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Sunday, December 16, 2007

Fall and rise of the rupee

A dollar in the 1970s cost Rs 7.50 and for the next three decades the rupee continued to decline. The rupee depreciated to touch Rs 49 to a dollar in mid-2002, and then appreciated till it breached the 40-mark in September 2007.

Recently, the Finance Minister, Mr P. Chidambaram, speaking at the Peterson Institute of International Economics in the US said, “The depreciation in the value of the dollar versus the rupee has thrown up unexpected downside risks and (although) the level of appreciation of the rupee was well beyond comfort levels…that is something we have to live with and our exporters will have to learn to live with it.”

In a relatively free market economy, a currency reflects the inherent strength of the economy and the stronger rupee in many ways reflects this aspect. An exchange rate depends on a number of complex factors — trade deficit, foreign exchange inflows, interest rates, currency reserves, etc.

A balancing act


The Reserve Bank of India would need to control both inflation and foreign investment flows (that is, match inflow with outflow of dollars).

In July, the Government announced an export relief package of Rs 1,400 crore for a number of industries , but trade bodies are asking for more. They want the RBI to intervene to stabilise the exchange rate, at least for the short term. In one of the world’s fastest growing economies, this can be done only to an extent.

Various interest groups want the Government to act in a certain way, but the latter should act in the best interest of the nation.

Where do we stand?


But are we better off with a weaker rupee? A rising currency has both pros and cons — some enterprises gain and others do not. Companies with revenue models that have earnings in dollars but costs in rupees are the worst hit. The IT and BPO sectors have clearly been hit, with profits falling due to lower realisation in rupee term of the billable hours denominated in dollars and salary costs in rupees showing no trend of buckling down.

Other export industries, too, face similar challenges, especially the SME (small and medium enterprise) segment which operates at low margins and employs nearly 20 million people. As the rupee keeps rising, profits of such enterprises evaporate and the prospect of loss of jobs looms large. Outsourcing is based on complex geopolitical factors that come into play in the country exporting jobs.

Every outsourcing or import is potentially a loss of job in the country that imports. Global trade will never happen if countries only protected jobs of people who support export-related activities.

It is now common knowledge that for every job in the IT and ITeS sector, four new jobs are created in other sectors of the economy such as recruitment agency service, airlines, hospitality, etc., which are also called “dollar dependent businesses”. As the margins of the principal fall, the service providers get squeezed harder. The pain of loss of margins gets passed down the line.

Countries make the decision to import or outsource from another country mostly for reasons of lower price. However, a job often goes to a place simply because of the unbeatable combination of price and quality. A pure cost advantage does not last forever. The loss of profits is not solely because of the rupee rising, which is a macroeconomic factor; rising costs of inputs, such as on salaries, take away the cost arbitrage on a more permanent basis.

Indian companies will benefit more through the creation of freight corridors, power reforms and improvements in infrastructure. These would help reduce the overall cost of inputs and make businesses more competitive. But, currently, exporters, in general, looking to the Government to provide relief.

The rupee is rising against the dollar, and the US economy is currently not riding its best phase.

The rupee has, however, not risen significantly against other major currencies. In fact, the euro and the pound have appreciated against the rupee in recent times.

Focussing mainly on the US markets and the dollar is detrimental for Indian businesses in the long run. And like other Asian economies, Indian businesses need to diversify their risks.

Impact of a rising rupee


It depends on where you are. Imports of crude (at 30 per cent of total imports is the biggest item on the import bill), machinery (17.2 per cent of total), electronic goods (8.4 per cent), gold and silver (7.7 per cent), etc., become cheaper.

These are big ticket expenditures for the country and capable of generating huge savings, but do not stir up emotions such as potential job and revenue losses of the export sector and, hence, does not capture popular imagination. Travelling abroad and investments by Indian residents in dollars become more attractive.

IT and other companies in a globally competitive situation have been able to make large acquisitions of US companies and, at the current exchange rates, any drop would entail substantial savings. Tata’s $8 billion acquisition of Corus or Hindalco’s recent $6 billion acquisition of Novellis would have a lower cost of acquisition from an Indian shareholders’ side due to the current exchange rates.

The deputy chairman of the Planning Commission, Dr Montek Singh Ahluwalia, believes that the Reserve Bank of India and the Finance Ministry face a difficult set of choices.

In a recent interview, he said that this is a balancing act that the Reserve Bank and the Finance Ministry have to play. It is a reflection mainly of the trilemma that economists face; you can only have two out of three things.

If you want to have a stable currency, an independent monetary policy and capital account convertibility, you can’t have all three. You have to give up one. This is the classical trilemma and the multiplicity of choices!

As the Indian economy continues to mature and as Indian businesses gain confidence to do business globally, nuances of risks associated with a fluctuating currency have to be better understood and tackled in a holistic way and factored in as only another business risk. In other words, core strength of businesses has to be expanded from just cost-competitiveness.

Meanwhile, let us toast the rising rupee as a symbol of resurgent India.

King of Fruits may sport a royal price tag this year

PUNE: Those who savoured juicy Alphonso mangoes this season at cheaper rates will have to shell out more in the next season as the King of Fruits is likely to make a delayed entry. Mango trees in the Konkan belt have just started to blossom, signalling a delayed crop. The first batch of mangoes is expected to arrive in April as against the February-March period, every year. This is likely to also hurt mango growers as exports to large markets such as Japan and the US, which opened last year, may not serve fully, said farmers.

American and Japanese governments had banned the import of Indian mangoes on concerns that diseases through fruit flies, that typically infest the fruit, may spread to those countries. Last year, Japan lifted the ban on mango imports on condition that the fruits will be subject to a vapour heat treatment (VHT).

The US also opened its markets to Indian mangoes with a mandatory irradiation treatment, after special teams from both countries inspected the treatment facilities in Maharashtra. India exports only the Alphonso and Kesar varieties of mangoes. Alphonso mangoes are mainly grown in the Konkan region, especially in Ratnagiri and Sindhudurga districts. According to the Maharashtra State Agricultural Marketing Board (MSAMB), which is also involved in the export of mangoes, around 2.93 lakh tonnes are grown over 346,538 acres of land.

Both districts have been declared as agri-export zones. Devgad village in Sindhudurga district produces one of the world’s biggest alphonso mangoes, about 50,000 tonnes every year. But ironically, the region does not have treatment plants necessary to export to the US and Japan.

The VHT facility is located at Vashi in Navi Mumbai, while the irradiation treatment plant is based at Lasalgaon in Nasik, both of them about 400 to 700 km far from the Alphonso-producing areas. Marathwada leads the production of the Kesar variety, with around 133,635 tonnes of mangoes grown on 85,323 acres of land . Though this region is closer to the irradiation facility, the VHT plant is almost 350 km away.

Despite the lifting of export bans, mango farmers from Konkan are grappling with political and bureaucratic problems which have been slowing their efforts. Their demands for a minimum support price for mangoes used in the processing sector, on the lines of sugarcane, have not been met. “Though exports to Japan and the US were allowed last year, farmers weren’t able to export their produce and we have dim hopes that we will be able to export this year either,” said Sudhir Joshi, president of the Devgad Mango Growers’ Association. “Inspite of the fact that our region is an agri-export zone, we do not have VHT and irradiation facilities in our region.

We have been demanding these facilities for a long time. The agriculture marketing board has provided us with cold storage and other packing facilities, but they are not sufficient for exports. We also need a laboratory for testing the quality of soil, fertilisers, pesticides, etc, which is a mandatory requirement for exports”.

Indian cotton import proposal to be submitted in ECC

KARACHI: Caretaker Commerce Minister Shahzada Alam Monnoo said on Saturday that proposal for allowing import of normal cotton from India via Wagah Border would be submitted in the next meeting of Economic Coordination Committee (ECC).

Addressing the members of Federation of Pakistan Chamber of Commerce and Industry (FPCCI), he said that textile industry was facing shortage of cotton and the government was makeing every effort to facilitate the availability of this vital raw material for the local industry. He said textile was the major industry and the largest export item and needed special attention. "The government will take every possible measure to provide support to the industry", he added. He further said that prices of oil, electricity and gas were beyond government's control but it could look at the mark up rates of the banks for textile sector.

He said the government had adopted a five-prong strategy to boost country's export. Referring to the ambitious export target of $45 billion for next six years, he said this would be met despite all the present challenges being faced by the country.

Wednesday, November 14, 2007

High oil prices pose risk for India policy, economy

India's foot dragging over ways to limit losses at state-run oil refiners who are selling cheap fuel at a time when global crude is at giddy new highs poses a risk for public finances and the booming broader economy.

Bleeding more than $50 million a day, firms like Indian Oil Corp are in dire need of rescue but a government facing elections in a key state in December is shying away from the most obvious response -- a hike in state-administered fuel prices.

India is this year yet to raise prices of widely consumed transport and cooking fuels, kept low to protect poor consumers and help fight inflation, while crude oil has jumped to around $95 a barrel.

On Monday, Oil Minister Murli Deora said officials were attempting to minimise any rise in fuel rates when it does respond -- maybe this week -- but analysts said other approaches were not risk free.

"They might reduce the import duty. This would mean a loss of revenue and put pressure on the fiscal deficit," said D.H. Pai Panandikar, an analyst with independent think-tank RPG Foundation.

"The long-term solution is to reduce demand and increase prices. But the government is hurting itself. For them party is above the nation."

The Congress party of the prime minister, Manmohan Singh, which leads the ruling coalition, has been badly bruised in recent weeks by a row with communist allies over a nuclear energy deal with the United States that still could tip the country into early parliamentary elections.

India levies a 5 per cent import tax on crude, and taxes make up 32 percent of diesel prices and 54 percent of petrol prices.

Another possible escape route would be for the government to issue more of the bonds it routinely uses to partially offset the losses of state fuel companies.

But economists say this would end up increasing India's fiscal burden and only buy time.

"They will have to issue more oil bonds, which is nothing but pushing ahead the inevitable," said Shubhada Rao, chief economist at Yes Bank in Mumbai.



