Thread: Indian Economy

'India set to enter lower-mid income ranks'
Siddharth Zarabi / New Delhi February 8, 2007

With the economy growing at over 9 per cent for two years in a row, India is certain to break into the league of middle-income countries soon.

The finance ministry’s chief economic advisor Ashok Lahiri said at present economic growth rates, India would break into the list of lower middle-income countries in the next 3-4 years.

However, according to World Bank estimates, it might happen next year, three years ahead of the earlier projection of 2011.

“India will probably move into the lower middle-income country classification of per capita income by 2008,” Dipak Dasgupta, lead economist for World Bank in India, said.

According to the advance estimates of national income for 2006-07, India’s per capita income at market prices stands at Rs 27,614 or $626.

The World Bank classifies its 184-member economies according to their 2005 gross per capita national income into four groups: Low income countries with per capita income of $875 or less, lower middle-income countries with per capita income between $876 and $3,465, upper income countries between $3,466 and $10,725 and high income countries with per capita income of $10,726 or more.

The World Bank classifications will remain in effect till July this year.

The difference between Dasgupta’s projection and Lahiri’s view lies in the way the World Bank calculates per capita income. While the figure of $626 is based on constant 1999-2000 prices, the bank uses current year data plus that of two preceding years and adjusts it for inflation and 20 other items.

Accordingly, the per capita income of the country stood at $720 for calendar year 2005.

India Passes Korea for Asia's Third-Largest Economy

After showing economic growth of 8.9 percent, its highest rate in 18 years, India is expected to overtake South Korea to become Asia's third largest economy, after China and Japan.

The International Monetary Fund announced Thursday that India's growth rate from April 2006 to March 2007 would hit 8.9 percent. Its GDP will reach US$840 billion, surpassing Korea’s estimated GDP of $826.9 billion for 2006. Until last year, India was at 12th place in world rankings, one step lower than Korea.

Rapidly developing Russia expects its GDP to jump from $763.3 billion in 2005 to $975 billion in 2006 thanks to booming oil prices. The IMF expects Russia to beat Korea as well.

With GDP of $780 billion, Korea has been one of the top ten economies, ranking along with Brazil, India and Mexico with GDPs of $795 billion, $770 billion and $760 billion, respectively. With Russia and India recording such strong growth, Korea is expected to drop out of the top 12.

Meanwhile, India's Central Statistics Office announced that its GDP for the 2006 financial year will be $854 billion, a 9.2 percent increase from the previous year. The prediction is slightly higher than the IMF's forecast. India's rapid growth comes from service industries like software programming and rising production in the manufacturing sector after a few years of stagnation. Manufacturing production grew by 11.3 percent from growth of 9.1 percent last year.

Meanwhile, there are concerns that India's economy is overheating and that inflation is on the rise. The Economist business magazine said in its latest issue that while the country neglects essential factors for long-term growth such as public reform and infrastructure, price rates are rising 6 percent a year, double the inflation rate in China. High-flying India, the article warned, may be at risk of a hard landing.

(englishnews@chosun.com )

India's economy 'nears $1 trillion'
By Andrew Walker
Economics correspondent, BBC News

If we needed a reminder of India's growing global economic presence, we had it last week in the steel industry when India's Tata won a stock market auction for the European company Corus.

The result of putting the two together will be the fifth-biggest steel producer in the world.

And it is an Indian-born entrepreneur, Lakshmi Mittal, who is the driving force behind the biggest of all in the industry, Arcelor Mittal.

That story is merely a recent news event that highlights India's rise. It is a much wider phenomenon.

Gerard Walsh, Regional Director for Asia at the Economist Intelligence Unit in London, says India is already close to being a $1 trillion economy.

And if you measure it using purchasing-power parities - an alternative to exchange rates which accounts for different price levels between countries - India is already the third-largest economy in the world, behind only the US and China.

Growing impact

Most economists expect India's recent relatively rapid growth - an annual average of about 7% over the last four years - to continue.

That alone would ensure the country would make a growing mark. But it has been a relatively closed economy, with barriers to foreign trade and investment.

Those barriers have been eased, but many remain. The government appears inclined to continue the liberalisation process - and that would make India's international integration proceed even more quickly.

The World Bank has done a recent study, called Dancing with Giants, looking at the implications of the rise of India and China.

Alan Winters, one of the authors, says that for the most part, India's rise is good news for the rest of us.

India's economic growth generates more of the goods it produces and others buy - and that will tend to push prices down.

Competition

But there may be some adverse consequences. Demand for raw materials from growing Indian industry will create upward pressure on those prices.

That's also true for oil, although Mr Winters emphasises that India is a small part of what will determine the global energy prices.

In addition, the increased competition as India produces more goods and services might hurt other countries in South Asia, especially in the textiles and clothing business.

That is an industry where low costs are one of the keys to success.

The same is true of another sector where India is already a big presence on the world stage - medicines.

India's biggest is Ranbaxy, a name we will probably hear more of in the future.

