India GDP Data Better Than Expected for This Quarter

IndusView, Friday August 31 (London): New economic growth figures have been announced today in India showing the economy grew 5.5% in the quarter, driven by a rebound in construction and financial services, and slightly better than the 5.3% posted in the three-month period ending in March.

Other Asian economies, meanwhile, are posting lower growth rates this year. China, for instance, is projected to grow by slower 8.2% this year from 9.2% last year. Indonesia is expected to decelerate to 6.1% this year from 6.5% in 2011, while Malaysia is forecast to slow down to 4.2% from 5.1%. The forecast for South Korea is 3%, down from last year’s 3.6%.

“The GDP numbers were better than expected, which does alleviate some pressure from the Reserve Bank of India to cut interest rates at its next month’s meeting,” said Bundeep Singh Rangar, Chairman of London-based advisory firm IndusView. “Still, reviving growth is a top priority as global economic conditions remain weak and multinationals are wary of India due to policy flip flops in recent months.”

There is still a strong need for a stable policy, taxation and investment regime to attract foreign capital. The 2012-13 Budget introduced a controversial retrospective tax provision in the wake of Supreme Court judgment quashing the tax demand on Essar-Vodafone deal.

On January 2012, India's Department of Industrial Policy and Promotion, Ministry of Commerce and Industry (DIPP) revised its position on single brand retail trading. Multi-brand retailers are still prohibited from foreign direct investment into the market, even in partnership.

Amid uncertainty over global economy, Foreign Direct Investment (FDI) in India registered a growth of 34 per cent to $46.8 billion in 2011-12 against $34.8 billion in the previous fiscal. Inflation based on Wholesale Price Index (WPI) declined to 6.87% in July from 7.25% in June. It is still, however, above the RBI's 5%-6% target.

The central Reserve Bank of India has also warned the country's economic prospects are unlikely to improve in the near-term, due to high inflation, the lack of reform and the impact of poor monsoon rains on farm output.

Standard Chartered Countering Iran Transaction Allegations

IndusView Chairman Bundeep Singh Rangar comments from the London Olympic Park on Standard Chartered countering Iran transaction allegations, Iran's support of Syria's regime, Italian PM Monti under pressure as economy contracts, Baker Greggs Olympic sales boost, Team GB's best gold medal haul since 1908 and Yorkshire's Brownlee brothers winning in men's triathlon.

Iran's Support of Syria's Regime

IndusView Chairman Bundeep Singh Rangar comments again from the London Olympic Park on Standard Chartered countering Iran transaction allegations, Iran's support of Syria's regime, Italian PM Monti under pressure as economy contracts, Team GB's best gold medal haul since 1908 and Yorkshire's Brownlee brothers winning in men's triathlon.

As Offshoring Grows, Banks Grapple With Oversight

What started a decade ago as call centres staffed by young Indians faking Western accents to sell credit cards and field routine queries has grown into a core function for banks, handling work from risk and fraud management to finance and accounting.

The New York state banking regulator's accusation this week that London-based Standard Chartered (STAN.L) hid $250 billion (160 billion pounds) in transactions with Iran and did not give proper oversight to its back office operation in Chennai, India, underscores the perils of shipping sensitive work to far-flung locations.

"When you offshore, the biggest challenge is not at the offshore end but it's on the onshore end and the management of the offshore operations. And these companies are underinvested in that," said Bundeep Singh Rangar, chairman of London-based IndusView Advisors.

"If they don't put (in) enough oversight, governance procedures and practices, then you will have a problem with the satellite centre, whether that is located onshore or offshore," said Rangar, whose firm advises foreign companies, including technology firms, on doing business in India.

Drawn by an English-speaking population and wages that can be one-fifth those in the West, more than three-quarters of global banks have a direct or third-party offshore presence in India.

Bank of America Merrill Lynch (BAC.N), Barclays (BARC.L), Goldman Sachs (GS.N), HSBC (HSBA.L), JPMorgan (JPM.N) and RBS (RBS.L) are among financial giants employing thousands in India. These wholly owned offshore operations, running around the clock, are known as "captive" centres.

