the governor of the Reserve Bank of India, called at the weekend for “major productivity gains” in a second Green Revolution to advance gains made as far back as the 1960s with more modern farming methods.
He said: “Since rural incomes are going up, people are eating better by shifting from cereal to protein and it is leading to food scarcity".
Farm reforms are long overdue, according to agriculture experts who claim the sector has been badly neglected.
Ashok Gulati, the Asia director of the International Food Policy Research Institute, said agriculture is “strangled” by government controls, suspension of futures markets and export bans.
He said: “Agriculture is crying for a clean sweep of market reforms as was done for industry [20 years ago],”.
Performance in the farm sector varies considerably across India. Some farmers have benefited from market prices and crop diversification, while others suffer hardship under the government’s minimum support price regime.
E Vadivel, former dean of the horticulture department at Tamil Nadu Agriculture University, said returns to Indian farmers were higher for fruits and vegetables over staple crops like rice and wheat.
He said: “I tell farmers, don’t go for paddy, pulses or oilseeds. Abandon these crops. They are all linked to the public distribution system, and the government will never allow the price to rise.”
Ranjit Singh Ghuman, head of economics at Punjabi University in Patiala, said the government had sleepwalked into an agrarian crisis where incomes were declining and rural people increasingly searching for other avenues of work.
He said: “The view was that the Green Revolution would take care of everything. There was no focus on the quality of education and skills to make the youth employable in non-farm sectors.
“But now the opportunity in farming is shrinking.”
Pranab Mukherjee, India’s finance minister, put the rural economy at the heart of a national budget on Monday, saying ridding the farm sector of crippling supply bottlenecks would be his “focus” in the coming fiscal year.
A market-neutral budget supporting agriculture, welfare schemes and the extension of banking services to more people was designed to dispel any sense that the Congress party-led government was in drift after a series of high profile corruption scandals.
Yet its timidity was met with widespread criticism for failing to push forward a reform agenda.
Lord Desai, the economist and UK Labour peer, said: "It's a disappointing budget. The government has lost direction. All Pranab Mukherjee is doing is treading water.
“The government has decided to abandon the urban middle class and go to the rural areas."
Rajiv Kumar, the director of the Federation of Indian Chambers of Commerce and Industry, described the budget as"pro-growth" but holding no bold outcomes.
The 74-year-old finance minister assured parliament that India would hit 9 per cent growth next year, and cut its fiscal deficit to 4.6 per cent.
He warned that India needed to invest far more in agriculture to boost productivity and enlarge storage facilities to help reduce the spiralling prices of fruit and vegetables.
He announced a credit flow target of Rs4,750bn ($105bn) to the agriculture sector and offered a 3 per cent interest subsidy to farmers.
The finance minister stressed the need to achieve balanced nutrition in a country where severe malnutrition afflicts a large number of people, and to combat the degradation of the nation’s soil.
An immediate reduction in food prices is key to Manmohan Singh, India’s prime minister, in meeting a target of bringing inflation down to 7 per cent or below by the end of next month. Inflation was 8.2 per cent in January, while food prices were rising 11 per cent.
Mr Singh will be hoping that the measures announced on Monday will help knock down what he calls “the kingpin of India’s price structure” – high agricultural commodity prices.
Rising food prices in a country where an estimated 60 per cent of the 1.2bn population live off the land are one of Mr Singh’s worst problems of his second term in office. His government has been beset by price bubbles in such crops as onions and sugar that have hurt urban and rural populations.
Confronting a structural shift in the agricultural economy, where supply shortages, rising costs and market distortions have created unpopular price pressures, is one of New Delhi’s top priorities.
Duvvuri Subbarao, the governor of the Reserve Bank of India, called at the weekend for “major productivity gains” in a second Green Revolution to advance gains made as far back as the 1960s with more modern farming methods.
He said: “Since rural incomes are going up, people are eating better by shifting from cereal to protein and it is leading to food scarcity".
Farm reforms are long overdue, according to agriculture experts who claim the sector has been badly neglected.
Ashok Gulati, the Asia director of the International Food Policy Research Institute, said agriculture is “strangled” by government controls, suspension of futures markets and export bans.
He said: “Agriculture is crying for a clean sweep of market reforms as was done for industry [20 years ago],”.
Performance in the farm sector varies considerably across India. Some farmers have benefited from market prices and crop diversification, while others suffer hardship under the government’s minimum support price regime.
E Vadivel, former dean of the horticulture department at Tamil Nadu Agriculture University, said returns to Indian farmers were higher for fruits and vegetables over staple crops like rice and wheat.
He said: “I tell farmers, don’t go for paddy, pulses or oilseeds. Abandon these crops. They are all linked to the public distribution system, and the government will never allow the price to rise.”
