Cooking-Oil Demand in India to Surge 44%, Boosting Imports

By Swansy Afonso - Sep 22, 2012

Cooking-oil demand in India, the world’s largest palm oil importer, is poised to jump 44 percent in the next eight years as rising incomes boost sales of noodles, cookies and fried foods, a government official said.
Consumption may surge to 23 million metric tons by 2020 from 16 million tons now, D. Bhalla, a joint secretary in the country’s food ministry, told an industry conference in Mumbai today. Imports will rise significantly in coming years to meet this demand, he said. The per capita consumption of edible oils in India is 13.5 kilograms, compared with the global average of about 26 kilograms, he said.
Rising Indian use of cooking oils may help Indonesia and Malaysia, the world’s biggest palm oil producers, to reduce inventories, and potentially stem a decline in prices. India’s imports are set to surpass 10 million tons for the first time next year as dry weather trims supply of domestic oilseed crops and demand increases, GG Patel & Nikhil Research Co. Managing Partner Govindlal G. Patel, who’s traded cooking oils for more than three decades, said yesterday.
“Demand in India will get a boost from a growing economy and lower edible oil prices,” said Dinesh Shahra, managing director of Ruchi Soya Industries Ltd. (RSI), the country’s biggest importer of cooking oils. “Every year consumption is growing at the rate of 4 percent.”

Import Dependence

India, Asia’s third-largest economy, expanded at an average 7.9 percent in the past five years, according to the government.
The South Asian nation, the world’s biggest cooking oil consumer after China, meets more than half its demand through imports. India buys palm oil from Indonesia and Malaysia, and soybean oil from the U.S., Brazil and Argentina. Vegetable-oil imports climbed 19 percent to 8.16 million tons between November and August, according to the Solvent Extractors’ Association of India.
Palm oil imports may reach an all-time high of 8.1 million tons in 2012-2013, compared with 7.5 million tons this year, while soybean oil purchases may climb to 1.2 million tons in 2012-2013 from 1.1 million tons, GG Patel & Nikhil’s Patel said.
Palm oil for December delivery fell 2 percent to 2,763 ringgit ($906) a ton on the Malaysia Derivatives Exchange in Kuala Lumpur on Sept. 21, the lowest price at close since October 2010. Futures have fallen 13 percent this year.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: Paul Tighe at ptighe@bloomberg.net

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Indian Finance Ministry Said to Expect 5.3% Budget Gap

By Unni Krishnan - Sep 21, 2012

India lowered a levy on overseas borrowing to spur capital inflows, stepping up efforts to revive a faltering economy, and signaled the budget deficit may be contained at about 5.3 percent of gross domestic product.
A tax on interest paid by local companies to lenders abroad has been cut to 5 percent from 20 percent, the Finance Ministry said today. The ministry expects the fiscal gap in the year that began April 1 to exceed the 5.1 percent goal set in March by 0.2 percentage points, two officials with knowledge of the matter said, asking not to be identified as the projection isn’t public.
The rupee and stocks surged after the tax cut, which follows an increase in diesel prices to pare fuel subsidies and moves to allow more foreign investment, ending months of policy inaction. The deficit forecast is smaller than estimates by Citigroup Inc. and Crisil Ltd., Standard & Poor’s local unit, which predict the gap will widen from last year’s 5.8 percent.
“The full thrust of the government’s actions seems to be on regaining investor sentiment,” said Rupa Rege Nitsure, economist at state-owned Bank of Baroda in Mumbai. “Even though these steps are coming late in the day, what is now critical is that they don’t go back on them.”
The rupee strengthened 1.7 percent to 53.4575 per dollar as of 3:39 p.m. in Mumbai, while the BSE India Sensitive Index (SENSEX) rose 2.2 percent. The yield on the 10-year bonds due June 2022 fell to 8.16 percent from 8.17 percent earlier.

No Reversal

The reduction in the withholding tax will be applicable for three years, effective July 1, 2012, the Finance Ministry said in a statement in New Delhi.
The government raised diesel tariffs on Sept. 14 for the first time in over a year, the same day it opened industries including retail and aviation to more overseas investment. Prime Minister Manmohan Singh is trying to avert a credit-rating downgrade and revive growth with a burst of policy changes.
The overhaul won’t be reversed, the officials said, even after the largest political ally in the ruling coalition said it would quit in protest at the steps. The 14 percent diesel-price rise, forthcoming auctions of mobile-phone permits and planned share sales by state companies should avert a wider budget gap, the officials said.
“Even after the measures announced last week, there are huge risks to the deficit from higher subsidies and a revenue shortfall due to slowing growth,” said Suvodeep Rakshit, an economist at Kotak Securities Ltd. in Mumbai. “I am not too confident about the budget estimates.”

