An effort by Stockyard in association with mantra consulting group

www.stockyard.infinities.net
25th April 2008 Issue 3
towards…. Merge Dream1 Dream2;

Content
How to conquer India

Company Search: RIL

Economy: ADB Report

Economic Forecast
08/09

Business News

G7 meet for crisis

Industry Analysis

Semi conductor Ind.

Casting Industry

Guest Colum: Inflation

Political Radar

Tata Group

Soros
 How to conquer India
Probably, we won’t understand the power of our culture and
education system. Here is a rare historical document which revel
our strength. Document itself is self explanatory.
 Editorial
A small story….about a cable operator…in 2002...just 6 years before….he
was very upset that Set-top boxes have come and Government is unnecessarily
tinkering with his operations ,putting in service tax,etc,and he felt it was
unprofitable to function in such a scenario…..

And a journey began……

In 2003 he entered Cinema business... …In 2006 he brought IPO …And today, his firm…has
become an Entertainment Conglomerate spanning continents and businesses.

Pyramid Saimira and Mr P.S.SamiNathan has turned his small cable

operator business into World’s 3rd largest Cinema Operator with nearly 4.5
Lakh seats as of January 2008.

And if He has to be believed…Pyramid will be Number 1 globally by the end of this

Year.

The group has emerged as a holistic Entertainment supply chain with Market capitalization of
more than Rs 900 crore. Company has taken theatres and multiplexes on long leases and is in
the process of upgrading them to a uniform high quality experience.

Some of the feathers in cap:

 Company is the largest distributer of Movies in India with 65 films this year.
 Its Network includes 53 multiplexes with around 800 screens across India,
Malaysia, Singapore and North America.
 In USA, it has acquired a Theatre Chain, Fun-Asia, the largest Asian theatre
chain operating 23 screens in Washington, Chicago and the Bay Area.
 More than half of south Indian language films are being distributed by
PSTL.PSTL has produced 13 films and plans to produce over 70 films in coming
year, at a combines value of over Rs 700 crore,in various languages.
 Recently Saimira has entered in a JV with UK-based Spize TV, a DTH platform.
 In the next 2 years, the group plans to operate 175 multiplexes with 2,000
screens in India alone. Company is expecting revenue of Rs 1,000 crore this
year, from last year’s Rs 166 crore.

This could make it one of the fastest growing companies in the Indian
growth story!!!
This is the power of Dream…Are your dreams equally powerful…???
Dreams….Are not those that are seen in deep sleepiness.

Dreams born in deep Human consciousness…Dreams born in deep creativity…Sometimes in

deep frustration too….

I have always felt a dream in me...Since I remember consciously…and I believe there is a

dream in you also…may be in most of our hearts…

We have dreams…bit of dreams…in fractions…in pieces…they germinate…sprout…grow a little

and finally die down…Why…? Because perhaps we do not sprinkle and water our dreams with
love…

So, should we all let our dream die an unnatural death….? Or is there a way out…? To let
dreams flourish …let them cherish….let them realize…And let them spread in all over the
world…touching all the lives…

Yes …There is a way out…

I have a dream…you have a dream…And for that matter…we all… have wishes, desires
,ambitions and these uncherished dreams…

Let’s merge them together…

In SAS Programming …all it takes is few coding to merge big files of GBs……I often
think…could we all merge our dreams together…like we merge files in SAS.

Just think over it…If we all come together…share our dreams…weed out few contentious jerks
from them…and whatever is left out…the cream…the flower…just put them one behind
other…just attach all our dreams like a garland …and see our dreams becoming ONE …..A
big…bigger…still bigger dream...a MEGA...GIGA DREAM…..

Just imagine…looks weird…right..? Still just try once…

How does it look……? Possible..? Menifestable…? More beautiful….? Achievable….?

And then you ask….How to do it…?

Let us all discuss all our dreams…Let us churn out ourselves…put all our dreams…creativities in
one basket …stir our mind and conscience……And come closer…and closer….day by day…

The Dream is born…it was always here….the delay was in realizing and manifesting it…

A dream is about to born in you…and it is crying to be manifested…Do not let it die…just

because you did not care….
This issue …3rd in series…is dedicated to the idea of merging our Dreams
together…so that we all could realize our dreams in unity…in Oneness.
We have a special article on Inflation, contributed by Mr Kankan Paul…Who has tried to bring
out all possible explanations on Inflation …the single most challenging issue in Global
Economy and society.

We have also included an in-depth analysis on Global; Asian and Indian Economy from the
perspective of Asian Development Bank.ADB has recently come up with its 300+ pages report
on Economy. We have tried to sum-up and provide a gist of it to you.

In our equity research section, we have tried to analyze some of TATA Group companies in a
fundamental perspective.

We also covered a brief outlook and potential of Semiconductor Industry in India for our
Industry Analysis.

May all our dreams come together and cherish…Amen.!!!

With this note…the Issue is in your hand….

With Love and Affection


RIL to sell 10% in KG Basin
RIL may hive off its KG basin D-
6 assets into a separate
company and offer stake to a
foreign player. The gas output
from RIL’s D-6 block in the KG
basin may rise another 50% to
120 mmscmd after eight new
RIL-RNRL case in HC today
Company Search
discoveries. With the gas projection from KG basin
being increased to 120 mmscmd and commercial
production just a quarter away, the valuation of
the field will go up by 50%. Last year, Goldman
Sachs had valued RIL’s D-6 block with 14 trillion
cubic feet (tcf) reserves close to $40 billion.

The Bombay High Court on Friday will start hearing (HSA) owns 25% in this block. RIL is setting up a
the Reliance Natural Resources (RNRL) Reliance greenfield refinery in Yemen with an initial
Industries (RIL) case over the vexed gas supply capacity to process over 50,000 bopd and scale it
issue on a day-to-day basis. The outcome of the up to 1,00,000 bopd. It has also sought permission
case will have enormous implications for RIL, RNRL to set up petrol pumps there. RIL has proposed
and for the entire country as gas production is equal equity participation with partner Hood Oil in
slated to begin in a few months. This is because the project. The refinery may commence
the court has restrained RIL from selling upto 80 operations by 2011. RIL operates a 33-million-
mmscmd of gas to any third party. RIL, not being tonne refinery in Jamnagar and is commissioning
able to firm gas contracts, had sought that the stay another 27-million-tonne refinery in the Jamnagar
be lifted. Selling gas at $2.34 per mmbtu will halve SEZ, making it among the world’s largest refineries
the valuation of the KG-D-6 block. A consortium at a single location. Besides Block 9, RIL has
comprising Reliance Industries (RIL) has made a acquired stake in two onshore oil blocks, 34 and
significant oil discovery in Yemen. The discovery in 37, in Yemen where it is partnering Hood Oil. Both
Block 9 in Qarn Qaymah 2 well is learnt to be blocks measure 7,500 sq km each and are located
significant, and RIL is in process of evaluating the along the border with Oman. RIL’s other global
potential commercial interest. Block 9 has an exploration assets comprise of two blocks each in
output of 10,000 barrels of oil per day (bopd), Oman and Columbia and one each in East Timor
operated by Calvalley Petroleum of Canada holding and Australia covering an area of about 38,000 sq
a 50% stake. Hood Oil, subsidiary of the Yemen- km.
based business group, Hayel Saeed Anam Group
RIL planning to enter Rigs manufacturing business