Ranjit Singh Ghuman, head of economics at Punjabi University in Patiala, said the government had sleepwalked into an agrarian crisis where incomes were declining and rural people increasingly searching for other avenues of work.
He said: “The view was that the Green Revolution would take care of everything. There was no focus on the quality of education and skills to make the youth employable in non-farm sectors.
“But now the opportunity in farming is shrinking.”
Sunday, February 27, 2011
JPMorgan Fund Seeks Minority Stake in Twitter
JPMorgan Chase’s new fund aimed at investing in social-media companies is seeking to buy a minority stake in Twitter that could value the micro-messaging site at close to $4.5 billion, people briefed on the matter told DealBook on Sunday.
It is not clear whether the fund, known as the J.P. Morgan Digital Growth Fund, will invest directly in Twitter or directly buy up current investors’ stakes with the company’s consent, these people said. They cautioned that talks were ongoing and may not lead to a deal.
Investments by the fund are expected to extend to other parts of the social-media universe, a broad and rapidly expanding group of companies ranging from the gaming giant Zynga to group-coupon providers like LivingSocial.
Spokesmen for Twitter and JPMorgan declined to comment.
The potential investment by the JPMorgan fund, which is being run out of the firm’s asset management unit, marks a rapid rise in Twitter’s valuation. Two months ago, the Internet company raised $200 million from a group of investors led by Kleiner Perkins Caufield & Byers at a $3.7 billion valuation.
Trading of Twitter shares on SharesPost, a secondary market, currently value the company at about $4.3 billion.
The Digital Growth Fund follows in the footsteps of a Goldman Sachs fund that raised about $1 billion from investors outside the United States to buy up a stake in Facebook, giving the social-networking giant a valuation of about $50 billion.
So far, the JPMorgan fund has raised about $1.22 billion from wealthy outside investors, and the firm expects to collect about $13 million in commissions, according to a regulatory filing made on Friday. The minimum investment is set at about $250,000, according to the filing.
The fund is comprised only of money from outside investors, and will not use any of JPMorgan’s own capital.
News of the JPMorgan fund’s plans was first reported on Sunday by The Financial Times.
It is not clear whether the fund, known as the J.P. Morgan Digital Growth Fund, will invest directly in Twitter or directly buy up current investors’ stakes with the company’s consent, these people said. They cautioned that talks were ongoing and may not lead to a deal.
Investments by the fund are expected to extend to other parts of the social-media universe, a broad and rapidly expanding group of companies ranging from the gaming giant Zynga to group-coupon providers like LivingSocial.
Spokesmen for Twitter and JPMorgan declined to comment.
The potential investment by the JPMorgan fund, which is being run out of the firm’s asset management unit, marks a rapid rise in Twitter’s valuation. Two months ago, the Internet company raised $200 million from a group of investors led by Kleiner Perkins Caufield & Byers at a $3.7 billion valuation.
Trading of Twitter shares on SharesPost, a secondary market, currently value the company at about $4.3 billion.
The Digital Growth Fund follows in the footsteps of a Goldman Sachs fund that raised about $1 billion from investors outside the United States to buy up a stake in Facebook, giving the social-networking giant a valuation of about $50 billion.
So far, the JPMorgan fund has raised about $1.22 billion from wealthy outside investors, and the firm expects to collect about $13 million in commissions, according to a regulatory filing made on Friday. The minimum investment is set at about $250,000, according to the filing.
The fund is comprised only of money from outside investors, and will not use any of JPMorgan’s own capital.
News of the JPMorgan fund’s plans was first reported on Sunday by The Financial Times.
Books Fly Off Unusual Shelves
Kitson, a group of boutiques based in Los Angeles, is the kind of store that appears regularly in the tabloids for both its stylish clothes and its celebrity clientele like Sean Combs and Joe Jonas.
But in a town that is all about flash, Kitson is finding a surprising source of revenue that is not from its fashionable shoes or accessories. It is from books.
The company’s owner, Fraser Ross, estimates that Kitson sold 100,000 books in 2010, double what it had the previous year.
Publishers turned aggressive about selling to Kitson, Mr. Ross said, as traditional bookstores switched focus or closed. That “has been good for us,” he said. “If there’s a good book, we’ll go deep into it.” And publishers, he said, “realize what a specialty store can do for their business, with the window and the table.”
Publishers have stocked books in nonbook retailers for decades — a coffee-table book in the home department, a novelty book in Urban Outfitters. In the last year, though, some publishers have increased their efforts as the two largest bookstore chains have changed course.
