Taiwan to assist India in accessing global business chains

With the new BJP-led dispensation in New Delhi looking to revive growth sentiment and boost investor confidence, partnering with countries that can help jump-start the reform process has become a priority. Taiwan with its dynamic manufacturing sector is one such country.

In a candid conversation with Reema Sharma of Zee Media Corp, Representative of Taipei Economic and Cultural Center in India, Ambassador Chung Kwang Tien, shares his views on India’s growth potential and its bilateral relationship with Taiwan

India's exports to grow by 7.2% in 2014: Morgan Stanley

Singapore: India's exports are expected to grow by 7.2 percent in 2014 fiscal on the back of improvement in growth of developed markets, says a report by Morgan Stanley Research.

"We expect export growth of 7.2 percent in fiscal year 2014 versus minus one percent in fiscal 2013," it said in a report on Asia Pacific Economics.

Morgan Stanley Research expects a gradual sequential recovery in India's exports on the back of improvement in developed markets growth from the third quarter of this year, narrowing the trade gap.

The investment bank's research report expected gold imports to decline due to quantitative controls put in place by the government as well as increase in real rates as inflation expectations moderate.

"We estimate that quantitative control along with increase in real rates will help to reduce gold import demand in this fiscal to around USD 42 billion in fiscal 2014."

Non-oil and non-gold imports would remain very weak as tight monetary and fiscal policy would keep domestic demand weak. However, acceleration in exports can lead to some increase due to import content in exports, it pointed out.

It also noted Reserve Bank of India’s efforts on portfolio equity and debt flows. The recent steps taken by RBI to augment capital flows by providing a swap window facility to allow banks to swap non-resident deposits and overseas borrowing at a lower cost have mitigated the funding pressure to some extent in the near term.

Indeed, we expect these measures to help increase capital flows by about USD 15 billion in fiscal 2014 and thus we estimate only a marginal balance of payment deficit in our base case," said Morgan Stanley Research.

However, the key variable that would influence overall capital flows would be portfolio flows into debt and equity, it said.

But a prolonged growth slowdown could potentially lead to a continued balance of payments stress, implying that RBI would face the impossible trinity of managing the exchange rate and controlling the interest rates when capital flows would be volatile, the report said.

The report also highlighted that India would be impacted by the rise in the US rates and the US dollar.

"India will be significantly exposed to the trend of a rising US dollar and real rates through the current account imbalance, moderate dependence on foreign debt funding and upward pressure in its real rates," it said.

It said the economic growth would remain weaker for longer period. The three key risks arising from longer- duration slowdown would be the sharp rise in non-performing assets in banking system, challenges in managing fiscal deficit and the external funding risks would remain high.

Economy to get back on 8 pc growth trajectory in 2 years: Plan Panel

Planning Commission Deputy Chairman Montek Singh Ahluwalia exuded confidence about India's potential, saying the economy will get back on the targeted growth trajectory of 8 per cent after two years.

"I think we can hit what we thought was our trajectory two years later because of the slowdown that we have," Ahluwalia said on Tuesday, on the sidelines of the 34th SKOCH Summit in New Delhi.

The economy expanded at a decade-low rate of 5 per cent in the first year of the 12th Plan (2012-17) period, during which the government has targeted an annual average growth rate of 8 per cent.

In the April-June quarter of the current financial year, economic growth slowed to 4.4 per cent, compared with 4.8 per cent during January-March. Growth was 5.4 per cent in the April-June period of the previous financial year.

"I believe that the long- or medium-term growth potential of the economy remains 8 per cent, provided you do all things outlined in the 12th Plan. Obviously, the first two years are not going to be at that level," Ahluwalia said.

According to Ahluwalia, the average economic growth rate in the 12th Plan period will be lower than 8 per cent and the Commission will make its estimate next year during the mid-term review of the five year policy.

Ahluwalia said he expects growth to improve in the second half of the current financial year.

"The second half of the year should be better. The first half was lower. So for the year as a whole to be better than 5 per cent, the second half has be really good. We don't know the numbers," he said.

Asked whether the slowdown is over, Ahluwalia replied: "I believe that the economy has bottomed out. The financial experts say that there will be turnaround. It is clearly not a strong rebound. But there is evidence that (there will be turnaround)."

India's exports in October grew 13.47 per cent to $27.2 billion, the fastest pace in two years, government data showed yesterday.

"The news on the exports front is very encouraging," Ahluwalia said.

