For a durable growth story

For a durable growth story

There's no question of a slowdown as the consumer durables industry enjoys exceptional growth this year with all classes of consumers on a buying spree.

Upbeat: A combination of factors helps the consumer durables industry flourish.

R. Ravikumar
Debdatta Das
Vinay Kamath

It's a large media conference in Chennai on a recent afternoon which H.B. Lee, President and CEO, Samsung South West Asia, and Ravinder Zutshi, Deputy Managing Director, Samsung India Electronics Pvt Ltd, are addressing. The meet is to announce the launch of Samsung's second factory in India, after the one at Noida, at the Sriperumbudur SEZ, around 25 km from the city. The plant will have a capacity to make 1.5 million units of flat TVs and 30 lakh units a year of LCD TVs.

The warm afterglow of the launch conference is interrupted, however, when a media person puts a question to Zutshi on the day's headlines that the consumer goods industry has dragged down industrial growth in September, according to official data from the Central Statistical Organisation. An indignant Zutshi is quick to take umbrage and defend the industry, emphasising that overall the durables industry has grown 12-14 per cent with every category seeing growth. As he says, he's not sure where the government is getting its figures from, but the industry is doing quite well, thank you. And, to boot, he points to Samsung's huge expansion in Chennai.

Indeed, as Zutshi told BrandLine later, "The consumer durable industry has shown a healthy growth trend this year linked with the higher growth in the high-end categories, the rapid adoption of consumer electronics in the non-metro markets, new technology and range introduction that is encouraging people to upgrade, easy financing options as well as the buoyancy being seen in the economy that is fuelling consumerism."

And, the festival spirit of soaring sales — stretching from Onam to Diwali — extends to fellow chaebol LG Electronics, whose managing director, Moon B. Shin, is extremely upbeat. During this festive season so far, LG India has recorded 51 per cent growth in terms of value and 34 per cent in terms of volume over the same period last year. "We posted a record sales revenue of over Rs 1,100 crore just in October this year," says Shin. According to him, it registered a growth of 78 per cent growth in the home appliances business, with 85 per cent value growth in refrigerators, 96 per cent growth in washing machines and 41 per cent in the air-conditioner category.

So, if the two big 'uns of the durables industry are seeing scorching sales, what gives? Why do official figures trotted out by the government say durables sales are flagging? Are the Cassandras beating the wrong drum? As Suresh Khanna, General Secretary, Consumer Electronic and Appliances Manufacturers Association, explained to Business Line in an earlier interview: "The very basis of computing the data is wrong since it takes into consideration only the obsolete product categories such as VCRs and curve TVs, and do not take into consideration newer categories such as DVD players and MP3 players that have high volume generation. Also at times the Government is not able to get all the production data from each of the companies."

Endorses Vivek Sharma, Vice-President (Marketing) of MIRC Electronics which markets the Onida brand, "The Government definition of consumer durables is over 20 years old and obsolete. It still gives high weightage to typewriters, clocks and calculators while it is zero for microwave ovens, which posted a handsome growth this year. It gives minuscule weightage to home theatres and washing machines. So, it does not reflect the current market trend." R. Subramaniam, Managing Director of discount retail chain Subhiksha, offers a fresh perspective when he says, "The price performance equation in durables is almost like in computers – vastly better products at prices that are continually lower, making the reported official numbers (on value basis) not so relevant."

And, current trends are that high-end durables are driving sales and even changing purchase patterns of consumers across demographies. Explaining the reasons behind the phenomena further, V. Ramachandran, Director (Marketing and Sales), LG Electronics India Pvt Ltd, says, "Increase of incomes is riding the demographic dividend. Not only are its repercussions being felt in the higher strata of the society, even the lower end is experiencing benefits of higher incomes. So, where the higher strata is going in for premium items such as LCD televisions and four-door refrigerators, the lower end of the demography, with rising levels of aspiration and salaries, is going in for multiple ownership of durables and electronics such as air-conditioners, televisions and refrigerators."

Onida's Sharma says that the housing boom too is a major factor for the spectacular growth this year. "When people move into new houses, they also want to buy new durables. And, as a result of increasing disposable income, they tend to graduate to high-end products, which is another major reason for this growth (in value terms)," he says.