Borrowing Program

The government must curb subsidies to avoid exceeding its 2012-2013 borrowing target of 5.69 trillion rupees ($107 billion), both the officials said. The administration will probably retain that goal at a meeting due this month to outline the borrowing schedule for the second half of the financial year, one of the officials said.
Singh is trying to trim a subsidy bill for food, fuel and fertilizer by 12 percent to 1.9 trillion rupees in the year through March 2013. The government had set a budget-deficit target of 5.1 percent of GDP for the year in the budget released in March. Citigroup predicts a shortfall of 5.9 percent and Crisil forecasts 6.2 percent.
The government intends to raise at least 350 billion rupees from an auction of mobile-phone permits and about 300 billion rupees from the sale of shares in state-owned companies, one of the officials said. An increase in diesel excise duty last week will garner 160 billion to 170 billion rupees, the official said.
The Reserve Bank of India has signaled that curbing the budget shortfall is pivotal to increasing room for interest-rate cuts to bolster economic expansion, which weakened to a nine- year low of 6.5 percent in 2011-2012.
The prime minister’s Congress party-led cabinet allowed overseas retail chains such as Wal-Mart Stores Inc. to open stores in India under last week’s revamp, triggering strikes across the nation yesterday on concern family-run stores, the backbone of the retail market, will be forced out of business.
Standard & Poor’s and Fitch Ratings reduced the outlook on India’s credit rating to negative from stable earlier this year, bringing the nation a step closer to junk status.
To contact the reporter on this story: Unni Krishnan in New Delhi at ukrishnan2@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

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Soybean Meal Exports From India to Climb on Record Crop By Swansy Afonso - Sep 20, 2012

Soybean-meal exports from India, Asia’s largest shipper of the animal feed, may advance 5 percent next year as the oilseed harvest is poised to climb to a record for a second year, according to Adani Wilmar Ltd.
Shipments may exceed 4 million metric tons in the year starting Oct. 1, compared with 3.8 million tons this year, said Atul Chaturvedi, chief executive officer at the Ahmedabad-based exporter. The soybean crop in 2012-2013 will be more than the 11.5 million tons estimated by the Soybean Processors Association of India, he said, without giving his own estimate.
Soybean-meal prices have surged about 60 percent this year and reached a record on concern that the worst U.S. drought in at least 50 years will shrink soybean and corn supplies from the world’s largest exporter. U.S. processors including Bunge Ltd. (BG) and Archer Daniels Midland Co. reduced oilseed crushing 9.2 percent last month from July after the rally in prices eroded demand for livestock feed made from soybeans, boosting demand for shipments from India.
“All indications are that when you have a crop on your head, prices normally soften,” said Chaturvedi, whose company is a joint venture with Wilmar International Ltd. (WIL), the largest importer of soybeans into China. “Prices have to come down to make India more competitive in the global market.”
Soybean meal futures have fallen about 8 percent since reaching an all-time high of $541.80 per 2,000 pounds on the Chicago Board of Trade on Sept. 4. Soybeans rose to a record $17.89 a bushel also on Sept. 4 as U.S. farmers will harvest the smallest crop in nine years after June and July were the hottest since 1936.

Export Contracts

India competes with the U.S., Argentina and Brazil to supply animal feed to China, Vietnam, Japan and South Korea. The country usually exports more than 70 percent of its soybean-meal output. Traders have contracted to sell as much as 300,000 tons at prices ranging from $620 a ton to $640 a ton free-on-board to buyers in South East Asia and Africa for shipment in November and December, Rajesh Agrawal, spokesman for the Soybean Processors Association, said on Sept. 18.
Monsoon oilseed production in India this year may be little changed from a year earlier as an increase in soybean output will be offset by a lower peanut crop, Adani’s Chaturvedi said. The country harvested 28.6 million tons of oilseeds 2011-2012, according to the Central Organization of Oil Industry and Trade.
Farmers planted soybeans in 10.7 million hectares (26.4 million acres) as of Sept. 7, compared with 10.3 million hectares a year earlier, according to the farm ministry. The area under all the oilseeds fell to 17 million hectares from 17.5 million a year earlier, it said.