Hard times ahead

The Reserve Bank of India (RBI) has said it is imperative to pass on some of the increases in global crude prices to domestic consumers.

The Indian crude basket has risen by 145 per cent since April 2004, but retail prices of petrol have gone up by just 29 percent and those of diesel by 40 percent. India imports 70 percent of its crude requirements.

Falling US stocks as winter approaches and tensions in the Middle East could push crude beyond $100 a barrel, traders say.

China, which like India forces its state oil firms to shoulder any losses from refining costly imported crude, surprised markets with a 10 percent price rise last week.

And economists say with headline inflation at five-year lows close to 3 percent, India has room to follow suit.

"The overall impact of a likely revision on domestic fuel prices on headline inflation rate is expected around 40 basis points," said Rao.

"I think the options are ... limited considering the extent of losses of the oil marketing companies. So they may have to use a combination of measures, of which price revision is an important one."

Oil firms are lobbying to pass on higher cost to consumers.

"If the domestic prices do not increase, the under-recoveries will go up further in November. Let the consumer pay one-third of the under-recoveries," said Indian Oil Corp Chairman Sarthak Behuria.

Economists estimate that despite an improvement in the fiscal deficit over the past three years, off-budget items such as oil and food bonds, fertiliser subsidies and losses of state power firms add up to 2 percent of gross domestic product.

"The economy's unexpectedly strong growth over the last four years has complemented some fiscal reforms to improve public finances," Rajeev Malik, analyst at JP Morgan in Singapore, said in a research note.

"However, the actual improvement is overstated because of higher off-budget spending."

The Manila-based Asia Development Bank estimates that every $10 rise in average global oil prices shaves off 1.1 percentage points from India's economic growth.

"If oil prices remain high it will definitely hurt growth. If they remain at current levels it would impact industrial production by as much as one percent," said Panandikar.

India Oct Revenue From Import, Excise Taxes Up 18.6% On Year

NEW DELHI -(Dow Jones)- India's revenue from import and excise tariffs rose 18.6% on year in October to INR196.46 billion from INR165.69 billion, a Finance Ministry statement said Wednesday.
Customs import tax revenue in October rose 24.7% on year to INR93.53 billion compared with INR75.03 billion a year earlier, the statement said.
Service tax revenue in September grew 39.8% to INR49.47 billion on year compared with INR35.38 billion.
From April-October, the first seven months of the current financial year, revenue from import and excise taxes grew 11.9% on year to INR1.2 trillion compared with INR1.09 trillion.
In the same period, revenue from import tax grew 17.4% on year to INR578.33 billion, while excise collection was up 7.5% at INR649.48 billion.
The Indian government aims to collect INR5.48 trillion in revenue from import, excise and service taxes in the current fiscal year to March 31, 2008.

Traders to import 300 tons of pepper from Sri Lanka

Colombo (PTI): Indian traders have contracted 300 tons of pepper import from Sri Lanka, an exporter said here on Wednesday.

As agreed upon the traders would receive 300 tons of pepper to meet their domestic requirement, a senior official of an exporting firm of the Island country said.

India has been importing duty free pepper from Sri Lanka from March 18, 2003, when import stood at 6,200 tons annually. Over the last two years the it has risen to 7,500 tons from 7,000 tons. However, stakeholders of the Sri Lankan Spice industry have now sought an assurance from the Ministry of Trade and Commerce here that no caps would be imposed for exports of the item to India.

India's MMTC floats tender to import 350,000 tonnes of wheat UPDATE

MUMBAI (Thomson Financial) - India's MMTC Ltd said it has floated a global tender to import 350,000 tonnes of wheat for delivery to Indian ports by Feb 10, 2008.

The tender was floated to build up the state-owned company's buffer stock and cater to the world's second largest consumer of the grain.

The tender will close on Nov 19 and bids will open the same day, MMTC said on its website.

'It makes economic sense to import wheat at this point in time as prices are on a corrective mode in the international markets,' said Avinash Raheja, senior vice president at Commtrendz Risk Management Services. He expects bids will be in the range of 425-440 usd per tonne.

Earlier, India had said it would import 1 mln tonnes of wheat by floating tenders via State Trading Corp, MMTC, and PEC Ltd.

In September, the country purchased 795,000 tonnes at a weighted average price of 389.45 usd per tonne from Glencore International AG, Toepfer International and Starcom (other-otc: SCME.PK - news - people ).

India Determined Not To Hike Gas Prices

MUMBAI - The Indian government’s decision not to hike gas and diesel prices, despite crude oil nearing $100 a barrel, is likely to deepen the losses of state-run refiners, which are maintaining prices at artificially low rates.

Ahead of state- and national-level elections, the Congress-led coalition is reluctant to pass on rising crude prices to Indian consumers. Last week, Prime Minister Manmohan Singh said the government needed to “restructure” subsidies in food, fertilizers and oil, which are expected to touch $25 billion this year. India’s crude oil "basket" (the cost of importing a blend of Brent sweet crude and Oman-Dubai sour-grade crude) is hovering at approximately $89 a barrel.

But on Tuesday, Petroleum and Natural Gas Minister Murli Deora spoke about a proposed price hike: “The objective is not to burden the aam adami (common man). It is some weeks [away]. It is not being done today.” A decision on prices will happen at an “appropriate time.”

Analysts say the government is unlikely to alter prices significantly before national polls in May 2009.

“We could see a reduction in import duties over the next few months, from the present levels of 5.15% to around 3%. They cannot allow these companies to bleed so much that their net worth gets washed [away],” said Niraj Mansingka, an energy analyst at the Mumbai-based brokerage Edelweiss Capital.

The three principal state-run companies-- Bharat Petroleum, Indian Oil Corp. and Hindustan Petroleum Corp.--took losses of 132.6 billion rupees ($3.37 billion) last quarter, Mansingka said. Indian Oil, with close to 50% of the market share, suffered the heaviest losses.

Reliance Industries and Essar Oil are the two private sector companies that manufacture and market gasoline and diesel. Reports from across the country said both companies had raised rates by between 1 rupee and 5 rupees (3-13 U.S. cents) per liter. Though neither company officially confirmed the hike, their spokespersons said they were making heavy losses because of an absence of state subsidies.

The government hasn’t allowed state-run companies to hike prices this entire year. If the entire rise in oil prices were passed on to consumers, inflation could jump by an estimated 1.5 percentage points. (See: “ Inflation Cools In India”) The central bank wants to keep inflation below 5% this year.

State-run refiners are reportedly expected to meet a third of the increase in costs, while the government will subsidize the rest. The appreciation of the rupee, which has soared more than 12.5% against the dollar this year, helped mitigate losses. Crude prices increased around 16% in the same period.

Monday, October 29, 2007

India gears up LPG import infrastructure

NEW DELHI, Oct. 29 (UPI) -- India is gearing up its liquefied petroleum gas import infrastructure to tackle addition volume in the coming months.

The Petroleum and Natural Gas Ministry says the country’s LPG gas import infrastructure is being cranked up to handle additional volumes in a few months, when Reliance Industries Ltd. is expected to cut LPG production.

RIL accounted for more than a quarter of the country’s LPG production of around 8.5 million tons per annum in 2006. Around 2.5 mtpa LPG was imported last year to meet the domestic demand of 11 mtpa. India is not self-sufficient in this petroleum product, a ministry official said.

RIL says it is planning to cut LPG production at Jamnagar from 2.3 mtpa to around 1.6 mtpa from mid-2008 following the grant of export-oriented unit status to the refinery.

According to the ministry’s data, LPG imports are already on the rise. The data says that between April and July, the country imported 0.7 million tons LPG, 49 percent more than the 0.47 million tons a year ago.

“The cut in production will further increase imports. We are gearing up by augmenting our import facilities at Kandla,” said a senior ministry official.

Gap Threatens India's Clothing Boom

The Gap clothing chain has withdrawn a line of embroidered blouses and ordered an internal investigation after a news report alleged that the garments were stitched by children in a Delhi sweatshop. Sunday's edition of Britain's Observer splashed an undercover investigative report across two pages, alleging children between 10 and 13 worked in conditions "close to slavery" in the factory producing blouses bearing Gap labels. Gap, which has 200 of its 2,000 suppliers in India, was quick to order a recall and an investigation, while calling a meeting with suppliers to reiterate its no-tolerance policy on child labor. "Under absolutely no circumstance is it acceptable for children to produce or work on garments. It's a non-negotiable for us," Gap's senior vice-president for social responsibility, Dan Henkle, said in a statement.

The allegations may have come as a shock to Western readers accustomed to stories about India's rise as an economic power, but for most Indians child labor is a well-known reality — either uncomfortable or necessary, depending on which part of the social spectrum one belongs to. Indian law prohibits employment of children under the age of 14 in professions deemed hazardous, which covers 13 occupations and 57 processes, including the garment, mining, hospitality and domestic sectors. But between 75 and 90 million children continue to be part of the labor force in India.

"Everyone knows factories in Shahpur Jat use child labor — it's an open secret," says Puja Sahu, owner of a fashionable boutique in the area where the Observer reporter allegedly found the sweatshop. Shahpur Jat lies in the southern part of Delhi and houses grimy, dimly lit sweatshops behind plush, high-end boutiques. On Monday, there were no children working in the unit that had reportedly been making clothes for Gap, but several children were seen embroidering clothes in a number of other factories. Sahu says trained embroiderers and tailors are paid between $110 and $150 a month, whereas "children can be employed for less than half of this, sometimes for no money at all if their parents have sold them off."

The Indian government tried to downplay the issue and none of the ministries in whose domain it has arisen has commented. It was left to Commerce Minister Kamal Nath to react to the report. According to the Times of India, Nath said the allegations would be probed, while warning developed countries against using allegations of child labor as a pretext for taking protectionist tariff measures. Children's rights activists, however, see the latest allegations as typical of the problems associated with India's economic rise, where growth is prioritized over social equity. Pradeep Narayan of the non-profit Child Rights and You says, "Policies on liberalization, privatization, trade, export-import, et cetera get implemented very fast and very effectively. But the policies on the social sector, like health or child labor, never do."