Francis Xavier of Francis Kanoi Marketing Planning Research is of the opinion that the past decade has been good for durables as a whole, with blips now and then in some category or the other. He does not buy the theory that tightening of finance could slow down spending on durables. "Like earlier, prioritising purchase of durables is not an issue any longer," he says. With more money in consumers' hands, and with durables by and large being smaller-ticket items compared to say, a car or a high-end two-wheeler, consumers, he points out, are looking to buy them outright rather than look for finance.

Manufacturers of durables and retailers saw a very sharp uptrend at Dhanteras and Diwali, a trend that is expected to continue. As Subhiksha's Subramaniam says, "We expect the durable market to be showing strong growth in coming years also as the larger numbers of nuclear families, higher income levels and access to credit and faster replacement cycles and larger incomes in hands of young consumers create a potent combination of high growth. There has been a huge upswing in sales of mobiles, especially, as there was a bit of a lull around the time of the Nokia battery crisis."

B. A. Srinivasa, Director of Chennai-based durables retail chain Viveks, says their sales in the period April to November this year were 25 per cent higher compared to the same period last year. "It's not clear who is driving the sales, whether the manufacturer, consumer or the dealers; it's a combination of everyone," he says. The consumer, he says, has benefited from the double '0' (zero) offer - he doesn't have to pay either processing charges or interest which is borne by the manufacturer and the dealers.

Categories such as air-conditioners are red hot and growing at 25-30 per cent, says Srinivasa. "Even a few years ago, air-conditioners were not part of middle-class households. Now, people are looking at owning multiple air-conditioners for the various rooms in a house," he points out. LCD TVs too is another category that is growing even at 300 per cent in some markets, albeit on a low base.

Maharashtra scraps land law, property shares rise

By Krittivas Mukherjee

MUMBAI (Reuters) - India's richest state, Maharashtra, has scrapped a law that controls urban land holdings, potentially freeing up large tracts of prime real estate in the financial hub of Mumbai, a move which sent shares of property firms up sharply.

A government spokesman said the assembly of the western state of Maharashtra on Thursday repealed the Urban Land (Ceiling & Regulation) Act.

Analysts and property developers said the law, which has been in place for three decades, has hampered construction of homes and offices and contributed to soaring property prices, and scrapping it may bring thousands of acres of prime land to the market.

"Physically, it will free up a lot of land for development. Our estimate is that it could free up 15,000-17,000 acres (6,100-6,900 hectares)," said Pranay Vakil, chairman of real estate consultancy Knight Frank.

"Admittedly, a lot of this land is embroiled in legal issues, so it's not like tomorrow hundreds of acres of land will be available. It will take time."

Developers said the move could free up to 25,000 hectares of land in Mumbai, where property prices match, or in many cases overtake, prices in New York and Tokyo.

Shares of real estate firms soared on the news, with Housing Development & Infrastructure Ltd gaining more than 8 percent, while the main share index was up 1.5 percent.

Some analysts said the move would primarily help companies which have land to sell but could not previously because of the restrictions, and the potential buyers may not gain much as property prices are already high.

Thousands of hectares of land will also be available for development in Maharashtra's other crowded cities, such as Pune and Nagpur, where there is a high demand for houses and office spaces.

Critics of the land ceiling law say freeing up land will make way for commercial redevelopment and crucial infrastructure.

But supporters of the law, particularly the communists, say the move will help builders, not the common man.

Unveiling the A-Star, Maruti's new concept car

The forthcoming Auto Expo in New Delhi will see some high decibel display not just at the Tata Motors [ Get Quote] pavilion, with its Rs 1 lakh car, but also from market leader Maruti Udyog [ Get Quote] as well. Maruti said a brand new concept car, A-Star, a new compact car, will be displayed at the ninth edition of Auto Expo in January 2008.

The showcasing at the Auto Expo, A-Star will join the elite club of concept cars displayed for the first time in India. Tata Motor's Indica was first displayed at the Auto Expo in January 1998 and hit the market a year later, witnessing a recording booking of over 100,000 units in the first couple of weeks of its launch.

"With a 5-year capital investment of $ 2.2 billion in a new car plant, a diesel engine manufacturing unit, a new engine series and new models, Maruti Suzuki is emerging as a global manufacturing hub for Suzuki operations worldwide. The next level of commitment will be evident in R & D, with a vision to make Maruti Suzuki the R & D hub for automobiles in Asia. Concept A-Star is a decisive step forward in that direction," a statement from Maruti Udyog said.