Monsoon Revival

A revival in monsoon this month has brightened prospects for a bigger rapeseed crop this year, Chaturvedi said. Rapeseed, the main oilseed sown in the winter season, totaled 6.03 million tons in 2011-2012, according to central organization’s data.
The monsoon, which accounts for more than 70 percent of annual rainfall, has been 5 percent below a 50-year average as of yesterday, according to the India Meteorological Department. The deficit was 19 percent at the end of July.
“Farmers will plant more because the prices have been superb and we have got very good rains,” Chaturvedi said.
Rapeseed futures on the National Commodity & Derivatives Exchange Ltd. in Mumbai have rallied 40 percent in the past year, reaching a record 4,564 rupees ($84) per 100 kilograms on Aug. 4. The October-delivery contract rose 0.9 percent to 4,150 rupees yesterday.
Vegetable-oil imports by India may increase to as much as a record 9.7 million tons this year from 8.7 million tons this year, Chaturvedi said. Imports climbed 19 percent to 8.16 million tons between November and August, according to the Solvent Extractors’ Association of India.
India meets more than half its edible oil requirement through imports. It buys palm from Indonesia and Malaysia, and soybean oil from Brazil and Argentina.
To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net
To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

India Stocks Fall Most in 2 Weeks as Govt Ally to Quit Co

By Santanu Chakraborty - Sep 20, 2012

Indian (SENSEX) stocks fell the most in two weeks after Prime Minister Manmohan Singh’s largest ally said it was exiting the coalition over reforms announced last week.
The BSE India Sensitive Index, or Sensex, declined 0.6 percent to 18,391.01 at 9:28 a.m., headed for its biggest drop decline since Sept. 5. Reliance Industries Ltd. (RIL), owner of the world’s largest refining complex, fell to a one-week low. ICICI Bank Ltd. (ICICIBC), the third-biggest lender by value, dropped the most in two weeks. The market was closed yesterday for a holiday.
Singh unveiled last week the biggest policy push of his previously gridlocked second term by ending a 14-month freeze in diesel prices to pare the fiscal deficit and allowing more foreign investment in aviation and retail sectors. The Sensex jumped to a 14-month high on Sept. 17. Trinamool Congress ministers will be pulled from the federal cabinet on Sept. 21, party leader Mamata Banerjee said on Sept. 18, allowing a few days that could be a window for compromise.
Losing the backing of Trinamool would put the government about 24 seats short of a majority in the lower house of Parliament, though Singh’s Congress party-led administration has in the past won expressions of support from other groups in the legislature. The proposal to allow more foreign investment in retailers stalled in December amid opposition from Banerjee’s Trinamool Congress.
To contact the reporter on this story: Santanu Chakraborty in Mumbai at schakrabor11@bloomberg.net
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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India Consumer-Price Inflation Quickens to 3-Month High

By Tushar Dhara - Sep 18, 2012

Indian consumer prices rose at the fastest pace in three months in August as costs of vegetables and sugar increased.
The consumer-price index climbed 10.03 percent from a year earlier, compared with a 9.86 percent advance reported earlier for July, the Statistics Office said in New Delhi today.
The Reserve Bank of India kept interest rates unchanged yesterday to damp inflation risks from a drop in the rupee and a below-average monsoon that threatens to crimp farm output. At the same time, it cut the amount of deposits banks must set aside as reserves to support lending following the government’s biggest push to revive growth since 2009.
“Inflation remains an overriding concern despite the government’s policy initiatives,” Sujan Hajra, a Mumbai-based economist at Anand Rathi Financial Services Ltd., said before the release. “The Reserve Bank will ease liquidity through buying bonds and cutting the cash reserve ratio rather than cutting policy rates.”
The rupee, which has tumbled about 12 percent against the dollar in the past 12 months, fell 0.5 percent to 54.305 per dollar at 11:19 a.m. in Mumbai. The BSE India Sensitive Index (SENSEX) eased 0.1 percent, while the yield on the 8.15 percent government bond due June 2022 rose one basis point to 8.17 percent from 8.16 percent before the data release.
Vegetable prices climbed 20.79 percent last month from a year earlier, today’s statement showed. Sugar rose 17.51 percent, while pulses gained 16.04 percent.
India boosted diesel tariffs last week to pare its fiscal deficit and allowed more foreign investment in the economy, the most extensive policy overhaul of Prime Minister Manmohan Singh’s previously gridlocked second term.
To contact the reporter on this story: Tushar Dhara in New Delhi at tdhara1@bloomberg.net.
To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net.