He said the current account deficit will probably be lower than the target set by the Finance Minister. The deficit refers to the difference between outflows and inflows of foreign currency.

"He (the Finance Minister) himself said that instead of $70 billion, it would be $60 billion... The important news is that it would be much lower than $88 billion last year. That means we need less money. That should increase the assessment of micro-economic stability," he added.

Standard Chartered Bank sees marginal breach in FY14 fiscal deficit target

 
Standard Chartered Bank on Thursday warned of a 0.2 per cent slippage in fiscal deficit at 5 per cent of India's GDP due to slower revenue growth.

"Our base case is a fiscal deficit of 5 per cent of GDP this fiscal. This is based on the assumption that slippage of 0.65 per cent of GDP revenue proceeds and higher spending of 0.2 per cent of GDP on subsidy/bank recapitalisation, which though will be partially offset by a 0.7 per cent of GDP cut in spending," StanChart economists Samiran Chakraborty, Anubhuti Sahay and Nagraj Kulkarni said in a report.

Finance Minister P Chidambaram has been saying that the 4.8 per cent fiscal deficit target is a red line and that will not be breached.

The StanChart economists said the 0.20 per cent slippage will be due to slower tax revenue collection and uncertainty about realising non-tax revenue. Though the fiscal deficit target can be met by cutting spending, the upcoming elections are a deterrent.
"Based on the trends observed so far on tax collections, we expect tax collection to fall short by 0.65 per cent of GDP this fiscal," the report added.

On expenditure trimming, the UK lender said "we believe government can reduce spending by 0.7 per cent of GDP, which could reduce FY14 expenditure growth to 17.7 per cent and imply growth of 10 per cent in H2. But such reductions will have an adverse impact on the already weak growth."

The report noted the government has crossed 76 per cent of its borrowing target in H1 itself, the widest ever recorded in over a decade.

"The government's ability to adhere to its 4.8 per cent deficit target will depend on one-off revenue items (divestment and spectrum auction proceeds) and its willingness to curtail spending.

"It may still be able to achieve the target, but we believe lack of political will to curb expenditure ahead of the elections will keep these concerns a risk to the Indian economy," the report said.

On the impact of the 76 per cent drawal in H1 alone and its implications for H2, the report said sharp widening of fiscal deficit was driven primarily by slower tax mop-up and negligible proceeds from budgeted lumpy revenue items.

Fiscal deficit may correct sharply for a few months in H2 in contrast to the average deficit of Rs 68,000 crore per month in H1 on the realisation of lumpy revenue, especially if it coincides with quarter-ends, the report said.

Lumpy revenue needs to be in line with budgeted amount to avoid fiscal slippage, as expenditure cuts can at best only offset lower-than-expected tax collection, it said.

Weak GDP growth takes a toll on taxes, the report said and noted that net tax collection slowed to single digits in H1, much lower than the 19.2 per cent budgeted growth.

On Wednesday, the Government said direct tax collection rose 11.58 per cent in the April-October period to Rs 3.37 lakh crore, up from Rs 3.02 lakh crore during the same period last fiscal. The government has fixed direct tax collection target of over Rs 6.68 lakh crore for this fiscal, envisaging a growth of 19.2 per cent over Rs 5.65 lakh crore in FY13.

The gross collection of corporate taxes rose 8.23 per cent to Rs 2,09,622 crore during April-October, while personal income tax shot up 17.89 per cent to Rs 1,25,078 crore.

Net direct tax collections rose 13.33 per cent to Rs 2,84,339 crore during April-October, as against Rs 2,50,900 crore in the year-ago period.

StanChart said large slippage was evident, especially in excise collection, and corporate tax and services tax collection with personal income tax being the only exception.

The slowdown in services tax collection was driven by a lack of clarity on the services tax base - in March 2013, the Government widened the base, except for a small negative list of service items - and confusion over a services tax amnesty scheme. On the other hand, slower GDP growth has weighed on corporate and excise tax collection, it said.

Nominal GDP growth in FY14 is unlikely to meet the government's expectation of 13.4 per cent, but the report has pegged it at 10.7 per cent.

Though the government may be able to get the budgeted spectrum auction proceeds in January, the market is not sure about the disinvestment target of 0.56 per cent of GDP.

H1 saw expenditure growth of 16.6 per cent, which is lower than the estimated 18.2 per cent. As a proportion of annual spends, however, the government spent 48.6 per cent of budgeted amount in H1, higher than the past five years.

