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Books on India
REPUBLICAN REFERENCE
Area (sq.km)
3,287,590
Population
1,049,700,118
Capital
New Delhi
Currency
Irdian Rupee (INR)
President
Abdul Kalam
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Update No: 028 - (30/05/06)
POLITICS
May 2006 has been a rather colourful month for the Congress party. It
started with Sonia Gandhi's resignation as Member of Parliament as she was
accused of holding an office of profit, as a consequence of which she also
resigned from her seat at the National Security Council. Gandhi's stepping down
from parliament was seen as a strategic move to strengthen the image of the
Congress party. Thereafter, in state assembly elections held in Uttar Pradesh,
Sonia Gandhi's son, Rahul Gandhi took over the political reins to campaign for
Sonia Gandhi from their constituency in Amethi. Rahul Gandhi has emerged as a
dynamic forerunner of the Congress party. After his father Rajiv Gandhi's death
in 1991, Rahul Gandhi was reluctant to enter politics and most people expected
his older sister, Priyanka Gandhi to take over owing to her close association
with political campaigns and her striking resemblance to Indira Gandhi's style
and personality. Instead, Rahul Gandhi has outshone in politics by deftly
managing Sonia Gandhi's campaigns to ensure that she wins the state elections by
a large majority. His efforts at campaigning have proven successful with Sonia
Gandhi winning a thumping majority in Amethi and Rae Bareilly.
A separate issue has come to the fore in national politics this month. The
government has been trying to introduce more reservation for other backward
classes, the scheduled castes and the scheduled tribes in university admissions
and jobs. This has sparked a heated debate amongst Indian youth who took to the
roads in Delhi to protest against the passage of any reservation bill. Many
students from the reserved category in the North-East have come out against
reservations. Even students from backward classes are claiming that admissions
to universities should not be made on the basis of reservations. Instead, merit
should be the sole factor determining admission policy to universities. These
students argue that despite their hailing from "lower castes", they
have performed as well as any other student purely because of their merit. While
students in Delhi have been agitating against any such reservation policy,
people in other states feel differently about the issue. For instance, in Andhra
Pradesh, there has been a demand for the sub-classification of scheduled castes
and sub-reservation. In such states, it is not caste that has divided the people
but belonging to an affluent community is considered more complex. Some
individuals are not allowed into certain temples only because they are less
affluent than other members of the same caste. As an example, in a village in
Nalgonda district, most people do not step into the Pochamma temple of the
village because it belongs to the Malas, another dalit caste that apparently
considers itself superior to the predominantly Madiga caste of dalits in the
villages. The question of reservations is a complex one but the government
should avoid distinguishing students on the basis of caste or class. Instead
merit should be the only prerequisite. Unfortunately many within the government
are in favour of such policies either because they themselves hail from the
backward classes or have a vested interest in promoting certain classes over the
others. Such types of policy, are detrimental to the quality of Indian
secularism and democracy.
INDIA-US RELATIONS
US Under Secretary of State Nicholas Burns met with Indian Foreign Secretary
Shyam Saran as part of ongoing negotiations on the nuclear deal. Referring to
the July 2005 agreement with India, Burns stated that "if you look at the
Joint statement issued by both the governments, there is a reference to India's
moratorium on nuclear testing. That was a very important commitment made to our
government by the Indian government, and it provided a backdrop for the
subsequent negotiations on the separation plan that India would engage in."
Ever since President Bush's visit to India, Burns has been trying to obtain
Congressional support to push the nuclear deal through. Indian Foreign
Secretary, Shayma Saran's meeting with Burns is a necessary step in persuading
the American legislature to take notice of the nuclear agreement between India
and the United States. Senior BJP member and Leader of the Opposition, Jaswant
Singh accused the Centre of selling India's foreign policy to the United States.
In his words, "there is a sense of disquiet in the overall management of
the country's international relations, particularly in dealing with the
neighbourhood." And with regard to Iran's weaponisation, Singh believes
that the government's foreign policy had been paralysed by the nuclear agreement
with the US because breaking ties with Iran would mean betraying several years
of history, geography, and regional security with the nation. This perhaps is an
interesting argument because it sheds light on how an improvement of India's
relations with the United States might have negative consequences for its
relations with other countries. There is always a trade off and much depends on
India to judge who is to be foe or friend.