On Monday, the Confederation of Indian Industry released a report predicting a 12% increase in the sourcing by foreign companies of clothing and textile production in India. In 2008, clothing and textile production in India for foreign brands is projected to be worth between $22 billion and $25 billion, as Western producers come in search of lower production costs that enable lower retail prices in the boutiques of the industrialized world. The cost to India of its neglect of social issues may begin to rise sharply, however, if the Gap recall deters other Western brands from sourcing their production to India. In the competitive apparel retail markets of the industrialized world, after all, the potential loss of market share as a result of a clothing label being tainted by any association with child labor would almost certainly outweigh any cost advantages in turning a blind eye.

India gets a taste for Chinese

MUMBAI - China and India might be elbowing each other in their growing global economic stakes, but an ancient food connection is growing deeper and stronger. Chinese cuisine ranks India's most favorite after local food, in the country's food and beverages (F&B) business bubbling at 9% annually.

A Federation of Indian Chambers of Commerce and Industry study expects India's F&B business to be worth US$117 billion by the end of the year. Showcasing the Chinese food market segmentare breezy young upstarts like Yo! China that aims at being a $250 million food chain in the near future.

Young entrepreneurs Ashish Kapur, Ajay Saini, Joydeep Singh, Sampat Talwar, Arun Chadha and Mandhir Soni started Yo! China four years ago in New Delhi, with open kitchens sporting a comic-book type of red and yellow interior. Their tagline "Chinese food. Chinese prices" was to bridge street food prices and gourmet quality.

Yo! China is now India's largest Chinese retail chain, with 14 outlets, including contracts to serve Mumbai and Delhi airports.

"There are 350 million middle-class people who eat three meals a day," reckons Ashish Kapur, managing director of Yo! China. "That's approximately a 1,000 million meals a day, and we didn't see national restaurant brands for such an opportunity."

His colleague and chief of projects, Ajay Saini, estimates India could accommodate another 10,000 Chinese outlets. "A recent market study said Chinese food is the favorite option when young people go out to eat and the second favorite [after south Indian cuisine] when families dine out," Saini told Asia Times Online. He figures India's eating-out frequency is still a fraction compared to Taiwan, South Korea or Thailand.

In which case, the Chinese food market in India is set explode with one-third of the population below the age of 15, and incomes rising. "India is the only large country in the world where the size of the working age population will grow - and will exceed the number of dependent children and old persons - until 2025, the year up to which projections of population have been made, and perhaps even beyond till 2045," Finance Minister Palaniappan Chidambaram told the Nobel Institute in Oslo on October 24.

Chinese food took root in India when Chinese immigrants settled in the sub-continent in the 18th century, mostly in eastern India, and gravitating towards Kolkata (Calcutta) that hosts the largest Chinese Indian population in the country.

Tangra, a leather-refining suburb in east Kolkata, became India's best-known "Chinatown" with its concentration of Chinese eateries, mostly in homes of local Chinese with the family disappearing when customers appeared through the living room curtains. Tangra also became India's best-known origin for Chinese sauces.

Since the 1980s, a spicy Indianized version of Chinese food took to the streets of metros, the cheap fusion cuisine becoming a great social leveler. In its pre-sanitized days, Marine Drive - Mumbai's famous seafront - had Chinese food street vendors with a clientele ranging from millionaire industrialists to hungry office-goers grabbing a chow mein plate for $2. (Though chow mein was originally a Chinese-American dish probably first created in the United States by Chinese cooks serving American railroad workers in the 1850s that bears little resemblance to true Chinese cuisine. The term comes from Mandarin Chinese, ch'ao mien', "fried noodles".)

Chinese street food costs even lesser in Kolkata, with a filling half-plate portion of vegetable chow mein selling for Rs6 (15 US cents).

Kolkata city centers such as Dalhousie Square and Park Street turn into humming street food bazaars during lunch hours, amid the clatter-bang of ancient trams lumbering through crowded traffic, and the sizzle of fried rice and noodles on woks, blending with sellers of popular pan-Indian fare.

Pioneering Chinese Indian restaurateurs, like Nelson Wang of Mumbai's China Garden, run their decades-old establishments in Indian metros - from Chungking in Chennai's Mount Road to Kamling off Marine Drive in Mumbai - but are losing top-end clientele to Chinese restaurants in five-star hotels such as the Taj and Marriot in Mumbai.

India's strong love for vegetarian food causes more headaches for Chinese chefs. Even street stalls sometimes use separate utensils for cooking vegetarian and non-vegetarian fare.

US-based Mark Pi Chinese food retail chain, with plans to open 300 restaurants across India and 400 more outlets in the Asia-Pacific region in the next five years, even promises a "Jain" Chinese menu for the predominantly vegetarian region of Gujarat: garlic, onions and potatoes forbidden.

"Any restaurateur who wants to serve Hong Kong-quality dimsum has to import everything from the flours to the fillings," sniffs Marryam H Reshii, a local food critic writing in the popular Indian portal Rediff.com. "It's only the rice, potato and wheat flours from south China that can turn out perfect dimsum."

UK-based food industry researchers and analysts IGD estimate that China's food market that was 35% the size of the US market in 2003, and will grow to be 82% in another 13 years. The US, China, Japan, India and Russia are expected to be the top five food retail markets by 2020.

India's love affair with Chinese food can only strengthen with increasing tourist traffic between the two Asian giants. The year 2007 had been declared "China-India Year of Friendship through Tourism" and the Chinese government said it hoped to double the number of Indian tourists to China each year to about 1 million by 2011, out of a total of 7 million Indians visiting foreign nations.

RBI hints at no change in rates

The Reserve Bank of India is unlikely to change the policy rates — the repo and reverse repo rates — in its mid-term review of the monetary policy amid persistent inflationary expectations following copious foreign capital inflows.

Headline inflation has dropped significantly below Reserve Bank of India’s target of 5 per cent for 2007-08 but this is a result of the government deciding not to pass on the increase in oil prices to consumers.

“The Indian basket price of crude oil, which averaged $57 a barrel in February 2007, increased to $75 a barrel in September 2007. Thus, headline inflation has remained suppressed due to a halt in pass-through of higher international prices to domestic prices since February 2007,” RBI noted in its report on Macroeconomic and Monetary Developments released on the eve of the mid-term review of the 2007-08 policy.

The report said the government would also start feeling the pinch of having to issue bonds to oil companies as compensation for losses that accrue from holding the price line. The government has approved Rs 23,458 crore of bonds in 2007-08.

Also, money supply is at a high of 21.8 per cent against the central bank’s target of 17 to 17.5 per cent and copious foreign capital inflows have caused a liquidity glut, which is seen as having significant potential to stoke inflation.

Against this background, key policy rates are likely to be kept unchanged at 7.75 per cent (the repo rate, at which RBI provides liquidity to banks) and 6 per cent (the reverse repo rate, at which liquidity is absorbed from banks), according to analysts.

Though overall credit growth has slowed to 23 per cent year-on-year in October 2007 from 28 per cent in 2006-07, demand for credit from the industrial sector has remained high. The slowdown has been largely because of a slump in demand from interest-rate sensitive sectors, including housing.

Analysts said this should offer RBI some comfort as its objective is to ensure that the genuine credit needs of industry are met and also because banks are likely to marginally lower interest rates on deposits.

Thursday, September 20, 2007

Govt negotiating cap on duty free vanaspati import

NEW DELHI: The government today said it is negotiating with Sri Lanka a deal to operationalise a cap on the duty free import of vanaspati from the island nation.

Commerce and Industry Minister Kamal Nath in his meeting with visiting Sri Lankan Minister of Enterprise Development and Investment Promotion Sarath Amunugama expressed the hope that the negotiations on the issue would be concluded soon.

While India has put a Tariff Rate Quota (TRQ) on vanaspati import from Sri Lanka, its operationalisation is yet to begin. In the TRQ arrangement, a limit is put on the quantity of duty free import that a country allows under the bilateral trade agreement.

India and Sri Lanka have a free trade agreement which was said to be misused for dumping of vansapti manufactured in the neighbouring country to the detriment of Indian producers.

India has also given a TRQ of three million pieces of garments to Sri Lanka without any condition of sourcing of fabrics and port-restrictions. Further cooperation between the two nations include bilateral cooperation agreement on product, quality, certification and testing that has been signed between Sri Lankan Standards Institute and Bureau of Indian Standards, an official release said.

Trade between the two countries increased from 1,497 million dollars in 2004-05 to 2,590 million dollars in 2005-06 and is valued at 2,462.28 million dollars in 2006-07.

Fertiliser scarcity may nip Rabi crop

NEW DELHI: In a fresh blow to food security, there may be an impending shortage of fertilisers in the coming rabi season if India is unable to immediately buy close to 10 lakh tonnes (LT) more from the world market.

The biggest crisis is expected in di-ammonium phosphate (DAP), where India has become highly dependent on foreign manufacturers.
A worried government is now planning to itself import an extra 6 LT urea and 1 LT DAP, and give the highest priority to ships carrying fertilisers at all important ports till November, when the critical sowing period starts. Six crops — rice, wheat, cotton, sugarcane, rapeseed and mustard — use more than two-thirds of the total fertiliser supply in the country.

India needs almost 41 LT DAP in the coming rabi season for which it is necessary to ensure a supply of at least 43 LT. Since the likelihood of sufficient supply of DAP is remote, the department of fertilisers has sought permission from the Cabinet to import substitutes such as mono-ammonium phosphate (MAP) and triple super phosphate (TSP).

State trading agencies have been authorised to start importing MAP to make up the shortfall in DAP. Indian Potash (IPL) has already bought 1.65 LT MAP overseas and is ready to contract more once the Cabinet gives its go-ahead.

