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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 598,966 515,000  481,400 12
GNI per capita
 US $ 530 480 470 160
Ranking is given out of 208 nations - (data from the World Bank)

Books on India

Update No: 037 - (22/02/07)

Following the Mumbai train blasts of July 2006, India witnessed another horrific terrorist attack, this time on the Samjhauta Express travelling to Pakistan from India. Two homemade bombs are believed to have killed 66 people on that train. The dead included a number of Pakistanis. The governments of both countries have condemned the attack saying that it would not stop the leaders of either country from going ahead with peace talks on Kashmir. The Indian government called the bombing "an act of terror" and has promised to apprehend those responsible. In a statement reported by Reuters, Gen. Pervez Musharraf, the Pakistani president, said, "We will not allow elements which want to sabotage the ongoing peace process to succeed in their nefarious designs." The event occurred on the eve of a visit by Khurshid Mehmood Kasuri, the Pakistani foreign minister, to the Indian capital, New Delhi. And two weeks later, the governments of both countries are scheduled to meet on sharing terrorist related information. What is rather disheartening is that acts such as these have routinely derailed peace initiatives taken by both countries. The Samjhauta Express between India and Pakistan began as a confidence building measure allowing both countries to work together towards promoting peace and stability in the region. The service, en route from Delhi to the border post at Attari, began 30 years ago, and after a two-year suspension at a time of acute enmity between India and Pakistan, and it resumed operations in January 2004. According to a statement issued by the Indian Ministry of External Affairs, visas will be issued to Pakistani relatives of those who were feared dead. 

A Xinhua News Report claims that India and Malaysia are going ahead to conduct military exercises and India is also ready to train Malaysian Sokhoi fighter pilots and Scorpene submarine personnel. The fourth Malaysia-India Joint Commission ended last week at the end of which Malaysian Foreign Minister Syed Hamid Albar remarked how both countries shared the same military doctrine and philosophy as former British colonies and members of the Commonwealth. During his visit to India, Syed Hamid had lengthy talks with Indian Prime Minister Manmohan Singh and External Affairs Minister Pranab Mukherjee on future cooperation between both nations, from trade to defence. The two countries agreed to strengthen their defence cooperation, including more exchanges of military personnel, more joint military exercises, and stronger Indian assistance in training Malaysian pilots. Malaysia and India both have purchased Scorpene submarines from France. Malaysia currently has procured two diesel-fuelled Scorpene class submarines being assembled in France and Spain respectively, which are expected to be delivered by 2008 and 2009. 

As part of Luxembourg Foreign Minister Jean Asselborn's four day visit to India, the country is seeking to deepen political and economic bilateral ties by addressing the issue of liberalizing European labour markets to Indian professionals. Asselborn, also the country's Deputy Prime Minister and Immigration Minister will meet with Indian External Affairs Minister Pranab Mukherjee during the opening up of the Luxembourg labour market and its reforms regarding foreigners' status. Luxembourg Parliament is expected to discuss the issue of dual citizenship and a draft law on this is under examination by the concerned committee of Parliament. A restriction on the movement of skilled Indian professionals to Europe for jobs has been a thorny point in relations between India and the European Union. New Delhi has since long been urging the EU to liberalize its visa regime. Also, an important topic of discussion expected to be covered in the meeting is both India and Luxembourg's quest for a non-permanent seat in the UN Security Council.


While India and Pakistan once again face an increase in terrorist threats, a recent study published by the World Bank points to the grim situation regarding regional integration in the subcontinent. According to this report, efforts to promote regional integration and cooperation in South Asia have suffered from regional political conflicts, primarily between India and Pakistan. The report was prepared in concurrence with the South Asian Association for Regional Cooperation (SAARC) Business Conclave in Mumbai and the Chamber of Commerce and Industry. While the report claims that South Asia has experienced remarkable growth since the 1980s, it also underscores the challenge of instituting second-generation reforms. According to the bank, past growth was helped by the implementation of first generation policy reforms aimed at global integration, improving macroeconomic stabilization, and strengthening the private sector. The primary challenges facing second generation reforms are: the high cost of doing business, weak institutions, weak knowledge economy, and poor infrastructure, and says that reforms in these areas are inter-related and hold prospects for large pay-offs. The bank also observed that while South Asia may be a relative newcomer to global integration, it is still lagging behind other regions such as East Asia in terms of openness. It is in this context that SAARC provides a regional forum for political and economic dialogue via the South Asian Free Trade Agreement (SAFTA.). For countries in the Asian subcontinent, the World Bank Report primarily focuses on the benefits of working within the SAARC framework. 