On revenue side, the report said even though the government is likely to meet its target of budgeted proceeds from service tax, corporate and excise taxes

On non-tax revenue front, the report said the government has not been able to collect disinvestment and telecom-related revenue more than 0.01 per cent of GDP in H1, against a budgeted Rs 96,000 crore, or 0.96 per cent of GDP.

Of the Rs 40,000-crore divestment proceeds, the Government has so far been able to collect only around Rs 1,400 crore.

Though the Government has committed to cap the subsidy burden at 2 per cent of GDP, the foreign lender sees marginal slippage in petroleum subsidy (0.1-0.15 per cent of GDP) despite the recent correction in the rupee and crude oil prices, as it has refrained from sharply increasing diesel price.

However, the new food subsidy law is unlikely to result in any additional pressure on expenditure as its implementation before Q4 looks remote. Also, a large share of administrative and infrastructure costs are likely to be deferred to next fiscal, the report said.

"We, therefore, expect slippage of 0.15 per cent of GDP on the subsidy front."

Given the poor fiscal health, the Government has mandated a 10 per cent reduction in non-planned spends, excluding those on items like interest payments, salaries and subsidies.

"We believe, however, that such a mandated cut in non- planned expenditure will not be large enough to meet its fiscal target," the report concluded.

Internal migrants contribute 10% to GDP: UNESCO

New Delhi: Internal migrants, estimated to constitute about 30 percent of the population, contribute 10 percent to the country's GDP with employment having become the biggest reason behind migration, a UNESCO report has said.

The report considers internal migration as being a key factor behind prosperous cities, boosting economic activity and growth.

Citing various sources, it estimated that following Census 2011, the number of migrants may have increased to about 400 million from 309 million in 2001.

The report, however, says that most of the million-plus cities have recorded significant decline in population growth, hinting that they have become "less welcoming" to migrants.

Against the projected 400 million migrants in India, their global number was 740 million in 2009.

The report entitled 'Social Inclusion of Internal Migrants in India' says women form an overwhelming majority of migrants in the country ? 70.7 percent as per Census 2001 and 80 percent according to NSSO (2007-08) data.

It said 91.3 percent women in rural areas and 60.8 percent in urban areas were migrants, putting such high numbers down to marriage.

About 30 percent of the migrants in the country belong to the 15-29 years age group.

The report says migrants are often victims of politics based on "vote banks along ethnic, linguistic and religious lines" and face political and administrative exclusion and discrimination.

Women migrants face a double discrimination for reasons particular to their gender, it adds.

Migration, it says, is an integral part of development and the rising contribution of cities to India's GDP would not be possible without them.

"Internal migrants contribute cheap labour for manufacturing and services and, in doing so, contribute to the national GDP, but this is not recognised. Far from being a drain and burden, they are in fact providing a subsidy," the report says.

"Migrants are looked upon as outsiders by the host administration and as a burden on systems and resources. Their right to the city is denied on the political defence of the 'sons of the soil' theory which aims to create vote banks along ethnic, linguistic and religious lines," it says.

The UNESCO report has pushed for promoting positive political discourse and avoiding a prejudiced negative portrayal of internal migrants.

Though not counted as metropolitan cities, Surat, Nashik, Ludhiana, Faridabad and Pune are among the million-plus cities which house the maximum migrants with respect to their overall population, the UNESCO report says.

Migrants make up 58 percent of the population in Surat, 57 percent in Ludhiana, 55 percent in Faridabad, 50 percent in Nashik and 45 percent in Pune, according to Census 2001 data cited by the report.

They account for 43 percent of the population in Delhi as well as in Mumbai.

Calling for better legal and social protection for them, the report says internal migrants are particularly vulnerable due to low rates of education and ignorance about their rights.

The overall literacy rate, as per Census 2011, was 74.04 percent with male and female literacy being at 82.14 and 65.46 percent, respectively. However, among migrants, 57.8 percent of the females and 25.8 percent of males were illiterate.

NSSO data for 2007-08 reveals that 52 percent short- duration migrants were either illiterate or had not completed primary education.

