Books on India
Irdian Rupee (INR)
Update No: 014 - (29/03/05)
In a recent statement this month, Pakistani President Pervez Musharraf
declared that both India and Pakistan should adopt a "positive"
attitude towards the Kargil war and seek to resolve the Kashmir issue to prevent
any further Kargil-type conflicts in future. On the Kargil war of 1999,
President Musharraf believes that the conflict should be assessed in its
entirety especially since Kargil was the result of several intrusions by India
after the Shimla Accord. According to the President until and unless such issues
are openly addressed by the two countries, any solution to the Kashmir problem
might appear a far cry (Press Trust of India Report). President Musharraf's
argument about the role of the Indian forces in accelerating the dispute may
seem rather fallacious especially since Pakistan was the aggressor in the Kargil
war. India did not start the war and in fact was caught completely unawares by
the large-scale intrusion of Pakistani soldiers and Afghan mujahideens. Also,
there is evidence that points to the major role played by President Musharraf in
planning and executing the war. The Pakistani President needs to be aware of how
it looks from the Indian perspective of his country's role in the insurgency
movement in Kashmir and fuelling cross border terrorism.
An interesting and related development in India-Pakistan relations is the US
announcement of selling F-16 fighter planes to Pakistan and India. But the
American offer to India came after its offer to Pakistan. Initially, the United
States planned to sell F-16s to Pakistan. However, it was soon made aware that
there were several diplomatic concerns made by New Delhi which could hamper its
relations with India. Hence, to show that it was not playing favourites, America
decided to sell F-16s to India too. While the Indians have welcomed the offer
made by the Americans, they are concerned about the prospects of an arms race in
the subcontinent. Prime Minister Manmohan Singh stated that US sales to Pakistan
were a "great disappointment" for India and could have "negative
consequences" for its security. India believes that the timing of the sale
is detrimental towards peace efforts in both countries. It comes at a time when
both India and Pakistan are trying to step up their bilateral dialogue and the
sale of fighter planes might tilt the military balance in favour of India
causing resentment on the Pakistani side. The United States, on the other hand,
does not see the sale of F-16s to Pakistan as a threat to peace and stability in
South Asia. According to US Secretary of State, Condoleezza Rice, there is
"no contradiction" between encouraging Pakistan to adopt democratic
principles and building a military relationship with the country.
The politics of defection is a major malaise that afflicts the Indian
political system. Two states that seem to have been seriously affected by this
problem are Jharkhand and Goa. In these states, local parliamentarians and other
officials have resorted to corrupt practices such as horse trading legislative
seats. While both the Congress Party and the Bharatiya Janata Party have not
paid much attention to this problem, Indian President Abdul Kalam has openly
denounced such malfeasance. President Kalam has stated that "the
arithmetical compulsions of incremental numbers and the allegedly tradability of
legislative seats, won perhaps through means allegedly dubious and undemocratic,
have many times created doubts on our democratic system in the public eye. When
politics degrades itself to political adventurism the nation would be on the
calamitous road to inevitable disaster and ruination."
In a separate development, Haryana's Chief Minister Bhupinder Singh Hooda
announced that he would be setting up a new cabinet for the state government.
The government will comprise one Chief Minister and 13 ministers. There is some
speculation over whether the post of a deputy chief minister will be created.
This month, the opposition in the Rajya Sabha criticized the Central
government's budgetary plans. They dubbed Finance Minister P Chidambaram as a
"Dream Merchant" and sought more budgetary allocations for health,
rural development and education. Opposition members argued that while urban
investment is on the rise, there is little that has been done in the realm of
rural development. The Federation of Indian Export Organisations (FIEO) has also
expressed regret at the budget for its lack of direct benefits for exporters.
FIEO President Garg believes that the budget focuses on rural economy but does
not offer much for exporters. The Budget also ignored the proposal to give tax
benefits to tiny and cottage sectors like handicrafts, handlooms and carpets
which could directly boost employment in rural areas. It seems that different
parties and organizations within India have conflicting views over the benefits
of the budget. There are inconsistent strains in many of the statements made
earlier which makes it difficult to assess the positive contributions of the
budget. However, as discussed below, India's economy is well on its way to
achieving a 7 per cent growth rate which reflects the tremendous improvement
that has been made in various economic sectors since the last decade.