The company's chief executive, Malvinder Mohan Singh, says that 80% of revenue comes from international markets and just 20% from India.

It divides half and half between developed- and developing-country markets.

More sophisticated

Ranbaxy is a company that makes so-called generic medicines, cheap copies of drugs developed by others. But Mr Singh says they have ambitions to develop their own patented therapies.

It would be a move into an area that requires more high-level expertise, and that is a characteristic of other areas of India business life - notably computer software.

The low-cost, high-volume manufacturing will continue - at Ranbaxy and in other Indian industries - but a more sophisticated side is emerging.

Nonetheless, there is much in India that remains pretty basic. Poverty is deep and widespread. It is a matter of controversy whether India's economic growth has helped or not.

Some, including Indu Prakash Singh of Actionaid in Delhi, say the rich and middle classes have benefited, but the poor have not.

He says there have been many cases of poor people being displaced from urban areas in the name of development to areas where they have no housing and no livelihood.

The World Bank's Mr Winters agrees that the wealthy and middle-class clearly have gained.

But he also says the data suggests that the distribution of income hasn't changed much, so the poor are benefiting from India's economic growth. He says there is no reason why they should not continue to do so.

India's Next Wave? The Domestic Electronics Market

India's digital economy is starting to develop and as it does it will drive the local hardware market," says a leading India venture capitalist.

By Richard Wallace
EE Times Europe

Feb 7, 2007 12:28 AM

HYDERABAD, India — While India has a high profile as a software outsource destination for IT back-end and semiconductor chip design services, the emerging growth of the local electronics equipment hardware market is expected to accelerate rapidly, according to venture capitalists and leading U.S. chip companies based here and in Bangalore.

"India's digital economy is starting to develop and as it does it will drive the local [hardware] market," according to Bob Kondamoori, managing director for Sandalwood Partners, an active VC investor in India and the Asia-Pacific region. Kondamoori made his remarks at a VC panel at the ISA Summit here this week entitled: The road ahead for technology start-ups: New and evolving models on a global platform.

"There are big changes happening in broadband," Kondamoori asserted, noting that high-speed Internet connectivity will become one of the most significant drivers of demand in the domestic IT hardware sector.

While VC investments in Silicon Valley for networking companies, IT services and semiconductors have declined rapidly in the past few years, these same sectors are attracting VC funding in India at a growing clip, the panelist of VCs agreed.

"We're investing in things like manufacturing technology, semiconductors, Internet applications and systems software," Kondamoori noted, adding "You have to manufacture domestically," to tap into the Indian electronics market.

The coming ramp up in electronics design, development and manufacturing lags a similar trend that began in China nearly a decade ago, but has been slow to develop in India, which has been chiefly focused on IT outsourcing and chip design services. All that, however, is about to change, and it's a key reason that national and local political leaders in India, and the India Semiconductor Association, are scrambling to bring semiconductor and equipment manufacturing to the region.

India has a growing middle class population of nearly 400 million people. India's electronic equipment consumption, estimated to be a $28.2 billion market in 2005, is expected to reach $363 billion by 2015, growing at a compounded annual growth rate of nearly 30 percent. India's electronics equipment domestic production was $10.99 billion in 2005 and is projected to grow to about $155 in 2015, according to ISA estimates.

Key growth segments include communications, information technology and consumer electronics. Driving product sectors for the semiconductor and equipment sector will be mobile handsets, wireless equipment, set-top boxes and smart card terminals.

Embedded emphasis

The coming boom in electronics equipment manufacturing is expected to benefit most global semiconductor and equipment companies operating in India, as well as a huge and growing pool of domestic producers and suppliers of every stripe.

While VLSI design and hardware and board design are expected to surge here, the biggest growth opportunity will be in the embedded systems sector, most observers believe.

While much of the architecture, component and design platform decisions for outsourced embedded design work in India is currently driven from Silicon Valley and elsewhere. That is about to change. Increasingly, Indian design engineers are making decisions in the embedded market about what components and microprocessor architectures to use, as well as influencing the selection of real-time operating systems and embedded system development platforms.

"We are totally autonomous when it comes to making decisions about embedded systems," noted Jal Bannur, director of MINT Technology for LSI Logic India Pvt. Ltd in Bangalore.

"We spec a high percentage of the RTOSs and the software development platforms here," added Madhusudan V. Atre, vice president and managing director of Agere Systems India (Bangalore).

Many highly specialized embedded and embedded-related IC and systems companies are springing up in India. One such local supplier is Indrion, a maker of specialized silicon sensors and sensor networks, and IndusEdge Innovations, both of Bangalore.

Koka Siva Prasad, chief consultant at Embedded Bridge, an embedded services company with offices in Bangalore and Hyderabad noted that India already has a large embedded systems market serving the military, aviation and automotive electronics sectors. He agreed that "the real growth will come in the next wave of electronics equipment design and development for the domestic market." Siva has been involved in the India embedded market since Intel first came in India in the 1980s.

The top ten global fabless design companies have India operations, and 19 of the top 25 semiconductor companies have a presence in India. All are well positioned to ride the coming ramp-up in local design, development and manufacturing.