Reliance Industries is scouting for a partner to
enter into the rig manufacturing business besides
investing $2.5 billion to venture into petrocoke
gasification. Keen to sort out the rig availability
problem that is being faced by the oil and gas
industry, RIL would get into oil field services
business, which includes rig manufacturing. The
company had in October 2007 sought a three-year
drilling holiday for exploring nine deep sea blocks it
won through NELP auctions due to rig shortage.
The proposed rig manufacturing facility would be
operational by the end of the current fiscal or at
the beginning of the next financial year. The
company would invest $2.5 billion for its petrocoke
gasification project, which would replace naphtha
as feedstock to its captive power plants at the
Jamnagar facility. At present, the fuel for captive
plants is sourced from crude oil. Due to surge in
price of crude, company is thinking of making fuel
by gasification of petrocoke. RIL plans to expand its
power generation capacity to 850 MW from 500
MW.
 ECONOMY Structural Factors for High
Asian Outlook crude prices:
Production from the Organization of the
Economic activity in developing Asia is expected to remain Petroleum Exporting Countries (OPEC),
and non-OPEC production must rise
strong and growth of 7.6% is expected in 2008. This solid even to meet short-term forecasts of
performance in an unsteady global economy is underpinned by demand. The International Energy
favorable policy conditions, strong productivity growth, and Agency (2008) sees demand rising by
1.7 million barrels a day in 2008 with
the ongoing structural transformation of Asian economies. most of the added demand coming
Still, growth projections for 2008 and 2009 are slightly below from People’s Republic of China, India,
the recent historical trend in developing Asia. Developing Asia and the oil-producing countries of the
Middle East themselves.
will not be immune to the global economic slowdown, nor will
it be hostage to it. Trade channels remain an important Difficulty in supply keeping up with
conduit for the transmission of shocks from G3 to Asia. As yet, demand are complex but have to do
with domestic political constraints
market penetration by Asian suppliers in the PRC’s (China) final within the OPEC countries and the fact
goods markets is limited, and strong growth in the PRC will that non-OPEC production has peaked
provide only a limited cushion against the G3 downturn. In the and is set to decline.
past decade, developing Asia has become much more deeply Alternative fuels such as
integrated with global financial markets, raising the potential unconventional sources of oil (tar
for contagion. But Asia’s financial systems are likely to be sands), biofuels, and natural gas are
difficult to develop and involve large
spared a credit crunch, though there may be some tightening investments and lags of up to 5 years
in credit markets. Asia’s banks, which still dominate private between investment and production.
financial markets, are generally well capitalized and there does
Transportation services is growing
not appear to be substantial value at risk on their balance rapidly and despite the development of
sheets. In the near term, the major risk lies not so much in hybrid engines using combinations of
softer growth but in rising commodity prices and accelerating fuel, there is no meaningful short-term
substitute for oil-based fuels for
inflation. If inflation expectations are allowed to become transportation services on air, land, or
ingrained, this could create distortions that damage sea.
productivity growth over a protracted period. Though
The rising price of oil is closely
measures to restrict the impact of rising food prices on the associated with the price of natural gas
poor are understandable, these should not be allowed to as can be seen in sharp increases in
jeopardize adjustments that are needed to bring forth fertilizer prices. The price of
diammonium phosphate—a fertilizer
additional supply. Extensive subsidies on fuel come at high produced from feedstock of natural
fiscal cost—a rising burden in several countries—as the gap gas—has risen from $260 per ton in
between domestic retail and border prices widens. Over the 2006 (period average) to $768 in
February 2008.
medium term, and once developing Asia has passed through
the gathering storm of rising commodity prices and inflation, Higher costs of energy inputs also affect
its growth prospects are likely to depend much more on how electricity costs for use of pump
irrigation systems, tractor and
successfully countries manage their economies and overcome harvester/ thresher fuel costs, and the
domestic constraints to growth. Developing Asia’s economy is cost of transporting inputs and outputs
expected to expand by 7.6% in 2008, picking up a shade to related to agricultural production.
7.8% in 2009. These projections suggest a slowdown from
Food and oil prices move closely
2007’s outcome, now estimated at 8.7%, the highest in 19 together through time in such a way
years. Rising food and fuel prices are stoking headline inflation, that a rise in oil prices has a statistically
but economic speed limits have also been tested, with recent significant positive impact on food
prices.
output growth straining capacity. If the global slowdown is
concentrated in sectors such as electronics, textiles and
garments, and toys, as recent data appear to suggest, this
 Structural factors for
rising Food prices:
would hurt Asian exporters. Rising food and fuel prices could
Demand that is driven by high
probe developing Asia’s resilience. Countries that are net fuel economic growth and urbanization,
and food importers are likely to be squeezed by adverse particularly in India and the People’s
movements in their terms of trade; more so, when unit values Republic of China, and associated
changes in diets that require more
of important export products are weakening, as they now are grain to produce the same amount of
for garments and textiles. Asia’s financial markets are becoming calories for consumption.
more closely meshed with global markets. Most measures of
Supply constraints arising from
financial integration, and thus potential contagion, have greatly competition for agricultural land and
strengthened over the past decade. Through these channels, its conversion, increasing scarcity of
Asian borrowers will feel the pinch in international credit fresh water; and migration of labor
from agricultural to nonagricultural
markets and Asia’s bourses are likely to experience heightened activities;
volatility. Asian banks are still the main originators of domestic
credit, and their leverage and exposure to unsafe securities are Direct competition for key food crops
for nonfood demand (such as
low, the possibility of the credit crunch washing onto Asia’s biofuels)
economic shores seems remote. Most Asian economies have
ample foreign reserves in the event of an unexpected rush to Underinvestment in agricultural
technologies and infrastructure that
sell domestic currency. Although the slowdown in global have contributed to slow growth of
demand should ease inflation pressures, deep cuts in US yields per hectare of agricultural land
interest rates would add to them if Asian economies do not
Climate change, which is increasing
allow greater flexibility in nominal exchange rates. Lower the incidence of drought and flooding
interest rates also tend to make commodities more attractive that hit agricultural production.
as assets and so may support high prices, though the effects on
Global rice stocks have fallen and are
inflation should be transitory. expected to reach 25 year lows at just
Any passive acceptance by Asia of an upward drift in inflation 70 million tons this year, down from
could deal a hard blow to long-run productivity growth. Even 150 million tons in 2000 (USDA 2008).

moderate inflation typically proves costly to get rid off. Trade policies currently greatly distort
Conversely, price controls and extensive price subsidies, though international price signals in
they may temporarily corral inflation expectations, are not the agriculture and lessen the likelihood
of rapid and efficient supply
answer and would stymie market adjustment processes. responses. Rice prices are of
Developing Asia’s exports do respond quickly and in some cases overwhelming importance in
strongly to variations in G3 demand. Precise impacts differ developing Asia because well over
50% of its population relies on rice as
depending on the source of the demand shock and trade a staple of consumption, and nearly
structure. Though developing Asia’s economy is not immune to 70% of agricultural land is given over,
the vicissitudes of global demand, its longer-run growth at least seasonally, to rice production.

trajectory will be much more a function of structural and supply-side dynamics. To maintain
momentum, countries will have to address and overcome a variety of constraints. In the short
run, the impact of the global slowdown is likely to be modest: even a highly unfavorable global
scenario that dents growth in developing Asia. Though it is unlikely that price of crude rises will
be sustained secularly, the outlook for the next 2 years is for continuing upward pressure. There
is also a risk that cost inflation may lead to demands for upward adjustment of money wages or
increased fiscal outlays to subsidize food and fuel consumption. The subsequent monetization of
the fiscal costs coupled with accelerating wage increases are potential triggers for an inflation
spiral of prices and costs.
India Outlook

Key structural challenges include establishing a new fiscal adjustment road map, raising labor
productivity, and enhancing structural reforms.

RBI has been attempting to control money supply growth to maintain price stability, while
seeking to ensure credit market and interest rate conditions that support investment in the
context of relative stability in the exchange rate. But it has had limited success. The year-on-year
money supply growth of 24% (to end-January) remains significantly higher than the target growth
rate of 17–17.5% Strong capital inflows have increased money supply, raising inflation pressure
and rendering difficult the management of monetary and exchange rate policy. In FY2007, RBI
followed a dual-policy approach to allow
● ● ● greater exchange rate flexibility along with
intervention in the foreign exchange market.
Avoiding a deep downdraft in the next 2 years This led to appreciation of the rupee against
will primarily be shaped by the outcomes of the United States (US) dollar, mainly in the
three counteracting forces: early months of the fiscal year, and a large
keeping food price inflation moderate, accumulation in RBI’s foreign exchange assets
Lowering interest rates to sustain high over the full year. While the rupee weakened
levels of investment, slightly in the latter part of FY2007, it
Containing the fiscal deficit. appreciated by about 13% against the dollar
and by about 7% on average for the year in
real effective terms. Some development
● ● ● agencies project that global food prices by
2017 could be 20–40% higher than the
average of 2002–2006. India has emerged as the largest importer of edible oils in the world with
more than 40% of its domestic demand met through imports. Reflecting the tight global situation
and affected by domestic supply constraints, food prices have risen faster than overall inflation in
recent months. The Government has responded by increasing subsidies on food items, controlling
exports, and subsidizing imports. Appreciation of the local currency against the US dollar has hurt
Indian exporters. Merchandise exports (on a customs basis) grew by 21.6% in the first 10 months
of FY2007 when expressed in US dollars .However; this reflects the sharp appreciation of the
rupee more than the actual increase in exports, the growth of which, in rupee terms, was
subdued at just 7.7%. The slowdown was evident most notably in chemicals, engineering goods,
textiles, and readymade garments and handicrafts. The growth of merchandise imports, at 29.6%
in US dollar terms in the first 10 months of FY2007, is also overstated when compared to its
rupee value (14.7%). Non-oil imports of capital goods, chemicals, edible oils, and precious and
semiprecious stones provided the main stimulus for import growth; rising by 36.1%, while oil
imports advanced by 16.5%. The net effect was a near 50% widening of the US dollar trade deficit
from a year earlier. Preliminary estimates indicate that the current account deficit will be about
1.9% of GDP, slightly higher than in FY2006. Although the trade deficit widened significantly, it
was offset by a strong rise in the inflow of remittances and a growing surplus from exports of
services such as software and business services, though their expansion in earnings was reduced
from the rapid rates seen in previous years.
 Economic forecast for 2008/09