Raghuram Rajan meets Chidambaram; discusses economic situation

Rajan discusses economic situation with Chidambaram

Ahead of the RBI's central board meet, the central bank chief Raghuram Rajan on Thursday met Finance Minister P Chidambaram and is understood to have discussed economic issues. "Our meeting was part of regular interaction that takes place between RBI and Finance Ministry," Rajan said after his hour long meeting with the Minister and Economic Affairs Secretary Arvind Mayaram. The Central Board of Reserve Bank will meet in Raipur on Friday to discuss key economic and financial developments. The RBI board meets at least once every quarter. The meeting would be chaired by Rajan. The four deputy governors are the official directors on the board, while Mayaram and Financial Services Secretary Rajiv Takru are the government nominees. There are also 11 non-official directors on RBI board. The meeting assumes significance in the wake of economic growth falling to a four year low of 4.4 per cent and current account deficit (CAD) at an elevated level of 4.9 per cent in the April-June quarter. While the government has been emphasising on measures for incentivising growth, the RBI in its policy review last month had hiked interest rates by 0.25 per cent. The RBI is scheduled to announce its second quarter policy review on October 29. Although Prime Minister Manmohan Singh and other government functionaries are expecting the growth to improve in the second half of this fiscal, Asian Development Bank in its recent report lowered India's growth projection for 2013-14 to 4.7 per cent. The economic growth rate slipped to a decade's low level of 5 per cent in 2012-13.

India Inc to policymakers: Shape up, or we'll ship out

Mumbai: After the rapid slide in the rupee this year, the message from the country's corporate titans to the government is clear: shape up and fix the problems or more companies will expand their business abroad and deprive the economy of investment.

Many, such as entrepreneur Kiran Mazumdar-Shaw, are already doing just that.

Ranked by Forbes as one of the world's most powerful women, she is investing about $200 million in a manufacturing plant in Malaysia for her biotechnology firm Biocon Ltd to offset unreliable power and water supplies back home. It already makes more than half its sales overseas.

"If India had better infrastructure and more availability of power I may not have gone abroad," said Shaw, who followed in her father's footsteps with a master's degree in brewing in Australia before setting up Biocon in her garage in Bangalore 35 years ago.

"We don't have enough power, we don't have enough water. So some of these projects where we need water and power, I will do it in Malaysia because that's where it is abundant," Shaw, who is ranked 92 in India's rich list with a net worth of $625 million, told Reuters in an interview.

She is one of many top entrepreneurs voicing frustration that policymakers failed to keep economic reforms rolling over the past decade, which they contend would have prevented India from stumbling into its deepest economic crisis since 1991, when it was forced to pledge the country's gold reserves in exchange for international loans.

Economic growth has almost halved in pace to less than 5 percent in the past six years, a flood of cash leaving the country has led to a record current account deficit and combined with a rout of emerging markets, has sent the rupee into a tail spin. At its record low of 68.85 per dollar in late August, it was down around 20 percent from the end of 2012, the worst performer among Asia's currencies. It has since risen slightly to 65.24.

The lack of reform and infrastructure, painfully slow decision making and red tape are common complaints of corporate India, but this time they could come at a cost as the rupee crisis shows businesses how vulnerable they are.

The political cost could hit the Congress-led ruling coalition at national elections that must be called by May. An opinion poll on Friday showed nearly three-quarters of Indian business leaders want opposition figure Narendra Modi to run the country after the election.

Modi is in the political ascendancy after turning the western state of Gujarat into the country's economic star with double-digit growth and investor friendly policies.

The economic cost is underlined by Indian Inc.'s overseas direct investment. Including bank guarantees issued to overseas units, it stood at more than $21 billion in the first seven months of this year, up 38 percent from the same period of 2012.

That is set to increase as Indian companies see the advantages of diversifying globally.

In a bid to reduce its dependence on a slowing Indian auto market and get a foothold in China and the United States, Apollo Tyres agreed in June to pay $2.5 billion for U.S.-based Cooper Tire & Rubber Co , which was nearly three times its own market value at that time.

Yusuf Hamied, the billionaire chief of drugmaker Cipla Ltd, which in July completed the acquisition of South Africa's Cipla Medpro for about $460 million, is expanding his company's base in Algeria and Morocco as part of a North Africa thrust.

Aditya Birla Group, the $40 billion diversified conglomerate that gets more than half its sales from overseas operations, plans to invest $1 billion setting up a chemical plant in the United States, local media reported last month.

A spokeswoman for the group, whose business interests range from mining and metals to financial services and telecoms, was unavailable to comment.

"MORE AND MORE DIFFICULT"

The Reserve Bank of India last month reduced companies' overseas investment limit to 100 percent of their net worth from 400 percent, part of a drive to curb dollar outflows and prop up the rupee.
While these steps could put a brake on overseas investments in the short term, they might not halt the outbound march in the longer term.