CMP's Electronics group (the publisher of EE Times) plans to launch Embedded Systems Conference, India, in Bangalore in October 2007.

US decides to end all aid to 'rising' India
CHIDANAND RAJGHATTA
[ 8 Feb, 2007 2303hrs ISTTIMES NEWS NETWORK ]

WASHINGTON: The United States has decided to end all bilateral financial aid to 'rising' India, following the country's economic surge in recent years.

The Bush administration last week whittled down its already paltry $ 124.9 million aid in 2006 to a measly $ 81 million for the coming fiscal, a drop of 35 per cent, citing New Delhi's growing economic performance and changing profile.

Even that downsized funding "will be used for the eventual orderly close out of US Agency of International Development's programme in India," a state department official told ToI in a matter-of-factly disclosure that brings to an end one of the largest aid efforts undertaken by Washington, rivalling the famed Marshall Plan, while not drawing as much attention.

By US estimates, India has received the equivalent of $14 billion in American economic assistance ($57 billion in today's dollars) from the time Washington opened the aid flow in 1951. The US Marshall Plan to rebuild Europe after World War II involved $ 13 billion over a four year (1947-1951) period.

US bilateral financial assistance to India has been thinning steadily after peaking in 1960 when Washington gave $ 1.6. billion, 92 per cent of it as food aid, to a country that was widely considered a basket case.

Washington poured in billions more throughout the 1960s to help kick-start India's Green Revolution and bump up food grain production from 70 million tons those days to more than 200 million tons today.

US aid helped establish eight agricultural universities across India, and more famously, two IITs -- in Kanpur and Kharagpur - and 14 regional engineering colleges.

More recent US assistance has been directed towards such efforts as establishing a National Depository and paperless trading in stock exchanges and helping Ahmedabad become the first city in India to receive an investment grade rating and float a municipal bond.

But on Monday, a top US official said India's days of major league aid are over, although there will still be a trickle, mainly to help in health issues such as Aids. Even here, much more assistance is coming through private channels such as the Gates Foundation.

With an economy that is growing at over 8 per cent, India had become a donor country, US AID Administrator Randall Tobias said, citing New Delhi's $ 50 million aid to Afghanistan.

"India is in a position where they are taking on more of the burden for the problems facing India," Tobias observed at a briefing for the foreign media.

Washington's decision for fiscal '08 saves New Delhi the embarrassment of asking US to end its so-called
financial assistance, much of which simply went towards administering the USAID operations in India.

For the past few years, India has been stressing that what it needs from US is fair practice in trade, not
aid. Some of Washington's predatory actions cost India a lot more than what US gives in aid.

For instance, the U.S practice of extracting social security tax from guest workers from India (H1-B visa
holders) nets Washington more than $ 500 million annually. This money is not repatriated to India even
when the workers return, absent a 'tantalisation' agreement that Washington is reluctant to sign.

Other disagreements between the two sides, in areas such as food import/export, cost both sides billions,
dwarfing any aid figures. Private equity inflows from US to India are now many times more than US aid.

In recent years, India has also been a quiet votary of US economic assistance (but not military aid) to
Pakistan. Washington now considers Pakistan -- along with Afghanistan - a basket case. It has hiked aid to
both countries, mixing butter with guns.

At $ 785 million for fiscal '08, Pakistan is now among Washington's top aid recipients, having already sucked
up more than $ 3 billion over the past five years as a 'frontline ally in the war on terror.'

But Israel remains the most favoured US aid recipient.

In per capita terms, US aid to India is almost negligible ($ 84 million for a population of $ 1.1 billion) compared to what Washington lavishes on Israel ($ 2.4 billion on a population of 7 million)

Unleashed India has more building to do
The Economist
Last update: February 05, 2007 – 7:33 PM

The Indian tiger is on the prowl. Tata Steel, which dates to the days of British rule, leaped into the league of top producers when it bought Britain's Corus, which includes the steelmaking remnants of imperial Britain.

Younger Indian companies such as Infosys and Wipro are storming international markets. And the world's business people and investors are lined up to lavish money on India's engineers and scientists.

After years cast as China's underperforming neighbor, the huntress is in hot pursuit. In the past year, India's economy has grown an impressive 9.2 percent, close behind China's 10.4 percent.

India has attracted the attention of Minnesota Gov. Tim Pawlenty, who last week said he'll lead a trade mission to India in October. Pawlenty visited China in 2005.

At some point this year, India's growth rate could even outpace China's; and if you measure things by purchasing power parity, India should soon overtake Japan and become the third-biggest economy, behind only the United States and China.

No wonder more Indian businesspeople, policymakers and economists are basking in the belief that their country is burning bright, at last free of its bureaucratic cage.

Prime Minister Manmohan Singh's latest five-year plan assumes that India can sustain average annual growth of 9 percent. Fast growth is essential to pull millions of Indians out of poverty. But a cold shower is needed because of the many alarming signs of overheating. Across India, prices are rising fast, factories are at full capacity, loans are piling up.