Forecast
Economic growth will likely moderate further to 8.0% in FY2008. Overall GDP growth in FY2009 is
predicted to return to around 8.5%, nudged along by a broad-
based pickup in spending. Even though growth has faltered,
Assumptions:
the economy has built up considerable momentum in recent
years and this sense of dynamism should help pull up the pace The domestic food supply position will
again. However, major macroeconomic challenges need to be remain tight but manageable in FY2008,
met in order to ensure that the current deceleration remains but improve in FY2009
mild in the face of turmoil in global financial markets and of RBI and the federal Government will
the marked economic slowdown in industrial countries. The take all steps necessary to contain
growth outcomes in the economy over the next 2 years will inflation in FY2008, largely because of
the general elections due by early 2009
depend in part on the timing and scope for relaxing the
present tight monetary policy. Exactly when this will be Monetary conditions will be relatively
feasible will be determined by success in containing inflation, more accommodative during FY2009
which in turn depends on two uncontrollable factors: the Substantial revisions in domestic price
outturn in domestic food production and the course of of petroleum products will likely be
international commodity prices. Growth in international made only in FY2009 (that is, after the
elections)
commodity prices is expected to flatten in FY2008 and fall in
FY2009, taking the pressure off inflation and allowing The rupee/dollar exchange rate will
domestic demand to pick up in FY2009. Private consumption remain relatively stable throughout the
period.
expenditure will remain relatively buoyant in FY2008 at just
over 6%, supported by continued strong wage gains in a skills-
short formal economy, larger income tax exemptions, the
debt waiver for farmers given in the FY2008 budget, higher prices for cash crops in the rural
economy, and higher pay for civil servants. Government consumption expenditure also will rise to
support the ambitious social sector development agenda of the 11th Plan. Reinvestment of
corporate profits, capital inflows, and credit availability will continue to support investment
growth. While investor enthusiasm remains high, drawing on a broad range of new business
opportunities and high capacity utilization in existing plants, expansion in fixed investment is
projected to slow in FY2008. It will account for about half of the decline in economic growth,
although this will be partly offset by some cyclical building of inventories. Postponement of
launching initial public offerings in early 2008 is one indicator that the expansion plans of many
Indian companies are being scaled back. Much of the deceleration in investment is expected to
be due to a slowing in property development. Easing of lending rates and revival of the consumer
durable goods sector and construction activities are important for achieving a pickup in industrial
growth. But despite the current slowdown in demand, lending rates cannot be reduced because
stabilizing inflation at a moderate level remains the priority of RBI during FY2008, even at the cost
of growth. A more accommodative monetary policy stance is expected only after the general
elections. After that, RBI is likely to move to ease its tight policy stance by reducing policy rates if
food inflation is relatively well controlled. A fall in borrowing costs, together with growing
consumption demand, would lift industrial production in FY2009 after an initial hitch in FY2008.
Agricultural growth will continue to be driven by monsoons until better infrastructure and
institutional set-ups are in place. The 11th Plan emphasis on agriculture, coupled with a Rs2,800
billion($70 billion) target set for agricultural credit in FY2008, as well as a host of reform
measures for agriculture and water resource management announced in the FY2008 budget,

Downside Risks:
Monetary management may have to
deal with the possibility of supply
shocks beyond the 2007 and 2008
sowing seasons.
The loan waiver can be effective in
augmenting food supply provided
that farmers are also supported with
a comprehensive package of
technology, services, and public
policies related to input and output
pricing.
Rising food prices, especially of
commodities consumed by the broad
public, would damp their general
purchasing power and GDP growth.
In the event of high food prices,
monetary conditions would need to
remain tight, and the assumed move
to lower lending rates would not
occur and growth would be less.
The global slowdown may more
adversely affect India’s engineering
and other high-end exports as well as
earning from sales of software and
other business services than
projected. While this would raise the
negative impact of “net exports,” the
main damage would be seen in the
erosion of the exuberant business
outlook.
If the larger part of the private sector
turns cautious and waits to see what
happens next, investment and
growth would fall below those
projected.
2.6% of GDP.
should take hold and lead to the needed improvement
in agricultural performance in FY2009. Domestic prices,
especially of food and fuel, will be critical in determining
wholesale price inflation, which is projected to be at a
moderate level of 4.5% in FY2008. Inflation pressures,
however, will persist as the domestic output of
foodgrains and vegetables is expected to remain tight in
FY2008 due to subdued sowing of the winter crop in
October 2007.
The tight supply position of wheat, pulses, edible oil, and
coarse cereals appears due to diversification to cash
crops and water shortages in parts of the country. Easing
of international prices of nonfuel commodities, including
foodgrains, will help in augmenting domestic supply.
Several low-profit-margin exports such as textiles and
handicrafts were hurt from rupee appreciation in 2007,
but exports of more sophisticated products such as
capital-intensive manufactured goods, as well as sales of
business services, continued to expand. The rupee–
dollar exchange rate is assumed to remain relatively
stable during FY2008 and FY2009. Exports are therefore
expected to grow at about 16–18%, partly due to the
sizable share in the total (nearly 20%) of refined
petroleum products, whose prices are on the rise.
Markets other than the US are also opening up to India’s
high-tech service exports such as information and
communications technology and business process
outsourcing, which provide a cheaper source of supply
to increasing demand from industrial economies. Indian
exporters have started diversifying to other major export
markets, notably Europe, People’s Republic of China,
and the rest of Asia. Import growth will continue to be
rapid, reflecting both high international oil prices and
expansion in non-oil imports, especially of capital goods
and intermediates that have become necessary to
sustain high levels of investment. These factors have
been incorporated in the projection of a widened
current account deficit, which is likely to be around 2.2–
Challenges to development