A-Star has been developed by Maruti Udyog and its Japanese parent, Suzuki Motor Corporation for the global markets. After making its debut showcase at the New Delhi Auto Expo, Star-A is expected to make the rounds in all major expos across the world, the company statement added.

The Concept A-Star is, in fact, the precursor to Maruti Suzuki's global compact car that will be launched in the future.

The global compact car will be manufactured in Maruti Suzuki's new plant in Manesar for export to Europe. This model will also be precursor to the export model that company will ship out with the Nissan badge starting from 2009-10 fiscal.

In 2006, Nissan and Suzuki had signed and agreement which would see Maruti delivering 50,000 units of a compact car model to select markets for Nissan in Europe.

A Maruti spokesperson clarified that the deal with Nissan was for a single export order of 50,000 units and it not necessarily an annual export commitment, though repeat orders from Nissan has not been completely ruled out.

The 100,000 units of A-Star will also be exported with the Suzuki badge, while 50,000 units is slated for the domestic market that will carry the Maruti badge. 

Apart from A-Star, Maruti is also expected to launch another compact car Splash around 2009-10. Splash that was displayed recently at the Tokyo Motor Show, Japan.

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Gaming in India set to grow 72% by 2010-11

Priyanka Joshi / New Delhi November 28, 2007

gaming summit is being organised by IAMAI in Mumbai today.

The Indian gaming market is growing at a dizzying pace. The figures tell the story. The Indian gaming segment — comprising mobile, computer and console games and development — touched Rs 192 crore in 2006, and is likely to cross Rs 1,700 crore by 2010, states Nasscom.

The compound annual growth rate is 72 per cent over 2006-2010. Industry players are more bullish. They peg the figure for 2010 at almost Rs 2,500 crore.

“Interactive online entertainment is changing the way an entire generation consumes gaming... it is expanding beyond passive consumption to include story-telling and that is where we get our casual, first-time gamers,” said Rohit Sharma, COO, Zapak, which is collaborating with Intel and the Internet and Mobile Association of India (IAMAI), to organise a gaming summit on November 28, in Mumbai.

The summit, insists Sharma, will bring to the fore issues like retailing games — both mobile and online — that players haven’t been able to master.

“Zapak, which already has 10 gameplexes (dedicated cyber cafes that promote online gaming), will more than double the number in 2008. Besides, pre-paid game cards should see us reaching to the next million consumers,” he said.

Subho Ray, president, IAMAI, agrees with Zapak’s efforts to make cybercafes the ‘Mecca’ for gaming. Most of the revenues for online games come from organised cybercafés (Rs 12.17 crore), followed by subscription-based revenues (Rs 6.6 crore), and advertising (Rs 2.24 crore).

Already retailing at 1,300-odd retail shops, Zapak has been able to attract the younger crowd with a range of “easy-priced game cards”. Zapak is also committed to invest $30 million (around Rs 120 crore) over the next two years, developing its content and delivery model in India.

Meanwhile, Vishal Gondal, CEO of Indiagames, is busy with his own retail strategy for mobile games. “Video clips, games and advertising have been available in limited capacities on mobile phones, accessing the content has typically been cumbersome, due to slow response times, high costs, and the need for excessive clicking on the part of the consumer,” he points.

Indiagames is ready to launch pre-programmed scratch cards and CDs in retail stores by January 2008, which will enable users to load their mobile phones with games of choice.

“These retail packs will be priced at as low as Rs 50 and will allow users to buy particular game subscription for a fixed number of hours,” said Gondal.

Investing largely in developing a business model for the online gaming platform, Zapak believes that advertising-based revenue models are not going to be on its priority lists.

“Since the gamer base is limited today, there are not many advertisers who would bet their money on in-game advertising,” Sharma reasons.

“The main driver for sustained growth in the online games market will be the continued uptake of broadband services,” according to Strategy Analytics, an international research firm.

Ray feels online gaming will accelerate in 2008 “if it were to be declared as e-Sports and all the advantages that accrue to sports are extended to online gaming as well”.

INDIA GROWTH CAN SUSTAIN

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INDIA GROWTH CAN SUSTAIN

'India can sustain growth rate'

Special Correspondent

Finance Secretary says that globalisation is here to stay



D. Subba Rao

HYDERABAD: Union Finance Secretary D. Subba Rao has said that the Indian economy had the potential to sustain the current rate of growth, as the growing consumption demand is fuelling investment demand.