When you mention overheating, analysts point at China. Yet India displays far more symptoms of the disease. Inflation has risen to 6 to 7 percent, compared with 2.8 percent in China; a record 99 percent of Indian firms report that they are operating above optimal capacity; and credit is expanding at an annual rate of 30 percent, twice as fast as in China.

Unlike China, India has a widening current-account deficit -- a classic sign of overheating, as domestic output fails to keep pace with demand. And if you are looking for a stock market bubble, Indian share prices have risen more than four-fold over the past four years, far more than in China. If something is not done, a hard landing will be inevitable.

The Reserve Bank of India has been too timid in cooling domestic demand: Although one interest rate was raised last week by a quarter point, the overall rise in rates over the past 2½ years has not even kept up with consumer-price inflation. But the government's attention should be on supply and dismantling the barriers that keep its speed limit below China's.

So far, India's reform has focused on setting its inventive private sector free from its fearsome bureaucracy. This has unleashed entrepreneurial talent, but more change is needed. Now is the time to tackle the public sector. Infrastructure, such as roads and power, and public services, such as education and drinking water, are woefully inadequate.

Even as the economy has been booming, many public services have worsened. Indians own mobile phones, but line up for hours for drinking water.

India's top computer scientists are feted around the world, yet most children in rural areas lack basic education. About half of all Indian women are illiterate, compared with a ratio of around one in seven in China.

If these things can be tackled, India can indeed match China's growth.

As India grows prosperous, inflation starts spiraling
By Keith Bradsher

MUMBAI: With breakneck growth, an outsourcing industry that leads the world, and hundreds of millions of consumers demanding more class and comfort, India has an economy most countries would envy.

But Prime Minister Manmohan Singh and his closest economic advisors gathered last weekend amid fears that India's extraordinary economic expansion was starting to overheat, an issue they labeled as a "key short-term priority." After three years of near double-digit growth, India's economy is showing signs of setting off an inflationary spiral.

Food prices are climbing for just about everything from lentils to onions, squeezing the poor. Apartment rents and prices are rising steeply, especially in large cities. Factories that make the ubiquitous Indian motorcycles are running at full tilt and still have fallen weeks behind in meeting orders from dealers.

Government leaders now face the challenge of steering a fast-growing economy, which is expected to expand as much as 10 percent this year, away from a possible spiral of rising prices that could derail some of their achievements and temper the country's climb in living standards.

"There is a recognition of these pressures, and there is virtual unanimity that these have to be managed," Y. Venugopal Reddy, the governor of the central bank, said in an interview this past week. Earlier, the central bank raised a key short-term interest rate by a quarter-point to 7.5 percent to help stem inflation.

Inflation in India remains much lower than in many other developing countries. But prices are rising more than twice as fast as in China, India's chief rival for foreign investment and economic leadership among emerging markets. Prices are also increasing considerably faster than in industrialized countries.

Singh, Reddy and other senior officials have repeatedly reaffirmed their commitment to the market-oriented policies that have helped triple the economy's growth rate since the early 1990s. But rising prices are starting to rekindle some nostalgia for the 1980s, when India had one of the world's most highly regulated economies.

"You have to ensure some amount of price regulation," said Suhel Seth, a prominent political commentator and marketing consultant. "Under the guise of a free market, you've created a free fall for the poor."

Some of the largest increases in food prices have been in Mumbai, formerly Bombay. This is an industrialized peninsula where food is brought over long distances by truckers now paying much more for diesel fuel as the government has passed on part of the increase in world oil prices.

Navalben Nagda, a retired shopkeeper, shopped for milk here but complained that she and her husband had been forced to change their purchasing habits.

"We buy lower-quality food now because that's all we can afford," she said. "It doesn't taste as good."

Wholesale price inflation has accelerated to 6 percent from 4 percent last spring. Consumer price indexes have risen nearly 7 percent in urban areas over the past year and almost 9 percent in rural areas, where more than two- thirds of the population lives and where higher food prices are having the biggest effect.

Government economists attribute rising food prices in India to global factors like a poor harvest in Australia, the growing use of crops to produce ethanol and a higher cost of diesel fuel for tractors. But many here link the increase to the government's encouragement of futures trading in agricultural commodities, and the government has responded this winter by limiting a few types of transactions involving food.

Reddy said he felt "some justifiable optimism" about inflation and the Indian economy. He pointed to the lagging effects of interest rate increases over the past year that had not yet fully worked their way through the economy. He also noted that Indian companies were investing in additional capacity and that new roads, loading docks and other infrastructure were being built.

Still, the central bank's surveys show that practically all of India's manufacturers are operating at full capacity, as consumer demand has risen and companies have been slower to respond. Many factory expansions and new factories will be ready in 18 months to two years, Reddy said, describing the time until then as a transitional period for the economy.

Awash in funds from foreign investors, Indian banks have been lending aggressively, particularly to consumers.