Over the past decade, India has undergone a transformation and climbed to a high growth path
as macroeconomic and structural reforms reduced regulation, improved the business
environment, and opened the economy to greater competition. It still needs to focus on certain
key areas with the potential to push growth to a higher plateau. The most crucial are enhancing
the policy and regulatory framework to encourage the private sector and reining in fiscal deficits.
A dynamic private sector that creates jobs, increases productivity, and invests in the economy
plays a crucial role in bolstering growth. Removing the bottlenecks to private sector growth and
competition in India could well generate an additional 2% of GDP growth. All levels of
government need to reengineer their laws and procedures to reduce barriers to entry of firms
into any product area; modernize out-dated and excessive regulations, including more flexibility
in the labor code; eliminate the roadblocks that hinder free interstate movement of goods to
achieve a competitive national market; and end the present lengthy process required to
restructure or close bankrupt companies. Archaic management structures and institutions still
prevail in much of the daily working of government. Thus reengineering needs to be introduced
into institutions at all levels by adopting the management and operating techniques so
successfully developed by India’s computer software and business services industries. These
changes would be especially effective at the level of local government. Fiscal consolidation, by
targeting combined state and federal government deficits, including off-budget and contingent
liabilities, is essential to create the fiscal space for essential social and infrastructure spending.
The Government’s decision—to keep domestic prices artificially suppressed in response to rising
international food and oil prices—has distorted product prices and generated large, annual off-
budget liabilities that are rapidly escalating the already heavy deadweight of interest payments.
Aligning food prices with the international market would raise farmers’ incomes and set prices
that will not distort land allocation to crops. A similar move for oil will likewise give consumers
the right price signal to save energy and demand more energy-efficient products. A part of the
saving from ending these subsidies could then be available for direct cash payments in well-
targeted safety net programs. This would eliminate the large diversions and losses involved in the
present price subsidy schemes. Declining labor productivity is a key issue in sustaining India’s
long-term growth. Defined as output per worker, labor productivity dropped from an average of
5.8% during the period from FY1993 through FY1998 to 3.6% during the period from FY1999
through FY2004. One reason is an increasing shortage of appropriate skills.
 Business news
Dabur Pharma sells its stake
Dabur Pharma is selling 73.27 % stake to Fresenius Kabi Impact of CRR Hike
(Singapore) Pte Ltd for an undisclosed amount. The
The rupee may slightly appreciate and bond
Singapore firm would purchase the stake at Rs 76.50 an
prices could harden further by 7-10 basis points,
equity share from the promoters and certain other Crude
following the Oil
hike at $120
in the / Bl Ratio
Cash Reserve
shareholders of the company. At present, Dabur Group’s (CRR) by the RBI. The rupee may tend to
promoters - the Burman family - hold 65 per cent stake in appreciate in the
Saudi Arabia short
plans toterm. But the
increase rising price
its production
ofcapacity
global crude,
by fivewidening trade deficit,
million barrels per dayslowing
(bpd)
the pharma company. Last year, Dabur had sold its non-
down of capital
by 2012. OPEC flows
aimedand to the overall
boost cooling
production
oncology formulations business, mostly comprising cardiac down of the economy may
capacity by nine million bpdcause the rupee
by 2020. Currentto
and anti-diabetes drugs, to Ahmedabad-based Alembic for weaken in the medium
OPEC output stands atterm.
aboutThe32 CRR hikebpd.
million has
Rs 159 crore. In 2003, the company had hived off its now
Evenraised
thoughexpectations
OPEC has of a hike in
promised to repo and
increase
pharmaceutical division from the FMCG business. Dabur is reverse repo incapacity,
production the monetary
the policy on April
long-term 29.
supply
increase does not resolve the main factors
trying to consolidate itself in FMCG space. Fresenius Kabi CRR
thatHike
are underpinning prices now. A
Pte is a unit of Germany-based healthcare firm Fresenius weakening US dollar has spurred oil demand
The CRR hike of 50 basis points in 2 stages, one
SE, which makes anti-cancer drugs. Dabur’s strong pipeline because dollar-priced oil becomes cheaper for
on 26th April and another on 10th May. Likely to
of oncology drugs synergises well with the German parent buyers holding stronger foreign currencies.
reduce Net Interest Margin by 5 basis points.
company. The Indian pharma company had recently Global supply worries were stoked after
Would suck out Rs 18,500 crore from the
Anglo-Dutch oil group Royal Dutch Shell
launched its rectum cancer injection Irinotecan in the US - banking system. Banks do not earn any interest
reported an output loss of 169,000 bpd from
its fourth product in the North American market. Dabur on CRR deposits. Year 2008-09 is likely to be
sabotage of its key pipelines in southern
more difficult for banks, especially on margins,
also has an agreement with Thailand’s Government Nigeria. Shell said on Monday that it might not
for Government banks and on loss of income
Pharmaceutical Organization to supply a generic version of be able to honor oil contracts for April and
from forex and collateralized debt obligations
May after the attacks. If oil prices remain
an anti-cancer product, Docetaxel. Anti-cancer drugs (CDO) provisions for private banks.
above $100 per barrel, inflation could surpass
worth $10 billion is set to go off patent in the next few 9 percent in the third
Bank earnings could bequarter
impactedof 2008 and
for most
years and with only a few generic players in the global average overbanks
7.5 perowing
cent into2008/09
government the 60-75 basis
market, the acquisition makes it a good buy for Fresenius. points cut in lending rates. Rising inflation and
weakening demand could impact volume
Wipro FY’08 net up 11% at Rs 3,283 growth. The key risks to the sector are a rise in
interest rates, deteriorating retail asset quality
crore and a further slowdown in loans and fees.

Consolidated total income: Rs 20,397 crore (Rs15,271.4 cr) In the current situation, with demand for credit
on a slide, credit growth could be just about an
Consolidated Net Profit: Rs 3,282.9 cr (11.57 % increase) average of 20% this year.

Net Profit (4th Quarter) : Rs 880 crore ( Rs 856.1 crore) Public sector banks might see multiple pressure
points from Basel 2 implementation, loan
Total income (4th Quarter) : Rs 5,777.2 crore (Rs4,395.9 cr) waivers, labour demands and an inability to
respond to interest rate signals appropriately.

Indian Bank Results Total hit on the banking system is expected to

be about Rs 750-900 crore. Private banks may
see a loss of Rs 300 crore.
Net Interest Income for Q4 Rs 513 crore against Rs573 cr

Net Interest Income for Year : Rs1872 cr against Rs759 cr

Net Profit : Q4 242 Crore against Rs 235 crores

Net Profit: Rs 1008.74 crore against Rs 759 crore

Infosys Results
Consolidated net profit of Rs 4,659 crore for the year New Merger policy in
ended March 31, a 20.82 per cent growth over the Telecom
corresponding period a year ago. Infosys had a
The Government on Tuesday said that no mergers
consolidated net profit of Rs 3,856 crore for the year
and acquisitions of telecom licenses would take
ended March 31, 2007. place if the number of service providers reduces
below four in a circle consequent upon the M&A.
The consolidated total income rose to Rs 17,396 crore for Prior approval of DOT for the M&A of the licenses
the year ended March 31, 2008 from Rs 14,265 crore in is necessary and the combined market share of the
the year-ago period. The company declared a final merged entity shall not be greater than 40 per
dividend of Rs 7.25 on shares of Rs 5 each (145 per cent) cent in terms of subscriber base or in terms of
revenue.
and a special dividend of Rs 20 pe r share (400 per cent
on an equity share of face value of Rs 5). Besides, Infosys
has decided to increase the dividend payout ratio to up
to 30 per cent of net profits effective from fiscal 2009, the company added. For the quarter ended March
31, the group reported a net profit of Rs 1,249 crore as compared to Rs 1,144 crore for the quarter ended
March 31, 2007. Total income increased to Rs 4,681 crore for the quarter ended March 31, this year from
Rs 3,891 crore f or the corresponding quarter a year ago.

Ban on cement exports to dent majors’ toplines

With the government banning cement exports, revenues of major cement exporters will be dented by about Rs 1,000
crore. Two cement exporters, Ultratech and Ambuja Cement, in separate statements to the Bombay Stock Exchange on
Monday, said their revenues are likely to be impacted. Ambuja Cement said the company exported about 1.32 million
tonne of cement worth about Rs 277.48 crore in FY 2007. Similarly, Ultratech’s 10% revenues come from cement exports.
Going by Ultratech’s nine-month turnover, 10% would come to about Rs 392 crore, approximately. Hence, the two
Companies, together, will take a hit of more than Rs 670 crore. India exported about 3.5 million tonne cement last year.
And with international cement prices at about Rs 2,500 per tonne, the Companies will take a revenue hit of about Rs 875
crore. However, if we include the ban on clinkers as well, then there will be a revenue hit of about Rs 1,000 crore to Rs
1,200 crore. The manufacturers based in the western region, especially Gujarat, would be the worst hit, as 91% of India’s
exports are from the state. With almost 3.3 million tonnes flowing back to the region due to the export ban, we see a
pricing decline in the western region, which are currently at Rs 231 a bag.
Orchid Chemical
After much sensation and hype over Solrex bid for
12.8% of Orchid Chemical, for the first time,
Ranbaxy on 22nd April admitted that Solrex was a
partnership between two of its wholly owned
subsidiaries – Solus Pharmaceuticals Ltd and
Rexcel Pharmaceuticals Ltd. According to Indian
regulations, the acquisition of a 15 per cent stake
in a firm by persons other than the founder or the
founder-group would trigger a mandatory open
offer for a further 20 per cent. If that happened,
then Orchid’s current management would have
had to give up control to Ranbaxy. Therefore, the
business alliance with Ranbaxy could put an end to
Orchid’s fear for now. Ranbaxy has similar strategic
stakes of just under 15 per cent in other pharma
companies, including Krebs Biochemicals and
Industries Ltd and Jupiter Bioscience Ltd.
On the alliance with Orchid, Mr Malvinder Singh
said the companies were looking to leverage on
each other’s strengths with Orchid having strong
presence in antibiotic cephalosporin formulations.
“Orchid is a niche player in the global
pharmaceutical industry with an impressive track
record, particularly in sterile products. We are
pleased to enter into this long-term strategic
alliance with Orchid. The agreement will be
mutually beneficial and synergistic, allowing both
organisations to leverage each others inherent
strengths.”
Commenting on the alliance, Mr K. Raghavendra
Rao, Managing Director, Orchid, said, “We are
happy to join hands with Ranbaxy, India’s largest
pharmaceutical company. Ranbaxy’s global scale
and market reach and Orchid’s advanced
development and manufacturing capabilities
would expand the business of both companies. We
believe that this will be a win-win arrangement for
both companies”.
 G 7 meets for Crisis

