Chidambaram hopeful of 9 p.c. growth

With the country’s economic fundamentals strong and investment climate full of optimism, Finance Minister P. Chidambaram on Thursday exuded confidence on achieving an average GDP growth of nine per cent during the Eleventh Plan period (2007-08 to 2011-12) while reining in inflation alongside.

As for the outlook for 2008-09, Mr. Chidambaram said: “Optimism, but with caution, is the watchword” while commenting on the policy prescriptions of the Economic Survey 2007-08 which projected a lower GDP growth of 8.7 per cent for the current fiscal and, in that light, viewed sustenance of a high growth as a daunting task.

Speaking to newspersons immediately after tabling the Survey in Parliament, Mr. Chidambaram pointed out that the country was required to respond to the evolving global economic situation so as to ensure that its growth was not affected and this, he said, could be achieved by capitalising on the opportunity arising from the “favourable” conditions.

“I am optimistic about growth and containment of inflation in the coming year [2008-09],” he said, while noting that his priority was to provide a conducive investment climate and manage the macro economy to facilitate non-inflationary growth.

Eco Survey:Infra needs $500 bn by 2012

Over $500 billion is required to plug the infrastructure requirements in power, railways, roads, ports and airports during the Eleventh Five Year Plan, says the Economic Survey 2007-08, and this deficit presents the “most critical challenge” to the growth of the economy. While some sectors like telecom are doing well, progress in other critical infrastructure sectors has been rather subdued.



POWER: Power capacity addition during the year, projected at 10,821 mw, is less than the original target of over 16,000 mw. The rate of return of the state power sector, which was a negative 24 per cent in 2006-07 (provisional) is projected to improve to a negative 18 per cent in 2007-08. It is projected to improve to a negative 14.3 per cent in 2008-09. Commercial losses of the state power sector are estimated to be up 27 per cent to Rs 28,825 crore in 2006-07, against Rs 22,734 crore in 2005-06. The losses are projected to decline to Rs 25,701 crore in 2007-08 and then go up again to Rs 26,462 crore in 2008-09.


ROADS: About 96 per cent of the 5,846 km Golden Quadrilateral road network (linking Delhi, Mumbai, Chennai and Kolkata) had been completed by November 2007, says the survey. The 7,300-km long north-south and east-west corridors are expected to be completed by December 2009. These projects are mainly financed by the Rs 2-cess on diesel and petrol.



CIVIL AVIATION: The survey says that a decision has been taken to set up an Airport Economic Regulatory Authority and an appellate tribunal. It also says that that the Kolkata and Chennai airports would be upgraded by June 2010 at a cost of Rs 1,943 crore and Rs 1,808 crore respectively. On the project to modernise 35 non-metro airports, work on 24 airports would be completed by March 2009 while the rest would be done by March 2010.



PORTS: The average turnaround time at the major ports increased marginally from 3.5 days to 3.6 days in 2006-07 and was at 3.79 days in the first half of 2008-09. This compares poorly with a turnaround time of 10 hours in Hong Kong, says the survey.



URBAN INFRASTRUCTURE: With urban population set to increase from 30 per cent of total population to 40 per cent in a little over a decade, provision of infrastructure “befitting an urban habitation of a middle-income level country” is critical, says the survey. Lauding the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), it says that 279 projects (as on Jan 2008) involving an investment of 25,287 crore have been approved so far, of which 90 are expected to be completed by December 2008. Proposals for bus rapid transit systems have been approved for Ahmedabad, Bhopal, Indore, Jaipur, Rajkot, Vijaywada and Vishakapatnam under JNNURM, it adds.

Eco Survey:2nd green revolution needed

Presenting a grim picture of agriculture, Economic Survey 2007-08 has projected growth to decline to 2.6% in 2007-08 from 3.8% last year. It attributes the poor performance to reduced capital investment and plateauing of yields of major crops besides weather-induced productivity fluctuations.

The survey also expresses concern over the slowdown in the creation of irrigation potential, degradation of natural resources and the collapse of the farm extension system all of which contributed to below-potential crop yields.

The survey has stressed the need for a second green revolution, particularly in rainfed areas, to improve the incomes of more than half of the country’s workforce employed in the sector. "Acceleration of growth of this sector will not only push the overall GDP growth upwards, it would also make the growth more inclusive and biased in favour of women," it said.