Rahim Premji, the manager of Allibhai Premji Tyrewalla, a motorcycle store here, said there were so many buyers nationwide that for the past six months, motorcycle factories have typically been 15 days late in filling orders.

"It used to be you'd place your order and they'd dispatch it right away," he said. "They've constantly been expanding capacity, but not as fast as demand."

The panoramic view from the 25th floor of India's central bank provides clear evidence of supply shortages. In a vast expanse of four-story buildings, not a single construction crane was in sight, neither in the nearby historic district nor in neighborhoods all the way to the edge of the Indian Ocean.

That stands in stark contrast to Chinese cities like Beijing, Shanghai and Yantai, which have used rising property markets to help finance the bulldozing of enormous tracts of crumbling housing.

But India has strong rent control and other tenant-protection legislation. Along with extensive litigation and backlogged courts, these rules have made it difficult to demolish and replace the moldering buildings that clog large Indian cities.

The scarcity has sent prices even higher for existing housing. In fashionable neighborhoods of South Mumbai, apartment prices have jumped close to 60 percent just since last spring. Foreign investors, including oil-rich buyers from relatively nearby Middle Eastern countries, are joining the market, bidding aggressively against members of India's increasingly affluent business elite.

Rushabh Mehta, a partner at the Royal House Agency, walked through a 2,000-square-foot, or 186-square-meter, apartment that had a cheap-looking concrete floor and flimsy wooden closets. But it is in the chic Malabar Hill neighborhood. He mentioned the asking price: nearly $1.5 million.

"It's the location, basically — there's no view," he said, looking out a window at the white wall of a neighboring apartment building.

Demand for nearly everything from housing to beer is outpacing supply in part because white-collar salaries are rising faster in India than anywhere else in Asia, climbing 13.7 percent on average over the past year, said Sharad Vishvanath, a labor cost analyst at Hewitt Associates. Wages for junior managers and technical staff are rising fastest of all.

But junior and middle managers still earn only one-fifth to two-fifths of what they would in the United States or Europe, Vishvanath added.

Companies offering business process outsourcing or consulting services are particularly susceptible to rising labor costs. But Nandan Nilekani, the chief executive of one of the largest of these companies, Infosys, based in Bangalore, said that while India had considerable competition for skilled employees, that would not necessarily spill over into broader inflation because many interest groups were now committed to price stability.

New factories take time to build. But analysts and executives say productivity gains could allow India to wring more output from the businesses it already has, helping avoid the bottlenecks that can feed an inflationary spiral.

Big gains could come from modern telecommunications and the growing flexibility of India's labor force, as shown by workers like Selvi Partipan in Madras. Partipan, a 40-year-old who gave birth to the first of her five children when she was 13, used to work as a street vendor. She fried samosas and other fare for passersby, earning about $2 a day.

But six years ago, after a partial deregulation of the leather industry, Partipan found a leather factory job. She sewed handbags, jackets and other items for $3 a day. She learned she could earn up to an additional $7 a day by doing extra sewing at home in the evening and on weekends, when other factories were desperate to finish orders.

"I've already gathered some orders by phone," she said, sitting on a plastic stool as a daughter cooked samosas at the same location where Partipan used to cook. "It is paying for itself."

But while such efficiencies help to explain the long-term optimism of most government and business leaders in India, people in the streets are more worried about the rise in prices.

Mukesh Maru, a shopkeeper in Mumbai, pointed to a steel basin of moong dal, a popular type of small yellow beans in especially short supply now, and said the price had risen 150 percent from a year ago. In the 35 years his family's shop has been in business, he said, "it's only in the past year the prices have jumped so much."

India is indeed 'incredible'
Saturday, February 10, 2007

The middle class in India has reached 305 million people, making it bigger than the whole population of the United States

GILA BENMAYOR

India has recently been using the slogan �Incredible India� in its international advertising campaign. During the World Economic Forum (WEF) in Davos, I realized that this slogan could be applied not only to India's tourism but also to its economy.

India's yearly growth rate is 9percent and it plans to maintain this rate until 2012. During a lunch in Istanbul with India's Ambassador to Ankara, Chitra Narayanan, we discussed this amazing country and its relationship with Turkey.

Ambassador Chitra Narayanan is the daughter of India's former president K.R. Narayanan. During his youth, her father had also served as an ambassador in Ankara. Therefore she knows Ankara and Turkey very well.

When asked about her country's economic performance, she responds: �Do not forget that India has been a country where there has been trade for centuries. Remember the spices, the precious stones that streamed to the west via the Silk Road…�

Narayanan said Indians know how to count before learning how to read and write. It is the first time I have heard of such a thing when she remarks: �Even the most illiterate people in rural places, in villages, know how to count.�

The booming market:

I later learn that Indians count their joints while they count with their fingers. As there are three joints in each finger, Indians can count to 15 instead of five with each hand. I am not sure if this explanation will suffice to clarify why they are so successful in mathematics and information technologies.