Delivering the C.C. Desai memorial lecture on 'Elephants too dance: The India growth story' at Administrative Staff College of India (ASCI) here on Saturday, Dr. Rao listed out five challenges and said addressing them could maintain the country's growth momentum.
Five challenges

Stepping up agricultural growth to a sustained four per cent; expanding employment opportunities; improving service delivery; bridging the infrastructure deficit and efficient management of globalisation were keys to unlock the potential, he said.

Globalisation as an economic force was here to stay, he said. India was a truly globalised economy, as the two-way trade was now pegged at 35 per cent of the gross domestic product (GDP) and if the two-way movement of capital flow was added, it would be almost 100 per cent of the GDP.

Dr. Rao said there was excess capital flow into the country. While the current account deficit was 1.8 per cent of the GDP, the capital inflow was estimated at four to five per cent. This was mounting pressure on the rupee, affecting exports. He felt that the current account deficit could go up to three per cent.

For improving service delivery, he underscored the need for spending more on education and healthcare and making quality in education more important than quantity to produce more employable people. The growing dependence on public-private partnership was only to double the capital expenditure on infrastructure development. "But we have brick and mortar syndrome like school buildings without teachers and health centres without doctors. We need to come out of this," he observed.

ASCI chairman M. Narasimham and principal S.K. Rao and several bureaucrats participated.

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'Chak De India’ to our infrastructural backbone to make ...

Shiv Agrawal Saturday, 24 November , 2007, 12:03

There was a time when looking for a job was a difficult proposition. The only avenue available at the time was to either hunt for a reference or to stand in endless queues, toiling hard to be selected through a mindless selection procedure. The government was the single largest and most prestigious employer at the time and the best that one could aspire to was to clear one of the Union Public Service Commission's (UPSC) numerous examinations. The highest rankers made it to the Indian Administrative Service and moved from one plum posting to the other throughout their lives, while the lower rankers roughed it out in the audit and accounts or customs and excise departments. All the same, all those who made it to the hallowed lists of UPSC were fortunate enough to have an assured career with time-bound promotions, perks and career growth prospects. This was the India of yore - predictable, bureaucratic and if I might add, terribly boring. Contrast this with today's scenario - a young, vibrant economy with mind-numbing growth; a young, brilliant and discerning workforce that is today spoilt for choice. A paradigm shift in thought processes, which now move from stability in life to fast-paced growth - it is no longer about the IAS and IPS; it is now about the IIMs and the CTCs. Starting salaries are the new buzzwords and it is all about buying your first car and condo before you hit 25. Needless to say, all this change has not happened overnight. It has been a painstaking effort on the part of numerous entrepreneurs, professionals, bureaucrats and policymakers over the last few years. Our intellectual capital, which had been carefully nurtured over the years, enabled us to take a huge leap towards this end. The job market has never been this good. The 'war for talent' has enabled Indians to draw global salaries in their homeland - an unthinkable scenario even five years ago. No longer do companies enter Indian shores hunting for cheaper talent, services or manpower. They come here today to look for global managers and to be part of a phenomenal growth story. A political party overplayed its hand with the 'India Shining' campaign - little did it realise that the professional workforce that has driven this growth does not constitute the main vote bank of this country. The farmer suicides, the caste politics, the communal riots, etc do take the sheen off any such campaign, though the growth continues, in spite of these aberrations. It is like a juggernaut which rolls on relentlessly, unaffected by anything in its path. This is what makes this growth story so special. It is across sectors this time around - manufacturing, pharma, IT, outsourcing, retail, services - every domain is buzzing with activity. The stock market, which is often an effective indicator of growth, is holding on to unprecedented levels. The soothsayers have been predicting its fall for quite some time, but it always manages to bounce back even from severe situations. So, is there anything to be afraid of, or is it going to be smooth sailing all the way? I would have loved to say it would be a smooth sail, but unfortunately it is not so. The single biggest impediment in the face of our growth aspirations is our infrastructure. Our 'financial capital', Mumbai, is on the verge of an infrastructural collapse. The Mumbai floods are an example of sheer systemic breakdown. IT hubs like Bangalore and Hyderabad are incapable of handling the mind-numbing growth in population. Traffic jams, power and water shortages are energy sapping and terribly endemic to growth. The capital city of Delhi boasts of a state-of-the-art metro rail, but unfortunately, it is choked to capacity barely a year after being inaugurated. The Indian way of life is to adapt to the impossible and we are used to braving the 'Mumbai locals' or the 'Delhi potholes' en route to our workplace on a daily basis. However, this cannot be an excuse for inefficiency. The Prime Minister has set aside a huge corpus of funds for infrastructural development. But then, funds were never a problem. It has always been about 'getting things done' and 'doing it right the first time around'. We have a real chance to transform into a developed country within the next few years. Our professionals have already started to make the transition towards becoming global managers. It is time for the policymakers to clean up their act. It is time for us to follow what Shahrukh Khan tells his two star forwards in Chak De, "pass the ball to the one best placed to score a goal." In real life as in the reel, it is all about team work. The forwards have taken the first step, it is now time for the rest of the team to do their job and do a 'Chak De India' to our infrastructural backbone to make this dream a reality.