In a different story published in the Economic Times, there is talk about forming a world gas cartel and what that would mean for India. In 1960, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela joined together to form the Organization of Petroleum Exporting Countries (OPEC), which today accounts for 79% of the global crude oil reserves. Four decades later, there seems to be hope of building a gas cartel on the lines of OPEC. However, according to Soma Banerjee of the Economic Times, this move could divide the energy map of the world between producers and consumer countries. Russia and Qatar are the two largest gas producers in the world and even the suspicion of a move to form a cartel is certain to send alarm bells ringing for most of Europe, and in the larger economies of Asia. Russian President Vladimir Putin in his recent visit to Qatar and Saudi Arabia hinted at the possibility of forming a gas OPEC to collaborate with gas producing countries like Algeria, Qatar, or even Iran. The idea was to represent the interests of producer countries to influence the global market. For India, this means thinking differently about the issue. India has already struck long-term gas supply deals with Qatar and has developed its first LNG terminal at Dahej, Gujarat, fuelled by gas from Rasgas Qatar. Efforts are on to strike more such deals with Qatar, Australia and even Russia to provide the much needed energy security for the country. Talks were on between Russia and India to explore possibilities of shipping gas as LNG from the Sakhalin fields in Russia. A gas cartel, which would dictate global gas prices, may end up jacking global prices in line with the global crude oil market. For large gas producing nations like Russia and Qatar, a cartel would ensure stability of prices and upsides for their economies which are largely energy driven. But forming this cartel may not be an easy task. Banerjee claims that oil and gas are different in their properties. While crude oil is a global commodity, gas is still largely regional, which differs from region to region. According to energy experts, while 60% of the global crude is traded in global trade markets, almost 93% of global gas is still supplied through pipelines based on long-term gas contracts. Therefore, while global gas prices are dictated by demand-supply forces and volume of global trade, gas prices are ruled by contracts between consumers and producers. For these very reasons, India may have to think long and hard about the long term consequences of any global cartel.

The World's largest retailer Wal-Mart is optimistic about entering Indian markets by setting up a chain of Walmart stores in India over the next five years. However, the company is faced with numerous political hurdles before it can accomplish any of its goals. According to sources close to the US firm, the hundreds of retail outlets that Wal-Mart plans to open in India in partnership with Bharti over the next five years might not carry the Wal-Mart name at all. A Wal-Mart spokesperson in India said the front-end stores would be 100% owned and operated by Bharti, while the US firm would focus on back-end operations like logistics and other supply chain management. While Wal-Mart is betting big on its entry to the US$300 billion Indian retail market, it might have to remain satisfied with the back-end operations. Walmart is more concerned about expanding its presence into the country quickly despite the persisting opposition from various lobbies. Sources say that the chief problems related to branding could be sorted out later. 

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S&P increased India's debt rating based on national growth

The debt rating for India was raised recently to investment grade by Standard & Poor's for the first time in 14 years as the Indian economy continued to grow at a record pace, the International Herald Tribune reported on January 31st.
S&P increased the rating by one level to BBB- from BB+, Moody's Investors Service raised its rating to investment grade in January 2004, followed by Fitch Ratings in August 2006.
Investment grade ratings may spur a flow of cash from overseas into power, steel and other industries in India, which receive less than a tenth of the funds invested in China. Higher debt rankings will also reduce borrowing costs for companies in India, sustaining the average 8 per cent growth of the past four years, which is the fastest since the nation's independence in 1947.
"This kind of rating action will prompt more foreign direct and portfolio investments," said Shuchita Mehta, an economist at Standard Chartered Bank. "The central bank will have to be more proactive in managing liquidity in the economy to curb inflation."
Accelerating growth encourage foreign investors to buy a net US$8.31bn in Indian stocks in 2006 after buying a record US$10.7bn the year before, increasing money with banks and enabling them to increased lending to consumers and companies by more than 30 per cent each year in the past three years.
That pace of loans growth, the fastest since 1971 when the central bank started collating data on lending, pushed inflation to a two-year high of 6.12 per cent this month, and may prompt the central bank to raise its key borrowing rate for the fourth time in a year.
Investments in shares helped India's foreign-exchange reserves to rise to a record US$178.13bn in January, according to central bank data. India has the world's largest reserves of foreign exchange.
Higher sovereign ratings will also help local companies and banks to sell bonds overseas. Bank of Baroda plans to sell as much as US$1.5bn of medium-term notes to finance overseas expansion. ICICI Bank has sold US$2bn of dollar-denominated bonds, the most raised overseas by an Indian company, to meet demand for loans as the nation's middle class grows.
"The upgrade is well deserved. India's economy is growing very rapidly, it has a large pile of reserves and external debt is well under control," said Sanjeev Sanyal, senior economist at Deutsche Bank in Singapore. "However, the real surprise has been the recent fiscal correction made possible by a boom in tax revenues."
The finance minister, Palaniappan Chidambaram, expects the economy to grow 9 per cent in the year ending March 31st, the fastest pace on record and an expansion surpassed only by china among the world's biggest nations.
The rating upgrade will help India narrow the gap in manufacturing, which makes up 17 per cent of India's economy, half the level in China.
Ford Motor started work on its third factory in China in 2004 with an investment of US$1.5bn. IN comparison, the automaker in 2005 planned to invest US$75m in its lone Indian factory.