Going back to the Indian economy, I ask a question I have been contemplating since Davos to both Ambassador Narayanan and to Economic Consultant to the Indian Embassy S.K. Verma. The question is: �As it has come up during the WEF, why is India not willing to open its doors to foreign investors?�

Verma explains the situation as follows:

India has banned foreigners to enter specific sectors such as defense, explosives, the aeronautics industry and the insurance sector.

Authorization is required for sectors like alcohol, tobacco and mining. All fields other than these are open to foreigners.

It can be said that some sort of protectionism is in effect.

On the other hand, it is a fact that lately Indian companies are buying ambitiously in the world markets. As a reminder, after the acquisition of Arcelor by Mittal, Tata recently bought the English Corus for $11.3 billion.

Verma says foreigners should not be discouraged by some sectors being banned and draws attention to the ever-growing middle class of India. The middle class in India has reached 305 million people, making it bigger than the whole population of the United States.

Therefore, anyway you look at it India is a major market and a real haven � especially for retailers.

�After Wal-Mart, we anticipate the entry of other large retailers as this sector is estimated to grow 22 percent within the upcoming five to 10 years� says Verma.

Turkey and India:

How about the relationship between Turkey and India?

According to Narayanan, there are numerous fields in which the two countries can collaborate: Tourism, construction and the petrochemical industries to name but a few.

India has been contributing to the infrastructure projects of certain Turkish firms. In return for this, the Indian offer to build a $10 billion oil refinery in Ceyhan is awaiting the Turkish government's approval. Verma expects the offer to be approved.

Processing Middle Eastern oil for petrochemicals, India is experienced in the filed of oil refineries.

The sectors that attract India's attention in Turkey are led by processed foods and hotel management. I was surprised to learn they receive engineering support from Turkey in the field of information technology. But this makes sense when one considers the fact that India will be short of educated staff in this field within two years.

And what does India think about the Chinese competition? Ambassador Narayanan speaks decisively on this subject:

�China and India have had an ongoing relationship for centuries. Our longest border is with China. Our relationship is a complementary one rather than competitive. In the 21st century you will witness the dance of the tiger and the dragon.�

Watched by the whole world, this will be an interesting dance.

Science 'can lift India's poor'

India's hopes of becoming an economically developed nation by 2020 depend on its continuing to drive forward through science and technology, the country's president Dr Abdul Kalam has said.

Mr Kalam, himself a former scientist, said that nearly a quarter of the country's population could be moved out of poverty if the government continued to back technology as the source of growth.

"That means about 230m out of a billion people will have been lifted up," he told BBC World Service's Discovery programme.

"The growth of the economy is very important - and if the growth of the economy is important, so is science and technology, because it drives this growth."

Economic key

Dr Kalam, who in 2002 became India's 11th president, was formerly an aeronautical engineer and father to the country's missile programme.

"Science brings two changes in life," he said.

"One is a way of thinking - it elevates people.

"The second is that, as science transforms technology, it brings faster development to the nation. That's how, from 1947 onwards, science and technology became the top priority for all the governments."

Following the country's independence from Britain, India's first Prime Minister, Jawaharlal Nehru, described science as "one of the keys to economic development."

Dr Kalam explained that science had come to India's aid before - in 1953, when it was struggling with famine and required shipments of wheat to come in.

At that time, scientists and political leaders came together and decided to develop new methods of driving agriculture, he said. The result was 200m tonnes of domestically-produced food.

To aid the development of science in modern world, bureaucracy and government regulation has been relaxed, and Indian science and technology has moved in a new way. There is now, President Kalam argues, an ambition for Indian scientists to achieve as much at home as they do abroad.

Dr Rahunath Mashelkar, president of the Indian National Science Academy, said that the so-called "brain drain" had "always haunted us" - but that now, changes are taking place.

"During the last three years, more than 30,000 top-class professionals - scientists and engineers - have come back to the country," he added.

More than 200 multi-nationals have now set up research and development centres in India, including IBM, Microsoft, Shell, and General Electric.

"India is gradually becoming the land of opportunity," Dr Mashelkar said.

"The latest Intel chip is not being designed in the US - it's being designed in Bangalore."

'Three Ds'

But what is also of interest is the precise type of science being looked at.

For reasons that remain debateable, Indians have tended to excel in mathematics and physics, while life sciences have lagged behind.

But as biosciences become ever more important globally, the country is making efforts to restore the balance.

India is also looking over its north-eastern border, and the challenge coming from China.

China is India's rival for political influence, for manufacturing contracts, and also a rival in the worlds of science and technology.

"Countries like China are romping, whereas we are walking," Dr Mashelkar said.

"The kind of commitment and investment China has made is spectacular. They are giving their top 10 universities $125m. At the end of the day, they are saying they want 100 universities to be among the top 500 in the world.

"That kind of investment is something that, unfortunately, has not happened in India."

He added, however, that he believes India will ultimately triumph - owing to what he called the "three Ds."

"Firstly, democracy - which allows you to think freely.

"Secondly, demography - 55% of our people were born within the last 30 years. So we will have an enormous working population at a time when the rest of the working world is going to age.