The survey points out that public investment in agriculture has declined, and the sector has not been able to attract private investment because of lower and unattractive returns. The share of agriculture in total gross capital formation (GCF) has dropped steadily from 10.2% in 2001-02 to 5.8% in 2005-06. However, the share of GCF in agriculture relative to the agriculture sector’s gross domestic product (GDP) has shown marginal improvement from 11.1% to 12.5% during this period. The overall share of agriculture in GDP, which used to be as high as 36.4% in 1982-83, has dropped to nearly half and is reckoned at 18.5% in 2006-07.

Eco Survey:2nd green revolution needed

Presenting a grim picture of agriculture, Economic Survey 2007-08 has projected growth to decline to 2.6% in 2007-08 from 3.8% last year. It attributes the poor performance to reduced capital investment and plateauing of yields of major crops besides weather-induced productivity fluctuations.

The survey also expresses concern over the slowdown in the creation of irrigation potential, degradation of natural resources and the collapse of the farm extension system all of which contributed to below-potential crop yields.

The survey has stressed the need for a second green revolution, particularly in rainfed areas, to improve the incomes of more than half of the country’s workforce employed in the sector. "Acceleration of growth of this sector will not only push the overall GDP growth upwards, it would also make the growth more inclusive and biased in favour of women," it said.

The survey points out that public investment in agriculture has declined, and the sector has not been able to attract private investment because of lower and unattractive returns. The share of agriculture in total gross capital formation (GCF) has dropped steadily from 10.2% in 2001-02 to 5.8% in 2005-06. However, the share of GCF in agriculture relative to the agriculture sector’s gross domestic product (GDP) has shown marginal improvement from 11.1% to 12.5% during this period. The overall share of agriculture in GDP, which used to be as high as 36.4% in 1982-83, has dropped to nearly half and is reckoned at 18.5% in 2006-07.

Eco Survey: Moderation in indl growth

The first eight months (April-November 2007) witnessed a sharp slowdown in industrial sector growth at 9.2% with the slowdown mainly on account of the manufacturing sector, which grew at 9.8% when compared with 12.5% in 2006-07.

Overall industrial production growth, including manufacturing, mining, and electricity, was slower than in the comparable period last year. The manufacturing sector grew by 9.8% (over 12.5% in 2006-07), mining grew by 4.9% (over 5.4% in the corresponding period last year), and electricity grew by 7% (over 7.2% in the same period last year).

Economic Survey 2007-08 said the industrial sector growth during the first eight months of the current fiscal suggests that buoyancy in the sector has continued - albeit with a degree of moderation.

The real challenge during the Eleventh Plan lies in removing infrastructural impediments in road, both rural and urban, rail, air and sea transport and power for sustained industrial growth, the survey added. "There is also an imperative need to facilitate the growth of labour- intensive industries, especially by reviewing labour laws and labour market regulations," it said.

Growth in manufacturing did not take place across-the-board. Industrial groups like food products, jute textiles, wood products, leather products, chemicals and chemical products and "other manufacturing" have grown at an accelerated pace. Industries like non-metallic mineral products, cotton textiles and textile products, automobiles, paper products and metal products suffered from a significant slackening in growth.

Eco Survey: FY08 GDP growth to be 8.7%

Confirming and even exceeding some projections, Economic Survey 2007-08 today said the economy has moved decisively "to a higher growth phase."


It projected full year gross domestic product (GDP) at factor cost at constant 1999-2000 prices to grow at 8.7%, which is marginally higher than the Reserve Bank of India (RBI) projection of 8.5% for 2007-08.

This represents a deceleration of growth (spread across most sectors barring power and various services) from the "unexpectedly high growth rates" witnessed in the past two years, the survey said. It pointed out that an upward adjustment to the 2007-08 projection was possible keeping in mind the revisions in previous years. GDP growth for 2006-07 was initially estimated at 9.2% in February last year, 9.4% in May and finally at 9.6% in the quick estimates released this January.

GDP at current market prices is projected at Rs 46,93,602 crore in 2007-08 - making it the first time that the size of the economy at market exchange rate will cross $1 trillion. At the nominal exchange rate (average of April-December 2007), GDP is projected at $1.16 trillion during the year while the per capita income is pegged at $1,021.

On the whole, the survey, which provides an overview of the 10th Five Year Plan (2002-07) achievements, pointed out that GDP growth at market prices has exceeded 8% in every year since 2003-04. The projected 8.7% growth is fully in line with this trend, it added.