Forex reserves rise $967 million to $271.1 billion

NEW DELHI: India's foreign-exchange reserves increased $967 million to a record $271.1 billion in the week ended November 16, suggesting the RBI bought dollars from the local currency market.

Foreign-currency assets rose by $978 million to $262.9 billion, the Reserve Bank of India said in a release on Friday.

The nation's special drawing rights with the International Monetary Fund fell by $10 million to $3 million during the week, the bank said.

The nation's reserves with the IMF fell $1 million in the week through November 16 to $433 million while gold reserves were held at $7.81 billion, the RBI said.

The change in foreign-currency assets is partly because of changes in the value of the dollar against the euro, yen and other currencies during the period, the central bank said.

India's foreign-exchange reserves rose by $100.8 billion over the past year and by $72 billion in the financial year that began April 1, the bank said.

The reserves comprise overseas currencies, gold and special drawing rights with the International Monetary Fund.

Burger King to enter with DLF

Anandita Singh Mankotia, Rishi Raj

New Delhi, Nov 22 The world's second-largest burger chain, the $2.3-billion Burger King of the US, is set to enter the Indian market. The company is tying up with the country's largest real estate company by value, Delhi-based DLF, in a 51:49 joint venture. Regulations allow up to 51% foreign direct investment in single-brand retail.

The Miami-headquartered Burger King was earlier in talks with Kishore Biyani's Future Group but they fizzled out when it opened negotiations with Seattle-based coffee chain Starbucks. The fast-food chain, which has 11,100 restaurants across the globe, operates over 90% of its outlets as franchises. By entering into a joint venture with a real estate company, India, therefore, marks a departure from its usual strategy.

When contacted, a DLF spokesperson said that the company was talking to many prospective partners, but that nothing has been finalised.

The fast-food chain is expected to begin its South Asia foray with India and then is likely to enter the neighbouring market of Sri Lanka, among others, sources said. The company, which is already present in 65 countries worldwide, had been eying India for some time.

Once Burger King sets foot in the Indian market, it will be directly pitted against arch rival, the $20.4-billion McDonald's, which is the world's largest fast-food chain with 31,000 stores worldwide. McDonald's operates 122 outlets across the country through the franchise model. Other global food chain majors like Pizza Hut, Domino's, Papa John's and KFC are already present in the country.

Negotiations between Burger King and DLF highlight the growing trend of tie-ups between foreign retailers and Indian real estate developers, confirming the critical nature of property costs in the success of such ventures.

Analysts point out that with escalating rental-to-revenue ratios, such an arrangement could soon become commonplace, as in retail, established international retailers need an Indian partner only for access to the Indian market.

In a scenario of spiralling rentals across the country, an Indian partner with land banks and access to prime locations becomes the natural choice.

Why is India such a good growth story?

Alok Ray

Many studies, including the much-hyped BRIC report by Goldman Sachs, project, largely on the basis of an improved demographic profile, that India will be the country with the third largest GDP in the next 50 years. But, clearly, the report presupposes a reoriented Indian state that puts development at the forefront of its agenda, says Alok Ray.

INDIA and China are two of the fastest growing economies today. India has come out of the shackles of the "Hindu growth rate" of 3.5 per cent. In addition, the external perception about India's growth potential is at an all-time high. Is this just media hype or is there a solid foundation underlying this changing perception?

No doubt, India continues to be mixture of contradictions, a curious combination of change and tradition. As someone said, whatever statement one makes about India is true, at least in some part of India.