Government estimates say in addition to the imports already contracted by private companies and IPL, India will need to source at least 1.12 LT DAP/MAP to maintain adequate supply of phosphatic fertilisers.

However, shifting to MAP would not be easy. “Before MAP can be marketed directly to farmers, the issue of subsidy, MRP, etc, will have to be resolved. A Cabinet note on the issue has been prepared separately by the department of fertilisers. In the meantime, the steering committee of secretaries is requested to authorise additional imports of 1.5 LT of DAP/MAP,” the department said.

In the case of urea, the farmers’ favourite, India needs to import 32.17 LT for the rabi reason. This does not include imports from Oman India Fertiliser Co (Omfico). The steering committee of secretaries has already permitted imports of 20 LT. Since the actual demand estimate for urea is still not final and the country has a buffer stock of 6.25 LT, the department of fertilisers believes further import of 6 LT may be sufficient for the season.

The demand for muriate of potash (MoP) is likely to cross 16 LT this rabi. As India is totally dependent on foreign companies for MoP, it will need to import at least 15 LT this winter. The import is expected to made entirely by private companies.

Most of the imported fertiliser will start arriving at ports from next month. The department of shipping had given priority berthing to fertiliser cargoes up to September. But with the anticipated rush at ports, the department of fertiliser is demanding the priority status be extended till November-end. While this will allow rapid transportation and delivery of fertilisers across the country, it may play havoc with imported wheat cargoes.

India to import record Nickel this year

MUMBAI: Increasing consumption of stainless steel in the wake of India’s construction and economic boom may force the country to import more nickel this year.

The Indian Stainless Steel Development Association expects a rise of 10-15 percent in nickel imports. The Association president N C Mathur said India will buy nearly 50,000 tonnes of the metal this year.

“India’s construction boom is driving the nickel import output,” Mathur said. India had imported 40,000 tonnes of nickel last year.

Indian industry uses two-thirds of nickel to make stainless steel and the country does not produce the metal.

Majority of India's consumption is of low nickel content stainless steel, which use 1-4 percent of the base metal.

Mathur said that the annual stainless steel consumption in India is expected to expand by about 12 percent in the coming year from about two million tonnes now.

Nickel is a highly volatile traded commodity due to its importance as a critical input in stainless steel manufacture. Rising demand and limited supply is the major feature of global nickel industry at present. Russia tops in global nickel output followed by Australia, Canada and New Zealand. China, US and European Union are the main consumers of nickel.

Global consumption of nickel is expected to rise 7 percent to 1.34 million ton in 2006. This may further go up to 1.38 million in 2007. Global production is estimated to be 1.32 million ton in 2006 and is likely to reach 1.37 million in 2007.

Brown-Forman sees India sales share doubling in 5 years

NEW DELHI, Sept 19 (Reuters) - U.S. wine and spirit company Brown-Forman Corp (BFa.N: Quote, Profile, Research) (BFb.N: Quote, Profile, Research) sees sales in India contributing 3 percent of its annual income in the next five years, double the figure now, a top official said.

"The Indian market is extremely important for us. It is the world's largest whisky market," Amrit Singh, area director of the maker of Jack Daniel's Tennessee Whiskey, told Reuters on the sidelines of a conference.

In 2007, Brown-Forman's global sales were $2.81 billion. For 2008, an average of analysts' forecasts suggest sales of $3.14 billion, according to Reuters Estimates.

Singh said the Indian government could gain more revenue through increased sales of imported spirits if it reduces import tariffs.

With rising incomes, greater international exposure and more choice in the market, more and more Indians have been willing to buy premium alcohol brands.

But high import tariffs, which can add as much as 300 percent to prices, have dampened growth in demand for foreign brands in India, one of the world's biggest spirits markets.

In July, India withdrew an additional customs duty for wines and spirits after both the European Union and the United States filed challenges at the WTO's Dispute Settlement Body.

"It is in India's interest if it gets faster", Singh said, referring to the pace of reductions in tariffs.

Robust Re reinforces rate revision rumblings

NEW DELHI: The rupee may continue its upward march for sometime to come even as the currency touched a nine-year high of Rs 39.875 to a dollar on Thursday.

Economists across the board concur that the exuberance of Indian equity markets and wider interest rate differential attracting a "deluge" of overseas funds, will mount pressure for an interest rate cut. The central bank, which also has to deal with the issue of overall forex reserves, may however, find this a tough call.

Some experts also opined that RBI may have to resort to a hike in cash reserve ratio. While exporters have been feeling the pinch , import-heavy industries, including petroleum and capital goods, have been seeing an upside.

The Customs collections may be a likely benificiary of the strengthening rupee. Economists say that the trend is expected to continue as it is triggered more on account of structural issues such as strong economic fundamentals rather than cyclical flows.

ICICI Bank chief economist Samiran Chakrabarty said: “The unhinging of rupee from 40.50 levels is more due to the Fed rate cuts and is not anything specific to rupee. Other currencies have been also impacted due to this generalised weakness of the dollar. So relative to a basket of currencies, the appreciation is not significant. Under such circumstances, willingness of RBI to intervene is limited.”

The rupee appreciation is benefiting foreign investment while domestic industry is at a disadvantage. A rate cut thus, becomes even more imperative. Says economist Surjit Bhalla: “The hardening of rupee is a cause for concern. Fundamentals do not justify this appreciation. RBI not justified in keeping the interest rates high. There should be a rate cut by at least 200 basis points,”

Experts feel that rupee may settle down to a level of Rs 40.20/40.30 end after the initial euphoria over the Fed rate cut subsides. Crisil has forecast the rupee to be Rs 40.5 to a dollar. “Intervention by RBI hasn’t been very significant.

In fact, intervention at this stage would have been futile in this time of temporary exuberance following the Fed rate cut. Situation will ease out after this knee jerk reaction to Fed rate cut. Fundamentals of Fed rate cut have been ignored. I think correction should come and rupee should settle at Rs 40.30/40.20 to a dollar level,” says HDFC Bank chief economist Abheek Barua.

Export-driven domestic industry such as textiles, IT, gems and jewellery already hit hard by appreciating rupee may bleed further. But, the government is confident of meeting the export target for the fiscal and has ruled out any downward revision. Exporters feeling the pinch have already upped their pitch for another package to mitigate the impact of rising rupee. Industry has called for a long-term strategy to tackle burgeoning forex reserves in place.

A hardened rupee augurs well for country’s import bill. The import bill especially on account of oil and capital goods imports could shrink marginally giving some relief to the government. Oil imports account for a third of country’s total imports. “Last month, when global oil prices shot up sharply, a strengthening domestic currency provided a cushion.

Without that, the government would have been under more pressure to raise the retail prices of petroleum products. Rupee and stock prices may find it difficult to sustain such sharp increase in the coming days,” said CRISIL principal economist D K Joshi .

Similarly, sectors depending on such imports may also cheer the northward movement of rupee. For companies which have raised money overseas and have begun their payouts, a higher rupee is a news they will celebrate as it would entails lowered outgo.

Echoing similar views, leading economist Saumitra Chaudhury feels it may be too early to draw any conclusion. "At present, the picture on forex front is very volatile and it may be too early to draw any conclusion. The situation globally is in a state of flux following the Fed rate cut with most currencies trying to adjust. Economic activity especially individual enterprise is sensitive to forex fluctuation and may get impacted. But, RBI will extend support", Mr Chaudhury said.

Arun Kaul, GM (treasury), Punjab National Bank, said, "The RBI stance would be dependant on the extent of flows and the kind of flows, the way trade is going to behave. If flows are large, we expect RBI to intervene.

Indian luxury mkt may boom to $30 bn by '15

NEW DELHI: No stranger to Bharat, luxury is all set for an unprecedented flourish here as the Indian consumer has overcome the guilt pangs associated for ages with indulgence. The size of the luxury market in India is estimated at around $3.5 billion, and what’s best, given the right impetus, it could easily leapfrog to $30-billion by 2015.

Indians are lapping up luxury assets, services and goods with voracious appetite, according to a comprehensive survey done by AT Kearney for The Economic Times. Indians splurge $2.9 billion on luxury assets (essentially private jets and luxury homes, cars or yachts and art), spend another $953 million on luxury services and top it by buying luxury goods worth $377 million, said the survey which was unveiled here on Thursday at ET’s first-ever luxury conference, Dialogue on Luxury.

Be it private jets, art, yachts, luxury homes, top-of-the-line cars, spas, fine dining, travel, holidays, jewellery, state-of-the-art electronics, wines & spirits, apparels or personal care products like perfume, the confident Indian consumer is going for it all. “I have arrived and I want it,” is what resurgent India’s creamy layer feels.

The typical luxury brand consumer is in the 25-34 age bracket, usually an industrialist. The survey indicates that there is no guilt feeling associated with spending on luxury, according to Neelesh Hundekari of AT Kearney. Briefing participants at the conference he said there was strong growth in consumption of key luxury items and the potential was stronger. The Indian consumer wants to get the best before others, demands value for money through tough negotiations, and looks forward to recognition and respect.

The conference was kicked off by commerce & industry minister Kamal Nath and Lady Lynn Forester de Rothschild, founder & CEO of EL Rothschild LLC, the audience included designers, hoteliers, luxury brand marketers, decision-makers, aviation specialists, corporate honchos and Delhi’s connoisseurs.

Apart from industrialists, the big spenders identified in the survey include professionals, self-employed and top guns working for leading corporates. Consumers of luxury are located across the nation, be it Kanyakumari or Kancheepuram in the south, Jalandhar and Lucknow in the north, Surat and Pune in the west or Asansol in the east. Mumbai, Delhi and Bangalore are the top three cities in terms of rupee millionaires, said Mr Hundekari as the audience soaked in the findings and thirsted for more.

A very interesting fact highlighted by the survey was the potential of India to be a source of luxury goods for consumers across the world. Manufacturing of luxury items in India can grow to $500 million and India’s strengths include traditional craftsmanship and low labour cost.