Business and Economy
This month, the cigarette and hotel major, ITC Limited, announced a Rs
14,000 crore investment plan over the next five years for consolidation and
expansion of various businesses. The plan includes FMCG, which encompasses
cigarette, hotels, paperboards, paper, and packaging and agricultural business.
The move comes as a step to create more employment and facilitate investment
In a separate issue, while the US Federal Reserve has raised interest rates,
Finance Minister P Chidambaram has made it pretty clear that there will be no
hike in interest rates in India in the next six months. Chidambaram believes
that there is enough money in the economy to meet demands of companies as well
as to finance India's $35 billion budget deficit. The financial markets
responded positively to Chidambaram's statement. The Finance Minister is also
confident of cutting the country's fiscal deficit next year to 4.3 per cent.
Interestingly, the state of India's economy has much to offer in future years.
According to Prime Minister Manmohan Singh, India can be expected to deliver 7-8
per cent economic growth in the next fiscal year. In the Prime Minister's words,
"The growth rate has almost been seven per cent this year on the back of
eight per cent in the previous year. All indications at the moment are that we
may be able to deliver a seven to eight per cent growth even next year".
Terming the reform agenda of the Indian budget as "very positive", the
International Monetary Fund has pegged India's economic growth at 6.7 per cent
for the next fiscal. The IMF has praised India's monetary management to absorb
the oil shocks to keep prices low. Discussing the high growth rates, IMF
Managing Director Rodrigo de Rato announced that "Growth in India has been
robust reaching nearly 7 per cent this fiscal. There is keen awareness of the
need to strengthen India's fiscal position, open the economy and remove the
remaining domestic constraints," However, one area that needs further
improvement is trade reforms. Rato met with Congress chief Sonia Gandhi, Prime
Minister Manmohan Singh, Planning Commission Deputy Chairman Montek Singh
Ahluwalia, Finance Minister P Chidambaram, Commerce Minister Kamal Nath and RBI
Governor Y V Reddy during his three-day visit to India. (PTI)
Investors vie for shares in Indian airline IPO
Jet Airways (India) has received bids for more than 13 times the shares
available in its initial public offering, the Mumbai stock exchange said
recently, the International herald Tribune reported.
The sale of a 20% stake in Jet Airways, the largest airline in India is the
first public offering in the country's buoyant aviation sector. The offering
which closed recently, was fully subscribed 10 minutes after the sale opened.
Foreign and domestic institutions together have bid for 20 times the portion of
Jet Airways shares on offer to them.
"The entire constellation of stars is aligned in Jet Airways's favour,"
Ravi Menon, head of investment banking for HSBC Securities and Capital Markets
(India), said of the response.
Investors are upbeat about Jet Airways because India's airline industry is
projected to grow by 25% annually over the next few years, said Kapil Kaul, vice
president of the Centre for Asia Pacific Aviation, an aviation industry
consultancy based in Sydney.
India's airlines carried only 15m passengers in the year through March 2004. But
analysts said the figure would rise by 5m a year or more for the next several
years. The Centre for Asia pacific Aviation said India, a country of more than
one billion people, will have 50m passengers by 2010.
Jet Airways, with 45% of the Indian market, is known for strong service and
punctual arrivals and departures. It was formed in 1993 to compete against the
monopoly of the state-owned Indian Airlines and overtook the government airline
within a decade.
But competition is heating up for both carriers, as several low-cost airlines
are luring more train-travelling Indians to the air. The first of these, Air
Deccan, is aggressively courting passengers in what many say is an underserved
market, and nearly a dozen more are in various stages of development.
Still, most investors have bid for Jet Airways share at the top end of the
pricing range, and at that price Jet airways would be valued at US$2.2bn.
According to Kaul, that would put Jet Airways's valuation on a par with the
leading airlines in the world.
Jet Airways said that the shares would be sold at 950 rupees to 1,125 rupees
each, or US$445m. The price of the shares is to be set after bids close.
Following the offering, the airline will be 80% owned by its chairman, Naresh
Goyal, a former travel agent.
