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Update

All clear for real estate mutual fundsTHE Securities and Exchange Board of India (SEBI), the coun-try’s capital market regulator, has approved guidelines for realestate mutual funds (REMFs), clearing the way for ordinaryinvestors to share in the booming returns from the real estatesector.

REMFs would initially be close-ended funds, their units willhave to be compulsorily listed on the stock exchanges, and thefunds will have to declare their net asset values (NAVs) on adaily basis. India has already opened up the real estate sectorto foreign direct investment, and dozens of international majors– from the US, Singapore and West Asia – have taken upmulti-billion dollar projects in cities like Bangalore, Hyderabad,Chennai, Delhi and Pune in recent months.

SEBI’s move to allow REMFs is expected to ensure adequate

liquidity for the industry, which in the past had been starved offunds. The Indian real estate sector has seen phenomenalgrowth in recent months, with prices in select localities inmany cities doubling over the past one year.

REMFs can invest directly in properties within India, mort-gaged backed securities, equity shares, bonds and debenturesof listed and unlisted real estate companies, and also undertakeproperty development.

INDIA’S urban transportation infrastructure sector received aboost recently after Prime Minister Manmohan Singh laid thefoundation for the first phase of an ambitious $4.35 billionMumbai Metro project in the country’s financial and commer-cial capital.

The project will help ease traffic flow – especially in theeast-west direction – within the metropolis. The first phase,covering 11 km, is expected to be functional by 2009. Boththe federal government, and the Maharashtra state governmentaim to make Mumbai a world-class financial hub. The latter isinvesting billions of rupees in major infrastructure projects inthe city.

Singh’s United Progressive Alliance (UPA) government haslaunched an ambitious programme to revive cities in the coun-try. The Jawaharlal Nehru National Urban Renewal Mission

plans to invest almost $11 billion over the next five years inmajor Indian cities.

State governments have already started making proposalsto the federal government, seeking funding for the projects.But Singh’s government insists that the regional governmentsinitiate a series of reforms, including scrapping restrictive landlaws and rent control legislation.

The success of the Delhi Metro has also seen several stategovernments float similar proposals. The centre has okayed theMumbai and Bangalore Metro projects, while Hyderabad andother cities are also planning similar initiatives. Most of themass rapid transit systems will be taken up as public-privatepartnerships, a new concept in urban development in India,where private sector majors (in partnership with internationalfirms) promote the projects. Government agencies are minoritystakeholders in these projects, contributing the land component.

Metros to kick-start urban revival

THE Confederation of Indian Industry (CII), the country’spremier industry-led organisation, has forecast that eco-nomic growth will be at 8 per cent for the current fiscal,slightly lower than last year’s 8.4 per cent growth. Themanufacturing sector has shown considerable increase inits rate of 8.9 per cent in the fourth quarter of 2005-06,compared to 8.1 per cent in the previous year.

The CII, in its State of Indian Economy (SOE) report,attributed hardening of interest rates, rising fuel prices andinflation to the lower expectation of GDP growth. Butdespite the odds, the economy should be able to managean 8 per cent growth, and agriculture may repeat lastyear’s performance on the back of the forecast of normalmonsoons for the current year.

The CII, however, noted that there was a need to put acheck on the growth of India’s trade deficit, which rose to$39.6 billion in 2005-06, from the previous year’s $25.9billion. One possible way was to allow some depreciation ofthe Indian rupee, which is currently overvalued to theextent of 7 per cent, said the apex industry body.

India’s GDP to grow at 8 per cent

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INDIA’S seafood exports have for the first time crossed the$1.5 billion mark, according to the Marine Products ExportsDevelopment Authority (MPEDA). For financial year 2005-06,seafood exports grew by 11 per cent to $1.64 billion, thanksto growing demand from Europe, China and West Asia.

The European Union accounted for the bulk of the demand,with a nearly 30 per cent share of exports. It was followed bythe US (23 per cent), Japan (16 per cent) and China (12 percent). The most popular export items from India were frozenshrimps (59 per cent)and frozen fish (14 percent).

Exports to Europesoared after nearly 160processing unitsupgraded their qualitysystems to meet thestringent demands ofthe importing nations,according to theMPEDA.

The authority isnow planning toexpand aquaculture in states like Maharashtra, Gujarat andOrissa, where it aims to raise the production of freshwaterprawns and shrimps on an additional spread of 10,000hectares. The bulk of existing production of shrimps andfreshwater prawns is from states like Andhra Pradesh, Tamil Nadu and West Bengal.

MPEDA has also collaborated with the Bangkok-basedNetwork Aquaculture Centre for the Asia-Pacific region, toimprove shrimp health management and raise aquaculture production.

Financial sector reforms could boost GDP:McKinsey report

INDIA is aggressively moving ahead toidentify products that are region specificand could be registered with theGeographical Indications (GI) Registry, toprotect commodities that are unique to thecountry.

Internationally, India and Pakistan are indialogue for jointly filing the GI applicationbefore American and European agencies forBasmati rice. Several state-controlled agen-cies, including the Agriculture & Processed Food ProductsExport Development Authority (APEDA), the Coffee Board,and the Spices Board are identifying products that can be reg-istered.