On the other hand, the Indian Space Research Organization (ISRO) and NASA
brokered a deal in Bangalore which allows India to carry on board two US
scientific instruments on India's 2008 mission to the moon. The unmanned
mission, Chandrayaan-1 will also carry five Indian payloads and four European
payloads. The NASA Chief also visited India; one of the first visits in 30
years. Dr. Michael Griffin, Chief Administrator of NASA said that President
Bush's visit to India has opened doors for collaboration in various other areas
with India, the most important being science and technology and space research.
Space commerce had received a boost with an increase in the number of imports
from the United States. Chandrayaan-1 will be launched on the PSLV which will
place the lunar craft in an elliptic orbit around the earth. The liquid motor
will later fire to take it away from the earth's gravity over 3,86,000
kilometres over five and a half days towards the moon. Lunar gravity will then
capture the craft which will finally reach a 100 km polar circular orbit of the
moon. The craft will circle the moon for two years collecting remote sensing
data from the moon's surface. In addition a Moon Impact Probe (MIP) will be
detached from Chandrayaan once it reaches the orbit and will impact on the moon.
This will carry instruments to analyse the surface of the moon, including the
dust raised by the impact. The two NASA payloads will be used to look for water
on the moon and also analyse the mineral composition of the moon's surface.
Chandrayaan will also carry three payloads of the European Space Agency and one
from Bulgaria.
INDIA-PAKISTAN RELATIONS
Pakistan's Leader of Opposition Maulana Fazlur Rehman and a five member
delegation met Prime Minister Manmohan Singh in Delhi this month and both
discussed bilateral relations, particularly the ongoing Composite Dialogue
process. The meeting took place a day after Rehman met National Security Adviser
MK Narayanan and argued that the Taleban had been misperceived because it had
set an example of good governance in Afghanistan. Rehman also called for an end
to Afghanistan's isolation by the US. What Pakistan and Afghanistan need to
recognize is that a few "good" Taleban do not represent majority of
the Afghani population. While the US could reduce its presence in Afghanistan,
however, doing so could turn the internal politics of the country on its head. A
less prominent role for the US in Afghanistan is certainly feasible but to
characterize the Taleban as anything more than fine is missing the point. For
India, handling a sensitive issue of this nature is challenging given its
ongoing geo-strategic partnership with the United States.
BUSINESS/ECONOMY
The Government of India has approved the infusion of additional equity
capital up to Rs 1,500 crore (fifteen billion rupees) in Teletech Investments
(India) Ltd for making downstream investments in Indian companies. The Cabinet
Committee on Economic Affairs gave the permission for additional equity in
Teletech Investments to Essal Metal Holdings Ltd, Essar Logistics Holdings Ltd
and Essar Power Holdings Ltd. The investment by Teletech Investments will be
under the automatic route of FDI in Indian companies. The investment will also
be used for repaying liabilities, subject to the condition that the downstream
investment will be in sectors where FDI is permitted. The cabinet also approved
conversion of original investment in foreign exchange by Infotech in Teletech
from non-repatriable basis to repatriable basis.
Intel's Chief Executive Officer (CEO) Paul Otellini, is scheduled to visit
Delhi, Mumbai and Bangalore to talk to business entrepreneurs. At Mumbai, he
will deliver the keynote at the Intel Capital CEO Summit which brings together
top managers of the companies funded by Intel through its venture capital arm
and global 2000 organizations. Last year, Intel announced one billion dollar
investment in India over the next five years and a 200 million dollar Intel
Capital India Technology Fund to help stimulate investment and growth. The
investments will focus on expanding the company's research and development
centre in Bangalore in addition to marketing, education and community programs.
Wipro India has signed a major agreement to acquire US-based Quantech Global
Services LLC and its Indian arm. Quantech Global LLC designs for companies in
the automotive, aerospace, consumer goods and heavy engineering industries.
Wipro will gain over 500 domain specialists through this acquisition which will
enable it to provide superior mechanical engineering design and analysis
services, The consideration includes upfront cash payment on closure of the
transaction and earn-outs on achieving agreed financial targets over a three
year period. The company did not disclose the financial details of the deal. The
entire transaction is expected to be closed during the next one month. "Quantech's
key strength in Mechanical Design services complements Wipro's core strength of
Embedded Software and System Design capabilities and helps us strengthen our
position as an Original Design Engineering (ODE) solutions provider"
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BANKING
India's banks thrive on new loans
Indian bank shares could climb higher as demand for new loans continues to grow
on the back of a robust economy, despite rising interest rates, the Wall Street
Journal reported on April 27th.