Barnes & Noble has been devoting more floor space for displays of e-readers, games and educational toys. Borders, after filing for bankruptcy protection in February, has begun liquidating some 200 of its superstores.
“The national bookstore chain has peaked as a sales channel, and the growth is not going to come from there,” said David Steinberger, chief executive of the Perseus Books Group. “But it doesn’t mean that all brick-and-mortar retailers are cutting back.”
A wide range of stores better known for their apparel, food and fishing reels have been adding books. The fashion designer Marc Jacobs opened Bookmarc in Manhattan in the fall. Anthropologie has increased the number of titles it carries to 125, up from 25 in 2003. Coldwater Creek, Lowe’s, Bass Pro Shops and even Cracker Barrel are adding new books. Some mass retailers, too, are diversifying — Target, for instance, is moving away from male-centered best sellers and adding more women’s and children’s titles this year.
Having a physical outlet for books is extraordinarily important, publishers say. While online and e-book sales are huge channels, lesser-known books can get lost in that world if they do not have a physical presence to spur interest. The ability to catch a shopper’s eye in a store is almost impossible to mimic online.
So publishers are approaching just about anyone with a shelf. For Perseus, sales at nontraditional retailers in 2010 outpaced its sales at Borders, which were around 7 percent, for the first time.
For Abrams, which publishes illustrated and art books, nontraditional retailers are seen as one way to offset the business lost by Borders, which has slowed especially in the last year, the Abrams president and chief executive, Michael Jacobs, said.
“We’ve definitely cranked it up,” Mr. Jacobs said. Last year, executives realized that “so much of our backlist wasn’t being carried by bookstores. If we’re still doing these books, where are we going to sell them?”
The nontraditional category has been growing for Abrams, making up more than 15 percent of its total business in 2010. Mr. Jacobs said he expected that it would grow to 25 percent in the next two to three years. Big publishers, too, like Houghton Mifflin Harcourt and Random House, say they have been seeking out specialty retailers.
The attention from publishers comes as a welcome surprise to the stores.
“The response has been dramatic. There are piles of book samples and catalogs dropped off in the shop every day,” Jennifer Baker, a book buyer for Marc Jacobs, said in an e-mail. “The assortment of rare and out-of-print books have been a challenge to keep in stock.”
Placement in different stores can widen the audience for books, appealing to someone who would not spend time at a Barnes & Noble. “A customer who might not often buy books but adores the brand can ease in to the Bookmarc selection,” Ms. Baker said.
Beyond attracting new readers, book sales tend to be a good deal for both sides.
Though sales to nonbook retailers can be more complicated and labor-intensive for publishers, books are generally sold on a nonreturnable basis. Bookstores, on the other hand, can return unsold books to publishers.
“We know it’s a nice clean sale,” said John Duff, publisher of Perigee Books, an imprint of Penguin Group USA.
The books tend to be profitable for the retailers, since they select them carefully and do not usually mark them down. More important, they can drive other purchases and help with branding.
At Lowe’s, books on subjects like cooking and home projects are stacked at the front of the store, “inspiring and informing customers to purchase goods that will allow them to successfully complete home improvement projects,” Patti Price, the company’s senior vice president for merchandising, said in an e-mail.
At Sam’s Club, which has long carried stacks of best sellers, more children’s books and cookbooks have been added lately. “Those are areas that don’t fit as well into the e-book story, like the best seller or mass-market or even romance books do,” said Phil Shellhammer, a Sam’s Club executive who oversaw the books category there until recently. Sam’s Club has been using its bricks-and-mortar advantage in other ways, too, like adding books from local writers, and bringing in authors for signings.
If Anthropologie is selling ikat prints, it might feature books with ikat covers, or it will carry books about inspiration and poetry to get the customer in an escapist mood.
“As we try to get them excited about different ideas as they walk in the door, books can be a tremendous way to narrate those stories,” said Aaron Hoey, head merchant for home and accessories at Anthropologie. “We do a very good job of selecting unique books, books you’re not going to find in a typical bookstore, and certainly not in a mass-market bookstore like Borders or Barnes & Noble. And to stumble across it at Amazon, you have to really know what you’re looking for.”
The specialty stores can be a boon for publishers selling quirky titles unlikely to get on Amazon’s home page. “Awkward Family Photos” is a hot item at Urban Outfitters, “Hello, Cupcake,” about cupcake design, has been selling strongly at the craft store Michaels, and Price Stern Sloan, another Penguin imprint, sold 42,000 copies of “Mad Libs” in January alone — at Cracker Barrel. At Bookmarc, where fashion titles sold predictably well, executives were surprised when “Erotic Poems” by E. E. Cummings started flying off shelves.