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Russia, India to build new nuclear power reactors

Russia has offered to build several nuclear power reactors for India in a draft agreement signed during the visit of Russian President, Vladimir Putin, in New Delhi on January 25th, New Europe reported.
After wide-ranging talks Putin and Indian Prime Minister, Manmohan Singh, also issued a joint statement promising cooperation on the peaceful uses of atomic energy. 
A memorandum of intent for the development and construction of four additional atomic reactors in the Kudankulam power project in the southern state of Tamil Nadu and at other new sites in India was signed in the presence of Putin and Singh. 
Singh said Russia had agreed to help construct four additional reactors at India's Kudankulam power project. Russia is already helping to construct two reactors at Kudankulam under a 1988 agreement. 
The new reactors can be built only after international restrictions on trading in fissile material with India are lifted by the Nuclear Suppliers Group and the International Atomic Energy Agency (IAEA). 
"India undertakes that the reactor facilities and nuclear fuel supplied by Russia shall remain under IAEA safeguards during the entire period of actual use in accordance with the agreement on safeguards, which shall be concluded between the Republic of India and the IAEA," the joint statement on nuclear energy cooperation said.

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India steals a march in the steel industry

There have been bigger takeovers than Tata Steel's £6.2bn acquisition of Corus, its Anglo-Dutch peer. But few have been so momentous - it is the first large foreign acquisition by an Indian company - while at the same time reliant on such a risky industrial strategy, the Financial Times reported on February 1st.
Tata Steel is a small, low-cost, rapidly expanding producer based in eastern India. Corus is large and mature: it owns almost the entire steel industries of Britain and the Netherlands. Marrying the two does little to lower the cost of iron ore, labour, energy, transport of capital, which are crucial to making money out of steel. Tata has no plans to shut Corus plants down.
Tata produces its own ore and argues that it can save on the Corus procurement budget. The two companies can also share research and development costs, which should produce modest synergies. It may be possible to ship cheap slab steel from Tata's plants in India for finishing at Corus' plants in Europe, but that is years off and will be constrained by high transport costs.
Tata does, however, have a strategy. First, it is betting that a consolidated European steel industry will have more stable pricing, justifying a high valuation for Corus. Second, Tata thinks globalisation will mean that customers such as car manufacturers want to buy steel in lots of different countries, which would give a company that can supply in Europe as well as in India a business advantage.
Nor is Europe the only place where Tata is investing. It has bought plants in Thailand and Singapore and plans to build plants in Iran and Bangladesh. It will soon join Arcelor Mittal as one of the few global steel producers.
The question is whether the underlying assumptions add up. In the past few years steel prices have been more stable. But the industry is still far from consolidated: Arcelor Mittal, the sector's giant, has only 10 per cent of the world market. Prices may have become less volatile for some products in some regions but globally, and especially in Asia, there is still too much capacity.
Even if steel does consolidate to the same extent as iron ore, where three companies dominate, it will remain an industrial commodity. Average prices might increase but, just like iron ore or oil, they will remain cyclical.
The second question is whether being global will pay off. Companies such as Toyota certainly buy steel in a lot of countries. But unless that steel is either cheaper or better because it comes from a single supplier, companies such as Tata will profit but little.
Tata's purchase is a welcome sign of growing confidence in corporate India. The globalisers - Tata and Arcelor Mittal - certainly believe they can convert global scope and local scale into higher steel prices; they will make a lot of money. But they are up against the paradox, it is never very profitable.

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