HDFC Bank Ltd and UTI Bank Ltd recently announced strong earnings for the
January-March quarter, indicating demand for consumer and corporate loans
remains strong even as the Reserve Bank of India has raised lending rates and
tightened policies on property-sector credits.
"The credit growth of banks was still above 30% (in the fiscal year ended
March 31st), and we expect the credit growth to be 25% to 28%," in the
current year, says Kanan Shah, a senior analyst at Networth Stock Broking would
out-perform" the overall market.
With India's economy expanding 8% in the year ended March 31st and economists
expecting 8% growth again this fiscal year, consumers are taking out a record
number of mortgages and personal loans while companies are borrowing more to
expand capacity. Meanwhile, local governments are borrowing to build roads,
power plants and ports.
The borrowing binge illustrates the high level of business confidence in India,
which boasts one of the world's highest growth rates as well as one of the
best-performing stock markets. The benchmark 30-share Bombay Stock Exchange
Sensitive Index, Sensex, has surged more than 75% in the past 12 months.
India's central bank has raised its key short-term interest rate several times
in the past year, which has forced banks to lift their deposit and lending
rates. Mortgage rates, for example, have risen to more than 10% from about 8% a
year ago.
At its quarterly meeting recently, the central bank didn't lift rates, but it
increased the amount of money banks have to put aside for potential defaults on
mortgages and other property market. Analysts and investors expect the tighter
restrictions to spawn higher lending rates.
But while higher rates may eventually slow consumer borrowing, any decrease in
loan growth will be offset by fresh demand for corporate and infrastucture
loans, some analysts predict.
Some of India's lumbering state-run banks, which still dominate the industry,
may see their margins and loan portfolios squeezed by higher rates and business
shifts. But nimble non-government banks are expected to continue to rack up
annual profit growth above 20% over the next three years, the analysts forecast.
HDFC Bank, which is listed on the New York Stock Exchange and is India's
third-largest bank in terms of market capitalisation, recently said its net
profit rose 30% to 2.63bn rupees (US$58.6m) in the quarter ended March 31st.
Mumbai-listed UTI Bank also announced a 30% rise in quarterly net profit, to
1.52bn rupees. New York-listed Icici Bank, India's second-largest bank in terms
of market capitalisation is expected to announce double-digit growth for the
quarter. State Bank of India, the largest bank was little changed during the
quarter.
Banking shares have under performed the market in the past 12 months, with State
Bank of India, HFDC Bank, Icici Bank and UTI Bank all rising between 40% and 50%
well below the Sensex's rally.
"The sector will outperform in the long term," predicts Ms Shah, whose
favourite bank shares include Punjab National Bank, UTI Bank and Federal Bank.
Ms Shah says UTI's stock price could rise more than 30% in the next 12 months to
466 rupees, while Punjab National Bank could climb more than 40% to 638 rupees.
Federal Bank's stock price could rise 15% to 240 rupees, she says.
To be sure, a jump in inflation at home or a higher-than-expected rise in US
rates could prompt a sharper rise in interest rates in India, which would likely
blunt a rally in Indian bank shares.
Analysts also warn that some of the strongest Indian banks - such as Icici Bank
and HDFC Bank - are already looking expensive, with their shares trading at more
than three times the book value of their assets.
The average price-to-book ration in Asia is closer to 2.5 times, says Hugh
Young, managing director of Aberdeen Asset Management Asia in Singapore.
"We are impressed with the professionalism in the (Indian banking) sector,
but we are worried things are getting a little overheated," he said.
While Aberdeen hasn't been aggressively selling Indian stocks, it has allowed
India holdings to slip to 13% of its total portfolio from 15% last year, when it
invested fresh capital for its Asia funds.
Still, many analysts say investing in strong Indian banks is a good way to seeks
gains from India's growth.