There are a number of challenges, too, for the luxury business and this include paucity of trained manpower, regulatory issues and high taxation, the survey pointed out. The import duty on premium cars, for example, stood at 205% while wines & spirits invite 185% customs levy.

The survey also pointed out that that import duty was high in the case of personal care items, fragrances, leather accessories and watches. Lack of quality retail space was another reason hampering growth of the industry. While development of quality space will happen once real estate picks up, the industry needs to spend on training to generate quality manpower. Poaching may not help and such tendencies will only hurt the entire industry.

On the regulatory side, the survey also highlighted that restrictions on foreign direct investment (FDI) in retail was hindering growth of the industry. Since the luxury market is not organised, the organisations concerned are not working together on industry issues. As a result growth remains below potential and regulatory issues are not being pursued vigorously.

As compared to markets like the US, Japan, Germany and even China, the size of the Indian luxury market is small but the growth potential is tremendous. The number of high networth individuals is increasing and the tendency to opt for global brands increases as more and more Indians travel abroad, the survey said.

Stand by pledge given to UPA: Karat tells Govt.

Madurai, Sept. 21 (PTI): The CPI(M) on Thurday night suggested that the central government has to choose between the commitments given to UPA or go by "dictates" of the United States on the issue of Indo-US nuclear deal.

Though the CPI(M) had asked the government not to proceed with the nuclear deal for the next six months, "a junior-level American official was asking the government to take a decision," CPI(M) General Secretary, Prakash Karat, said addressing a meeting after unveiling the statue of veteran Communist leader, P Ramamoorthy.

"Whether government will stand by the commitment given to the UPA and the people, or act as per the dictates of the US official....is not known," he said.

Karat said his party would try to convince the UPA government that the Indo-US nuclear deal was aginst the interests of the country and ask it not to proceed further.

"The deal will affect India's sovereignty, interests of the country and its people and we will campaign against the deal through out the country. It is left to the government to decide whether to go ahead with the agreement or not," he said.

"The Communist party, which supported non-alignment policy of the government and fought against American imperialism, would not agree to any type of strategic alliance with the USA - whether it is nuclear deal or otherwise," he said.

Karat said the CPI(M) opposed the deal because majority of the MPs opposed to it and the government was not even willing for a debate.

Besides, the cost of nuclear power would be four times higher than the cost of thermal power. "Setting up 20 nuclear plants will be like setting up 20 Enron companies which priced the cost of power at Rs 5 to 7 per unit," he said.

By signing a 40-year deal with the "undependable America, India will become America's slave for 40-years following their policies - whether it is foreign relation or economy," Karat alleged.

While the Left was not opposed to nuclear power, Karat said "the government should study the economics, cost and environmental impact before giving its green signal."

"Even now, America is dictating terms, like India should not import gas from Iran and the gas pipeline project should be shelved. It is also mounting pressure on the government on foreign direct investment in sectors like insurance, bank and agriculture, he said.

He said CPI(M) would oppose disinvestment in any public sector or government undertaking which earned profit.

Critcising the import of wheat at Rs 1600 per quintal, he said while the government was offering Rs 850 per quintal for Indian farmers, it was paying more for imported wheat.

No one can be deprived of electricity

The news item "Slums near rail tracks supplied electricity" (11 September) has inspired me to write this letter for the interest of the electricity consumers.
The State Electricity Board has provided electricity to the slum dwellers adjacent to the railway tracks running from Barasat to Madhyamgram. Swapan Mondal, DRM of Eastern Railway, has said: "The legal status of the colonies next to the railway tracks is disputed and as a matter of fact, its electrification should be treated as illegal." My response is on the very particular word or point "illegal".
I was a full time member of the Hooghly District Consumer Redressal Forum for five years. During my tenure, I had to deal with hundreds of disputes relating to electricity. Electricity is an essential service like water and no one can be deprived of this service. Supply of electricity to an illegal occupant does not establish any right to the encroacher or illegal occupant to the dwelling place. Here I do like to quote the conclusive part of a judgment on electricity by Calcutta High Court. "Even a trespasser will get electricity if he or she lives at the place for a pretty long time." Only a certificate from the local MLA/ municipal commissioner is necessary in confirmation of his/her long stay. If a man/ woman or his/her family resides illegally in a house, the family is entitled to get electricity. We had to handle or settle a large number of disputes between tenants and landlords involving electricity. The house owner cut the line and the tenant applied to the SEB/CESC directly for a new connection. The power authority concerned refused to supply electricity to the tenant on the plea that the owner of the house had objection to it.
According to the law on consumer forum the objection of the house owner is untenable. Here I quote a judgment. "The supply of electricity has become a matter between the occupier and the licensee under the electricity Act and landlord as the owner cannot ordinarily stand in the way." (Ratnamala Devi vs Ratan Singh - Section 12(2), amendment (1959), EA 1910, LR 1990 Cal 26). We replied on those two judgments.
In this particular case, the SEB has not done any wrong by supplying electricity to the shanty dwellers. The objection of the landowner (Easten Railway) is untenable. The railways can evict the illegal occupiers, but cannot object to the supply of electricity.
~ Yours, etc., Kalipada Basu,
Chinsurah, 12 September.
Self-delusion
Sir, ~ In self-delusion, Indians are past masters. Those who clamour for India's superpower status and energy sustainability ("Left ignorant about historical facts", 13 September) should study former Supreme Court judges Mr Krishna Iyer, Mr SB Sawant and Mr H Suresh's statement that Article 5.6 (a) of the 123 Agreement stated in no uncertain terms that amendments to the United States laws, including Hyde Act of 2006, would be needed to enable India to obtain reliable and uninterrupted access to fuel.
"As it stands, the 123 Agreement of August 2007 does not in any way provide binding fuel supply assurance. The agreement will be binding only when ratified by Parliament. There is no provision in the Constitution which gives such authority to the executive."
They also added that according to Article 2.1, "the 123 Agreement was subject to all the present internal laws of the US" and that "any action taken by the government to implement the nuclear deal without the authority of Parliament is unconstitutional". Any further comments from the Indian experts of historical facts are superfluous.
~ Yours, etc., GP Ray,
Kolkata, 13 September.
Price rise unchecked
Sir, ~ Amidst turmoil and crisis in the current politics of India, the prices of essential commodities are shooting up. The ordinary people are finding it increasingly difficult to make both ends meet.
In Parliament, Union finance minister Mr P Chidambaram promised to check the price-rise, but failed miserably to do any thing. Not only that, the government has formed a committee under renowned economist Mr Abhijit Sen to examine the reasons behind the price rise. The committee has submitted its report, but the government has not said anything either in its favour or against it.
On the other hand, the government has decided to import wheat. My question is: why import wheat? Is there any scarcity of wheat in the country? The government has argued that import of wheat is for puffing up of store-houses. How strange! This year production of wheat has increased by 60 lakh tons. The government usually buys wheat from peasants to puff the store-houses.
This year the government has fixed the minimum procurement price of wheat at Rs 850 per quintal, whereas the market price is higher. This is why the peasants have sold out the wheat in the open market. Now the government has decided to import wheat at Rs 1,600 per quintal to reach the target. Are not the peasants being deprived? This pitiable thing has happened in the past also. It is in this background that prices of foodgrain and other essential items are soaring.
The recent survey report of the Chamber of Commerce is: in the last 12 months the market price of wheat, milk, tea, spices, vegetables, fish and meat have increased by 23 to 25 per cent. In this period the per capita income of the commoner has come down by 1.09 per cent, whereas the living standard of high-income groups has increased.
The price rise is a burning issue and all political parties should stand united to combat this menace, burying all other issues for the time-being.
~ Yours, etc., Hemanta Kumar Roy,
Belghoria, 12 September.
Teachers' grievance
Sir, ~ Allow me through the columns of your esteemed daily to draw the attention of the education department of the state government to a long standing grievance of the primary school teachers.
I like to bring to the notice of the education minister (school) the fact that according to the government order (No. 1531 Edu(S) dated 7 October 1985), which has been thoroughly revised in 2001, the upper age limit fixed for the appointment to the posts of assistant teachers in non-government secondary schools "shall not be applicable to the approved in-service teachers of recognised primary schools and the approved in-service non-teaching staff of recognised secondary schools/madrasas".
But unfortunately the in-service primary teachers are not allowed to appear in the SSC examination if their age exceeds 37 years, though the in-service non-teaching staff of recognised secondary schools or madrasas get this opportunity of age relaxation. Then why should the primary school teachers, who are working under the state government, be deprived of this opportunity?

I'm not worried by criticism over wheat import, says Pawar

New Delhi : Food and Agriculture Minister Sharad Pawar said Thursday that he was not worried by criticism from various quarters over the government's plans to import wheat, as his job was to provide food grain to the public at reasonable prices.

"Despite the (estimated) 74.9 million tonnes of wheat output this year, we have to look at imports. And the reason is that our wheat stocks are not up to the mark," he said, speaking at the inaugural session of the National Conference on Emerging Platforms for Agriculture Marketing.

The two-day conference is being organised by the Federation of Indian Chambers of Commerce and Industry (FICCI) and the ministry of agriculture.

"As food minister, I have to take responsibility to provide wheat to the public at reasonable prices. That is why I am not worried (by the criticism). Or else, the government should provide budgetary support so that I can provide food grains to the public at reasonable prices," he said.

The opposition Bharatiya Janata Party (BJP) as well as the Left have demanded that the government institute an inquiry into the decision to import wheat when there was adequate domestic stock.

Earlier this month, Communist Party of India-Marxist (CPI-M) MP Brinda Karat had written to Prime Minister Manmohan Singh to protest the government's decision to import 790,000 tonnes of wheat at an average price of $390 per tonne.

The government had also come under fire for its proposed move to import five million tonnes of wheat in April this year.

Pawar also said that a number of states have amended their respective Agriculture Produce Marketing Committee (APMC) Acts for promoting investment in marketing infrastructure, motivating the corporate sector to undertake direct marketing of agricultural produce and for facilitating a national integrated market.