India has already registered Darjeeling and Kangra Tea as

unique to these two regions inthe country, while efforts are onto register Nilgiris and Assam teaas well. It also plans to registerMonsooned Malabar coffee –grown in the Malabar regionfrom Kozhikode to Mangalore –Malabar and Tellicherry pepper,and Alleppey Green Cardamomand Coorg Cardamom.

GI registration helps createbrand equity, enhances the country’s exports, and is also asignificant weapon in battling spurious products international-ly. India has successfully contested over 250 cases at variousinternational forums, seeking protection of the Basmati rice tag.

Protecting unique commodities

India’s seafood exports cross $1.5 billion mark

FINANCIAL sector reforms in India could free up to $48 billionof capital – equivalent to 7 per cent of gross domestic product(GDP) – says a research study by the McKinsey GlobalInstitute, the economic think tank of the leading internationalconsultancy.

According to the study, ‘Accelerating India’s GrowthThrough Financial System Reform,’ the government needs toreduce its role in the nation’s financial system. If much-neededreforms are implemented, GDP will be boosted to 9.4 per centa year.

The private sector in India gets just 43 per cent of totalcredit, with the rest going to state-owned enterprises, agricul-ture and the unorganised sector. Thus, the bulk of the fundinggoes to the least productive parts of the economy, says theMcKinsey study.

Reforms to lessen the government’s influence in the finan-cial sector would result in more efficient use of savings andfaster growth, leading to increased tax revenues. The govern-ment would then be able to spend directly on welfare pro-grammes, instead of diverting resources from the financial sys-tem, the report avers.

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Honda to invest $650 million in India Honda Motor Co plans to invest about $650 mil-lion in India over 10 years, besides doubling itsautomobile production capacity by the end ofnext year. Honda expects a nearly 50 per centjump in sales this year, to 62,000 units. By nextyear, it hopes to increase production capacity to100,000 units, and by 2010 to 150,000 units.

Besides cars, Honda sold 3.6 million two-wheel-ers last year in India. According to Takeo Fukui,CEO of the Japanese firm, India will be a farmore important market than China.

Hyundai to up stakes in India South Korean auto company Hyundai wants tobecome the largest selling carmaker in India. Toachieve this end, it is looking at introducing twonew models every year and will make the coun-try a global hub for small cars.

Hyundai has already earmarked an $860 millioninvestment by next year for putting up a secondmanufacturing plant that will take up totalinstalled capacity to 600,000 units per year. Thecompany is also considering an entry into thetruck segment.

Bajaj to set up manufacturing facilityin Brazil Bajaj Auto, the country’s leading two-wheelermaker, plans to set up its second overseas manufacturing facility in Brazil. It already has amanufacturing unit in Indonesia.

The company exported about 70,000 two- andthree-wheelers last year to South Americancountries including Guatemala, Peru andColombia.

BG Energy plans gas grid UK-based energy major BG Energy plans toinvest between $270 million and $420 million inan extensive natural gas transmission and distri-bution network in India. The company hasinvested $800 million through two gas joint ventures, a wholly-owned subsidiary, and anexploration venture in the country.

India allows 100 per cent foreign direct invest-ment in the oil and natural gas sector. BG Energyhas a nearly 50 per cent stake in Mahanagar Gas(with the Maharashtra government as its partner)for distribution of gas in Mumbai. It also has astake in Gujarat Gas Company.

Coal gas methane blocks on offerINDIA, which recentlyoffered four blocks forcoal gas methane explo-ration, hopes to produceabout 20 million cubicmetres of the gas – equiv-alent to about 3.5 milliontonnes of crude oil – bynext year.

Leading internationaland domestic energymajors – including BP Plc,ONGC, Reliance Industriesand Reliance Energy –were among the 25-oddcompanies that submitted 54 bids for the blocks in 10 areas, mainly in centraland eastern India, but also in the south and west. The government has estimat-ed gas reserves in these blocks at 635 billion cubic metres.

The gas is to be found in the coalmines – in states including West Bengal,Chattisgarh, Madhya Pradesh, Rajasthan and Andhra Pradesh – and will helpIndia reduce its dependence on imported oil.

India is the world’s third largest producer of coal, but may have to importabout 75 million tonnes of coal in another five years, to meet the soaringdemand. According to the Planning Commission, demand for coal is estimatedto nearly double to 700 million tonnes by 2011.

The power sector, which is expected to increase capacity from 130,000MW at present to 200,000 MW by 2011-12, will need over 500 million tonnesof coal annually. India has proven coal reserves of around 90 billion tonnes,and total reserves are estimated at over 240 billion tonnes.

UPDATE

Briefs Surge in steel importsINDIA’S steel imports have risen sharply, from 1.5 million tonnes about threeyears ago, to 3.75 million tonnes at present. Growing demand for the metal anddelays in commissioning projects have resulted in rising imports.

Steel consumption in India has risen by about 10 per cent on a compoundedbasis since 2002-03, while production has grown by just around 6.5 per cent.India produces about 40 million tonnes of steel annually, and this is expected togrow to 110 million tonnes in about five years.