Financial firms such as Citigroup (C.N), Credit Suisse (CSGN.VX) and Aviva (AV.L) are among the biggest clients of Indian IT giants such as Infosys (INFY.NS), Tata Consultancy Services (TCS.NS) and Wipro (WIPR.NS).

The New York regulator rapped Standard Chartered for "outsourcing of the entire OFAC compliance process for the New York branch to Chennai, India, with no evidence of any oversight or communication between the Chennai and the New York offices." OFAC is the U.S. Office of Foreign Assets Control.

COMPLIANCE PROCESSES SCRUTINISED

Scope International, Standard Chartered's back office outsourcing centre, employs more than 8,500 people in India.

"Over the course of the years, these captive centres have matured to an extent that they are doing a lot of high-value works as well," said Arup Roy, principal analyst in Mumbai at technology research firm Gartner.

The Standard Chartered issue, he said, would "lead to much greater level of scrutiny, and the governance processes and the risk and compliance processes would be under the lens".

Standard Chartered said it has been in talks with U.S. authorities over its Iran transactions since early 2010 and said the public accusations by New York came as a shock.

On Wednesday, it won some help from Britain's central bank governor, who said the various regulators should coordinate action and publish findings only when investigations are complete.

While shipping of jobs by global banks to low-cost locations will continue, analysts said banks would have to invest more to strengthen internal processes and controls.

"What I have seen is that a lot of these discussions happen internally or in-house because security is obviously a dominant area of concern and by virtue of that a lot of them follow the book as they see," said Mayur Sahni, a Singapore-based senior market analyst for IDC Asia/Pacific. "But they don't revise the book when the newer version comes up," he said.

BRITISH BACKLASH

Most banks are reluctant to talk about their offshore operations in India. Standard Chartered, JPMorgan, HSBC and RBS declined to comment when contacted by Reuters, while Barclays, Bank of America Merrill Lynch, and Goldman Sachs did not immediately respond to emails.

Financial services firms can cut costs by one-third or more by shifting work to in-house operations in India.

The global market for back-office offshore services was $4 billion in 2010 and will grow to $9.4 billion by 2015, according to IDC. The financial sector accounts for the biggest share.

The New York regulator's accusations come close on the heels of a backlash in Britain after customers of RBS and its Natwest unit were left locked out of their accounts for a week due to an inexperienced IT operator in Hyderabad, media reports said.

A recent U.S. Senate probe criticising anti-money laundering controls at HSBC identified deficiencies in the work done by its "offshore reviewers" in India, according to media reports.

HSBC has one of the biggest captive operations in India, with about 20,000 people spread across seven locations.

In 2006, the security of Indian back office operations came under scrutiny after a British TV channel's investigation showed that criminal networks in India traded British consumers' account details and other commercial information for profit.

In the same year, a worker at HSBC's Bangalore centre was arrested after being caught by internal security for taking funds from British bank customers.

"When you offshore, you can't sort of offshore your problems. You have got to have a proper structure in place and you have to have more centralisation of processes," said IndusView's Rangar.

"And once you do that, it really shouldn't matter as to whether you are based in Houston or Edinburgh or Chennai."

Reserve Bank of India Keeps Interest Rates Steady

IndusView, Tuesday 31 July (London): The Reserve Bank of India (RBI) kept interest rates unchanged for the second time since June, in line with expectations, while cutting its growth forecast but increasing its inflation outlook as the nation’s economic conditions deteriorate.

The RBI left its policy repo rate at 8% and cash reserve ratio for banks at 4.75%. Wholesale price inflation remained above 7% in June and consumer price inflation was 10%.

"India’s central bank continues its balancing act of supporting growth while fighting inflation by keeping rates unchanged,” said Bundeep Singh Rangar, Chairman of London based advisory firm IndusView. “Increasing rates would have helped curb inflation but further slowed growth.”

India’s growth has been slowing, and hit a nine-year low of 5.3% in the March quarter, partly because of a global slowdown as well as weaker demand and investment activity at home. During April-May 2012 too, Foreign Direct Investments (FDI) in India declined by 59% year-on-year to $3.18 billion, reflecting the impact of slowing global economy.

