Thread: Indian Economy

Indigo, India’s 13th airline, set to take off on August 4

NEW DELHI, JULY 31: India's 13th scheduled airline and the fourth low-cost carrier (LCC), Indigo Airlines, will start commercial operations from August 4. Indigo's inaugural flight will be on the Delhi-Guwahati route, the airlines president and CEO Bruce Ashby said on Monday.

Ever since the country's first low-cost carrier Air Deccan launched operations in August, 2003, LCCs have captured over 38% share of the fast-growing domestic aviation market. With new airlines like SpiceJet and GoAir also joining the race, share of LCCs is likely to touch 50% over the next two years, according to Centre for Asia Pacific Aviation estimates.

With the aviation industry expecting an addition of 15 million first time air travelers this year, Indigo Airlines expects to carry 4.75 lakh passengers in its first year of operation, initially covering 10-odd routes.

Only 19 jets fly in the country in the low-cost category. In the US, the largest low-cost airline, South West Airline, has a fleet of 453 jet aircraft followed by US Airways, which has 356 planes.

Indigo had committed buying 100 A320 family aircraft at the Paris Air Show in 2005 at a list price of $6 billion. The 100 aircraft will be received over a period of 10 years, with an average addition of one aircraft a month.

Low-cost airlines further boost market share

NEW DELHI, JULY 31: The low-cost carrier (LCC) phenomenon continues to rule the skies, as India’s full service carriers find it increasingly difficult to
hold-fast on their share of the domestic market.

While the battle between Indian Airlines and Air Deccan over the second largest domestic carrier’s slot intensifies, new low-cost entrants have cornered almost 15% additional market share between January and June 2006. Even in the international segment, the LCCs are increasingly gaining a
chunk of the pie.

The market share of full service carriers has come down from 76.4% in January to 60.3% in June. Indian Airlines’ market share fell from 25% to 21.8%. Air Deccan’s share has gone up from 13.3% in January to 20.3% in June, a marked rise of 7% within six months. Analysts feel Air Deccan’s share has grown because the company connects smaller towns with ATR aircraft where larger Airbus-A320s and Boeing-737s cannot land, thereby providing the airline some exclusive routes.

According to Centre for Asia Pacific Aviation (CAPA) Indian Subcontinent & Middle East CEO Kapil Kaul, the LCCs are going to corner 50% market share within the next two years. “As per CAPA projections, low cost carriers will dominate with 60-70% share of the market. Full service carriers would have to equally serve both international and national markets to remain relevant in a five year scenario,” he said.

Besides Air Deccan, another LCC SpiceJet, has increased its market share from 6% to 8% during the first six months of 2006. Kingfisher Airlines’ market share have shown a slight improvement at 8%.

In the international sector, the international low cost carriers — Air India Express, Jetstar Asia, Jazeera Airways — have increased their market share from an insignificant number to 5-7% of the market.

India's Rating Raised to Investment Grade By Fitch
Aug. 1 (Bloomberg) -- India had its debt rating raised one level to BBB- with a stable outlook by Fitch Ratings, which cited an improvement in the government's finances.

Fitch raised India's long-term foreign and local currency debt ratings to its lowest investment grade level, bringing it on par with Croatia, Romania and Namibia. It also raised the country's short-term foreign currency rating a level to F3.

``This upgrade reflects Fitch's view that fiscal consolidation is at last taking hold in India, reinforced by the impressive growth story and India's strong external balance sheet,'' Paul Rawkins, senior director at Fitch in London, said in a statement today. ``Public finances are still weak, but they are no longer an insuperable constraint on this rating.''

The rating upgrade may help lower borrowing costs for India's biggest companies and make Asia's fourth-biggest economy more attractive to overseas investors. Prime Minister Manmohan Singh's government is banking on faster growth to increase tax revenue and abide by a law that requires it to cut its budget deficit to 3 percent of gross domestic product by March 31, 2009, from 4.1 percent in the year ended March 31.