"By now, 18 states and union territories (UTs) have amended their APMC Acts and Bihar has repealed the Act. Seven other states and UTs do not have any APMC Act. We expect the remaining states would complete these amendments by March 2008," he said.

While issuing a model agricultural marketing law for guidance to the states in 2003, the centre had requested the state government to amend their APMC Acts.

"Certain sections feel if such restrictions (like APMC) are removed, farmers will benefit," he said.

Stating that agricultural marketing, especially perishables, is a key driver for achieving higher growth in agriculture, Pawar said, "Market-driven production is the order of the day and an efficient and seamless supply chain management has become a necessity for us.

"To fulfil these objectives in potential areas, the government of India has recently initiated the process of setting up terminal markets under a central sector scheme. The hub and spoke model of modern terminal market including electronic auctioning system and state-of-the-art infrastructure facilities coupled with operational efficiency through synergy between the best of private and public sector practices is planned through the state governments," he said.

Pawar also said that for prompt and reliable market information of different commodities, electronic spot markets could provide a viable alternative to the existing practice of the mandi system.

Earlier, FICCI Agriculture and Rural Development Scheme chairman P.M. Sinha appealed to the government to encourage the private sector to engage in a comprehensive backward linkage with farmers to improve crop productivity.

Stating that for both fruits and vegetables, there is enormous wastage, he said, "We need to ensure that the private sector is encouraged to put the entire supply chain from sorting and grading... up to the consumer location in place."

In his welcome speech, former FICCI president Onkar Kanwar called for a stable exim policy on farm products.

"Let us give our farmers complete freedom to sell anywhere, at home or abroad," he said.

Thursday, August 23, 2007

Southeast Asian Furniture Buddha Hindu Import Thailand India

India to call wheat import tender on Thursday - source


NEW DELHI (Reuters) - India's State Trading Corp. is set to issue an import tender for an undetermined amount of wheat on Thursday to cover an increase in consumption during winter, a government official told Reuters.

"The government has advised State Trading Corp to call a tender for wheat imports in bulk and containers," said the official, who did not want to be identified.

"The government will decide on the quantity based on the price offers," the official said.

Using containers for the imports would cost less than vessels.

Wheat futures on the Chicago Board of Trade, which hit 11-year highs last week, were 5 to 7 cents per bushel higher on Wednesday on fresh export business, including the Indian tender. U.S. exporters said they expect India to buy Canadian wheat.

The official said the wheat would be for arrival in the winter months of October, November and December, when consumption in northern India peaks.

The country bought 5.5 million tonnes of wheat in 2006, the first imports in six years, and has already contracted 511,000 tonnes this year.

Farm Minister Sharad Pawar has said India would import 3 to 5 million tonnes of the grain in 2007, despite high prices.

"There is a need to import because of needs of food security which we cannot compromise," Pawar told parliament on Monday. "We do not get any happiness from paying high prices."

The government has bought about 11 million tonnes of wheat from local farmers in 2007, up from around 9 million tonnes last year, but needs 15 million tonnes.

It buys grains from farmers at a fixed price, and uses its stocks for welfare programmes, to meet any shortage and to keep prices in check.

Wheat output in India, the world's second-biggest producer, is likely to be 74.9 million tonnes in 2007, up from 69.5 million tonnes last year. That would be the best harvest since 2000, when India produced a record 76.4 million tonnes of wheat.

Wheat Price Reaches Record as India, Taiwan, Japan Seek Imports


Aug. 23 (Bloomberg) -- Wheat prices in Chicago rose to a record, extending gains for a fifth day, as importers, including India, Taiwan and Japan, sought to buy the grain and adverse weather reduced supply in major exporting countries.

India, the world's biggest wheat consumer after China, plans to buy cargoes of 25,000 to 75,000 metric tons each for delivery from October to December, the New Delhi-based company said on the government Web site. The company will decide how much to import by Sept. 3.

Unfavorable weather has damaged crops in major producers including Australia, Europe, Russia and Ukraine. Global inventories of the commodity used to make bread, pastries and biscuits are expected to fall to the lowest in 26 years by May 31, according to the U.S. Department of Agriculture.

``We may see wheat futures go up further as buyers are rushing to secure more and global supplies are very tight,'' said Takaki Shigemoto, an analyst at commodity broker Okachi & Co., by phone from Tokyo. ``We anticipate a higher-than-expected number for weekly U.S. export sales later today.''

Wheat for December delivery gained 11.25 cents, or 1.5 percent, to $7.43 a bushel by 7 p.m. Singapore time in electronic trading on the Chicago Board of Trade. Prices more than doubled in the past year.

Overseas orders for U.S. wheat supplies are up 86 percent since June 1 compared with a year earlier, USDA data show.

Taiwan, Japan

The Taiwan Flour Millers Association, which represents 34 grain users, issued a tender tomorrow to import 92,000 tons of U.S. wheat after it failed to buy grain on Aug. 21.

Japan's Ministry of Agriculture, Forestry and Fisheries said it bought 30,000 tons of Canadian durum wheat today in a tender under the so-called simultaneous buy and sell system, introduced to loosen government controls over imports.

Grain-growing regions in Australia, the world's third- largest wheat and canola exporter, may have warmer-than-average temperatures in spring, potentially crimping crop development.

There's a 60 percent to 75 percent chance of higher-than- average minimum temperatures from September to November, the bureau of meteorology said on its Web site today.

``There's a shortage of the grain worldwide,'' Pramod Kumar, executive director of Sunil Agro Foods Ltd., said by phone from Bangalore. ``Indian imports will fuel the wheat market globally.''

Record Price

State Trading Corp., run by the government, bought 511,000 tons from Cargill Inc., Toepfer International and Riaz Trading for a record $317 a ton to $330 a ton on July 10 to ensure sufficient supplies and curb inflation.

India may receive offers of $375 to $400 a ton in the new tender, Sunil Agro's Kumar said.

State Trading Corp. is seeking wheat in bulk carriers or containers at eight Indian ports including Mumbai, Kandla, Mundra, Chennai and Tuticorin. Suppliers are required to quote prices on the basis of the port and month of delivery.

India was the world's third-biggest wheat importer in the year ended June 1, with purchases of 6.7 million tons, according to the U.S. Foreign Agricultural Service.

Chinese firm eyes Indian wheat market

NEW DELHI: A Chinese wheat producer has decided to increase its production with an aim to tap the market in India, which is importing the commodity for the second year in a row.

Shandong Zhouyuan Seed and Nursery Co Ltd would expand its wheat seed production due to a rising demand in India and other countries in southeast Asia, a company release said.

Shandong Zhouyuan Seed and Nursery Co Ltd (SZSN) is also incorporated in the US through its subsidiary of the same name. It is engaged in production and marketing of seeds with high starch content for use in industrial food production.

The average wheat output in India is approximately 2.5 to 3 tons per hectare, while in China it is about five tons, SZSN President Wang Zhigang said.

India is currently importing wheat for second year in a row to augment its stock position despite the production in 2006-07 season is estimated at 74.89 million tons.

"Because of short cultivated area and lack of fertiliser, the gap in wheat demand and supply will remain in such areas in the next few years, and this is a big chance for us," Zhigang said.

The company will use new hybrid seed technology in order to realise sufficient supply, he added.

Three independent seed growers and a municipality current grow seeds in 1,400-1,750 acres of land for Zhouyuan. But the company plans to develop its own production capability on 4,250 acres.

The company quoted analysts as saying that India's import demand on wheat would possibly impel the international price to rise benefiting overseas exporters.

Two Pak cement firms clear BIS standards check

NEW DELHI: Cement from Pakistan has finally received the ISI mark and can land in India. The Bureau of Indian Standards (BIS) has given its nod to Lucky Cement and Maple Leaf, the first two Pakistani manufacturers to obtain the certification. A third manufacturer, Pakistan Cement, is likely to get the certification by next week.

Cement from Pakistan may come at a substantial discount to the prevailing domestic prices. Consumers, mainly the builders, are hopeful that domestic prices, which have risen by nearly 45% in the past one-and-a-half years, would align itself with import prices.

Lack of BIS certification had held back the process of import of cement from across the border since April when, encouraged by the Indian government’s waiver of all duties on cement imports, several Pakistani manufacturers had evinced interest in exporting the commodity.

The biggest challenge for the exporters would be to overcome logistics bottlenecks. “We will be able to import cement into India only by September-end. The quantum of import and the mode would depend largely on the logistics,” said Lucky Cement India representative Pesi Dabdi, who runs a Jaipur-based cement distribution company, Creative Enterprises.

Mr Dabdi said the first batch of import may be no larger than 2000 tonnes, but the company would like to scale it up to 20-30,000 tonnes per month in a short period. Lucky Cement is still evaluating which mode, rail or sea, it would use for export.

“Using the sea route from Karachi to Kandla or Mumbai port would definitely be cheaper, but the mode we use would depend largely on the location of the customer,” said Mr Dabdi. He said the company is negotiating with potential customers for orders, but nothing has been finalised yet.

Maple Leaf too has a target of exporting 20-25,000 tonnes of cement per month to India, but initially the quantum may not be more than 10,000 tonnes. The company’s representative in India, S K Arora, who is the director of real estate firm Collage Group, said, “Most of the cement imported from Maple Leaf would be consumed in-house for our own construction projects.”

The initial plans are to get cement through the rail route from the company’s plant in Mianwali, 450 km from Lahore, to Amritsar via Wagah border. “But I don’t know if we have the capacity to handle such big volumes at Amritsar station. Availability of wagons and other facilities would certainly be an issue,” said Mr Arora.

The Indian cement industry has an installed capacity of 172 million tonnes and is working at a capacity utilisation of 97%. There is a demand-supply mismatch with demand growing at an estimated 10% and production at only 7% in the past four months. Pakistani cement can fill in this gap, but the actual impact on prices can be felt only after more foreign manufacturers get the BIS certification and import substantial amounts.

