India Highlights Nov 24 2014

ECONOMICS

Plea for Masses to Boost Savings * The Indian government has renewed its call asking citizens to increase their domestic savings, with a speech from Finance Minister Shri Arun Jaitley that urges people to avoid Ponzi schemes and to allow their savings to be use for major development projects. Jaitley’s speech outlined how India’s domestic savings rate has dropped from its peak of nearly 37% to below 30%. He especially touted the government-run Kisan Kivas Patras savings vehicle, which the government hopes to double within 100 months, using post offices and eventually banks as branches for these accounts. See source coverage: Ministry of Finance

India Needs Women in Economy: OECD * India could speed up growth of its gross domestic product by around 2% a year if it were to improve economic opportunities for women to participate more in productive enterprises, according to a report from the Paris-based Organization for Economic Cooperation and Development. India lags many of its emerging markets peers, with only a third of working-age women holding a job or seeking employment in 2010. That trails China’s rate of 75%, Brazil’s 65%, Indonesia’s 55%, and the 45% in South Africa, as well as the 80% rate for Indian men. The OECD also found that the trends are not good for India, with its female labor participation rate actually dropping over the last decade, and a large portion of the jobs women hold being in low productivity fields, including a third of the positions being unpaid helpers. And most working women are from the lower classes and are less educated, further skewing the types of employment women hold overall to less productive fields. The OECD notes that India has had success in improving women’s health and education prospects in recent years. See source coverage: Wall Street Journal

India Must Foster Infrastructure Development: Central Bank * India is “undermined by a lack of world class infrastructure” despite being the third-largest economy in the world on a purchasing power parity basis, said Reserve Bank of India Deputy Governor Shri Mundra. Despite infrastructure’s importance to economic growth in a developing economy, India’s average investment of 4.7% of GDP in the sector from 1992 to 2010, according to World Economic Forum data, which ranked it 90th out of 144 countries, trailing the average of 7.3% in China, Indonesia, and Vietnam, he said. Greater infrastructure development would add to other monetary and fiscal initiatives India has underway as it battles its high current account deficit, capital outflows, and exchange rate volatility, Mundra said. As it stands, the lack of adequate infrastructure is a drag of 1% to 2% annually on the Indian economy, especially because of the strain on existing resources such as electric power generation, roads, ports, railways, airports, and water systems. Private sector commercial banks should continue to have a big role in financing infrastructure, but there must also be a role for the central banking in steering monetary policy toward helping the sector, he said. See source coverage: Reserve Bank of India

MARKETS

Sensex Stock Surge Continues * India’s stock markets again hit new highs and have kept up their five-week stretch of growth. The Sensex index tracking the Bombay Stock Exchange gained 1% to close at 28,334.63, and has gained 34% this year. Among the gainers was Kotak Mahindra Bank, which hit its highest price ever after announcing it would buy ING Vysya Bank in a $2.4 billion transaction, as well as rises for State Bank of India, Axis Bank, Cipla, Hindalco Industries, and Tata Motors. Much of the activity could be in anticipation of further economic reform efforts from the government of Prime Minister Narendra Modi, which took office this year and is planning legislative efforts to relax limits on foreign investment in insurance, make land acquisition more accessible, and enact a new goods and services tax, joining other initiatives already started, such as the easing of subsidies on diesel gas and natural gas. See source coverage: Bloomberg

Markets Not Overvalued: TATA Fund * India’s hot stock markets are not overvalued because they are rising after a period of consolidation that limited growth in recent years, says Rupesh Patel, fund manager for TATA Mutual Fund. Though values are at 16 to 17 times one-year forward earnings, slightly above long-term averages, these levels are understandable in the context of a stronger recovery of the Indian economy, which could drive further earnings growth, he said. That leaves valuations “in line with long-term averages” at a time when more economic expansion is likely. TATA is favoring sectors that do well in growth periods, including consumer and discretionary, such as auto, banking, and financial services. See source coverage: Economic Times