At Kitson, too, the top sellers hardly mimic the best-seller list, including books like “How to Raise a Jewish Dog” and “The Official Dictionary of Sarcasm.”
“We try to be different,” Mr. Ross said.
But in a town that is all about flash, Kitson is finding a surprising source of revenue that is not from its fashionable shoes or accessories. It is from books.
The company’s owner, Fraser Ross, estimates that Kitson sold 100,000 books in 2010, double what it had the previous year.
Publishers turned aggressive about selling to Kitson, Mr. Ross said, as traditional bookstores switched focus or closed. That “has been good for us,” he said. “If there’s a good book, we’ll go deep into it.” And publishers, he said, “realize what a specialty store can do for their business, with the window and the table.”
Publishers have stocked books in nonbook retailers for decades — a coffee-table book in the home department, a novelty book in Urban Outfitters. In the last year, though, some publishers have increased their efforts as the two largest bookstore chains have changed course.
Barnes & Noble has been devoting more floor space for displays of e-readers, games and educational toys. Borders, after filing for bankruptcy protection in February, has begun liquidating some 200 of its superstores.
“The national bookstore chain has peaked as a sales channel, and the growth is not going to come from there,” said David Steinberger, chief executive of the Perseus Books Group. “But it doesn’t mean that all brick-and-mortar retailers are cutting back.”
A wide range of stores better known for their apparel, food and fishing reels have been adding books. The fashion designer Marc Jacobs opened Bookmarc in Manhattan in the fall. Anthropologie has increased the number of titles it carries to 125, up from 25 in 2003. Coldwater Creek, Lowe’s, Bass Pro Shops and even Cracker Barrel are adding new books. Some mass retailers, too, are diversifying — Target, for instance, is moving away from male-centered best sellers and adding more women’s and children’s titles this year.
Having a physical outlet for books is extraordinarily important, publishers say. While online and e-book sales are huge channels, lesser-known books can get lost in that world if they do not have a physical presence to spur interest. The ability to catch a shopper’s eye in a store is almost impossible to mimic online.
So publishers are approaching just about anyone with a shelf. For Perseus, sales at nontraditional retailers in 2010 outpaced its sales at Borders, which were around 7 percent, for the first time.
For Abrams, which publishes illustrated and art books, nontraditional retailers are seen as one way to offset the business lost by Borders, which has slowed especially in the last year, the Abrams president and chief executive, Michael Jacobs, said.
“We’ve definitely cranked it up,” Mr. Jacobs said. Last year, executives realized that “so much of our backlist wasn’t being carried by bookstores. If we’re still doing these books, where are we going to sell them?”
The nontraditional category has been growing for Abrams, making up more than 15 percent of its total business in 2010. Mr. Jacobs said he expected that it would grow to 25 percent in the next two to three years. Big publishers, too, like Houghton Mifflin Harcourt and Random House, say they have been seeking out specialty retailers.
The attention from publishers comes as a welcome surprise to the stores.
“The response has been dramatic. There are piles of book samples and catalogs dropped off in the shop every day,” Jennifer Baker, a book buyer for Marc Jacobs, said in an e-mail. “The assortment of rare and out-of-print books have been a challenge to keep in stock.”
Placement in different stores can widen the audience for books, appealing to someone who would not spend time at a Barnes & Noble. “A customer who might not often buy books but adores the brand can ease in to the Bookmarc selection,” Ms. Baker said.
Beyond attracting new readers, book sales tend to be a good deal for both sides.
Though sales to nonbook retailers can be more complicated and labor-intensive for publishers, books are generally sold on a nonreturnable basis. Bookstores, on the other hand, can return unsold books to publishers.
“We know it’s a nice clean sale,” said John Duff, publisher of Perigee Books, an imprint of Penguin Group USA.
The books tend to be profitable for the retailers, since they select them carefully and do not usually mark them down. More important, they can drive other purchases and help with branding.
At Lowe’s, books on subjects like cooking and home projects are stacked at the front of the store, “inspiring and informing customers to purchase goods that will allow them to successfully complete home improvement projects,” Patti Price, the company’s senior vice president for merchandising, said in an e-mail.
At Sam’s Club, which has long carried stacks of best sellers, more children’s books and cookbooks have been added lately. “Those are areas that don’t fit as well into the e-book story, like the best seller or mass-market or even romance books do,” said Phil Shellhammer, a Sam’s Club executive who oversaw the books category there until recently. Sam’s Club has been using its bricks-and-mortar advantage in other ways, too, like adding books from local writers, and bringing in authors for signings.
If Anthropologie is selling ikat prints, it might feature books with ikat covers, or it will carry books about inspiration and poetry to get the customer in an escapist mood.