``Many funds that have restrictions on investment in non- investment grade countries such as India, may have a re-look and decide to buy local equities,'' said Janak Desai, country head of financial markets at ING Vysya Bank Ltd. in Mumbai. ``It may add pressure on other major agencies such as Moody's Investors Service and Standard & Poor's to revise their ratings.''

Moody's, S&P

Moody's in May raised India's local currency debt outlook to stable from negative while maintaining its Ba2 rating, two levels below investment grade, which was assigned in June 1998. Standard & Poor's in April raised India's local currency debt outlook to positive from stable. S&P has a BB+ rating, the highest non-investment grade, on India's local currency debt.

India's benchmark Sensitive Index rose 0.1 percent to 10751.66 on the Bombay Stock Exchange at the 3:30 p.m. close, after declining as much as 0.9 percent during the day.

The yield on the 7.59 percent note due in April 2016 rose 6 basis points, or 0.06 percentage point, to 8.30 percent as of 5:30 p.m. close in Mumbai, according to data compiled by Bloomberg. The rupee fell 0.1 percent to 46.5925 against the dollar at the 5 p.m. close of trading in Mumbai, according to foreign-exchange broker Kanji Pitamber & Co.

``The currency and bonds will be substantially benefited only after more global agencies upgrade India's ratings,'' said A. Prasanna, a fixed-income strategist at ICICI Securities Ltd.

Budget Deficit

India's budget deficit in the three months ended June 30 reached 52.3 percent of the government's 1.48 trillion rupee ($31.7 billion) target for the year, the Controller General of Accounts said yesterday. It was 36.1 percent of the year's target in the same period of 2005.

India's Finance Minister Palaniappan Chidambaram said today though the government has accelerated spending, it is working to cut the budget deficit to the targeted 3.8 percent of gross domestic product in the year ending March 31.

``Recent monthly fiscal data are increasing the uncertainty over achieving the full-year fiscal deficit target,'' said Rajeev Malik, senior economist at JPMorgan Chase & Co. in Singapore. ``Fitch appears to have jumped the gun as there are increasing pressures that might impact the outcome for fiscal deficit, and the sanctity of the targets of the fiscal responsibility law.''

The government expects India's economy to grow as much as 8 percent in the year ending March 31 following an average 8.1 percent gain in the past three years. Prime Minister Singh is aiming for 10 percent growth in the next two to three years.

Rapid Growth

Faster growth helped India contain its budget deficit to 4.1 percent of GDP in the year ended March 31, compared with its 4.3 percent target.

``Rapid growth is not only raising personal incomes but also feeding the government's tax revenue,'' said Sanjeev Sanyal, senior economist at Deutsche Bank AG in Singapore. ``However, reforms need to be accelerated in order to keep this cycle going otherwise it will eventually lose momentum.''

India in July 2004 enacted a law that aims to cut the budget deficit each year by the equivalent of 0.3 percent of GDP, and to eliminate its revenue deficit by 2009, borrowing only to fund investments thereafter.

Fitch today said that for the first time since it started rating India in March 2000, ``there appears to be near universal commitment among the centre and the states to fiscal consolidation'' and that has ``reduced the risk that India's weak public finances could impair its strong external financial position''.

India's foreign-exchange reserves rose by $689 million to $163.35 billion in the week ended July 21, central bank said July 28.

``India has long demonstrated an ability to sustain much higher debt levels than many of its peers,'' Fitch said in its statement. ``Fiscal consolidation will remain the main focus of this rating, particularly in the context of such strong growth.''

Indian IT majors outsmart global peers: report

New Delhi, Aug 4. (PTI) : It's advantage for Indian companies like Infosys, Wipro and TCS on the country's IT services arena over their global peers including the giants like IBM and Accenture on the revenue and profit growth parameters, a recent study shows.

According to a report from global research firm Forrester analysing the performance of global IT vendors and their Indian counterparts, the tier one Indian providers have continued to thrive while major global players are continuing to lose ground.

Forrester Research Vice President Stephanie Moore said that many global service providers are continuing to lose ground to large Indian firms, especially in the application services market.