Recently, Standard and Poor's and Fitch had lowered India's credit outlook to negative from stable citing reasons such as high inflation and inadequate reforms. “Attracting foreign investors, both institutional and individual, is critical to reversing the slowdown in growth and building a sound infrastructure,” said Bundeep Singh Rangar. “The consequence of having poor infrastructure was driven home yesterday when much of India was without electricity.”

After being hit by a massive power outage yesterday, the Confederation of India’s industry estimates the blackout to cost companies $107.5 million. The gap between demand and supply jumped to 10.2% in March from 7.7% the year earlier. Power cuts are common across swathes of India as the country battles an average 9% shortfall in meeting peak power demand that the government says shaves about 1.2% points off annual economic growth.

Prime Minister Manmohan Singh is seeking to secure $400 billion of investment in the power industry in the next five years as he targets an additional 76,000 megawatts in generation by 2017.

The stock market reacted to RBI's concerns over growth and inflation outlook. The 30-share BSE Sensex fell over 60 points or 0.6% after the policy announcement while Nifty also slipped into negative territory after staying relatively flat before the announcement. Bank stocks fell sharply. The BSE Bankex fell 1.1%. 

Impact of India Power Cuts on Country's Economy

IndusView Chairman Bundeep Singh Rangar comments on India Power Cuts and its impact on the country's economy on BBC World News.

Russia and China Vetoing the UN Resolution against Syria

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Muslim Brotherhood's Mursi as Egypt New President

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India Frustrations Send Some Foreign Firms Packing

Frustrated by a lack of opportunities in India, Germany's Fraport, the world's No. 2 airport operator, is shutting its development office in the country, the latest in a growing list of companies exiting Asia's third-largest economy.

Regulatory uncertainty and policy gridlock have battered foreign corporate sentiment towards India, adding to a dramatic slowdown in economic growth and exacerbating a widening current account deficit that has knocked the rupee to record lows.

"When we came to India in 2006, we were actually extremely bullish about the market. We felt India had a lot of potential at that time," Ansgar Sickert, who heads Fraport's India operations, told Reuters in a telephone interview on Friday.

Government plans then to privatise dozens of airports in smaller cities have not come to fruition.

"We were disappointed when none of these opportunities materialised," said Sickert.

Many foreign companies in other sectors have seen their India plans thwarted by sluggish or inconsistent policymaking under the embattled government of Prime Minister Manmohan Singh.

The list of companies to leave India includes telecoms carriers Etisalat of Abu Dhabi and Bahrain Telecommunications Co , whose licences were among those ordered cancelled by the Supreme Court amid a corruption probe.

Another firm, Norway's state-backed Telenor , which has invested roughly $2.5 billion in India and had its licences ordered cancelled, has threatened to pull out but is lobbying through diplomatic channels for favourable rules and to lower the price of airwaves to be auctioned.

"India definitely faces the threat of more foreign companies signalling an exit in the near future, as well as warding off new entrants unless it sends a very strong and immediate signal to boost foreign investor confidence, said Bundeep Singh Rangar, chairman of London-based IndusView Advisors.

According to a Nomura report last month, multinationals pulled $10.7 billion out of the country in 2011, up from $7.2 billion in 2010 and $3.1 billion in 2009.

To be sure, that's far less than inbound corporate investment, which surged 88 percent to a record $36.5 billion in the year that ended in March, according to official data, fuelled in part by two multi-billion-dollar energy deals.

TOUGH TIMES

India's economy grew just 5.3 percent in the March quarter, its worst in nine years and far below the 9 percent pace that drew a flood of investment before the global financial crisis.

Singh's government has been weakened by fractious coalition partners and a spate of scandals, undermining its reform agenda.

Ongoing battles over taxes on foreign companies, regulatory flip-flops and a lack of progress on key reforms have kept many foreign companies away and led others to scale back.

In a cautionary tale that has turned into a soap opera, UK mobile phone giant Vodafone , India's biggest foreign investor, is fighting a multi-billion-dollar tax demand and frequently spars with regulators over telecoms rules.

