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India Inc. Comes of Age
The acquisition of Hutchison Essar Ltd India’s second largest
GSM mobile service provider by
the U.K.’s Vodafone Group Plc and the acquisition of the U.K.’s
largest steel maker Corus Group Plc by India’s Tata Steel Ltd
reinforce the reciprocity between Indian and the U.K. companies
seeking to unlock the potential in emerging economies on one hand and
harnessing the size and scale of global operations on the other.
The year 2007 is on track to be a year of ‘mega
deals’. The deals so far have already captured around $40 billion,
twice as much as last year and 10 times more when compared to the
corresponding period. While last year the focus was on the volume of
deals, 2007 will be more value driven and is expected to touch the
$100 billion mark.
The acquisition of Hutchison gives a boost to
Vodafone’s plans to drive its future growth and value proposition to
its shareholders through significant inroads in emerging markets. The
Indian mobile telephony market, the fastest growing at more than six
million subscribers a month is expected to reach a subscriber base of
348 million by 2010 from the current 143 million.
The acquisition of Corus Group Plc by India’s
Tata Steel Ltd after the auction proceedings with rival Brazilian
steel company, Companhia Siderurgica Nacional (CSN) highlights the
growing significance and the competitive scenario among the BRIC’s
economies (Brazil, Russia, India and China), which have been
responsible for a third of the global growth since the year 2000.
Their share in the world growth is expected to double to more than 40%
by 2025, according to estimates .
S&P’s Investment Rating: A Bag of Mixed Fortunes
The recent upgrade in India’s sovereign credit rating to investment
grade by Standard & Poor's, the global rating agency has come as
good news at institutional and Foreign Direct Investment (FDI) levels.
Foreign direct investment (FDI) to India is expected to more than
double to $12 billion this fiscal, the highest increase ever.
There are reasons to believe that the progressive trend will
continue across sectors including the favourite Information
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The rating will help significantly increase India's investor base
opening up Indian asset markets potentially to the benchmarked
investor community, which can only invest in investment-grade
categories. The country received $8 billion foreign investments in
Indian stocks this fiscal so far compared to $10 billion in whole of
last year, according to estimates.
On a second thought, is it so good? India's rating is still the
lowest amongst key Asian economies. At least 13 other countries are
investment grade including Vietnam, Indonesia, Thailand, Philippines,
Sri Lanka, Mongolia among others.
Perhaps, that’s the price the country has to pay for being a
responsible democracy as some of the development agenda set by the
government is held back. In the case of the Special Economic Zones,
only half of the initially received 300 proposals were cleared and the
process hasn’t moved ahead after that due to opposition from the
Special Interest Groups (SIGs) and Farmers that are an important set
in the electorate.
RBI: Making the Right Moves
The Credit Policy announced by the Reserve Bank of India (RBI), the
central bank of the country last week presents a well balanced
approach to check inflation while ensuring that the growth trends in
the economy remain unhindered towards 10% mark set by the Government.
While the former is restricting the creation of credit and raising
the cost of borrowing with a 25 basis points increase in the repo rate
(overnight lending) to control inflation, the latter continues to
encourage growth and investment in the country.
The RBI was generous to the residential housing sector keeping it
out of the ambit of the provisioning requirement, which has been
increased to 2% standard assets from the existing 1%. Housing
requirement of 80 million units over the next 15 years, the country
needs huge investments in this area. The Indian Finance Minister
chipped in with instructions to the public sector banks not to raise
the interest rate on housing loans.
This along with the higher sovereign ratings by S&P earlier
will help banks to sell bonds overseas. Thus, increasing money with
banks and enabling them to increase lending to consumers. Bank of
Baroda, a leading public sector bank plans to sell as much as $1.5
billion of medium-term notes to finance overseas expansion. ICICI
Bank, the second largest in the country, this month sold $2 billion of
dollar-denominated bonds, the most raised overseas by an Indian
company, to meet demand for loans as the nation's middle class grows.
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