"And the third is diversity. You need to be diverse to be innovative and creative, and we have phenomenal diversity."

But for President Kalam, there need not be such direct competition.

He told Discovery that his message is that an evolved, enlightened society - based on Indian ideas - can lead to "a peaceful, prosperous and happy planet."

"It's a three-dimensional approach, involving education with a value system, religion transforming into spirituality, and the most important, economic development for societal transformation in all the nations," he explained.

"The global implementation of this three-dimensional approach, in an integrated way, will lead to a peaceful planet yet."

Hindalco to Buy Novelis for $6 Billion

By Debarati Roy

Feb. 11 (Bloomberg) -- Hindalco Industries Ltd., India's biggest aluminum producer, plans to buy Novelis Inc. of Atlanta for as much as $6 billion to gain sheet mills that supply can makers and car companies.

Hindalco, controlled by billionaire Kumar Mangalam Birla, will make an announcement about the purchase at 5 p.m. today in Mumbai, company spokeswoman Pragnya Ram said in a telephone interview, without giving more details.

Spurred by an economy growing at more than 9 percent a year, Indian companies are seeking acquisitions in mature overseas markets to sell higher-margin goods and add capacities and products. Hindalco's purchase, which will follow Tata Steel Ltd.'s $12 billion takeover last month of U.K. steelmaker Corus Group Plc, will fetch the Aditya Birla Group company customers such as General Motors Corp. and Coca-Cola Co.

"The trend for Indian companies now is to look westwards, acquire companies and establish themselves as multinational companies,'' said J. Venkatesan, who oversees $1.5 billion of Indian assets at Sundaram BNP Paribas Asset Management Co. in Chennai. 2Investors will want more details on the acquisition and want to know what kind of benefits will accrue to Hindalco in the long run.''

Shares of Atlanta-based Novelis have doubled since Jan. 25 on speculation the unprofitable company may receive a takeover offer after several weeks of talks with potential acquirers. The shares fell 2.5 percent to C$45.07 a share on Feb. 9 on the Toronto Stock Exchange.

Hindalco Industries shares, almost unchanged this year, fell 1.75 rupees, or 1 percent, to 173.25 at close of trade on the Bombay Stock Exchange on Feb. 9.

Wider Access

Hindalco, which exports 16 percent of its total sales volume of aluminum, is one of the world's lowest-cost producers of aluminum. Hindalco will gains access to markets across the globe as Novelis operates in 11 countries and is the second- largest producer in North America, according to its Web site.

2This is a very good move from Hindalco,'' said Arvind Desai, head of research at Mumbai-based Niche Brokerage Pvt. "Hindalco will be able to ship primary aluminum from India and make value-added products.''

Novelis, which was spun off from Alcan Inc., controls 19 percent of the world's flat-rolled aluminum products, according to its Web site and also supplies to companies including Ford Motor Co., Eastman Kodak Co. and Thyssenkrupp Ag.

Debt, Loans

With a market value of C$3.34 billion ($2.8 billion) at the close of trade on Feb. 9, Novelis had about $3.2 billion in debt and loans outstanding, according to data on the Bloomberg. On Nov. 14 Novelis reported a loss of $102 million, or $1.38 a share, in the third quarter. A year earlier, net income was $10 million, or 14 cents a share.

In 2005, the company reported net sales of $8.4 billion, according to its Web site.

Hindalco plans to triple production of the metal to 1.5 million metric tons by 2012 to become one of the world's five largest aluminum producers. The Mumbai-based company, which also has interests in telecommunications, cement, metals, textiles and financial services, is currently the world's 13th-largest maker of aluminum.

Higher Rating

Acquisitions for Indian companies are also becoming easier with the nation's rating upgrade. Standard & Poor's on Jan. 30 raised India's rating to investment grade as growth in Asia's fourth-largest economy is likely to expand at a record pace of 9.2 percent in the year to March 31. Credit Suisse in December forecast India's economy will grow 10 percent this year from 9.5 percent in 2006, overtaking China as the world's fastest-growing major economy.

Suzlon Energy Ltd., India's biggest builder of wind turbines, on Feb. 9 offered 1.02 billion euros ($1.3 billion) for German rival Repower Systems AG, countering an offer from French nuclear-reactor maker Areva SA.

Alcan, the world's largest aluminum producer after Alcoa Inc., spun off Novelis to satisfy antitrust concerns after acquiring France's Pechiney SA for about $4 billion in February 2004. In January 2005, Novelis agreed to sell about $1.4 billion in bonds as part of a $2.9 billion refinancing needed to repay loans from Alcan.

India Industrial Production Surged 11.1% in December
By Cherian Thomas and Kartik Goyal

Feb. 12 (Bloomberg) -- India's industrial production surged 11.1 percent in December, more than expected, adding pressure on the central bank to raise interest rates.

The increase in production at factories, utilities and mines reported by the Central Statistical Organisation in New Delhi today followed a revised 15.4 percent gain in November. Economists were expecting a rise of 10.5 percent.