"The higher economic growth trajectory and the projected growth of 8.7% in 2007-08 is based on a quantum jump in savings and investment rates," Finance Minister P Chidambaram said in a statement after placing the survey in Parliament. The rate of investment (gross capital formation) rose to an unprecedented 35.9% of GDP in 2006-07, and is projected to increase in 2007-08. Similarly, the savings rate scaled new highs in 2006-07 reaching 34.8% of GDP in the year.

India retains top spot in salary growth

Retaining its number one position in the world in terms of salary growths, India is likely to witness a double-digit salary growth for the fifth consecutive year.

Employees in India received an average salary increase of 15.1 per cent in 2007, up from 14.4 per cent in 2006, according to Hewitt Associates' 12th annual 'Salary Increase Survey'. The survey report, which saw participation from 550 organisations across 19 industries with 22 sub classifications, further predicts an increase in salaries of 15.2 per cent in 2008.

The sector that witnessed the highest salary growth rates in 2007 is real estate (25.2 per cent), followed by energy and retail. The projections for 2008 are similar, with these sectors more or less retaining their current rankings. Salaries in real estate (infrastructure) are expected to grow at 25 per cent this year.

Sectors that saw the lowest salary increases were pharmaceutical (13.2 per cent), electronics (13.3 per cent), followed by FMCG, automotive and ITES. The projections for 2008 reveal that these sectors will continue to witness relatively low salary increases.

Interestingly, while IT and ITES now rank amongst the lowest in terms of salary growths, these sectors had seen the highest growths for three consecutive years (2002, 2003 and 2004). However, even in the lowest of ranks, salary growths are seen to be above 13 per cent, thus indicating the strong health of the economy. Meanwhile, in terms of attrition rates the insurance sector, followed by ITES and hospitality witnessed the highest in 2007, while automotive, energy and chemicals faced the least. Further, junior manager/ supervisor/ professional continue as the employee group to receive the highest salary increases for the 8th year in a row (2000 - 2007).


Within the six employee groups, this employee group is also expected to earn the highest salary increases in 2008.

The Middle Management has also seen a steady increase in salary increases over the years and is almost in line with Junior Manager/Supervisor/Technical. Manual employee group receives the lowest increase for the 9th year in a row (1999-2007)

While salary increases are largely dictated by talent demand and supply, Hewitt forecasts a gradual decrease in salary increases and a stabilisation of increases to 9-12 per cent by 2012.

Tata Group takes stake in BJets

The Tata Group today announced investing in BJets, a business jet venture based on the fractional ownership model.

Indian Hotels Company, a part of the Tata Group, will partner Singapore's Briley Group in the business - a private jet company that would sell fractional ownership of planes primarily to corporate houses.

BJets has placed orders for 20 new Hawker jets worth over $450 million with options to buy 10 more along with a firm order for 20 Citation CJ2 Plus business jets valued at $150 million.

While the Briley Group is the majority shareholder in BJets, Indian Hotels Company, which runs the Taj Group of hotels, is the other "significant shareholder", BJets CEO Mark Baier told PTI from Singapore.

"We have placed orders for 50 business jets worth over $600 million (Rs 2,400 crore) to be delivered over a period of five years," he said.

Baier said the first 15 business jets would be delivered by the end of this year.

Fractional ownership allows a member to acquire a fraction of an aircraft and pay a fraction of the fixed fees and yet have access to an entire fleet of identical planes. All aspects of running the aircraft are handled by the operator and the owner has to do nothing more than schedule his flight.

Sensex ends above 18K, Hindalco gains 9%

The Sensex opened with a huge negative gap of 226 points at 17,541 on bearish cues from the US markets. The index soon slipped to a low of 17,445 - down 322 points from the previous close.

Buying at lower levels saw the index recoup losses and move into positive zone as the day progressed. The index crossed the 18,000-mark and touched a high of 18,143 - up 698 points from the day's low.

The Sensex finally ended with a gain of 2% (349 points) at 18,115.

The Mid-cap index surged nearly 2% (139 points) to 7,592, and the Small-cap index rallied 2.3% (213 points) to 9,408.

The BSE Metal and Realty indices gained 3.5% each at 16,167 and 10,497, respectively. The Oil & Gas index moved up 3% to 11,269.

The NSE Nifty gained almost 2% (101 points) at 5,303.

The BSE market breadth was fairly positive - out of 2,793 stocks traded, 1,986 advanced, 761 declined and the rest were unchanged today.

INDEX MOVERS...

Hindalco zoomed 9% to Rs 179. Tata Steel gained 5% to Rs 819.

Bajaj Auto rallied nearly 5% to Rs 2,175. SBI, Ranbaxy and Hindustan Unilever gained around 4% each to Rs 2,298, Rs 396 and Rs 211, respectively.

