Hope on the horizon: Singapore Premier Lee Hsien Loong (L) speaks with his Indian counterpart Manmohan Singh

More than three years after the two countries first started talking about it, India and Singapore were slated to sign the Comprehensive Economic Cooperation Agreement (CECA) when this magazine went to press. The agreement, to be signed by Indian Prime Minister Manmohan Singh and his Singaporean counterpart, Lee Hsien Loong, is more than just another accord. The CECA is the first agreement of its kind that India has signed with any country, and is vastly more than the free trade agreements (FTAs) that it has signed earlier with countries like Sri Lanka and Thailand. The CECA with Singapore, in fact, encompasses an FTA for goods and services, a bilateral investment promotion treaty, an improved Double Taxation Avoidance Agreement, and an air services agreement.

Opinion is divided on just how much manufactured exports from India, currently at $2.65 billion, or Rs 11,660 crore, (April-December, 2004), will gain from the CECA. Some say not much because Singapore already offers zero duty on most goods imported into the country. However, Assocham estimates that there's potential to grow trade between the two countries to $50 billion, or Rs 2,20,000 crore by 2010. Says Assocham's President M.K. Sanghi: "India-Sinagpore trade is already growing almost 50 per cent year-on-year. So, an eight-fold increase in India-Singapore trade is not an impossible scenario."

There are no two opinions when it comes to investments. In a sweeping concession, India has agreed to give three Singaporean banks-DBS Holdings, Overseas Chinese Banking Corporation and United Overseas Bank-unfettered access to Indian banking, on par with domestic banks. In addition, it has increased investment limits applicable to institutional investors like private equity investor Temasek Holdings and the Government of Singapore Investment Corporation. That means more of Singapore's (the city-state is already the third largest foreign investor in India) surplus cash can be ploughed into Indian companies. Experts reckon that in the first year alone (starting August 2005), Singapore's FIs could invest as much as $5 billion, or Rs 22,000 crore, in the stock markets, and $2 billion (Rs 8,800 crore) by way of direct investment. It is also expected that bilateral trade, now at $4.5 billion, or Rs 19,800 crore, (April-December, 2004), will double by the end of this financial year.

Yet, it's not just these numbers that have the region watchers excited. "The most important and critical element of CECA is the FTA in services," says Arvind Virmani, CEO, ICRIER, a Delhi-based economic think tank. "This is in line with India's objective of becoming a major exporter of services, much like China is for manufactured goods." And Singapore, given its status as a global financial hub comparable to Hong Kong, is a great market for Indian companies to cut their teeth in before taking on global competition in services that will follow a couple of years from now as part of India's World Trade Organization (WTO) commitments. Singapore, for instance, is home to more than 6,000 multi-national corporations of all shapes and sizes.

That's one reason why Singapore's decision to offer reciprocal concession to India to tap its banking industry and accord mutual recognition to as many as 129 professions (architects, doctors and accountants are some of them) is so significant. "There will be a hub effect with the Singapore CECA," points out Ajit Ranade, Chief Economist at the Aditya Birla Group, meaning that not only will Singapore-based mncs look at India, but even Indian companies will want to set their Asian headquarters in the city-state. The CECA, others say, is just a step towards India's integration with Asean (Association of South East Asian Nations) starting 2006. And Singapore is not just Asean's founding member, but also its richest. It looks like India's road to global dominance will lead through the key economies in Asia.

-Shailesh Dobhal

SECOND
Biotech Touches Billion-Dollar Mark
Revenues of the Indian biotech industry have nudged past the billion-dollar mark. But plenty needs to be done for it to hit the $5-billion mark by 2010.

First, the good news. According to a recent survey conducted by BioSpectrum-able (Association of Biotechnology Led Enterprises), the Indian biotech industry has crossed the billion-dollar mark. Just last year, the industry's revenues were estimated by the same association at $788 million, or Rs 3,475 crore. The number of companies has jumped to 280 from 235 (it was 150 the year before that), and now the buzz is the industry is on track to breach the $5-billion, or Rs 22,000-crore, mark by 2010. The global market is estimated to be worth $91 billion (Rs 4,00,400 crore) with India's share in it at a modest 1.1 per cent at present.

Now, the bad news. There's a lot of hype in the industry. Talk to some leading and serious players, and you are likely to be hit by a barrage of questions: how, for instance, are we defining biotech (technically speaking, making beer and bread can also be considered biotech activity)? Do the revenues of some of the better-known companies (see Biotech Biggies) in the industry add up anywhere close to the billion-dollar mark? (No, they don't.) Finally, how on earth are we going to hit the $5-billion mark, even if biotech is loosely defined? "If $5 billion is to be reached by 2010, it obviously means more biotech products have to be sold, which means those many will have to be approved first, and therefore there is need for creating a regulatory pathway that ensures commercialisation of more products," says Kiran Mazumdar-Shaw, Chairman and Managing Director of Biocon and the first lady of Indian biotech. The country, she feels, needs a regulatory environment that is conducive to the development of drug discovery process. There's also a need to develop the scientific skill base and increase interactions between the industry and academia. That's beginning to happen now, but could well do with some increased pace.