Companies including General Motors Corp. and Reliance Industries Ltd. are producing more cars and oil products in Asia's fourth-largest economy as record bank lending and higher salaries spur consumer spending. Rising demand has pushed inflation to a two-year high and may prompt the Reserve Bank of India to increase its key overnight lending rate in April for the sixth time in 16 months.

"The data clearly shows the strength of demand in the economy,'' said Harish Menon, an economist at ING Vysya Bank Ltd. in Mumbai and the only one among 13 analysts who correctly forecast the December output gain. "The central bank will try and contain demand factors to curb inflation.''

Menon expects the central bank to raise its overnight lending rate by a quarter-point in the next monetary policy statement due on April 24.

Industrial production, a quarter of India's $854 billion economy, rose 10.8 percent in the nine months to Dec. 31 compared with 8 percent a year earlier, today's report said. India may expand a record 9.2 percent in the year to March 31, following 9 percent growth in the previous year, the government said Feb. 7.

Rising Inflation

Excess demand for manufactured and farm products stoked India's benchmark wholesale price inflation to 6.58 percent in the last week of January, the highest since the week ended Dec. 11, 2004, the government said on Feb. 9.

The benchmark Sensitive index fell 2.4 percent today, its biggest decline since Dec. 19. The yield on the benchmark 8.07 percent note due January 2017 rose 0.02 percentage point to 7.83 percent as of 5:30 p.m. close in Mumbai.

General Motors and others sold 24 percent more cars in December compared with a 23 percent gain in November, the Society of Indian Automobile Manufacturers said today. Indian Oil Corp., the nation's biggest refiner, and rivals such as Reliance Industries Ltd. processed 6 percent more crude oil in December, the oil ministry said in a statement on Jan. 24.

Overseas Acquisitions

Manufacturing output gained 11.9 percent in December after expanding at a record in the previous month, today's report said. Consumer goods production gained 7.4 percent, mining output rose 3.8 percent and electricity production increased 9.3 percent in December, the report said.

Indian companies, fueled by accelerating domestic growth, are seeking acquisitions overseas to add production capacity.

Hindalco Industries Ltd., India's biggest aluminum producer, yesterday agreed to acquire Novelis Inc. of Atlanta for more than $3.4 billion in cash to gain sheet mills that supply can makers and car companies. Tata Steel Ltd. spent $12 billion last month to buy U.K. steelmaker Corus Group Plc.

Reserve Bank of India Governor Yaga Venugopal Reddy has raised the central bank's overnight lending rate to a four-year high of 7.5 percent to slow inflation. Manufacturing inflation accelerated to more than a two-year high in the week ended Jan. 27, the government said on Feb. 9.

Surpassing China

Neighboring China's industrial production gained 14.7 percent in December after 14.9 percent growth in the previous month. Still, Credit Suisse in December forecast India's economy will grow 10 percent this year from 9.5 percent in 2006, overtaking China as the world's fastest-growing major economy. It expects China to grow 9.9 percent in 2007.

Industrial production in India is being spurred by the fastest loan growth in more than three decades, rising incomes and savings.

Commercial bank loans to companies have risen at about 30 percent in each of the past three years, according to central bank data. The pace is the fastest since the Reserve Bank started collating data in 1971.

Workers in India this year can expect a 7 percent increase in annual real salary, after adjusting for inflation, the biggest rise among the 45 countries including U.S. and Japan surveyed by human resources consultant ECA International.

India's savings rate was 32.4 percent of gross domestic product in the year ended March 31, the government said last month, faster than the average 25 percent of GDP between 1990 and 2004. The investment rate was 33.4 percent, compared with a 26 percent average in the preceding 15 years.

'Demand Side'

"There is pressure on inflation from the demand side because we are seeing a rise in disposable incomes,'' said Shuchita Mehta, an economist at Standard Chartered Bank in Mumbai. ``Inflation is a concern in the near-term.''

India's benchmark Sensitive Index has gained about 40 percent in the past year led by companies such as Bharti Airtel Ltd., India's biggest mobile service provider, and Larsen & Toubro Ltd., the country's biggest construction company.

General Motors Corp., Royal Dutch Shell Plc. and other companies have invested in about 3,000 new factories and expansion projects worth $21 billion in India since May 2004 to cater to growing demand, according to the finance ministry.

Vodafone Group Plc today won an auction for control of Hutchison Essar Ltd., India's fourth-largest mobile-phone company, for $11.1 billion to gain its first network in the world's fastest-growing wireless market.

Steel, Cement

Industries such as steel and cement are also benefiting from Prime Minister Manmohan Singh's decision to increase spending on roads, ports and other infrastructure by a quarter to 992 billion rupees in the year that started April 1 in a bid to attract overseas manufacturing companies and spur growth to 10 percent over a decade.

Singh's government is also seeking investments of $320 billion by 2012 to improve roads, airports and other infrastructure to attract foreign companies, create jobs and sustain growth of over 9 percent in the next decade to eradicate poverty. The World Bank estimates more than half of India's 1.1 billion people still live on less than $2 a day.