BIS is at present examining applications from 13 other foreign manufacturers, including 10 from Pakistan, and one each from China, Hong Kong and Bangladesh. Besides Lucky Cement (6.8 million tonnes capacity) and Maple Leaf (4 mt), only four applicants have a capacity of 2 mt or more and none of them have more than 3.25 million tonnes of capacity.

Deal with Indian firm on heart drug

The health ministry has made a deal with an Indian company to import a cheaper generic drug for patients with heart disease. Published on August 23, 2007



The ministry issued a compulsory licence in January to allow cheap versions of heart drugs to be produced in Thailand or imported from overseas.

Dr Wichai Chokevivatana, head of the compulsory licensing panel, said the Government Pharmaceutical Organisation (GPO) would import the drug clopidogrel following negotiations with Emcure Pharmaceuticals.


He said four firms had submitted proposals to the agency last week and Emcure's bid


won.


The market price for clopidogrel was around Bt70 per tablet and for hospitals Bt90-Bt150 per tablet. But Emcure had proposed only Bt1 per tablet, Wichai said.


"The GPO will import and register the drug with the Food and Drug Administration as soon as possible. The first import will be two million pills, which could save Bt138 million from the national budget. The ministry expects to provide the drug to patients within two months."


Clopidogrel, known by the trade name Plavix, is often used to treat coronary artery disease, peripheral vascular disease, and cerebrovascular disease, but is far too expensive for poor patients.


Only 20 per cent of patients could access drugs for heart disease, Wichai said.

Indian Govt launches another wheat tender

India says it wants to import wheat, but will not specify how much it wants, the price it will pay or when it needs the grain delivered.

It is the third tender launched by the Indian Government this year to top up the country's reserve stocks.

India has said it will consider tenders for wheat either in bulk shipments, or smaller quantities in containers.

Analyst Lloyd George says even with a deregulated container trade for Australian growers, it is unlikely the local market will weigh in.

"I think the issue of old crop reserves in the Australian market is going to limit it, because we're in August and the shipment period, I would be thinking, is going to be prior to Australian new crop coming on board, so I think it's going to be fairly tough," he said.

Mealybug threat may force import of Indian cotton

ISLAMABAD, Aug 19: The government is likely to allow subsidised import of middle staple cotton from India by land if the mealybug attack is not controlled in two to three weeks.

Informed sources said the mealybug attack was widespread and the government was finding it difficult to import the required pesticides in sufficient quantities owing to shortage in the international market.

“If we are unable to get the pesticides in about three weeks’ time, we may miss the cotton production target by 2 to 3 million bales,” a senior official told Dawn. The official said the Ministry of Food and Agriculture was reviewing the situation almost on a daily basis to ensure that the pesticide requirement was met.

He, however, said the current crop situation was satisfactory and the target of 13.2 million bales was expected to be achieved or might even be surpassed. But, he added, the next two weeks were crucial and if the problem continued the production might go down by three million bales.

In case the virus was not controlled in two weeks, the official said, the government would have to consider subsidised import of second grade cotton from India to meet the needs of the textile industry which was already facing a shortage of about three million bales.

Sources in the industry said the All Pakistan Textile Mills Association had forwarded a formal request to the federal government to allow duty- and tax-free import of second grade cotton from India. They said the government had allowed duty- and tax-free import of long staple cotton from India but the step was of no help because long staple cotton was not available in the neighbouring country.

They said import of middle staple cotton through Bandar Abbas, Iran, and Dubai was continuing through normal channels on normal tax and duty rates.

If the cotton production targets are not met in the event of non-availability of mealybug pesticides, there will be no option but to allow duty- and tax-free import of cotton from India. But by that time prices may rise, neutralising the savings from tax and duty exemptions.

The government has targeted textile exports in the range of $15-16 billion this year, against last year’s just over $12 billion.

A part of about four million bales of surplus Uzbek cotton, which is lying at Iran’s Bandar Abbas port, is currently being imported by the private sector. Recently, about 50,000 bales or 8,000 tons of middle staple cotton was imported by the private sector.

The textile industry at present is under-utilised to the extent of 30 per cent. Before the mealybug attack, the government had set a target of producing 13.2 million bales which can drop to 10-11 million bales if pesticide availability is not ensured in the next few days. Pakistan’s total cotton consumption is around 16 million bales.

Pakistan is exporting about $1.5 billion cotton yarn which is not only strengthening its competitors but also resulting in low-cost exports. The share of textile exports in the country’s overall exports accounts for about 67 per cent and the government and the industry anticipate this reaching 80 per cent in a year or so. To achieve this target, the strategy is to diversify markets and focus on Central Asian Republics, Russia and Turkey.

Indian Textile & Apparels Industry – Challenges Ahead

(openPR) - On 23 Aug 2007, the textiletreasure.com online apparels magazine quoted Mr JK Arora the leading apparels expert as saying, "The Indian textile and apparels industry is in a stronger position now than it was in the last six decades. The industry, which was growing at 3 – 4 percent during the last six decades has now accelerated to an annual growth rate of 9 – 10 percent. There is a sense of optimism in the industry and textile and apparels sector has now become a ‘sunrise’ sector".

The catalysts, which have placed the industry on this trajectory of exponential growth are a buoyant domestic economy, a substantial increase in cotton production, the conducive policy environment provided by the Government, and the expiration of the Multi Fibre Agreement (MFA) on 31 December’2004 and implementation of Agreement on Textiles and Clothing (ATC).

The buoyant Indian economy, growing at the rate of 8 percent, has resulted in higher disposable income levels. The disposable income of Indian consumers has increased steadily. The proportion of the major consuming class (population that has an annual income of more than US$ 2000) has risen from 20 percent in 1995-96 to 28 percent in 2001-02. This is expected to move up to 35 percent by 2005-06, and to 48 percent by 2009-10. This translates into a growth of 9.3 percent over the next 8 years, and will result in higher spending capacity, manifesting itself in the greater consumption of textiles and apparels.

The Indian textile and apparels industry consumes a diverse range of fibres and yarn, but is predominantly cotton based. A significant increase in cotton production during the last two – three years has increased the availability of raw cotton to the domestic textiles and apparels industry at competitive prices, providing it with a competitive edge in the global market.

The Government has also provided industry a conducive policy environment and initiated schemes, which have facilitated the growth of the industry. The Technology Mission on Cotton has increased cotton production and reduced contamination levels. The Technology Upgradation Fund Scheme (TUFS) has facilitated the installation of the state-of-the-art / near state-of-the-art technology/machinery at competitive capital cost. The rationalization of fiscal duties has provided a level playing field to all segments, resulting in the holistic growth of the industry. Besides the government’s permission to allow import of a number of textile and apparels resources in terms of trimmings, embellishments, consumables and accessories, fabrics, linings/interlinings, etc. has made the apparels export industry in India much more competitive than ever before.

Not only this, the government, of late has been giving a lot of attention to strengthen infrastructure like roads, ports, power, water, telecommunications, etc. to supplement the efforts put in by the Indian textile and apparels industry to become a surrise industry.

To provide Indian consumers with world-class quality in textile and apparels and retail services, the government has recently allowed single-brand overseas retailers to set up retail shops in India. The multi-brand overseas retailers/super markets/investors are already in India to conduct wholesale business to feed existing retailers with quality products.

Quotas or quantitative restrictions imposed by developed nations, which restrained the export growth of the Indian textiles and apparels industry for over four decades, were eliminated with effect from 01 January 2005. This has unshackled Indian textiles and apparels exports, and this is evident from the growth registered in the quota markets. Apparels exports to the USA during 2005 and 2006 increased by 34.2 and 7.08 percent respectively, while textiles exports during 2006 to the US showed and impressive 12.42 percent growth. Similarly, in Europe, apparels exports increased by 30.6 and 17.50 % respectively in 2005 and 2006, while textile exports registered 2.2 and 3.5 percent growth in the similar period respectively. The increasing trends in exports is expected to continue in the years to come.

If we look at the US and EU import statistics for apparels alone, we find that these major global players are not inclined to source exclusively from China and India is considered as the second most preferred destination for major global retailers due to its strength of vertical and horizontal integration.

The Indian government has always and is continuing to consider the role of textiles and apparels manufacturing units in India as very critical in achieving the objectives of faster and more inclusive growth, and has laid emphasis on policies aimed at creating an environment in which entrepreneurship can flourish.

The textiles and apparels industry is targeted to grow at the rate of 16 percent in value terms to reach the level of US$ 115 billion (exports US$ 55 billion; domestic market US$ 60 billion) by 2012, while the fabric production is expected to grow at the rate of 12 percent in volume terms. Apparels alone are expected to grow at the rate of 16 percent in volume terms and 21 percent in value terms, while exports are expected to grow at the rate of 22 percent in value terms,

Localitis charge singes Indian envoy


WASHINGTON: A good diplomat is someone who can tell you to go to hell in such a way that you actually look forward to the trip, it is famously said. Ronen Sen, India's ambassador to the US, evidently won't make that cut, his misconstrued "headless chicken" remark provoking the political class into packing him off to a purgatory reserved for dispensable diplomats.

But more than for his immediate faux pas, Sen has been on the hit list of his detractors for two reasons.

One is for his alleged "localitis," a diplomatic affliction that is so well known it has been featured prominently even in US foreign service chronicles. The other is his perceived closeness to the Congress party and the Gandhi family.

Localitis, also known as clientitis, is when diplomats and are perceived as being more sympathetic to the host country than to the government they serve. Many diplomats, both Indian and American, have been accused of this in the past decades.

Chester Bowles, John Kenneth Galbraith, and Daniel P.Moynihan were among the US envoys who carried this stigma (of being overly sympathetic to New Delhi), while on the Indian side, Naresh Chandra and Nani Palkhivala faced criticism for being too close to the US. All they did was promote better ties between two sides afflicted with Cold War pathology.