A correspondent from The Economist magazine came to India a couple of years ago. His objective was to take stock of the changes in India after the economic reforms started. He went to Bangalore, India's "Silicon Valley" and spent some time in the gleaming, glass-walled office of a software company to get a feel of the "new India". Then he looked through the window and saw a construction site.

Hundreds of sari-clad women workers were carrying a mixture of cement and sand on buckets placed on their heads. He realised that nothing much has changed outside the software enclaves. Then he took a closer look. He found that these women were all wearing hard-hats on their heads. For sure, this was a change! Employers and workers have become aware of the international safety standards.

Looking closer still, he discovered that the hard-hats, unlike those used in the West, had a flat top, specially designed to hold the buckets in place. He recognised innovation adapted to Indian reality. This anecdote shows that if you have eyes, you can perceive significant changes occurring beneath the apparently placid exterior.

Many recent research studies on India are trying to do precisely this. As a sample, consider the much-hyped BRIC (Brazil, Russia, India, China) Report by Goldman Sachs. It projects that, in dollar terms, India will be the country with the third largest GDP in the world, at official exchange rate, in the next 50 years.

In other words, India will surpass such countries as Japan, Germany and the UK in terms of size of GDP. What is the basis of this projection? Two important changes are emphasised.

First, the percentage of people in the working age group would be higher in India than in most of the developed countries over the next 30-50 years. This is because India's population growth has come down significantly in recent years whereas it used to be much higher in earlier periods.

At this point of time, the bulge in the population (due to higher rate of population growth earlier) is concentrated below the working age (15-60 years) group. Over the coming decades this bulge will move but all these people will be in the working-age bracket, contributing to GDP.

In the developed countries the population growth rate is usually much lower. However, a spike in population growth occurred as a result of the "baby boom" right after the Second World War. This would imply that a large percentage of the population in those countries will now be beyond the working age.

Further, rising longevity means that these retired people would live longer. All these would lead to a higher fraction of population (not contributing to current output) living on the output produced by the current workers. Even China may face a labour shortage in the next decades because of the belated effect of the strict one-child norm imposed much earlier. So, India may be more favourably placed in terms of its age composition of the population.

The second favourable factor is the rising value of Indian rupee, which the BRIC Report believes will continue. Thus, a given Indian GDP in rupees would mean an ever-increasing GDP when measured in US dollar, if the rupee continues its upward journey vis-à-vis US dollar.

Standing today with $110 billion worth of foreign exchange reserves and a rupee steadily appreciating against the dollar, this cannot be dismissed as a pipe-dream. Note that we are not talking of GDP in terms of the so-called PPP (purchasing power parity) exchange rate.

According to the PPP exchange rate, the value of rupee today is several times the official exchange rate. It is mainly because services (like haircuts and taxi rides) are particularly cheap in India. Suppose the official exchange rate is Rs 45 to a dollar but the same basket of goods and services costs $1 in the US and Rs 9 in India.

In such a case, the use of the PPP measure would immediately increase India's dollar GDP five fold.

Having the third highest GDP (after China and US) in terms of the official exchange rate is clearly a much bigger achievement.

There are, however, a few ifs and buts. First, India's third position in the world would be in terms of total GDP. In per capita income, India would still be much below the developed countries. According to a BRIC report, in 2050, India's per capita dollar income would be only half of what US per capita income is today.

This is despite the projection that from 2020 onwards, the growth in per capita income in India would be the highest compared to all other BRIC nations and G-6 developed countries. It has an important implication. Even when India would be the country with the third largest GDP, its relatively low per capita income would imply a significantly different demand pattern, compared to countries such as the US. People wanting to do business in India must keep that in mind. An average Indian, even in 2050, would not be having two cars in his garage and would not be buying a new car every 2-3 years.

Second, the BRIC report implicitly assumes that the working age population would be productively employed. That may not automatically happen.

It would need acquiring and upgrading of skills in a fast-changing competitive world. Can we be so sure of this when even now nearly half the population cannot complete primary education?

Clearly, the Report presupposes (though it does not say so) a reoriented Indian state, which has to devote a lot more energy and resources (financial and administrative) to providing basic education and health care to its teeming millions.

Mass education and awareness of rights at the grassroots level hold the key here. Only then would the electorate be able to force the political leaders to move away from caste- and religion-based politics and place economic development at the forefront of their agenda. A recent London School of Economics research study projects that even an 8 per cent growth rate till 2026 would not be able to avoid a rise in unemployment in India.