State-run banks in India are given greater autonomy
India gave state-run banks greater operational freedom in a move analysts said
could improve efficiency across a sector dominated by government-backed firms,
the Wall Street Journal Europe reported recently.
Under the new guidelines, state-run banks will get the autonomy to set up
overseas branches or subsidiaries, exit from non-profitable ventures and acquire
domestic and foreign banks, a Finance Ministry official said.
"This is a step towards more freedom for government-run banks," the
official said. "It is in keeping with the spirit of the Common Minimum
Program," the ruling coalition's policy blueprint to strengthen state-run
banks and encourage them to tap the stock market to raise resources.
The official said that under the new banking blueprint, strong banks with bad
loans of less than 4% of total assets can draft their own human-resource
policies and pay higher salaries.
The government's move is another step toward overhauling India's financial
sector and deepening the liberalisation process that kicked off in 1991, when
the country embraced free-market reforms.
"It is positive for the sector and will improve banks' efficiency,"
said Imran Contractor, head of research at Stratcap Securities. "The
government mush now allow higher foreign direct investment (FDI) in the sector
and that will help consolidation."
State-run bank chiefs, who have been asking for greater management control,.
Cheered the measure and said it will help them tackle increasing competition and
"Overall, it is fantastic," said M S Kapur, chairman of Vijaya Bank.
"I am amazed at the amount of freedom the government has given us,
especially allowing us set pay scales. It will fasten the pace of
India's 96 commercial banks hold 55% of all financial assets in the country.
Twenty-seven are state owned and account for about three-quarters of all
commercial banks' assets.
Russia welcomes India as possible oil partner
The Russian Industry and Energy ministry said recently that the county was
interested in working with Indian businesses to develop its oil fields, amid
speculation that India's state-run Oil and Natural Gas Corp might buy into the
once-core subsidiary of the former oil giant, Yukos, the International Herald
The industry and energy minister, Viktor Khristenko, told his Indian
counterpart, Mani Shankar Aiyar, that fields in the Far East, eastern Siberia,
the Barents Sea and the oil-rich Timan Pechora region could offer opportunities
for Indian investment, the ministry said in a statement.
"Russia is open to considering offers by the Indian side to participate in
projects with Gazprom, Roseneft and Transneft," the statement cited
Khristenko as saying, referring to Russia's natural gas monopoly, its main
state-owned oil company and the state-controlled pipeline operator,
"We are happy with the level and the character of Indian-Russia
relations," Khristenko said. "They must be maintained and
Gazprom's chief executive, Alexei Miller, and Subir Raha, the chairman and
managing director of the Oil and Natural Gas Corp, India's largest explorer,
signed a memorandum in Moscow recently to expand cooperation, the Russian
The partners will examine joint projects to develop oil and gas in both
countries and may market liquefied gas in Asia.
India imports 70% of its crude oil, a figure that is expected to rise to 85%
over the next 20 years. Indian companies such as Oil and Natural Gas and
Reliance Industries, the country's biggest non-state refiner, are acquiring oil
and gas fields abroad to secure supplies. Gazprom holds about 16% of the world's
Aiyar said that Oil and Natural Gas was unburdened by debt and could borrow as
much as US$25bn, some of which could go into Russian deals. India is one of the
largest energy consumers in Asia.
"The Indian company is ready to invest a significant part of this sum in
energy projects in Russia," a source in Russia's Industry and Energy
Ministry said. The source added "Aiyar had expressed interest in acquiring
part of the former Yukos subsidiary, Yuganskneftegaz, during a meeting with
Khristenko, Interfax News Agency reported.
Indian power producer's stock may generate long-term appeal
Shares of India-based National Thermal Power Corp (NTPC) have risen nearly 50%
from their initial public offering price, and the stock still has long-term
appeal as the company expands to meet India's yawning need for electricity,
analysts have said, the Wall Street Journal Europe reported on February 22nd.
NTPC, India's dominant power producer, currently meets 20% of the country's
needs. It plans to more than double its power generating capacity by 2013 to
more than 46,000 megawatts. The hefty expansion plans and resulting revenue
outlook, plus high capacity use and a government plan to overhaul the power
sector, all add up to future growth for NTPC. These factors outweigh the risk of
potential government policy changes or fuel shortages, analysts said. "It's
a long-term growth story," said Urmik Chhaya, analyst at Rathi Securities.