Singh Embarks on Biggest Gamble to Revive Economy, Government By Bibhudatta Pradhan and Andrew MacAskill - Sep 16, 2012

Indian Prime Minister Manmohan Singh has embarked on the biggest gamble of his second term, pushing through policy changes opposed by members of his own coalition as he seeks to revive the economy and the fortunes of his embattled party.
After two years of stalled policy making and amid slumping support, Singh’s Congress party-led cabinet Sept. 14 allowed overseas retailers to enter India, and said foreign airlines can own minority stakes in local carriers. While the second-largest party in the alliance, Trinamool Congress, vowed to take a “drastic step” if Singh, 79, doesn’t abandon the laws and roll back a diesel price increase, opposition lawmakers called for a nationwide strike over policies they say will trigger job losses and hurt the poor.
“Congress has been committing harakiri by doing nothing,” Satish Misra, a political analyst at the Observer Research Foundation in New Delhi, said by phone yesterday. “They have been pushed around so much that it was time to fight back.”
The architect as finance minister of India’s 1990s economic opening and recently the object of media ridicule, Singh may have judged that rivals unprepared for elections are not likely to try to topple the government, Misra said.
His administration has 18 months until the next election to ease gridlock in Parliament over corruption allegations and restore confidence in its management of an economy growing at near its slowest pace in three years. Warnings of a ratings downgrade to junk status and a 67-percent drop in foreign direct investment in the last quarter are spurring the boldest policy initiatives of a government re-elected in 2009.

‘Tragic Failure’

India’s complex web of national and local political tussles may ensure Singh -- branded an “underachiever” on the July 16 cover of Time magazine, and a “tragic figure” in a Sept. 5 Washington Post (WPO) report -- and his government last until a ballot in early 2014.
Congress’ chief rival, the Hindu-nationalist Bharatiya Janata Party, is still divided over who should lead the party and in what direction. Mamata Banerjee, the West Bengal chief minister who controls 19 Trinamool members in Parliament’s 545- seat lower house, has to weigh the political risks associated with backing down on her opposition to foreign supermarkets with her bid to win a bailout for her indebted state.
Both will be aware that waiting in the wings are two parties from Uttar Pradesh state with more than 20 lawmakers, either of which may be willing to prop up the government.

Investors Cheer

One of those -- the Samajwadi Party, now ruling the state - - rescued Singh in 2008 over a nuclear cooperation deal with the U.S. The other, Mayawati’s Bahujan Samaj Party, was routed in this year’s assembly elections and is unlikely to want to face voters again so soon.
While political opponents protest, foreign investors will welcome the decisions along with a Sept. 13 deficit-reducing 14 percent increase in diesel prices, said Samir Arora, founder of Singapore-based hedge fund Helios Capital Management Pte, which focuses its investments on India.
“We’re very pleased and surprised because we had almost given up hope in the government doing anything,” said Arora in a phone interview yesterday. “Singh has finally delivered. He can take bold decisions after all.”
Indian stocks on Sept. 14 climbed to their highest level in 14 months after the diesel-price increase, boosted by the U.S. Federal Reserve’s announcement of a third round of stimulus measures. The foreign investment decisions were announced after markets closed.

Shares Gain

The BSE India Sensitive Index (SENSEX), or Sensex, rose 2.5 percent to 18,464.27, its highest close since July 26, 2011. The rupee gained the most since June on speculation the fuel move would help achieve the government’s deficit-narrowing target. Indian shares traded in New York gained to the highest level in five months.
In December, an earlier attempt to allow overseas companies such as Wal-Mart Stores Inc. (WMT) and Carrefour SA (CA) to open stores in India resulted in a humiliating government defeat after it was forced to abandon the plans because of opposition from Banerjee and rival parties. This time there will be no need for a rollback as all problems with allies will be resolved, according to Congress spokesman Rashid Alvi. The reforms don’t need parliamentary approval.
Offering an olive branch to regional leaders who have said they’ll oppose the arrival of large overseas retail chains over concerns they will put millions of small shopkeepers out of work, the government said it will be up to state governments to decide if they want to adopt the policy.

‘Vicious Cycles’

Singh Sept. 15 underlined the concerns that had prompted the policy push. If political deadlock is allowed to continue “vicious cycles begin to set in and growth could easily collapse to about 5 percent per year,” he told members of the country’s Planning Commission, adding that would dent his bid to allow more of India’s poor to benefit from economic expansion.
India’s growth target has been lowered to 8.2 percent for the 12th five-year plan started April 1 from an earlier estimate of 9 percent given the state of the global economy, Singh said while addressing the commission.
India’s benchmark wholesale-price index, which has remained above the central bank’s 5 percent comfort level since December 2009, reducing scope for interest-rate cuts to aid the slowing economy, accelerated to 7.55 percent in August, data released Sept. 15 showed. Reserve Bank of India Governor Duvvuri Subbarao will announce his latest policy statement today.

