Kareleo Business Centre

Posts Tagged ‘India’

Japan International Cooperation Agency (JICA) has agreed to Rs 7,361 crore as a soft loan to India for various infrastructure projects in India. The loan will cover six development projects in the areas of power, transportation, forestation and energy to support India’s efforts to improve its infrastructure.

The loan amount will also focus of projects that will help accelerate the spread of new and renewable energy and energy conservation projects using Japanese technology .

The projects include two power projects in Andhra Pradesh and Madhya Pradesh respectively, Bangalore metro rail project, a bio diversity project in Rajasthan, an energy saving project for small and medium industries and a renewable energy project.

The Japanese commitment comes at a time when the Indian government was skeptical of Japanese contribution on account of the recent devastation in the country due to earthquake and tsunami.

“I hope that this will send a positive message that our level of assistance towards India will remain stable even after earthquake and tsunami that have recently hit our country,” said Shunichi Yamanaka, chief representative of JICA in India.

JICA, as an aid donor agency of the Japanese government, provides concessionary loans (ODA loans), grant aid, and technical cooperation to countries. It has supported many projects in India, the most significant of which is the first two phases of the Delhi metro rail project. It has also agreed to support the phase 3 of the Delhi metro is expected to cost Rs 28,000 crore covering 6 corridors that are part of the plan as of now.

The Dow Jones index in New York is barely higher today than in 2000, but the Bombay sensex is up six-fold. Interest rates on Indian government bonds are 8% against 3% in the US and Germany. Clearly India is one of the best investment destinations in the world. Income tax rates today are modest and there is no tax on dividends and capital gains.

So, enormous sums of black money that once went abroad have returned in white form over the last two decades. These flows may have helped the Indian economy grow faster. They have certainly helped push up land and stock prices to dizzy heights, and election spending too.

India now gets $60 billion annually of remittances from NRIs, and up to $50 billion from portfolio inflows. A significant part of this must be black money returning as white. Some inflows come as NRI bank deposits in India.

Baba Ramdev’s financial naivete is only to be expected. But I am astonished that the media endlessly repeats the myth that enormous hoards of black money are lying in Swiss banks.

Only financial illiterates will leave their money in Swiss banks offering very low interest rates (sometimes under 1%). To maximize their gains and hide their cash trail, savvy crooks route their money through various tax havens, and then seek the assistance of financial managers to maximize gains.

Financial managers will suggest a variety of assets from shares and bonds to real estate, aiming for annual returns of 10-20%. When such high returns are available, only novices will leave their money in bank deposits with very low returns.

This is obvious from the details disclosed of Indian-owned accounts in the LGT Bank in Liechtenstein. Of the 26 Indian accounts unearthed, some were owned by NRIs, and only 18 looked taxable. These had received inflows of just Rs 39 crore over two years, some of which may have been legitimate earnings abroad. This suggests that even if the Swiss bank secrecy is broken, relatively modest sums may come to light.

The government is signing agreements with many countries to access more information on foreign bank accounts. The very signing will warn crooks to transfer their funds to chains of corporations in lightly taxed places ranging from Liechtenstein to Cayman Islands and Mauritius to Bermuda. Once laundered through a dozen corporations in a dozen tax havens, money becomes white.

Some businessmen may park large sums temporarily in Swiss banks pending better deployment. Some politicians may not yet be financial savvy and may be content keeping large sums in Swiss banks. These will be exceptional cases. The bulk of black money abroad is in financial assets across the globe.

Where exactly? Nobody knows. But one of the best places in which to invest money is India, not Switzerland or the US or any western destination. Housing prices in the US doubled after 2000 and that was called a bubble, but housing prices in India rose almost ten-fold. Declarations by politicians of their assets show a huge preference for real estate over all other assets.

India’s great economic rival China is one of the most preferred markets, the study suggested.

“Business confidence in India is low,” admitted Phani Sekhar, a fund manager with Mumbai-based Angel Broking .

“(The lack of reform) is taking the sheen out of India’s growth story,” added Sonam Udasi, head of research at brokerage IDBI Capital .

Experts say the government has dithered on pending reforms in infrastructure development, retail, banking and the fuel sector.

Meanwhile, inflation — up to 9.06 percent in May and well above the RBI’s “comfort level” of 5.0 to 6.0 percent — driving up the cost of funds and risking a delay in investment in key sectors.

The latest interest rate rise comes at a time when fewer cars are being sold, cement sales are slowing and steel imports have dipped.

Economic growth slowed to 7.8 percent in the three months to March — its weakest pace in five quarters — while growth in industrial output in April halved compared with the same period last year.

IDBI Capital’s Udasi said the government’s disinvestment plans are unclear and with fuel subsidy burdens rising, the fiscal deficit target of 4.6 percent looks “grim”.

“Investors are disappointed by the lack of tough decisions from the government, adding to the nervousness,” said Angel Broking’s Sekhar.

India has deregulated petrol prices but continues to offer widely-used diesel fuel, cooking gas and kerosene — known as “the poor man’s fuel” — at heavily-subsidised rates to the public.

The government has dithered on hiking diesel and cooking fuel prices, possibly fearing a backlash from opposition and the millions of India’s poor, who are already struggling to cope with high food prices.

That comes on top of a series of corruption scandals, including a multi-billion dollar telecom licence scam, that has put the government on the defensive and troubled foreign investors.

Business leaders in India have rounded on the government, urging a halt to interest rate rises, amid fears that inflation and lack of institutional reform could hit investment and cut economic growth.

The Reserve Bank of India hiked rates by a quarter of a percentage point this week — the 10th rise in 16 months and longest streak of monetary tightening in a decade — to battle inflation of more than nine percent.

“The latest rate hike may not achieve the desired results unless the government comes up with basic reform,” Rajiv Kumar, secretary-general of the Federation of Indian Chambers of Commerce and Industry, said on Friday.

The president of the Associated Chambers of Commerce and Industry of India, Dilip Modi, warned that “high input prices, rising finance costs and global uncertainties are adding to negative sentiments”.

“A high interest rate environment will most certainly put brakes on new investments,” he added.

India’s government predicts that the economy will grow at between 8.5 to 9.0 percent in the current financial year but economists are revising estimates downwards to between 7.2 to 7.5 percent.

The economy grew 8.5 percent last year.

The negative mood has already had an impact on India’s stock markets and foreign investment.

Shares on the Bombay Stock Exchange have been down for two straight weeks, as domestic concerns combine with wider fears about Greece’s debt crisis to make fund managers cautious.

Indian shares are down near 13 percent this year, making it the worst performing market in Asia. Bellwether firms Reliance Industries and Infosys — the most weighted stocks on the Sensex — are at near one-year lows.

On Friday, the Sensex closed at almost its lowest level this year.

By this time last year, foreign investors had bought $5.6 billion of Indian stocks but this year they have sold $139 million.

Global fund managers now consider India to be one of the least-favoured investment destinations, according to a recent Bank of America-Merrill Lynch survey.