“As we try to get them excited about different ideas as they walk in the door, books can be a tremendous way to narrate those stories,” said Aaron Hoey, head merchant for home and accessories at Anthropologie. “We do a very good job of selecting unique books, books you’re not going to find in a typical bookstore, and certainly not in a mass-market bookstore like Borders or Barnes & Noble. And to stumble across it at Amazon, you have to really know what you’re looking for.”
The specialty stores can be a boon for publishers selling quirky titles unlikely to get on Amazon’s home page. “Awkward Family Photos” is a hot item at Urban Outfitters, “Hello, Cupcake,” about cupcake design, has been selling strongly at the craft store Michaels, and Price Stern Sloan, another Penguin imprint, sold 42,000 copies of “Mad Libs” in January alone — at Cracker Barrel. At Bookmarc, where fashion titles sold predictably well, executives were surprised when “Erotic Poems” by E. E. Cummings started flying off shelves.
At Kitson, too, the top sellers hardly mimic the best-seller list, including books like “How to Raise a Jewish Dog” and “The Official Dictionary of Sarcasm.”
“We try to be different,” Mr. Ross said.
Bangladesh to Boost Food Reserves as `People Are Suffering,' Minister Says
Bangladesh, South Asia’s biggest rice buyer, is in talks with India to buy grains on a regular basis to bolster food security as governments seek to avoid a repeat of the unrest that broke out when prices last soared.
A long-term agreement will protect Bangladesh from possible defaults by private traders, who sometimes fail to meet their commitments if prices gain, Muhammad Abdur Razzaque, the nation’s food minister, said in an interview yesterday. “Rice prices rose this year in our country; people are suffering as they have limited income,” Razzaque said by phone from Dhaka.
Bangladesh’s plan underscores a drive by governments to strengthen their reserves to help manage the impact of food prices that advanced to a record last month, beating the jump in 2008 that spawned riots from Haiti to Egypt. This year’s surge has driven millions into extreme poverty, according to the World Bank, and contributed to unrest in the Middle East and Africa.
“When we go for international tenders and prices suddenly rise, private suppliers sometimes fail to fulfill their commitments,” Razzaque said. “They don’t supply us and put us in trouble. It has happened.”
Wheat, corn, soybeans and palm oil have surged in the past year on increased demand and supply disruptions, driving the Food & Agriculture Organization’s World Food Price Index to an all-time high in January. The jump has boosted inflation, adding to the case for higher interest rates worldwide as central banks also contend with rising oil prices spurred by a revolt in Libya.
Roubini’s Warning
Higher commodity prices are “leading to riots, demonstrations and political instability,” Nouriel Roubini, the New York University professor who predicted the financial crisis, said last month. Costlier food “can topple regimes,” he said.
Bangladesh has a population of 166 million, with 32 percent aged less than 15, according to Bloomberg data. Slightly smaller than the U.S. state of Iowa, it ranks 196th among nations when compared by gross domestic product per head on a purchasing- power-parity basis, according to the CIA World Factbook. The country is often hit by cyclones that form in the Bay of Bengal.
Governments around the world will “take preemptive measures to prevent increases in food prices,” Alan Winney, chairman of Emerald Group Australia Pty Ltd., has said. Bolivia will tap central-bank reserves to stockpile food and spur farm production, Finance Minister Luis Arce said on Feb. 10.
Thai Prices
Thai rice prices, the benchmark for Asia, have gained over the past six months. The price of 100 percent grade-B white rice, which is set weekly, was $550 a metric ton on Feb. 23, according to the Thai Rice Exporters Association. Last year’s low in July was $458 a ton. Thailand is the world’s biggest rice supplier.
Increased purchases of rice by Bangladesh from neighboring India may lower Thai prices, according to Rakesh Singh, a trader at Emmsons International Ltd. Bangladesh has agreed to purchase 300,000 tons of Indian rice, as well as 200,000 tons of wheat, Razzaque said on Feb. 9.
Surging food costs hit the most vulnerable hardest as they spend a greater share of their money on food, World Bank President Robert Zoellick said earlier this month. People in developing countries devote half or three-quarters of their income to food, “so they’ve got little margin,” Zoellick said.
Coarse rice in Dhaka, the Bangladeshi capital, climbed to 34.93 taka (49 cents) per kilogram in December, 42 percent higher than a year earlier, the FAO said in a Jan. 17 report.
Bangladesh has doubled its rice-import target to cool local prices as consumers and farmers hoarded supplies. The country will buy 1.2 million tons in the year to June 30, from a 600,000-ton target set in November, Badrul Hasan, director for procurement at the Directorate General of Food, said last month.