NTPC's stock has surged 49% since October, when the government offered a 10.5%
stake in the company to the public at 62 rupees (€1.08) a share, raising
US$1.17bn, or nearly €900m. The government holds 89.5% of NTPC, while foreign
institutional investors hold 4.8%.
No other power producer in India has a long-term growth plan to match that of
NTPC, said Kamlesh Ratadia, an analyst at Enam Securities. NTPC's competitor in
the domestic market, Tata Power Co, said it plans to add 330 megawatts of
capacity but declined to specify a time frame.
Because of the high capacity use, the Central Electricity Regulatory Commission,
which sets electricity tariffs based on production costs, puts NTPC's charges at
an average 1.50 rupees a kilowatt-hour. By comparison, Tata Power's average rate
is 3.30 rupees a kwh. This makes NTPC the first choice for State Electricity
Boards, or SEBs, which purchase and distribute most of the electricity generated
India's power deficiency - the peak demand deficit is 12.2% according to
government estimates - and a proposal to split SEBs into power generating,
transmitting and distributing companies may open new avenues for NTPC, analysts
said. The government plans to privatise transmission and distribution, allowing
existing power producers such as NTPC, Tata Power and Reliance Energy Ltd to bid
for licences. The time frame has yet to be decided.
To be sure, external factors such as potential changes to regulations or the SEB
overhaul plan raise concerns for NTPC's long-term outlook, as does any risk of
Wartsila to pick up stake in AEL
Wartsila India is to acquire up to 14.95 per cent stake in power generation
entity Arkay Energy (Rameswarm) in Tamil Nadu through preference shares.
The company has entered into a shareholders' pact with AEL agreeing to invest in
preference shares up to Rs 12 crore, not exceeding 14.95 per cent of the share
capital, subject to necessary approvals and other conditions, Wartsila informed
the National Stock Exchange on Monday.
It would supply certain equipment and engineering services for the 70MW natural
gas-based power plant of Arkay Energy.
The firm would also provide operations and maintenance (O&M) services for
this plant, it added.
Ranbaxy enters biotech with Novavax pact
Pharma major Ranbaxy has forged an alliance with US-based speciality bio-pharma
company, Novavax Inc, to evaluate a new transdermal product formulated using
Novavax's proprietary micellar nanoparticle (MNP) technology.
This MNP technology will allow Ranbaxy to develop drugs which will significantly
reduce side-effects such as skin irritation.
Interestingly, Ranbaxy's move has been widely analysed in the industry as a
soft-entry into the biotech arena.
Ranbaxy has entered into the agreement through its wholly-owned US subsidiary,
Ranbaxy Pharmaceuticals Inc. Though Ranbaxy officials confirmed the development,
the company refused to divulge details.
Sources said that Ranbaxy's payment commitment to Novavax includes funding to
complete studies of the product.
A statement issued by Novavax on March 16 says that the two companies also
intend to enter into a broad commercialisation and development agreement of the
product, once the study is complete.
Pharma analysts pointed out that Ranbaxy's move to partner with Novavax is the
first concrete step towards an entry into the biotech domain. Ranbaxy was
evaluating options for a long time to venture into the biotech segment and had
been on the lookout for alliances in research, co-marketing and in-licensing
agreements. "This seems to be the first such initiative," said a
On the other hand, Novavax holds the proprietary rights of the MNP technology
which involves the use of patented oil and water nanoemulsions for topical
delivery of drugs.
Talking about the agreement, Novavax's president and CEO, Nelson M. Sims, said
in the company statement: "This agreement demonstrates the merits of our
MNP technology to other companies as a value-added proprietary delivery
technology for novel drug candidates."
Several Indian pharma companies like Ranbaxy, Wockhardt and Nicholas Piramal are
seeking routes to make it big in the biotech segment.
Apart from seeking alliances, these companies are also increasing investments on
discovering and developing their biotech drugs.
"After all, biotech drugs can be developed at a relatively shorter time and
chance of success increases by 25%, providing scope for faster and higher
returns to companies," said a senior industry official.