CURRENCY

Ten Year Bonds Improve, Rupee Drops * The rupee slid last week by 0.1% to 61.77 per dollar last week, even as expectations of interest rate cuts in India’s near future helped 10-year government bonds rise last week. The slowing of inflation in the economy, with the consumer rate dropping to 5.5% in October, are prepping the table for rate cuts by the Reserve Bank of India, and market watchers such as Goldman Sachs Group and Credit Suisse Group have adjusted their forecasts to call for lower rates. See source coverage: Bloomberg

Stable Rupee Needed for Investment: Private Equity CEO * India can attract larger investments in its companies and markets if it can stabilize the rupee and lower the risk of inflation, according to Tom Heneghan, CEO of Equity International, a private equity firm. He says investors globally are still “gun-shy” about investing in India, in part because of the last cycle of growth a decade ago when vast sums of capital flowed in despite the lack of economic liberalization. Indians may have to lift restrictions on foreign investments. It has stepped in the right direction with recently proposed rules for introducing REIT investments for the real estate market, Heneghan adds. See source coverage: Economic Times

NEWS

Modi Aims Strategically in World Travels * The worldwide tour of Prime Minister Narendra Modi has featured numerous efforts to establish a new Indian geopolitical outlook, including a recent stop in Fiji aimed at counterbalancing a surge in Chinese investment in the island nation, as well as visits to Australia for the G-20 summit in Australia and to Myanmar. China has stepped up its economic activity across the South Pacific region in the last 10 years, targeting countries that have ample fishing reserves and potential deposits of deep-sea minerals, including Fiji, where Chinese companies have taken equity in gold and bauxite mining concerns. Fiji has a natural kinship with India, however, with more than a third of its 849,000 people being of Indian descent. Modi unveiled defense and security cooperation measures with Fiji, as well as a $70 million line of credit for a power plant project. Modi became the first Indian prime minister to visit Australia in nearly three decades, and echoing his trip to the United States, hosted an event for 15,000 Australians of Indian descent at a large concert venue in Sydney. Australia and India signed several cooperation pacts, including agreements related to security and tourism. See source coverage: Wall Street Journal; Wall Street Journal blog

India to Beef up Heavy Weapons * India is set to buy its first large stash of heavy weapons since the 1980s, approving a $2.5 billion deal to acquire artillery, and adding to $19 billion of weapons buys since the new government took office in May. The recent authorization to purchase the large-caliber guns is part of a push by Prime Minister Narendra Modi to reinvest in the military. The artillery acquisition could involve a domestic manufacturing component, as part of Modi’s “Make in India” initiative to boost production in the country. A next goal may be signing a contract for 126 Rafale fighter jets later this year. See source coverage: Bloomberg

Goals on Solar, Coal Development * Renewable energy producers must become self-sufficient and not rely on government subsidies even as India aims to boost production in the sector. Coal and Power Minister Piyush Goyal said India is aiming to add 100 gigawatts of solar capacity by 2022 – five times more than current targets and up from today’s 3 gigawatts. India is aiming for $100 billion in clean energy investment, but companies and lending institutions says that could force a move away from the current auction-based system. Meanwhile, India is also aiming to clarify its moves to end the government’s monopoly on mining and sale of coal with an auction of 74 coal blocks in March, said Coal Secretary Anil Swarup. India had already announced measures to invite private companies into the commercial mining business alongside Coal India in a bid to reduce the country’s chronic blackouts, and the government also is planning to sell a 10% stake in the state-owned company. A push into more coal could have environmental drawbacks, however, because much of the industry in India uses strip-mining techniques that can devastate landscapes and severely pollute air and water supplies. India has resisted global efforts to reduce carbon emissions afoot in the United States, China, and Europe. India is already the world’s third-largest greenhouse gas emitter. Goyal says the rest of the world has to recognize India’s need to improve the lot of its poor through economic development and stable infrastructure. Still, India’s cities have a severe pollution problem from many sources, including traffic and large populations, and mining will only further the stresses, say critics of the government’s plans. See source coverage: Bloomberg; New York Times; Bloomberg