The government may buy as much as 2.5 million tons of rice and wheat in the year to June 30, while private companies may import 2 million tons of wheat in the period, Razzaque said. If the planned Indian purchases happen “our imports will exceed 1.2 million tons this year ending June,” he said yesterday.
The price of rice may increase as a rally in wheat drives consumers to seek alternatives, Robert Zeigler, director general of the International Rice Research Institute, said on Feb. 11. Wheat in Chicago has surged 57 percent over the past 12 months.
A long-term agreement will protect Bangladesh from possible defaults by private traders, who sometimes fail to meet their commitments if prices gain, Muhammad Abdur Razzaque, the nation’s food minister, said in an interview yesterday. “Rice prices rose this year in our country; people are suffering as they have limited income,” Razzaque said by phone from Dhaka.
Bangladesh’s plan underscores a drive by governments to strengthen their reserves to help manage the impact of food prices that advanced to a record last month, beating the jump in 2008 that spawned riots from Haiti to Egypt. This year’s surge has driven millions into extreme poverty, according to the World Bank, and contributed to unrest in the Middle East and Africa.
“When we go for international tenders and prices suddenly rise, private suppliers sometimes fail to fulfill their commitments,” Razzaque said. “They don’t supply us and put us in trouble. It has happened.”
Wheat, corn, soybeans and palm oil have surged in the past year on increased demand and supply disruptions, driving the Food & Agriculture Organization’s World Food Price Index to an all-time high in January. The jump has boosted inflation, adding to the case for higher interest rates worldwide as central banks also contend with rising oil prices spurred by a revolt in Libya.
Roubini’s Warning
Higher commodity prices are “leading to riots, demonstrations and political instability,” Nouriel Roubini, the New York University professor who predicted the financial crisis, said last month. Costlier food “can topple regimes,” he said.
Bangladesh has a population of 166 million, with 32 percent aged less than 15, according to Bloomberg data. Slightly smaller than the U.S. state of Iowa, it ranks 196th among nations when compared by gross domestic product per head on a purchasing- power-parity basis, according to the CIA World Factbook. The country is often hit by cyclones that form in the Bay of Bengal.
Governments around the world will “take preemptive measures to prevent increases in food prices,” Alan Winney, chairman of Emerald Group Australia Pty Ltd., has said. Bolivia will tap central-bank reserves to stockpile food and spur farm production, Finance Minister Luis Arce said on Feb. 10.
Thai Prices
Thai rice prices, the benchmark for Asia, have gained over the past six months. The price of 100 percent grade-B white rice, which is set weekly, was $550 a metric ton on Feb. 23, according to the Thai Rice Exporters Association. Last year’s low in July was $458 a ton. Thailand is the world’s biggest rice supplier.
Increased purchases of rice by Bangladesh from neighboring India may lower Thai prices, according to Rakesh Singh, a trader at Emmsons International Ltd. Bangladesh has agreed to purchase 300,000 tons of Indian rice, as well as 200,000 tons of wheat, Razzaque said on Feb. 9.
Surging food costs hit the most vulnerable hardest as they spend a greater share of their money on food, World Bank President Robert Zoellick said earlier this month. People in developing countries devote half or three-quarters of their income to food, “so they’ve got little margin,” Zoellick said.
Coarse rice in Dhaka, the Bangladeshi capital, climbed to 34.93 taka (49 cents) per kilogram in December, 42 percent higher than a year earlier, the FAO said in a Jan. 17 report.
Bangladesh has doubled its rice-import target to cool local prices as consumers and farmers hoarded supplies. The country will buy 1.2 million tons in the year to June 30, from a 600,000-ton target set in November, Badrul Hasan, director for procurement at the Directorate General of Food, said last month.
The government may buy as much as 2.5 million tons of rice and wheat in the year to June 30, while private companies may import 2 million tons of wheat in the period, Razzaque said. If the planned Indian purchases happen “our imports will exceed 1.2 million tons this year ending June,” he said yesterday.
The price of rice may increase as a rally in wheat drives consumers to seek alternatives, Robert Zeigler, director general of the International Rice Research Institute, said on Feb. 11. Wheat in Chicago has surged 57 percent over the past 12 months.
Asian Stocks Fall as Middle East Concern Lingers; Honda, Bluescope Decline
Asian stocks fell, extending the regional benchmark’s decline last week, as concern persisted over political unrest in the Middle East. Honda Motor Co., a carmaker that receives 84 percent of its revenue abroad, lost 1.8 percent in Tokyo, and Sony Corp., Japan’s biggest electronics exporter, sank 0.9 percent as the yen strengthened. NEC Corp., Japan’s biggest maker of personal computers, slumped 3.4 percent after Goldman Sachs Group Inc. lowered its rating on the stock. BlueScope Steel Ltd., Australia’s biggest steelmaker, slid 1.9 percent in Sydney after saying that government carbon tax will hurt its competiveness.