Though both India and China are currently considered as the two big growth stories in the world, some detect a significant difference in their growth patterns. In China, the near-double-digit growth has so far mainly been fuelled by high investment expenditure. In India, it is more consumption driven.

In fact, the lifestyle of the rising generation may well be geared to more ostentatious living, thanks to advertising and easier availability of consumer credit. As a result, the savings ratio in India may go down, instead of up, in the future. If that is true, then (much like the US) India's high growth would need to be sustained by foreign savings or foreign capital inflows.

This may happen provided there is a significant improvement in India's physical (power, transport, communication) and social infrastructure (education, health, sanitation, legal and general administration). Again, that cannot be taken for granted. As a New York Times article puts it, India, unlike China, has the hardware of democracy — free elections. But it still lacks the software — decent, responsive, transparent local government.

There is a saying in investment circles that you should invest in an emerging economy when the first international airport is built and you should exit when the second airport comes up. That signals over-investment. China may soon reach the second airport stage. In that event, India would make an even bigger potential growth story in the years to come.

(The author is a Professor of Economics, Indian Institute of Management Calcutta. His e-mail: alokr@iimcal.ac.in)

Price no deterrent, India is a growth story 15 Nov, 2007, 1958 hrs IST,Shailesh Menon, TNN

MUMBAI: Stocks on Indian bourses may be commanding huge PE (price-to-earnings) multiples, but for brokers and investors they translate into an ‘extra price’ they pay for higher returns on investments. A dipstick study, conducted to see how well-priced desi blue chips are vis-a-vis their peers in developed and emerging markets, reveal that Indian shares are far more expensive (in terms of PE multiples) than global majors with better revenues and adjusted profits. To make a point, L&T with a trailing PE of 56 times is far more ‘expensive’ than engineering behemoth GE (18) or a Mistubishi (13). Likewise, ICICI commanding a PE of 41 times is far more expensive than Citigroup (9) and BNP Paribas (8). IT major Infosys with a trailing PE of 24 is undoubtedly valued higher than EDS (13.8) and Oracle (20). PE gives investor an idea as to what the market is willing to pay for the company’s earnings. The higher the PE the more the market is willing to pay for the company’s earnings. PE, as an indicator, helps investor in deciding whether he should invest in a particular stock or not. A scrip trading at a PE of 15-18 times is generally regarded as a ‘fairly valued’ stock across markets, provided the company has decent earning potential. How are Indian shares priced when compared with their peers in developed and emerging markets? “At first glance the Indian market appears expensively priced both on an absolute basis and relative to other emerging markets. Yet these static comparisons do not take into account the higher growth projected for the Indian economy. With such a fast growth market it is important to value the future growth prospects, as uncertain as they are,” said a recent India economic report by Lehman Brothers. According to analysts, sectors like capital goods (cement included), banking and telecom are rallying on the long-term domestic-based consumption story. If the capital goods sector is considered, almost all companies are doing exceptionally well in terms of corporate earnings and maintaining heavy order books. In the case of banking sector, increase in retail loans and higher credit off-take would help banks register growth in the years to come. As far as telecom sector goes, India’s low mobile penetration offers huge scope for growth, experts say. IT is one sector that is not doing well for investors. A section of the market believes, the ‘dream 30% margins’ (usually associated with IT companies) cannot be maintained for a longer timeframe . However, there are optimists who believe IT stocks would continue to be upbeat on the bourses once sanity reaches world currency markets. “Indian frontliners may appear a bit expensive , but where else in the world would you get companies with a 30% growth rate and an equally stupendous return on equity ,” asks Sage Capital’s Manish Kanchan. To some extent, professionally-run Indian companies have better business modules than the best known global conglomerates. They are well-positioned for sustained growth. All the more certain is the fact that companies in the US and Europe are commanding PEs because they are operating in an economy that is facing a downtrend, Mr Kanchan added. Though valuations are steep, there are investors who are willing to pay more for slice of Indian equity. This, according to experts, mean investors have belief that the country has long-term growth prospects over and above its current position . “Although current static multiples look high, if growth is achieved then stocks are attractively priced even on a risk-adjusted basis. We expect Indian equities to outperform developed and emerging market indices over a five-year horizon,” states the Lehman Brothers report.