earnings reports their investments at risk of loss.

Firms should also establish ``fair value estimates''
for the complex assets that investors have
shunned and boost their capital as needed.

European Central Bank has left its unchanged at a

Finance chiefs from the G7 nations signaled six-year high of 4 percent amid inflation at a 16-
year high. Growth differentials are still stacked up
towards….?

concern on the dollar's slide and said the global against the dollar and since there's no sign
economic slowdown may worsen
amid an ``entrenched'' credit
squeeze. The officials downgraded ``The turmoil in global financial
their outlook for the world
economy from that of two months markets remains entrenched and
ago, blaming the U.S. housing
recession, credit-market turmoil,
more protracted than we had
commodity prices and inflation anticipated,'' the officials said in their
pressures. The dollar has lost 8
percent against the euro and 6 statement. ``Near-term global
percent versus the yen since
February.
economic prospects have weakened.''
Policy makers laid out a 100-day plan to strengthen whatsoever that the group is about to intervene,
regulation of capital markets. They urged financial that clears the way for further dollar weakness.
companies to ``fully'' disclose in their mid-year The U.S. currency reached a record low of $1.5913
against the euro this week. The dollar is expected
to reach $1.60 per euro. The G-7 again urged China
to allow ``accelerated appreciation'' in its currency,
while acknowledging its recent rise through 7 per
dollar for the first time since a fixed exchange rate
ended in 2005. With the credit squeeze now in its
ninth month, the G-7 highlighted ``downside risks''
to growth in a ``challenging and uncertain
environment.''

Semiconductor Industry
The Indian semiconductor design services
industry is projected to grow at a compounded
annual growth rate (CAGR) of 21.7 per cent to
$10.96 billion in 2010, from the current level of $6
billion. The industry is expected to clock a
revenue of $7.3 billion by 2008-end. The key
factors that position India as a favored destination
for semiconductor and embedded designs are the
growing expertise and capabilities in end-to-end
design, intellectual property (IP) development, a
strong pool of engineers, emergence of
outsourced third party design services companies
and cost effective products. The market for very
large scale integration (VLSI), hardware/board
design and embedded software industry and the
market dynamics between the members of the
eco-system — have presented a tremendous
growth potential to the Indian semiconductor
industry. Indian industry growth is three times
more than the global growth rate of around 7 per
cent. Industry’s structure is changing as the
proximity between the third party service
providers and original equipment manufacturers
(OEMs) for end-to-end product designs is
increasing in the country. Companies are moving
up the value chain from mere project execution
Casting Industry
According to an Engineering Export Promotion
Council data on steel prices, the domestic price
of pig iron on April 3 was $850 a tonne
(inclusive of VAT and excise) and the
domestic price in China was $606-613 a tonne.
Iron ore is the raw material for pig iron. Huge
quantities of India’s iron ore exports go to
China. The Chinese Government now
encourages export of value-added products and
Industry Analysis
to end-to-end development of products. An
increase in jobs from 129,900 in 2007 to 218,800
in 2010, a CAGR increase of 18.8 per cent is
anticipated in the Industry. At present, the bulk of
the jobs are in the embedded software (82 per
cent) followed by VLSI design (11 per cent) and
hardware/board (7 per cent). A large chunk of
the industry product design space is occupied by
general consumer electronics and the wireless
handset area (mobile technology). In the VLSI
design projects executed in 2007, 14 per cent
was portable wireless products, 33 per cent
pertained to consumers and 31 per cent was
telecom networking products. In another couple
of years, lot of designs will shift from the present
90 and 65 nanometres to 45 nanometres.
Secondly, the growing domestic market would
boost the industry as the consumption of
electronic products in the country is estimated to
increase. The industry is still nascent. Start-ups
and early stage companies need a different hand-
holding, tremendous support is needed from the
government for nurturing technology output by
smaller companies. The industry will have to
constantly evolve, upgrade and innovate while
keeping the costs down in order to stay cost
competitive in the global market.
has levied 25 per cent duty on coke and
primary steel product exports.
The steel plants need 0.8 tonne of coke to melt
one tonne of steel. Most of the casting
exporters enter into annual contracts with their
overseas buyers. If the buyer sources castings
from China too, then the Chinese have a 25 per
cent cost advantage in raw material over the
Indian manufacturer. Thus, the competitiveness
of Indian foundries, the fourth largest casting
producer in the world, has been affected.
 Guest Column
Inflation: India and the Global Economy

Why inflation suddenly increased (i.e. the

Recently i.e. on 4 th
April Government of India had
causes.)? Is it only an Indian phenomenon right
published the data on Annual Inflation for the now or happening globally? If possible, what
week ended on 22nd March and we observed that could be the possible solution for controlling the
it had touched 7.07%, the highest in the last three inflation?
years. We will discuss regarding all the aforesaid issues
This is a bad news for everyone, starting from the one by one.
general Indian population to the Indian policy
makers. But this is definitely a good news for the First let’s see the recent inflation figures in India.
politicians in the opposition parties as it is a good The year 2008 started with 3.79% of inflation rate
tool that can be used against the ruling for week ended on 5th January. As the year
government especially in the election year. progressed inflation got doubled and crossed 7%
But we will discuss here only the issues related to – mark.
Week ended on Annual Inflation Percentage increase
1st March 5.11% -
8th March 5.92% 15.85%
15th March 6.68% 12.84%
22nd March 7.07% 5.84%

If you notice carefully then you find out that within Indian political scenario is very much vulnerable to
three months annual inflation has gone up by inflation and you will find each and every
around 87%. This is really shocking because our newspaper publishing it with grandeur.

Now the question is that why this sudden increase?

According to Economics there is no phenomenon Truly there are several reasons behind this sharp
that is the result of a single incident or situation. rise in prices. Let’s explore those.
table showing the increase in wholesale pricesof different items
.

Products Percentage increase on annual basis

Iron and Steel 27%
Minerals in general 41.5%
Edible Oils 21.1%
Cereals 8%
Vegetables 11.4%
Milk 10%
Dairy Products 9%
Cement 12.2%
Mineral Oil and Coal 9%

Hence prices of almost all essential commodities have gone up. Specially Iron and Steel and Oil prices have
shot up like nothing; prices of wheat, rice, corn, soyabean, soyabean oil, palm oil, non-ferrous metals are
also of main concern. The metallic minerals have gone up by around 38% in a week.
Just take a look into the data published by IMF (International Monetary Fund). Its commodity price index
showed increase in food prices in February by 65%, metal prices by 70% and petroleum prices by 175.7%
since 2005!

As far as the reason is concerned for this price hike rising

demand of the developing nations especially India and
China, production shortfall, higher crude oil prices in the
international market are of prime importance. Chinese
economy has grown by more than 10% on an average
throughout the last two years. Indian economy is growing
at a pace of more than 8% on an average per year (9.4% in 2006-07, expected 8.7% in 2007-08). But
agriculture, infrastructure etc. are not growing at the same pace especially in India.

Let’s take a look on the agricultural situation world wide.