The MSCI Asia Pacific Index fell 0.4 percent to 136.32 as of 10:20 a.m. in Tokyo, with eight stocks declining for every three that advanced. The gauge sank 2.1 percent last week as crude oil climbed above $100 a barrel for the first time in two years amid escalating violence in Libya, which has the largest oil reserves in Africa.
“In addition to concerns that the political unrest in the Middle East, especially in Libya, will continue, the yen will also likely play a role in holding back investors,” said Koichiro Nishio, a market analyst in Tokyo at Nikko Cordial Securities Inc.
Japan’s Nikkei 225 Stock Average slumped 0.5 percent and Australia’s S&P/ASX 200 Index decreased 0.3 percent. South Korea’s Kospi Index lost 0.9 percent.
Consumer Confidence
Futures on the Standard & Poor’s 500 Index slipped 0.3 percent today. The gauge rose 1.1 percent on Feb. 25 in New York, preventing the biggest weekly drop in the Standard & Poor’s 500 Index since August, as confidence among American consumers beat forecasts.
Confidence among U.S. consumers increased more than forecast in February to the highest level in three years as a drop in unemployment helped overcome concern over increasing food and fuel costs. The Thomson Reuters/University of Michigan final sentiment index for the month advanced to 77.5 from 74.2 the prior month.
Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, rose 1.2 percent in Sydney as concern grew that political turmoil that has cut Libya’s output may spread to other parts of the Middle East. Rival Santos Ltd. climbed 1.9 percent.
Crude oil for April delivery climbed 0.6 percent to settle at $97.88 a barrel on the New York Mercantile Exchange on Feb. 25, retreating from $103.41 earlier in the week, the highest since September 2008.
The MSCI Asia Pacific Index fell 0.4 percent to 136.32 as of 10:20 a.m. in Tokyo, with eight stocks declining for every three that advanced. The gauge sank 2.1 percent last week as crude oil climbed above $100 a barrel for the first time in two years amid escalating violence in Libya, which has the largest oil reserves in Africa.
“In addition to concerns that the political unrest in the Middle East, especially in Libya, will continue, the yen will also likely play a role in holding back investors,” said Koichiro Nishio, a market analyst in Tokyo at Nikko Cordial Securities Inc.
Japan’s Nikkei 225 Stock Average slumped 0.5 percent and Australia’s S&P/ASX 200 Index decreased 0.3 percent. South Korea’s Kospi Index lost 0.9 percent.
Consumer Confidence
Futures on the Standard & Poor’s 500 Index slipped 0.3 percent today. The gauge rose 1.1 percent on Feb. 25 in New York, preventing the biggest weekly drop in the Standard & Poor’s 500 Index since August, as confidence among American consumers beat forecasts.
Confidence among U.S. consumers increased more than forecast in February to the highest level in three years as a drop in unemployment helped overcome concern over increasing food and fuel costs. The Thomson Reuters/University of Michigan final sentiment index for the month advanced to 77.5 from 74.2 the prior month.
Woodside Petroleum Ltd., Australia’s second-largest oil and gas producer, rose 1.2 percent in Sydney as concern grew that political turmoil that has cut Libya’s output may spread to other parts of the Middle East. Rival Santos Ltd. climbed 1.9 percent.
Crude oil for April delivery climbed 0.6 percent to settle at $97.88 a barrel on the New York Mercantile Exchange on Feb. 25, retreating from $103.41 earlier in the week, the highest since September 2008.
India forecasts strong growth for 2012
The Indian economy is expected to grow by as much as 9.25 per cent next year the country’s finance ministry said on Friday as it urgently strives to win back draining confidence among international investors.
India’s investment appeal has declined rapidly over the past three months as investors worry about a series of high profile corruption scandals, high inflation and the ability of the government to keep its fiscal deficit in check.
India’s economy is forecast to grow at 8.6 per cent in the year to the end of next month and prime minister Manmohan Singh nurses ambitions of pushing it higher to double digits to rival China. But, only days ahead of Monday’s national budget, investors are wary of any signs of a loss of momentum in India’s high growth rates as the country battles the highest inflation of any major Asian economy and capital flight from emerging markets.
In its annual Economic Survey, released on Friday, the finance ministry gave strong assurances that India could remain on its high growth trajectory, saying that economic growth would advance to a range of between 8.75 per cent and 9.25 per cent in the coming fiscal year.
It cautioned, however, about the threat of inflationary pressures from rising global commodity prices and a domestic consumption boom in India. Inflation is running at about 8.2 per cent in spite of pledges by Mr Singh to reduce it to below 6 per cent by the end of last year.