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ENERGY
India won't pull out of gas project with Iran
India's Petroleum Minister, Murli Deora, recently said that the United States
could not pressure New Delhi into pulling out of a tri-nation gas pipeline
project with Iran and Pakistan. "I don't think America is pressurising us
on the issue. I think America cannot pressurise us (to give up the
project)," Deora told reporters ahead of his talks with Iranian Deputy Oil
Minister, Hadi Nejad Hosseinian, New Europe reported.
The Iran-Pakistan-India project, which was conceived by Iran over a decade ago
and received a boost with the improvement in India Pakistan relations, has met
with opposition from the US, which has also offered New Delhi a lucrative
civilian nuclear technology cooperation deal to woo it from its dealings with
Tehran. "We are very serious about this project. Our prime minister (Manmohan
Singh) made the statement that the pipeline is for peace and progress of the
region," Deora added. Pakistan and Iran have already decided to go ahead
with the US$7.2-billion project.
New Delhi renews interest in trans-Afghan pipeline project
The Indian Petroleum Ministry has prepared a proposal to raise the possibility
of India using natural gas supplied through the proposed
Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline, the New Delhi-based daily
"The Indian Express" reported on May 11th.
In its proposal, the ministry reportedly says that in view of "burgeoning
gas demand...joining the TAP project offers [India] the possibility of an
alternative source of gas supply." Indian Foreign Secretary, Shyam Saran,
wrote in April to the Petroleum Ministry that New Delhi's participation in the
TAP project would give India "leverage with Iran on the IPI
[Iran-Pakistan-India pipeline] project." Saran expressed concern over
international tension concerning Iran's nuclear program. Moreover, TAP
"would be in tune with the latest US strategic thinking" for the
Central Asia region, Saran wrote, adding that New Delhi's interests would be
better served it were part of the TAP project rather than outside it. The TAP
pipeline is an estimated US$3.45 billion undertaking designed to transport
natural gas from the Dawlatabad field in Turkmenistan through Afghanistan into
Pakistan and then eventually to India. In February, India expressed its interest
in joining TAP pending approvals that should be forthcoming in May. With Indian
participation, the pipeline will be renamed TAPI, for
Turkmenistan-Afghanistan-Pakistan-India.
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FOREIGN INVESTMENT
Sequoia and WestBridge form Indian VC alliance
Sequoia Capital, a leading Silicon Valley venture capital fund, is deepening its
presence in India by merging with the country's leading source of funding for
start-up technology companies, the Financial Times reported on May 4th.
The US fund's merger with Bangalore-based WestBridge Capital Partners is the
latest in a slew of foreign entries into India's thin venture capital industry.
They include: Kleiner Perkins Caulfield and Byers, Norwest Venture partners,
Matrix Partners, Benchmark Capital, Draper Fisher Jurvetson and Greylock
partners, some of which are busy building local teams.
Their mass entry mirrors a similar passage into India by private equity groups,
which specialise in buy-outs and latter-stage funding of private companies bound
for the stock market.
People in the industry say the new VC entrants into India are following the
private equity lead, drawn partly by hopes of early-stage investment
opportunities that could emerge from stepped-up research in India by companies
such as Microsoft and Intel.
India's venture capital industry is usually shallow, reflecting a paucity of
innovative start-ups that make it to public markets and deliver returns that
venture funds have become accustomed to in the US.
That has forced WestBridge to widen its mandate, and Sequoia Capital India, as
the merged entity will be known, will follow suit, focusing on companies with
high growth and the potential to build brands.
"Our outlook will be broader based than traditional venture capital plays
in mature markets such as the US," said Mr KP Balaraj, managing director of
WestBridge, whose management will run the new entity.
Sequoia and WestBridge's merger caps a growing relationship as co-investors in
Indian assets.
For WestBridge, the marriage was described by one observer "as a defensive
move to align with a global brand at a time when the biggest names in the global
industry were descending on India."
The financial details of the merger were not disclosed.
WestBridge manages two funds with assets of US$350m spread across 26 investor
companies.
Sequoia and WestBridge have jointly invested in two companies in India - in
mobile software services - totalling US$25m, and a third, in outsourcing valued
at US$40m, will be announced soon.
Douglas Leone, general partner at Sequoia, said the group had built up a record
on investment in India over the past 15 years and "we are now ready to
(make) another step by establishing Sequoia Capital India."
The Indian team had been approached by several VC funds but "we settled for
a global brand that creates a powerful compelling platform and
proposition," said Mr Balaraj.
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