In 2007-08 wheat production is estimated to be lower at 74.81MMT (million metric tons) lower than last
year’s output of 75.81MMT, which indicates that government may import wheat this year also, at least
there is a high possibility. Rice and maize productions are estimated at 94.08MMT and 16.78MMT
respectively; both figures are more than those of their previous years. According to the US Department of
Agriculture –
Name of 2007-08 estimated production in MMT (million metric Change w.r.t previous
crops tons) year
Wheat 605.0 +1.9%
Coarse Grains 1056.2 +7.8%
Milled Rice 422.9 +1.11%
Oilseeds 390.1 - 4.4%
Cotton 118.9 - 2.6%
Soyabean 219.85 - 7.34%
Though Soyabean production has increased in India. But this increase is not very much and moreover in
case of each and every crop the major exporting countries are facing increasing demand internally, hence
they are reducing the amount that they are supposed to export.

Rice: World and India

Recently China, Egypt, Vietnam, India have either curbed their

rice exports or increased the tax on export due to increase in the
domestic consumption. Thailand has expressed its tight
domestic situation and curbed the export by more than half to
1.2 MMT. On the other side the situation of rice is not good in
Philippines; the Department of Agriculture and National Food
Authority has asked the Filipinos to eat more unpolished whole
rice grain to cut down on imports. Philippines, world’s largest
importer of rice, is set to buy around 100,000 MMT of rice from
the US. Already they have bought approx. 1.1 MMT of rice from Vietnam. This will definitely drive the
price upward in the international market and also in domestic market in Philippines. An already rice
future contract has risen to record price on 4th April in Chicago Board of Trade (CBOT).
In India the situation is odd. Though India is the second largest rice producer in the world, we are facing a
serious hike in rice price, twice the minimum export price has been increased but still situation is bad. This
is because the government didn’t attempt to buy sufficient amount of rice from the farmers and replenish
the food stocks. Moreover due to packing restrictions low priced coarse variety rice goes to Africa, Sri

Lanka and Bangladesh through “hawala” route; this has increased recently and the government hasn’t
taken any action against this.

Wheat: World and India

The US is the major producer, after her Argentina, China, Kazakhstan, Ukraine, Russia and Australia are
there as important producers and exporters. Two consecutive droughts in the last two years in Australia
hampered the wheat exports very much along with floods in Argentina. China has imposed restrictions on
exports of wheat flour, following Ukraine and Russia.
Last week Friday price of Wheat May futures shot up by 5% as there is chance that due to a mix of dry and
wet weather the US wheat production could take a hit. If it happens the wheat prices in the market will
definitely go up by leaps and bounds.
Coming to the Indian situation, as I have already mentioned that this year the wheat production is
expected to be lower than that of the last years; due to increase in consuming population and as more
people are getting habituated in having wheat based food products it is surely that the wheat
consumption will increase this year. Again the general trend is around 12.5% of the output is not
considered for consumption on the account of seed, feed and wastage. Government has already fixed the
minimum support price (MSP) for wheat as Rs.1000 per quintal. But a problem is that the Pakistani
farmers have demanded Rs.1000 per 40 kg of procurement price which could antagonize farmers in India
and it could happen that while competing with ITC and Cargill in procurement FCI (Food Corporation of
India) may face problem in achieving procurement target for the year which will result in buying wheat
from international market at increased price. This also happened in the last year. The domestic wheat
production is expected to take a hit due to hailstorms after 4th April across the north, northwest and
northeast India.

Oil and Oilseeds:

India mainly imports the edible oils, around 4 MMT
of palm oil and 2 MMT of soyabean oil. Recently
the price of Crude Palm Oil (CPO) in the Malaysian,
largest producer, market climbed to record high of
4000 Malaysian Ringgits (MYR) and it could go
upward to at least 4500 MYR. Soyabean Oil is also
expected to grow more than US$1500 per metric
ton in the US, everything depends upon the
weather. The price rise is generally due to demand
– supply mismatch as Chinese demand has
increased steadily.
Crude oil is increasing due to increased demand
from China, India and other developing countries
especially BRIC nations along with the US, due to
speculation over demand – supply mismatch and
finally geopolitics. Recently supply from the OPEC
(Organization of the Petroleum Exporting
Countries) has reduced. Moreover increased
tension in Middle East Asia, tensed relation
between the US and Venezuela, the US and Iran
and also decrease in Russian production have led
to the rise. Recently the value of the US$ has also
decreased somewhat led to the rise. On 17th March
NYMEX Crude hit a record US$111.80 per barrel
and also US$ lowered to 1.5903 Euro.
Coming to the Indian scenario, Indian Crude Basket
consists of average of Oman and Dubai Sour Grade
Crude and Brent Sweet Grade crude in the ratio of
59.8:40.2 since fiscal year 2006-07. Each year India
imports around 76% of its crude oil requirements
which costs it around US$50 billion. Rise in the
crude price combining with Rupee appreciation by
around 13% has result an extra burden on the
Indian coffer by around 4%. Recently the
government had increased the fuel prices also to
release by some amount.
Metallic Minerals:
Prices of different types of steel has increased by more than 65% w.r.t. that of last year. Last year mild
steel was priced at an average of around Rs.27000 per ton and now it is priced at around Rs.45000 per ton
as the steel plants have increased the prices of steel twice. According to them prices of iron ore and coking
coal were hiked. It is true, because NMDC (National Mineral Development Corporation) has increased the
price by around 40% during this fiscal year. Not only in India but also in the International market iron ore
prices are very high as BHP Billiton Ltd. and Rio Tinto are charging higher price for iron ore from Asian
buyers as freight premium. Also Companhia Vale do Rio Doce, Brazilian mining giant has contracted with
the Chinese and Japanese steel producers on 65% to 71% higher price. Power shortage in the mining area
and increasing demand due to construction boom from the Chinese companies are major reasons for this
price increase. Hence more and more Asian companies are going for iron ore from Australia rather than
from Brazil as freight cost has increased. Hence mining companies are charging for freight premium.
Coking coal price is soaring due to three main reasons – lost production in Australia, Chinese export curb
and power shortage in South African mines. Storms in Queensland has resulted in a loss of 15 MMT of coal
production that probably won’t come to the market and China has imposed export restrictions after
winter storms. Last year Australian coking coal was priced at US$98 per MT for Japanese steelmakers, this
year it is US$258 per MT whereas Australian thermal coal was US$55 per MT and now US$110 per MT.

Industrial Growth in India:

Prices of essential commodities are already on fire and in such a situation industrial growth is falling in
India. I’m giving the growth of the six core sectors as was in December 2007 –

Weight Apr-Dec 06- Apr- Dec 07-

Dec-06 Dec-07
Sectors (%) 07 08
% growth % growth
in IIP % growth % growth
Crude Petroleum 4.17 10.7 -1.58 6 0.3
Refinery Products 2 10.8 2 13.2 7.5
Coal 3.22 2.9 8.4 4.6 4.9
Electricity 10.17 9.1 3.8 7.5 6.6
Cement 1.99 8 3.9 10.3 7.2
Finished Steel
5.13 10.2 5.1 11.4 5.6
(Carbon)
Overall 26.7 9 4 8.9 5.7
Notice that crude petroleum and refinery products, these two sectors’ growth had fallen too much which
is enough too creates pressure on the supply of petroleum products, fertilizers and that is leading towards
price rise, finally inflation.
When our country is growing at an average of 8% every year, disposable income of people are growing at
a fast pace, people are spending in perishable goods, durable goods and real estate heavily, the core
sectors are expected to grow at more than 8% in every quarter. Only then the supply demand mismatch
can be solved to some extent.
Now just look at the following tables for the industrial growth in the 2008 –
Sector Weight Growth in %
(%) Jan-07 Jan-08 Apr-Jan Apr- Jan
in IIP* 06-07 07-08
Crude petroleum 4.17 4.7 -0.2 5.9 0.3
Refinery products 2 11.2 5.3 13 7.3
Coal 3.22 9.9 4.8 5.2 4.8
Electricity 10.17 8.3 3.3 7.6 6.3
Cement 1.99 7.2 5.2 9.9 7
Finished steel 5.13 8.5 5.5 11.1 5.1
(Carbon)
Overall 26.7 8.3 4.2 8.9 5.5

Sector Weight Feb-08 Feb-07 Apr- Feb Apr-Feb

(%) % growth % growth 07-08 06-07
in IIP % growth % growth
Crude petroleum 4.17 2.30 4.90 0.40 5.80
Refinery products 2.00 5.80 11.30 7.20 12.80
Coal 3.22 11.70 6.50 5.60 5.30
Electricity 10.17 9.60 3.30 6.60 7.20
Cement 1.99 12.40 5.80 7.50 9.50
Finished steel (carbon) 5.13 8.20 13.60 5.00 11.30
Overall 26.70 8.70 7.60 5.60 8.70
Though in February the core six sectors grew overall but the petroleum and steel sectors are still
underperforming. Can they be penalized for their underperformance that is leading to inflation? After
months of underperformance how the steel plants, the iron ore mines can go for price increase? They are
defending themselves that in the international market price is increasing, but are performing like the
international players?