Mahindra & Mahindra and Reliance moved up over 3% each to Rs 619 and Rs 2,591, respectively.

ICICI Bank and Tata Motors gained 2.5% each at Rs 1,191 and Rs 751, respectively. HDFC added 2% to Rs 2,921.

ITC and DLF moved up 1.7% each to Rs 203 and Rs 879, respectively.

Infosys and Major Gainers Major Losers

Name Close
% Chg
Name Close
% Chg

Murli Inds 619.25 20.0 RPG Life 54.70 16.4
Rama Newsprint 31.35 19.9 Sky Inds 86.65 15.8
Priya Spin 18.15 19.8 Nicholas Piramal 288.25 12.6
Man Inds 122.10 19.0 Modipon 60.55 10.2
Valson Ind 47.00 19.0 U P Hotels 350.00 7.8
Wipro were up over 1% each at Rs 1,565 and Rs 420, respectively.

Reliance Infratel to raise Rs 6,000 cr via IPO

Reliance Infratel, the tower subsidiary of Reliance Communications, has proposed to raise Rs 6,000 crore through an Initial Public Offering (IPO) and has filed the Draft Red Herring Prospectus with the Securities and Exchange Board of India (SEBI).

The Anil Ambani group company has proposed to offload 10.05 per cent stake to the public, which puts the valuation of the company at around Rs 60,000 crore. The IPO follows that of another group company, Reliance Power, which is to be listed on February 11.

According to the DRHP, Reliance Infratel has proposed to offload 8,91,64,100 equity shares of Rs 5 each at a price that will be decided through the book building process.

The issue proceeds will be utilised to finance development of passive infrastructure sites and for general corporate purposes. Upon the completion of the listing, the company intends to list the shares both on BSE and NSE.

Around 60 per cent of the issue will be allocated to Qualified Institutional Buyers (QIBs), with 5 per cent for mutual funds, and 30 per cent to be allocated on a proportionate basis to retail individual bidders.

Used-car prices in reverse gear ahead of Nano

Call it the “Nano effect” but less than a month after Tata Motors displayed its competitively-priced small car at the Delhi auto show, prices in the 1.3-million used-car market crashed 15 to 30 per cent, if not more.

The Nano, due to be launched this October, will carry an on-road price of about Rs 1.3 lakh (for the base model), which is lower than the price of many used cars in the A segment (which includes the Maruti 800 and Alto, for instance).

“The price of a second-hand Maruti 800 has dropped over 30 per cent since the Nano was unveiled. To give an indication, the price of a 2002 model has dropped from Rs 1.1 lakh in December to Rs 75,000 today,” said Arif Fazulbhoy, director, Fazulbhoy Motors, one of Mumbai’s largest car dealers.

A 2003 Hyundai Santro that was available for Rs 2 lakh before the Nano display, is now on offer with an 18 per cent discount at Rs 1.65 lakh.

A 2003 WagonR model from Maruti Suzuki is currently sold at Rs 1.8 lakh, a discount of Rs 33,000 on its used-car price of December.

CRASH COURSE
Model Year Revised price (Rs) Prices prior to Nano display (Rs)
M800 2002 75,000 1,10,000
Santro 2003 1,65,000 2,00,000
WagonR 2003 1,80,000 2,13,000
Alto 2004 1,10,000 1,35,000
Esteem 2003 2,80,000 3,20,000
Ikon 2004 3,90,000 4,30,000
Palio1.9 2003 2,55,000 2,95,000


Despite this steep price drop, Fazulbhoy said it is hard to find buyers because many are postponing their purchase decisions till the Nano launch.

“With Nano’s entry the three-year-old Alto has now become affordable to the buyer who was earlier looking only for a Maruti 800 used car,” added Sunil Mittal, vice -president — network and business development — of one of Delhi’s largest used-car dealers, First Choice Wheels (earlier known as Automart India).

Mittal said the price of a three-year-old Alto has dropped from Rs 1.35 lakh to Rs 1.10 lakh since the Nano went on display.

The small used-car market accounts for over 70 per cent of all used-car sales within the country. Eighty-five to 90 per cent of all car sales from the Maruti True Value outlets are small cars.

However, despite car manufacturers getting into used cars the unorganised market dominates the country’s used car market.

Analysts and dealers predicted that used-car prices will only head further south once the Nano is on the roads. “The Nano will cannibalise used-car sales by exerting more downward price pressure,” said Vaishali Jajoo, auto analyst in Angel Broking, who sees prices falling 10 to 20 per cent more.