"The government has to give us infrastructure - not for a day, not for six months - there has to be long-term infrastructure, policies that are sustainable so that we can then also plan accordingly," said Cipla's Hamied.

"In healthcare there are five ministries involved - chemicals and fertilisers, finance ministry, law ministry, health ministry, commerce ministry - there is no nodal body. Who do you go to for infrastructure or for advice or anything?"

Hamied is particularly concerned about the impact on the domestic pharmaceutical business of a new pricing policy that has increased the number of drugs deemed essential that are subject to price caps.

Many industrialists complain that delays in approving projects due to differences among various government departments and red tape make it tougher for India Inc to set up manufacturing operations in the country than overseas.

"It is becoming more and more difficult, in any sector. Look at the real estate sector, the amount of commissions, the amount of bureaucracy that is there is too much," said billionaire Ajay Piramal, chairman of the healthcare-to-real estate conglomerate Piramal Group. "We need to have clear rules of business ... unfortunately that's not happening."

With the prospect of a populist spending splurge ahead of the national elections, industrialists like billionaire Rahul Bajaj, chairman of motorcycles and three-wheeler maker Bajaj Auto are not betting on any changes soon.

"I believe the government will keep taking short-term measures, which will have limited effect," Bajaj said. "The way things are going, the earlier the elections the better."

Govt must take steps to reverse slowdown in economic growth: India Inc

As the economic growth in the June quarter dipped to a four year low of 4.4 per cent, India Inc on Friday sought immediate steps from the government to reverse the slowdown.

Manufacturing sector also posted a contraction of 1.2 per cent in the first quarter of this fiscal as against a decline of one cent in output in the same period of 2012-13.

"The GDP figures for first quarter clearly show that the economy continues to be in the throes of a slowdown. The concern becomes more acute when we see that at the present moment, there are no clear indications that the economy has bottomed out," CII Director General Chandrajit Banerjee said.

There are no visible signs of investment pick up as investor sentiments continue to be very low. A weak rupee, tight liquidity, high cost of funds, procedural delays, etc, are all coming in the way of an investment revival, he added.

Contraction in manufacturing and mining sector pulled down the economic growth in the April-June quarter of this fiscal to 4.4 per cent-- the lowest in past several years.

"The economy continues to tread in difficult waters as many challenges remain on the fore. Understandably, there is no perfect recipe to steer out of the current state of affairs but what we need is swift action given the volatile situation," Ficci President Naina Lal Kidwai said.

"The industry fears that in case urgent steps are not taken to revive the manufacturing sector, jobs will be at stake, Assocham Secretary General D S Rawat said.

We would have to strive harder on the reform front to give a push to the manufacturing sector, Kidwai said.

Hastening disinvestment of public sector units, ensuring coal supplies to the power sector, promoting competition in the mining sector and ensuring speedy implementing of Delhi-Mumbai Industrial Corridor (DMIC) would be seen as positive developments, Banerjee said.

A coordinated effort from the Government and the RBI is required to ensure that this vicious cycle is broken, he said.

Meanwhile, PHD chamber of commerce and industry urged the RBI to cut policy rates to revive the economic growth.

"Since wholesale price inflation (WPI) scenario is stabilizing at around 5 per cent during the last many months, at this juncture rate cut is inevitable to facilitate industrial production," it said.

Besides, the farm sector output expanded by just 2.7 per cent in April-June quarter this year, only marginally down from 2.9 per cent in the corresponding period of last fiscal.

However, India Inc expects a pick up in agricultural growth on the back of good monsoons.

"With monsoons being normal, a good agricultural performance coupled with rise in rural wages would help bolster rural demand," Banerjee said.

Several other sectors including construction, power generation, hotel and transport showed marked deceleration in growth.

Economy to grow at 5.5%; no 1991-like crisis: PM

New Delhi: Prime Minister Manmohan Singh Friday said India is not heading back to a 1991-like crisis, when the country was forced to pledge its gold to pay import bills, and the economy would expand by 5.5 percent in the current fiscal.

“There is no reason to believe that we are going down the hill and that 1991 is on the horizon,” the prime minister said in the Rajya Sabha, the upper house of parliament.

Manmohan Singh pointed out that India has around USD 280 billion of foreign exchange reserve, which is sufficient to finance nearly seven months of imports.

In 1991, India's foreign exchange reserve had fallen to USD 3 billion, not enough even to cover three weeks of imports. The country was forced to pledge its gold with the International Monetary Fund (IMF) in order to pay its bills.