Now let us come to the financial sector. What can be their role in causing inflation? Yes, there is its role.
Has anyone of you ever noticed the central bank interest rates of different countries especially developed
ones and the currency conversion rates?
Last month US dollar was decreasing w.r.t. almost all the major currencies including Indian Rupee. Now
just think carefully, in the US the 90 – day rate is 1.28% and in India it is 7%. With this massive rate
differential generally there is a trend of carry trading. What is that? It is borrowing money from a country
where the borrowing cost is low i.e. the interest rate that you have to pay on borrowing the money is low
and then investing the money in a country where return is high i.e. the interest rate on getting back the
money is high. Hence there will be lots of capital inflow in the country where interest rate is high. Same is
happening to India. Big investors and FIIs are borrowing from the US and investing in India and earning the
interest rate differential. Hence capital inflow in India is increasing heavily causing increase in the money
supply finally leading to inflation. Last month when Indian Rupee was appreciating against US Dollar carry
traders were discouraged as such appreciation was decreasing their earnings from carry trading. But
Indian Rupee appreciation was hurting Indian exports, hence the central bank (RBI) interfered and also
due to easing out of the speculation of credit crunch through out the world lead to a stop on that
appreciation. Now US Dollar is appreciating against the Indian Rupee and giving a chance to the carry
traders to increase the trading and capital inflow to India.
Hence we saw that inflation is not only creating problem in India but it is a global problem now. Just take a
look –
Annual Inflation Rate (%) Annual Inflation Rate (%)
Countries
(CPI based) 2006 (CPI based) 2008
China 0.9 8.3
Singapore 1.2 6.3
Japan -0.1 0.7
Hong Kong 1.2 6.1
India 4.6 5.4
Sweden 0.6 3.1
Germany 1.8 2.8
Spain 3.9 4.3
Australia 2.8 3.0
Russia 10.5 12.0
Britain 2.0 2.5
South Africa 3.8 9.3
Brazil 5.4 4.5
United States 3.5 3.9
Now the question is what is the solution? As per Economics there cannot be a particular solution to any
economic problem, each and every problem has its own disadvantage and hence it is difficult to prescribe
a particular solution to this inflation problem. But still now we can discuss some of the measures.
First the point here is that this problem is a combination of both demand – supply mismatch and
increasing money supply. So we need to concentrate on both these issues.
Regarding the essential commodities the Indian Government already has curbed the exports of rice, trying
to stop hoarding; export of cement is also under consideration along with an import of around 11.5 MMT
of cement from Pakistan at a cheaper rate (in Pakistan cement price is Rs.170 – Rs.175 per 50 kg whereas
in India it is Rs.230 – 235).
FCI should achieve the target regarding buying enough wheat and rice from the farmers so that it can
build its buffer stock. But this is a very difficult task to achieve, it seems and India may have to procure
wheat from the international market again. In this regard I want to let you know that the government has
allocated a minimum support price (MSP) for wheat at Rs.1000 per quintal which is double w.r.t what was
paid last year but less than by at least Rs.150 per quintal w.r.t. the market price. Hence the government
can pay an advance to the farmers after a month on the basis of the amount purchased from them so that
the farmers can be attracted towards government procurement. This is already a method that FCI adopts
for sugarcane.
Another solution that already the government is considering – using a call option to hedge against the
rising global prices so that if it has to buy in future it can buy at a rate lesser than the prevailing market
rate. This measure can act as a deterrent to the farmers’ willingness to sell wheat to the private players
rather than the government.
Secondly the government had withdrawn the import duty from the crude edible oils and reduced the duty
from the refined oils. Though this has brought down the wholesale prices of the edible oils through out
the country but it will definitely increase the fiscal deficit.
Third is to ban the export of iron ore at least temporarily, this will lead to increase in domestic supply and
also the government will be able to add at least Rs.2000 crores to its exchequer in the form of excise duty.
Also government should ask the NMDC to reduce the raw material price otherwise the steel producers will
not be able to reduce the steel prices.
Fourth is about increasing the industrial production especially the petroleum and crude oil sector, iron and
steel sector and cement sector. A reduction in the growth of these sectors will definitely hamper not only
the physical growth but also the fiscal growth of the nation.
The fifth solution about which I’m going to discuss is the most common monetary regulation and that is
increasing the central bank interest rate or technically Cash Reserve Ratio (CRR) from 7.75% to 8% or more
whatever the RBI suits better. But will that reduce the capital flow through FII path? Recently ASSOCHAM
Chairman Mr. Venugopal Dhoot suggested adopting this path immediately. I feel his opinion is purely
superficial without analyzing the situation deeply. Also one suggestion that he had given – ban of the
commodity futures trading. I feel this is the most absurd solution that a person like him can give. I don’t
know how, being the Chairperson of a top most industrial body, a person can suggest such an absurd
solution.
Since I am not supposed to discuss the benefits or the necessities of futures trading of commodities here
in this article, I just only want to mention that taking such a decision by the Indian government will not
only create chaos in the market but it will be of no use, it will make the pricing mechanism of the
commodities, including the essential ones, very much inefficient and the “AAM AADMI” will bear the
brunt, not persons like Mr. Venugopal Dhoot.
Once I read an article in the Business Standard, and the writer suggested amending the RBI Act, so that
finally the Indian Rupee can be allowed to appreciate against the US Dollar freely, which will finally
discourage the carry traders to trade and thus the capital inflow can be controlled through the FII path.
Well I am really not very sure about this solution. Could anyone from the readers please throw some light
on this issue?
In the above article I have just tried to throw some light on the current burning issue of inflation, which is
not only a national but international problem and caused by not only the domestic abnormalities but also
by the international ones.
If anyone of you has any further suggestions regarding the causes and solutions to the problem of inflation
please suggest us.

Contributed By
Kankan Paul (+91 9962752791)
Commodity Mantra
 Political Radar

President Pratibha Patil passed
national flags in Mexico without
bowing .She passed by both the
flags of India as well as Mexico
without bowing as is necessary
under the protocol of both India
and Mexico. She perhaps did not
know the basic protocol, a
president must have known. For
this she was deliberately insulted
by 15 senators of Mexico causing
embarrassments for Indian
Officials.
China will execute almost 400 people during the Beijing
Olympics this August, leading human rights watchdog
Amnesty International has alleged. "According to reliable
estimates, on (an) average China secretly executes around 22
prisoners every day -- that's 374 people during the Olympic
Games," Amnesty's British director Kate Allen said in a statement.
In its annual report on worldwide executions, the human rights
group said on Tuesday that Iran remains the country with the
second highest number of executions, and that the number had
nearly doubled from the year before. The 377 inmates included a
man stoned to death for committing adultery. The United States
was fifth in the rankings with 42 executions.