All the major steel producers have expansion plans in India. Tata Steel, a$4.8 billion giant, plans to expand its capacity to 30 million tonnes in about 10years, by investing a whopping $15.2 billion. It plans three greenfield projectsto add 23 million tonnes to its capacity.

India-born steel tycoon L.N. Mittal also has ambitious plans for the country.Last year, he signed an agreement with the Jharkhand government for a 12 mil-lion tonne steel plant at a cost of $8.7 billion. He is also eager for another plantin the neighbouring state of Orissa.

South Korean giant Posco has announced the single biggest foreign invest-ment in the country, with its plans for an $11.3 billion, 12 million-tonne steelplant in Orissa. Other steel majors, including Essar Steel and Jindal Steel havealso drawn up plans to set up plants in the eastern Indian state.

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Sequoia Capital India to raise $400 million SEQUOIA Capital India plans to raise $400 mil-lion from global investors for investments inIndian companies. Globally, Sequoia Capital has$2 billion of assets under management. Theventure capital firm has invested in companieslike Cisco, Google, Oracle and Yahoo.

The company recently merged with WestBridgeCapital Partners. Following the injection of freshcapital, the fund plans to invest larger amounts— ranging from $10 million to $50 million — inabout 20 projects over the next three years.

UTV bags $14 million animationdeals with Hollywood firms MUMBAI-based UTV has signed two co-produc-tion deals worth $14 million with PorchlightAnimation and Mike Young Productions, twoHollywood-based animation production houses.

The contract relates to the making of an animat-ed feature film and a 3D animation televisionseries. Though both these projects are meant foran international audience, UTV is also aggres-sively looking at opportunities to make anima-tion films targeted at an Indian audience.

Tata Coffee acquires Eight O'Clock Coffee TATA Coffee has acquired the 150-year-old,US-based Eight O'Clock Coffee for $220 millionfrom private equity firm Gryphon Investors. Asubsidiary of Tata Tea Ltd (which also owns theUK-based Tetley brand), the Indian firm hopes toexpand its presence in the US following theacquisition.

Tata Coffee has a turnover of $41 million, whileEight O'Clock Coffee had revenues of $109 mil-lion.

Indian fashion designer opens store in Dubai CELEBRITY Indian fashion designer ManishMalhotra has opened his flagship store in Dubai.The eponymous Manish Malhotra store will offeravant-garde garments and accessories for theArab market.

The designer has tied up with the Saif Belhasagroup, who will operate franchise stores all overthe Gulf region.

Briefs

UPDATE

West Bengal attracts a slew of investmentsTHE eastern Indian state of West Bengal has started getting a lot of attractiveinvestment proposals, both from major Indian corporates and internationalgiants. The latest to announce a big-ticket investment is ITC Ltd.ITC, with diverse interests spanning cigarettes, hotels and food, plans to investabout $220 million in West Bengal. This will be used to set up an IT project, alogistic hub, a biscuit factory, an agri-business unit and a cigarette factory. Other industrial groups, including the Tatas, Reliance Industries, the Jindals,and Videocon, have also announced major investments in the state. Among theforeign investors is the Salim group of Indonesia. Public sector giant Indian OilCorporation (IOC) is also planning to inject $650 million into the state.Reliance Industries aims to invest about $870 million in the state, the Jindalsare planning a $2.2 billion investment, and the Videocon group aims to invest$195 million. The Tatas plan to pump in $270 million, including a major projectto manufacture a low-cost car, which will be priced at a little over $2,000.Tata Motors will be putting up its factory on a 1,000-acre plot at Singur, onthe outskirts of Kolkata, the state capital. Japanese trading major Mitsui & Co is also looking at West Bengal seriously,with plans for a large warehouse on 200 acres in the proposed free trade ware-housing zone in Haldia. IOC has announced a $650 million expansion at the Haldia refinery. Accordingto federal petroleum minister Murli Deora, the expansion project will includesetting up of paraxylene and propylene recovery plants. IOC is also consideringparticipating in the proposed chemical hub at Haldia.

AFTER the success of outsourc-ing manufacturing and service-related activities to countrieslike India and China, westernfirms are looking at agricultureand horticulture outsourcing.The Netherlands government isreported to have identifiedDutch and Indian partners, whowill take up a unique outsourc-ing project, by growing flowersand tubers in India, and market-ing them in Europe.According to the Agricultural and Processed Food Exports DevelopmentAuthority (APEDA), the federal commerce ministry has given its clearance forNetherlands-based entrepreneurs to partner counterparts in India for the project.As in the case of outsourcing of IT services and manufacturing, one of the rea-sons is the cost advantage. It costs a little over 20 cents to grow a tuber plantin India, as against 65 cents in the Netherlands. The two Indian companies thathave been selected by the Dutch government will grow tulips in the northernhill state of Uttaranchal.A buyback arrangement, involving both the Netherlands government andAPEDA, will ensure a guaranteed market for the flowers grown in India. Flowers are grown on thousands of hectares of land in states like Karnataka,Tamil Nadu, Andhra Pradesh, West Bengal, Maharashtra, Rajasthan, Delhi andHaryana.

And now horticulture outsourcing

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