While most legacy service providers worldwide have posted minimal to negative growth in the recent past, companies like Infosys, TCS and Wipro have all reported outstanding revenue and profit growth for their latest quarters, she added.

Forrester said Indian providers are clearly outsmarting global majors in terms of growth and profits, while global majors are struggling to compete in the more efficient and transparent world of IT service provisioning created by the Indian vendors.

Forrester Research's India Head and senior analyst Sudin Apte said, "To move up the value chain, top Indian vendors are working successfully towards penetrating the global market for high-end services."

While Indian firms are challenged by a linear revenue growth linked with the labour growth, they are trying their best to break direct connection between the two, Apte added.

Moore said their revenue and profit growth figures are shaming most of the global majors, which are still struggling to compete in the more efficient and transparent world of IT service provisions created by the Indian vendors.

Indian companies are likely to maintain their lead going forward as well, as they are investing for moving up the chain, while global majors continue to be "Distracted by their legacy delivery engines and stall on their ability to provide a true global, seamless and efficient experience."

TCS recently reported a revenue growth of 42 per cent and net income growth of 33 per cent for the June quarter, while Infosys reported a revenue growth of 39 per cent and profit growth of 43 per cent, which were ahead of the market expectations.

Wipro's revenue rose 37 per cent, while earnings were up by 44 per cent in the same quarter.

In contrast, the global majors has reported relatively disappointing results. IBM's services revenue in the June quarter was down by 1 per cent, although its profitability across all business lines rose by 9 per cent.

Accenture has reported a revenue growth of 11 per cent and net income growth of 7.8 per cent for its last quarter.

Moore said Indian vendors are changing the way services are delivered and the way clients interact with their service providers. While global legacy providers have been talking about transformational outsourcing for years, the Indians have been quietly transforming the systems they support as part of their standard offering, she added.

A more efficient support system leads to better margin for the vendor and better services for the customers, Moore said.

While, many global majors are building out their capability in India and other low-cost countries, this has not solved the problem, Forrester said.

Moore said many global majors do not understand that Indian providers offer more than low-cost labour. In addition, Indians are pricing their services more competitively and transparently, while global majors are yet to properly execute the global delivery model.

EEPC targets $23-b exports this fiscal

Kolkata , Aug 3

The Engineering Export Promotion Council (EEPC) aims to scale a higher engineering exports target for 2006-07 at $23 billion compared to $19.18 billion achieved in 2005-06, warranting a 20 per cent growth.

This is said to be in line with the revised $125-billion target set for overall merchandise exports from India this fiscal. The target would be subjected to a mid-term review.

The Council has also urged the Government to come out with a single scheme, merging the existing duty exemption schemes, which will provide refunds to exporters for customs duty, excise, State-level taxes and other levies which contribute to the disability factor for Indian exports.

Talking to newspersons here on Wednesday on the takeaways of a recent meeting with the Union Commerce Minister, Mr Kamal Nath, Mr Rakesh Shah, National Chairman of EEPC, said during the first quarter (April-June) of the current fiscal, $5.5-billion worth of engineering items (including services) were exported from India, recording a 20 per cent increase over last year (for the same quarter).

Mr Shah said if the DGCI&S (Directorate General of Commercial Intelligence and Statistics) agrees to bring the miscellaneous 292 items under the engineering items category, the annual target would climb by another billion, taking it to $24 billion. These items yield an export of around $700 million. Engineering exports account for some 18-19 per cent of the total exports from the country.

Pointing out that engineering exports, in dollar terms, hit a record growth of nearly 25 per cent, he said exports this fiscal may go beyond $20.3 billion, after excluding services exports and export of the 292 engineering items still not considered as principal commodities by DGCI&S.

Exports of engineering services from India in 2005-06 are estimated at around Rs 1,280 crore ($289 million), indicating a growth of around 16 per cent over 2004-05.

`Numero uno' slot

Mr Shah said the achievement of $19.18-billion exports in last fiscal has catapulted EEPC to the `numero uno' slot, ahead of the gem & jewellery export promotion council, which clocked exports of $15.54 billion.