"Ever since then, India Inc's image abroad has taken a hit because it has basically made multinationals wary of India because of lack of predictability and certainty," said Rangar, referring to Vodafone's tax case.

Vodafone has vowed to stay in India, but other companies - including New York Life and U.S. mutual fund giant Fidelity Worldwide Investment recently sold their India units.

Augere, which owns 4G broadband airwaves in one of India's 22 telecoms zones, has stopped operational activities and is set to sell its airwaves due to regulatory uncertainties, the Economic Times reported last month.

More exits are expected in the crowded insurance industry, where a long-expected increase in foreign investor holdings has been stuck and where many joint ventures are losing money.

The mutual fund sector, where a regulatory change banning distribution fees as well as a sharp drop in markets have led to a drop in profits, is also seen to be poised for exits.

"Things are not happening at the required pace, so that has been the basic problem," said Soumya Kanti Ghosh, a director at the Federation of Indian Chambers of Commerce and Industry.

"We believe that if that is not taken care of, it will be very difficult to get the message to foreign investors that we, the government, are serious about carrying out the reforms agenda," he said.

Fraport, which owns 10 percent of the company that operates New Delhi Airport, is looking to sell that stake to a partner as its role as an operator will lapse in May 2013, meaning the company would not have a presence in India, one of the world's fastest-growing airline markets.

The government, scrambling to kick-start investment, this week announced a push in the infrastructure sector, including plans to develop three airports. Sickert said recent signs are encouraging, and Fraport still sees India as a potential market.

"To be honest, there is some scepticism at the moment, given the coalition constraints, that these projects will materialise within the timeframe the government has mentioned. We are still a little wary about that," he said.

http://in.reuters.com/article/2012/06/08/india-investment-exits-idINL4E8H87JN20120608

India to be $2-trillion economy by FY2013-end?

India may turn into a $2-trillion economy by the end of this financial year, provided the rupee remains below 50.79 against the dollar during this period. The government has projected India's gross domestic product (GDP) for 2012-13 at Rs 101 lakh crore, against Rs 88 lakh crore in 2011-12—a growth of 14.7 per cent.

In 2011-12, when the rupee stood at an average of 47.95 against the dollar, the size of the economy was $1.84 trillion at current prices (including indirect taxes). A growth of 14.7 per cent would mean the economy would expand to $2.11 trillion.

The catch, however, is the rupee stood at 47.95 against the dollar in 2011-12, while its average exchange rate against the dollar so far this financial year is 53.24. At this rate, by the end of 2012-13, India would be a $1.9-trillion economy. Any further depreciation in the rupee would further reduce the size of the economy in dollar terms.

On Thursday, the rupee fell to a record low of 56.52 against the dollar. It has depreciated 14 per cent from its high this year, exerting pressure on the trade and current accounts.

With limited foreign exchange reserves and reforms unlikely, analysts expect the rupee to depreciate further in the coming days, with a recovery unlikely anytime soon. "The high inflation, sluggish growth, poor flows and the strengthening dollar index would continue to drive the rupee to new lows. We expect the rupee to breach 57-levels soon,” said Abhishek Goenka, chief executive, India Forex Advisors.

In 2010-11, when the rupee stood at an average of 45.57 against the dollar, India’s GDP stood at $1.68 trillion, while it was $1.36 trillion in 2009-10, at an average exchange rate of Rs 47.42/dollar. GDP growth at constant prices (excluding indirect taxes) stood at 5.3 per cent in the quarter ended March 31, with growth in financial year 2011-12 at 6.5 per cent—the lowest in nine years.

"This persistent sluggishness in the economy puts the Reserve Bank of India in a conundrum. It has to cut interest rates to stimulate growth. However, it can’t cut much, as this would lead to more depreciation in the rupee,” said Bundeep Singh Rangar, chairman of London-based consulting firm IndusView.

Though the central bank had cut policy rates by 50 basis points in April, it had warned it saw limited scope for more any cuts, partly because inflation remained high.