The execution of Indian national

Sarabjit Singh, sentenced to
death for his alleged involvement
in bomb attacks in Pakistan, has
not been postponed further, a
presidential spokesman said on
Saturday, April 19th.The hanging of
Sarabjit was deferred for 30 days
by President Pervez Musharraf last
month so that Pakistan's new
government could review his case
following an appeal for clemency
from the Indian government.
Sarabjit was originally set to be
executed on April 1. Government
of India has asked for help in the
matter from US President Bush.
illiterate in the sense that their interaction with India…as it is …is very low and it would be practically
difficult for them to function in a way, they should…
Monarchy in super Democracy
Rahul Gandhi, the crown Prime Minister of India is roaming all
across the nation to understand the pulse of India. To be
precise, he wants to know the real problems and challenges
that hound the India nation. It is ironical that people who are
going to rule this country do not know the country. All second
generation leaders be it Rahul,Priyanka,Navin
Jindal,Jyotiraditya Scindhia,Manvendra Singh, Umar Abdullah,
and many more…are all born with silver spoons…The challenge
is how are they going to rule this nation..How much do they
know about it…Nothing literally? All Oxford, Boston or Stanford
–return Political NRIs, people who spent their childhood playing
Squash and Golf in marquee lawns of London AND who
probably would be ruling the nation down the line are actually

It is hance, very appreciable that Mr Rahul Gandhi is trying to understand India in all nooks and corners.
He must know India that is beyond 10 Janpath, Columbian Beaches or may be Delhi metro…..

Why only Rahul …all our politicians in Z-++ security should come on streets , roam villages…night out on
suburbs leaving their cordon security …this is the only way to understand India of 1 billion+ people and
how difficult life has been for them all along.
You know why we are unable to solve even the most basic issues of common men. Because people at the
helm of affairs do not understand that unless they travel by state buses they would never understand
why a bus with 48 tender kids got drowned in Narmada river in Vadodra and why no state help could
reach them until 2 hours when all those who could be saved were drowned. They didn’t die…they were
killed. Most of the people on our roads do not die by accident…they got killed by state machinery.

Mr Praful Patel,our Minister of aviation has a great sense of economics. Ask him and he will tell you why
we have uncomfortable food inflation. His answer “North Indian are consuming more of Rice and South
Indians more of wheat” so please do not blame Government to be poorly handling the
fiasco. Rather it is you to be blamed. Great economics Mr Patel!!!.

So at least Mr Rahul is trying to understand India from deep within its roots. It is more crucial that he
learns that India as a nation has become almost Hopeless and things down the lanes….distant from the
top echelons of power and luxury is very very ugly. It is in this ugliness that a common Indian is living his
life…throughout the 50 years of Indian nation. In these 50 years, there has nothing that has changed for
many people in this nation. They
are still living in same ugliness
The Supreme Court, in a significant verdict on Thursday,
and darkness.
upheld the law enacted by the Union Government providing
I believe perhaps…this was the 27 per cent quota for Other Backward Classes in Central
something that has lacked in all educational institutions such as IITs/IIMs from the academic
our Leaders that they do not year 2008-09. The court, however, made it clear that creamy
know the fundamental glooms of layer should be excluded from the socially and educationally
India. backward classes. The court said that the definition of OBC
At least Mr Rahul Gandhi is trying in Section 2(g) of the Act shall be read as ‘SEBC’ other than
to understand that. SC/ST determined by Central Government, and if the
determination is with respect to caste, creamy layer shall be
Kudos Mr Rahul Gandhi!!!! excluded.

And also to concept of before job

training.
 TATA Group Companies: A research of Group Companies
TATA POWER
Tata Power is India’s largest private sector
power utility with installed capacity in excess
of 2,300 mw. Over 600 mw new capacity is
likely to be added during FY09, with another
8,000 mw capacity to be added over the next
five years including a 4,000-mw UMPP at
Mundra. TPL has acquired a 30% stake in two
major Indonesian coal producers to assure
future fuel requirements. It is emerging as an
integrated player in India's power sector with
investments in power generation,
INDIAN HOTELS
Indian Hotels runs the largest domestic hotel
chain with 71 hotels and an inventory of
10,487 rooms. It enjoys presence across wide
range of hotels right from deluxe properties
to budget. This puts the company in a bright
spot and helps it take advantage of the
growing tourism industry in India. _Besides,
the company has 14 properties overseas and
is expanding its global footprint via
acquisitions and greenfield ventures. This is
likely to result in greater brand recognition
TATA TEA
The company has taken initiatives to
introduce different variants of tea. It has also
forayed into bottled water and other
beverages. This is likely to help it transform
itself from a tea company to a beverages
company. Acquisitions, geographic expansion
and new products are the way to go for Tata
Tea, which is already the second largest
integrated tea company in the world. Its retail
foray through ‘Chai Unchai’ beverage stores is
transmission, distribution and fuel supplies
(coal mining and transport).
Meeting the time and cost deadlines while
executing the long gestation projects is a big
challenge as the costs of equipment and
project implementation services have gone up
substantially. Even after the successful
completion of its projects, TPL has to manage
the regulatory environment well to ensure
sufficient return on its investments.
abroad. Its recent entry into lucrative
segment of business jets will help the
company to take advantage of growing
opportunities in this space.
Its revenue is greatly dependent on India,
where average room rates are expected to
see a decline beyond FY09 when supply starts
coming in. Rising real estate costs have
greatly reduced the return on capital on new
properties in major cities.
likely to open a new route of growth for the
company. Tata Tea operates in a labour-
intensive tea industry, which has long
gestation periods. This can be an imepdiment
in improving operational efficiency. The
company will have to grapple with the
increase in raw material prices. The
appreciation in the rupee is likely to drag
profitability of the international businesses.
TATA COMMUNICATIONS
Utilisation of existing infrastructure to deliver
valueadded services is a sound proposition for
Tata Communications. The company recently
tied up with Telsima to provide WiMAX
services in the country. It has also launched
its global telepresence network service to
offer virtual meeting solutions. These
initiatives will fuel future revenue growth.
Tata Comm’s strategy to build global tie-ups
for high-end technologies will help it keep pace
TATA CHEMICALS
The recent acquisition of US-based General
Chemicals has consolidated position of Tata
Chemicals (TCL) in the global soda ash market.
Post-acquisition, TCL has become the second
largest soda ash manufacturer in the world
with majority of the production coming from
cheaper natural sources. This goes well with
its overall global strategy. TCL is already on an
expansion spree for its inorganic chemicals
and fertilisers plants in India. This will help it
to strengthen its domestic presence. TCL is
VOLTAS
Voltas is a market leader in central air-
conditioning and climate control business in
India, besides being a major player in
booming West Asia. It is also India's leading
distributor and re-seller of textile and mining
equipment. Recently it went through a
corporate restructuring which has
transformed it into a leaner and competitive
player. The demand for central A/Cs and
climate control systems is booming, thanks to
with the fast-changing technology scenario
and improve its global presence. Tata Comm
needs to increase focus on deploying
managed services, given the stiff competition
in domestic as well as global enterprise data
space from bigger telecom operators. The
company has to improve operational
processes in order to increase customer base
for its broadband and other services rapidly.
setting up a 30,000-litres-per-day ethanol
plant and has ventured into wholesaling of
fresh agricultural produce. This diversification
would help in mitigating risk from slowdown
in the core business. TCL has to see through
an effective integration strategy of its soda
ash business with the overseas acquisition.
Managing overall growth of the company will
be a tough task given the diversification into
new business domains.
rapid growth in retail, real estate and
hospitality sectors. It has also got a boost
from strong capex in textile, mining and retail
sectors where it supplies forklifts. Being a
capital goods supplier, it's highly prone to an
economic downturn. It faces strong
competitors across its product portfolio. The
consumer air-conditioner business continues
to be a drag on the company's profitability.
 Soros: Most serious financial crisis of the lifetime

Global financial system is relying on a false paradigm that the financial

Markets tend towards equilibrium and deviations from the equilibrium are
random. I disagree with this and propose a different paradigm that is based

on the concept of reflexivity.

Right now, we have not just one of these situations connected with the
housing market, but what I call a ‘super bubble’.

A reflexive relationship is bidirectional; with both the cause and the effect affecting each another in
a situation that renders both functions causes and effects.

Reflexivity is discordant with equilibrium theory, which stipulates that markets move towards

{Reflexivity refers to circular relationships

between cause and effect.}.
equilibrium and that non-equilibrium fluctuations are merely random noise that will soon be
corrected.

In equilibrium theory, prices in the long run at equilibrium reflect the underlying fundamentals,
which are unaffected by prices.

Reflexivity asserts that prices do in fact influence the fundamentals and that these newly-influenced
set of fundamentals then proceed to change expectations, thus influencing prices; the process
continues in a self-reinforcing pattern. Because the pattern is self-reinforcing, markets tend towards
disequilibrium--a case in which every outcome is uniquely different from the past in a visible
absence of equilibrium.}
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