Diplomatic chroniclers say there is nothing in Ronen Sen's career profile that suggests he is sympathetic to the United States. If anything, he is an Indian Sovietogolist. He has served three times in Moscow, totaling 14 years, including a six-year stint as the Ambassador from 1992 to 1998. He has also been India's envoy to London, Berlin and Mexico City.

On the flip side, he worked in Rajiv Gandhi's PMO during the mid-to late 1980s when New Delhi and Washington undertook some of the most dynamic initiatives, including import of Cray super computers and GE engines for the LCA project. It was this stint that marked him as being close to the 10, Janpath.

Is that enough to stigmatize him as "pro-American," a tag that can be fatal in a polity still steeped in deep suspicion of Washington?

Hardly. If anything, Sen's American experience in pretty thin, with just one posting in San Francisco, as a junior diplomat, back in 1972.

In fact, on the day the storm over his remarks broke, Sen had told this correspondent that he was driving to Niagara Falls, which he had never visited during his stints in the US.

He eventually scrubbed the trip, hoping that the far more precipitous event in New Delhi will not drown out his career. Ambassadors have to strike a delicate balance between being friendly to their host country and loyal to their governments. According to the Association for Diplomatic Studies and Training, a Washington DC area-based NGO, Foreign Service area specialists are highly valued for their expert (and sometimes esoteric) knowledge of foreign cultures, but sometimes these same specialists come under criticism for getting too close to their subjects

"When describing attitudes and conditions that run counter to official policies, they have on occasion been charged, both within and outside the State Department, with a bias known pejoratively as localitis or clientitis," the ADST says in a paper on the foreign service.

In the US itself, it says, two groups of foreign service specialists have often been accused of localitis - "China hands" who were hounded and abused during the McCarthy era for being sympathetic to communists, and more recently, "Arabists" who have faced strong criticism from the Jewish lobby who feel they lack sufficient empathy for the state of Israel.

While localitis is often attributed to over-exposure or ideological affinity, there are occasions when personal motives and ties are raised. Most recently, Pakistan's foreign secretary Riaz Mohammed Khan is under attack in Pakistan because he is married to a serving senior US state department official.

Monday, August 6, 2007

India Inc’s import intensity of exports slides as rupee rises

Indian policymakers are facing a new dilemma. The rupee has been appreciating sharply against the dollar — it has appreciated by 11% since August last year — something they did not experience often in the past. A huge current account deficit in the US and steady capital inflows are expected to strengthen the rupee further in the coming months.

The appreciation of rupee, of course, has come as no surprise. The mounting foreign exchange reserves over the years always had the potential for a stronger rupee and it was the intervention of the central bank that kept it from a dramatic rise. But even the central bank now finds it difficult to restrict the forward march of rupee.

The question is: How will the appreciation of the rupee affect our economy? The immediate impact will be on our exports, economists argue. And if in terms of volume, exports do not suffer significantly in the short run, earnings will decline due to lower realisation in rupee terms. This is reflected in the fall in export growth in the current year. Exports have grown 18.1% in the first quarter against 28% targeted for the whole year.

Exporters attribute the dip in growth rate to the appreciating rupee and have warned that the poor realisations due to appreciation of rupee is impacting their competitiveness, forcing them to cut down on their order bookings.The strengthening of rupee, however, has a brighter side too. As imported goods become cheaper and global competition gets intensified, corporate India will be pressurised to raise productivity. This will benefit the domestic consumers as not only the imported goods will be cheaper but the domestic manufacturers too will be compelled to cut prices to retain their market shares.

But that will be in the future. For the present, Indian companies seem to suffer heavily from rupee appreciation as import intensity of exports is falling. An ET survey of 150 large companies finds that their import intensity of exports, measured as number of times imports as percentage of sales over exports as percentage of sales, has declined from an already low 0.87 in 2005-06 to 0.83 in 2006-07.

What is significant is that the fall in import intensity of exports during this period was largely due to higher shares of exports in sales and not because of rise in the share of imports in sales. That is, although the companies will lose in export earnings due to appreciation of rupee, they will not benefit the same way from imports.

The share of imports in sales has nearly stagnated at around 24% — up by only 0.6 percentage points from 23.7% in 2005-06 to 24.3% in 2006-07. The share of exports in sales at the other end has increased by more than two percentage points during this period from 27.4% to 29.5%. A stronger rupee is now feared to change the equation.

Bangladesh To Import 50,000 Tons Of Rice From India To Keep Up With Demand Levels

Dhaka, Bangladesh (AHN) - The Bangladesh government on Sunday decided to import 50,000 tons of rice from India to maintain supply and to keep pace with the demand in the country, according to officials.

The decision was made at a meeting of the Council of Advisors' Committee on Public Purchase held in Dhaka with Finance and Planning Advisor Mirza Azizul Islam in the chair.

After the meeting, the finance advisor told the reporters that the committee also gave approval to import 187,500 tons of urea fertilizer, appoint a foreign consultant for Siddhirganj power plant and purchase the aircraft for Biman Bangladesh Airlines, which is already in operation under a lease agreement.

The government has decided to import rice at this time to meet its rice procurement target, the finance advisor explained. "As we need to increase the supply of rice to the local market, the stocks should be strengthened by importing rice."

LMJ International Ltd, an Indian company, has been selected as the lowest bidder to supply rice worth US$ 18.76 million (Tk1.285 billion). The company offered $349.90 per metric ton, while two other Indian bidders offered $368.11 and $372 for the same quantity of rice, according to reports.

Best possible semantic consensus

The text of the much debated 123 agreement between India and the United States that will allow for cooperation in the civilian nuclear sector between the two countries was made public on Friday (August 3).

A careful reading of the 22 pages that comprise 17 detailed articles will suggest that this document represents the best possible semantic consensus that could have been arrived at between two vibrant democracies that have been bitterly opposed on the nuclear issue for close onto 33 years — from May 1974 in the aftermath of the Indian Peaceful Nuclear Explosion (PNE) — to date.

Given the orientation of the bilateral relationship between the world’s oldest and largest democracies over the last four decades wherein ‘estrangement’ was the leitmotif of the relationship and the larger international-cum-regional strategic context in which the nuclear issue was located, it would be fair to say that this consensus over the text of the 123 agreement marks a radical and historic trajectory for both nations.

It was driven by a very clear and objective determination of the new strategic realities of the 21st century and the manner in which the two states could maximise their respective positions against the backdrop of the turbulence of globalisation impelled by relentless technological advances.

This bold departure to recast the template of the bilateral relationship was heralded by the George Bush-Manmohan Singh agreement of July 18, 2005 (J18) and in many ways, the 123 agreement’s text allows both leaders to make good their commitments to each other — and more importantly to their respective domestic constituencies.

The latter assumes great import in a vibrant democracy for the political leadership and since the nuclear issue arouses such prickly sensitivities in both countries, the shift in fiercely guarded national positions merits empathetic attention.

Much of the debate in both the US and India since J18 to August 3 demonstrates how policy makers sought to accommodate and allay the concerns expressed and square what must rank as the prickliest circle of the nuclear age since Hiroshima of 1945.

Critics on both sides are equally vehement in claiming that their leadership has ‘sold out’: in India that the right to test has been mortgaged to the US and in the US that India has been allowed to have its cake and eat it too, despite it nuclear defiance — meaning the May 1974 PNE, the obdurate refusal to sign the NPT and worse still, carrying out the May 1998 nuclear tests! Conflict resolution practitioners and negotiating strategy gurus will recognise with wry satisfaction that if both sides are equally dissatisfied and vehement in venting their ire over a deal, then it must be a good one.

India had three principal concerns since J18 and these included the right to retain the option to carry out a nuclear test if the national interest so warranted; the assurance that there would be no repeat of the Tarapur experience when the US cited domestic law and unilaterally terminated its fuel supply agreement; and the right to be able to reprocess spent fuel, which is critical for the three-stage fast breeder/thorium route that India envisages in coming years.

Section 14 of the 123 agreement dwells on the exigency of when and how the termination clause may be invoked and here it merits note that this has been placed in a detailed security context and precludes the possibility of any immediate or unconsidered executive action by the US. In short, there is no fear that punitive sanctions or immediate return of US supplied material will automatically kick in.

But the salience of a potential Indian nuclear test and its relative index in what India is about to obtain as a result of J18 begs detailed politico-strategic and techno-economic cost-benefit analysis by way of gaming or scenario building scrutiny over the next three decades. Should India prioritise the unfettered right to carry out a nuclear test at some indeterminate point in the future as the sole determinant of the national interest in August 2007?

The answer is an emphatic no. India’s abiding national interest at this point lies in seeking the removal of the technology denial regimes and the nuclear apartheid status that has been its cross to bear since May 1974. And the charge against India at the time was led by the Washington Beltway with the tacit support of all the major powers including Moscow and Paris.

In any event, a close reading of Section 14 and the other explanatory notes suggests that India will still have the right to test — if it so desires — but the US will have the right to respond as per its legislation. Here the myth must be dispelled that J18 and the current 123 agreement derived from the Hyde Act of December 2006 place additional penalties on India in the event of a future nuclear test. It may be recalled that US law going back to 1954 (which precedes J18 by 51 years) is an existential reality and an Indian test would have elicited the same US response in any case.

Section 5 of the full text of 123 agreement addresses, to my mind, the guarantees for fuel supplies and the reprocessing anxiety — though the latter will have to be negotiated separately. What is more relevant is that over the last few months it is the United States that has shown the flexibility to concur on the right to reprocess and this is not notional. Furthermore, this is not an immediate requirement for India given the nascent experimental stage of the breeder programme.

Perhaps at the end of the day, what will shape the success or stifling of the George Bush-Manmohan Singh J18 initiative is the trust factor — a nuance alluded to by the National Security Adviser M K Narayanan in a recent media interview. India and the US are yet to develop the appropriate level of trust and confidence in the ‘other’ and the received wisdom on both sides is still shackled by the inheritance of the Cold War. A new phase in the bilateral ties beckons and it will not be smooth but the text of the 123 agreement should provide the requisite foundation.