“The inflationary pressures on the domestic front are likely to be exacerbated by the higher levels of global commodity prices,” said the survey tabled by Pranab Mukherjee, the finance minister, in parliament.
Samiran Chakraborty, senior economist at Standard Chartered in Mumbai, said India was confronted by a “perfect storm” of inflation, a governance deficit and worries about financing its fiscal deficit.
“The big storm is the governance deficit,” he said. “But I don’t think what we have seen over the past three months can continue for another six months.”
“It’s a big question whether India will be able to finance its growth. It’s going to be a challenge when we are not going to get foreign money. There are fears that growth could go below 7 per cent.”
Mr Chakrabarty also said that foreign investors were concerned about issues surrounding the predictability of India’s business environment, particularly inconsistent tax treatments of their investments and unclear policy direction.”
In spite of a dramatic fall in investment growth, local industrialists expressed confidence that India’s troubles could be ridden out in the coming months in spite of the shadow cast by high crude prices on a nation dependent on imported oil.
“Right now we are definitely not the flavour of the month,” said Anand Mahindra, chief executive of Mahindra & Mahindra and a major Mumbai-based industrialist. “But that does not mean that we won’t be flavour of the year.”
Maintaining a high growth rate is crucial to absorb the millions of job seekers emerging from the Indian education system in a country where 70 per cent of the 1.2bn population is under the age of 35 years of age.
“India needs to see transformative growth in order to create adequate livelihoods for the population that is entering the workforce every year,” said Chanderjit Banerjee, the secretary-general of the Confederation of Indian Industry.
The Economic Survey also for the first time signalled the government’s possible approval of allowing large corporate houses to hold banking licences as the country tries to extend financial services across the country and into rural areas.
The Reserve Bank of India, the central bank, had been expected to issue guidelines on the issue of new banking licences by the end of last month.
India’s investment appeal has declined rapidly over the past three months as investors worry about a series of high profile corruption scandals, high inflation and the ability of the government to keep its fiscal deficit in check.
India’s economy is forecast to grow at 8.6 per cent in the year to the end of next month and prime minister Manmohan Singh nurses ambitions of pushing it higher to double digits to rival China. But, only days ahead of Monday’s national budget, investors are wary of any signs of a loss of momentum in India’s high growth rates as the country battles the highest inflation of any major Asian economy and capital flight from emerging markets.
In its annual Economic Survey, released on Friday, the finance ministry gave strong assurances that India could remain on its high growth trajectory, saying that economic growth would advance to a range of between 8.75 per cent and 9.25 per cent in the coming fiscal year.
It cautioned, however, about the threat of inflationary pressures from rising global commodity prices and a domestic consumption boom in India. Inflation is running at about 8.2 per cent in spite of pledges by Mr Singh to reduce it to below 6 per cent by the end of last year.
“The inflationary pressures on the domestic front are likely to be exacerbated by the higher levels of global commodity prices,” said the survey tabled by Pranab Mukherjee, the finance minister, in parliament.
Samiran Chakraborty, senior economist at Standard Chartered in Mumbai, said India was confronted by a “perfect storm” of inflation, a governance deficit and worries about financing its fiscal deficit.
“The big storm is the governance deficit,” he said. “But I don’t think what we have seen over the past three months can continue for another six months.”
“It’s a big question whether India will be able to finance its growth. It’s going to be a challenge when we are not going to get foreign money. There are fears that growth could go below 7 per cent.”
Mr Chakrabarty also said that foreign investors were concerned about issues surrounding the predictability of India’s business environment, particularly inconsistent tax treatments of their investments and unclear policy direction.”
In spite of a dramatic fall in investment growth, local industrialists expressed confidence that India’s troubles could be ridden out in the coming months in spite of the shadow cast by high crude prices on a nation dependent on imported oil.
“Right now we are definitely not the flavour of the month,” said Anand Mahindra, chief executive of Mahindra & Mahindra and a major Mumbai-based industrialist. “But that does not mean that we won’t be flavour of the year.”
Maintaining a high growth rate is crucial to absorb the millions of job seekers emerging from the Indian education system in a country where 70 per cent of the 1.2bn population is under the age of 35 years of age.
“India needs to see transformative growth in order to create adequate livelihoods for the population that is entering the workforce every year,” said Chanderjit Banerjee, the secretary-general of the Confederation of Indian Industry.
The Economic Survey also for the first time signalled the government’s possible approval of allowing large corporate houses to hold banking licences as the country tries to extend financial services across the country and into rural areas.
The Reserve Bank of India, the central bank, had been expected to issue guidelines on the issue of new banking licences by the end of last month.
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