In Control

The decisions signal “that Singh and Finance Minister Palaniappan Chidambaram have successfully leveraged the looming threat of a sovereign downgrade to re-assume control -- at least for now -- over India’s economic policymaking,” David Sloan, an analyst at New York-based Eurasia Group, said in a Sept. 14 e- mailed analysis.
Sloan and other analysts caution that proposals requiring parliamentary approval, such as raising the foreign investment cap in insurance from 26 percent to 49 percent “remain political non-starters” as Singh’s Congress party-led bloc has been unable to end a standoff with the opposition over alleged losses to the exchequer from an award of coal resources.
Singh may unveil as early as this week a cabinet reshuffle in a bid to counter negativity over his administration, the Hindu newspaper reported yesterday.
Chidambaram’s third tenure as finance minister, which began at the end of July, has been busy. He has ordered banks to lower lending rates to boost growth, promised to tackle the budget deficit and ordered a review of a divisive proposal for a retroactive taxation on capital gains.

Market-Friendly

Still, while Chidambaram favors more market-friendly policies than his predecessor, “the decision to open retail has probably been planned for many months so it would have happened anyway,” said A.K. Verma, a political analyst at Christ Church College in Kanpur in Uttar Pradesh, India’s most populous state.
In the latest sign of the frustration felt by voters toward Congress, only 38 percent of Indians said they were satisfied with the country’s direction, according to a Pew Research Center survey. That was down from 51 percent a year earlier, and was the largest drop among the 17 countries in the survey, including China, the U.S. and Brazil.
Amid the political gridlock, India’s economic growth potential may have fallen to 6 percent to 6.5 percent a year, below the Reserve Bank of India’s 7.5 percent estimate, JPMorgan Chase & Co. (JPM) said. Foreign direct investment fell 67 percent to $4.43 billion in the three months ended June from a year earlier, government data show.

Deficit Target

Singh, who has been prime minister since 2004, is targeting a budget deficit of 5.1 percent of gross domestic product in the year ending March from 5.8 percent a year earlier. Asia’s third- largest economy grew 5.5 percent in the three months ended June 30 after expanding 5.3 percent in the previous quarter, the least in three years.
The budget shortfall and a deficit in the current account, the broadest measure of trade, led Standard & Poor’s and Fitch Ratings to say earlier this year that they may strip India of its investment-grade credit rating.
S&P on April 25 lowered the outlook on India’s sovereign credit rating to negative from stable, saying the move reflects a one-in-three likelihood of a ratings downgrade to junk status because of slower investment and economic growth. Fitch Ratings cut its outlook on June 18, citing limited progress in paring the budget deficit. Both companies rank India’s debt BBB-, the lowest investment grade.

Starbucks, Ikea

India has been planning the policy change for its airlines for more than three years as Kingfisher Airlines Ltd. (KAIR), controlled by billionaire Vijay Mallya, and state-owned Air India Ltd. (BHARTI) delayed salaries and defaulted on payments to airports and fuel suppliers because of cash shortages.
Jet Airways, India’s biggest carrier, has also been planning to raise funds through a rights offer for more than two years. The carrier and Kingfisher plunged more than 65 percent in 2011. Jet said last month that it plans to sell and lease back some planes to pare debt by about $400 million.
Foreign companies are currently permitted to invest in retail supply chains and wholesale stores, which sell to local businesses. In January, India allowed overseas companies full ownership of stores selling a single brand, letting the likes of Starbucks Corp. (SBUX) and Ikea operate without a local partner. Ownership had been limited to 51 percent.
Last week’s rash of reforms have raised expectations of further measures to come, said Eurasia’s Sloan.
“While the government will have to further slash subsidies, reduce expenditures, and raise new revenue in order to preserve its long term credit rating, the political courage that Singh and Chidambaram have exhibited suggests that more changes are in the pipeline,” Sloan said.
To contact the reporters on this story: Bibhudatta Pradhan in New Delhi at bpradhan@bloomberg.net; Andrew MacAskill in New Delhi at amacaskill@bloomberg.net
To contact the editors responsible for this story: Hari Govind at hgovind@bloomberg.net; Peter Hirschberg at phirschberg@bloomberg.net