Accordingly, used-car dealers are bracing themselves for a squeeze on margins. Admits Ankit Sharma, manager — sales — in Delhi-based Patliputra Automart India: “With the small car contributing 70 per cent of our sales, used-car dealers might have to refocus their business on high-end cars.”

Also, as a Mumbai-based dealer pointed out, “When a Nano buyer is getting a better finance deal with a monthly instalment of Rs 1,100, at a much cheaper interest rate (11 per cent), why would he go for a second-hand car, which carries an interest rate of 17 to 18 per cent?”

Microsoft makes $45bn bid for Yahoo!

Microsoft said on Friday it had offered to buy search engine group Yahoo with a proposal that values the internet group’s equity at $44.6 billion, as the software giant seeks to catch up with arch-rival Google.

If completed, it would be the largest acquisition that Microsoft has made and the biggest internet merger since AOL bought Time Warner for $112 billion in 2000.

The unsolicited cash proposal, with a cash and shares alternative, is pitched at $31 a share, a 62 per cent premium to Yahoo’s closing share price of $19.18 on Thursday. Shares in Yahoo jumped 53 per cent to $29.13 in pre-market trading, while Microsoft was $1.60 lower at $31.

The proposed offer price is below Yahoo’s 52-week high of $34.08 reached last October.

Microsoft signalled that a combination of the two companies would provide stronger competition for Google, the leading internet search engine. It said the proposed combination could generate synergies of $1 billion, and provide significant economies of scale.

Steve Ballmer, Microsoft chief executive, said: “We see this as the next major milestone in the transformation of the company to embrace online services.

“Microsoft and Yahoo are companies that share a vision for online services and the result of a combination will be a company that is more efficient and successful.”

Microsoft has been trying to build market share in online advertising with acquisitions such as the $6 billion purchase of Aquantive last year. The company has stated a goal of being the number two in this market within the next few years.

“They have set a series of very aggressive goals, but overall Microsoft’s online business is floundering and the only way they can grow their business is with a big acquisition like this,” said Ian Maude, analyst at Enders Analysis.

However, Maude was sceptical how much the deal would help Microsoft.

“The main problem is that online advertising is largely driven by search, and Google owns that market. The one thing this deal doesn’t do is fix that problem,” he said.

Microsoft said it had been in on-off talks with Yahoo over the last 18 months about a combination, but had been turned down by Yahoo’s board, which had been hoping to see an improvement in the company’s performance under a new turnaround strategy.

However, in a strongly-worded letter to Yahoo’s board, Ballmer said: “A year has gone by, and the competitive situation has not improved.”

In a short statement in response, Yahoo said its board would “evaluate this proposal carefully and promptly in the context of Yahoo’s strategic plans and pursue the best course of action to maximize long-term value for shareholders.”

Microsoft has struck as Wall Street is growing increasingly disillusioned with Yahoo. The search engine group’s earnings before interest, tax, depreciation and amortisation are projected to fall to 32 per cent of revenue in 2008.

That is sharply down from a margin of 38 per cent in 2007, with Yahoo having promised to improve the situation in 2009.

Yahoo’s shares slid earlier this week after it issued a downbeat outlook for this year reflecting its struggles to revamp its core online services.

The decline took the total fall since October to 45 per cent and pointed to Wall Street’s growing doubts that co-founder Jerry Yang, who stepped into the chief executive chair last year, can revive the fortunes of one of the brightest stars of the internet’s first decade.

Henry Blodget, the former technology analyst writing on his blog, said: “This is a brilliant move by Microsoft — a big premium dangled in front of battered Yahoo shareholders, but a price that would have seemed absurdly low as recently as six months ago. Given Yahoo’s battered stock and low 2008 outlook, we expect the offer will be accepted.”

“This deal looks much more likely to happen this time,” agreed John Delaney, analyst at Ovum. “Yahoo hasn’t made a convincing turnaround, and advertising is in a precarious position in a downturn. Microsoft would provide a safehaven for the company in a worsening economic climate.”
Microsoft said a combination with Yahoo would benefit from economies of scale in the online advertising market.

Other advantages included pooling engineering talent to accelerate innovation, operational efficiencies by stripping out costs, and the ability to seize on emerging opportunities such as video and mobile.

Kevin Johnson, Microsoft’s president of platforms and services, said: “The combined assets and strong services focus of these two companies will enable us to achieve scale economics while reaching R&D critical mass to deliver innovation breakthroughs.”