As for the total revenues of the industry, Varaprasad Reddy, Managing Director of Shantha Biotechnics, feels that "the problem is that at times we tend to define it very loosely". According to him, biotech should mean scientific manipulation of living organisms, especially at a molecular level to produce useful products. Focus, he feels, should be on pure and high-end biotech. That kind of work, he says, is very limited in India and unlikely to happen without big investment. Unlike in the US, there is very little of VC and federal funding, especially into the private sector. "We invest across the country what global companies invest individually," he points out. A case in point could be funds from the Department of Science and Technology. At around Rs 150 crore per annum, it amounts to precious little. So, circa 2005, biotech's $5-billion mark looks like a nice dream and nothing more.

-E. Kumar Sharma

Now, State-Owned Low-Cost Carriers
State governments draw up plans to launch no-frills carriers of their own.

Kerala Chief Minister Chandy: Bitten by the aviation bug

There's a new airline entrepreneur on the block: Kerala's Chief Minister Oomen Chandy. At a cost of Rs 300 crore, the state government wants to launch a low-cost airline of its own that will compete with Indian Airlines and Air-India Express to fly passengers on the Kerala-Gulf sector, where the local traffic is heavy. To be christened Kerala Airlines, the state carrier will have a fleet of three big planes and three small ones. "We are in the process of undertaking a feasibility study to understand the costing, possible revenue sources and cities to be connected," says Cochin International Airport Company Ltd (CIACL) Managing Director V.J. Kurian. The state government and CIACL are expected to hold a combined stake of 26 per cent and the rest will be offered to financial institutions and high-networth Keralites.

Kerala's aviation bug seems to have infected other states too. The Madhya Pradesh government has already commissioned consulting firm Feedback Ventures to conduct a pre-feasibility study on its proposed airline, which could be called Khajuraho Airlines. Says Raghav Chandra, MD, mp State Industrial Development Corporation Ltd: "We are looking at various options of connecting mp with six neighbouring states and also major towns (like Khajuraho, Indore, Bhopal and Gwalior) within the state." Chandra says that depending on the feasibility report, the state may decide to launch an airline on its own or rope in equity or strategic partners.

Uttar Pradesh is another state that toyed with a similar idea but without success. However, for the harried tourist in India, newer airlines connecting smaller towns and tourist destinations should be good news. Says Subhash Goyal, Chairman, Stic Travel Group: "The states are fast realising that they cannot depend on the central government for air connectivity or private operators to offer cheap travel within the state." Let's just hope the state carriers take off.

-Kumarkaushalam

FDI
China's Loss, India's Gain?

India rising: Manufacturing is beginning to look up

If china cools down its economy and revalues the yuan, does that mean more foreign direct investment will come India's way? What's the connection, you may ask? The answer is simple: the two measures would increase the risk of doing business in China, say economists. Therefore, companies that want to avoid such a risk may look at India more seriously. Says Rajeev Kumar, Chief Economist, Confederation of Indian Industry (CII): "This may lead to some shifting of capacities to India." It's unlikely that China will revalue the yuan to an extent that it will slow its export-led economy and, as Siddhartha Roy, Economic Advisor, Tata Services, points out, "this must have been built into the project economics of foreign investors in China". For sometime now, India strategy has been seen as a risk diversification move by foreign investors. If China's risk perception increases, India should be its beneficiary. But as CII's Kumar points out, "how we capitalise on (the favourable change in perception) will determine how much fdi comes into India". It's time North Block got moving on this.

-Swati Prasad

The Palk Straits Canal
A 150-year-old idea is nearing fruition.

Minister Baalu: Man of the moment

On July 2, when prime Minister Manmohan Singh flags off dredging operations in the Sethusamudram Ship Channel project off Rameshwaram in Tamil Nadu, he would be kickstarting a project first conceived 150 years ago. Originally proposed by an Englishman, Commander A.D. Taylor of the Indian Marine in 1860, it was periodically dusted off the shelves but saw no real progress. Until, that is, the Ramaswamy Mudaliar Committee report on the Sethusamudram project of 1955 was revived by the NDA government in 1999 and put into action.

The project, which envisages the deepening of a ship channel across the Palk Strait between India and Sri Lanka at a cost of Rs 2,427 crore, will allow ships sailing between the east and west coasts of India to have a straight passage through India's territorial waters instead of having to go around Sri Lanka. The benefits: a reduction of 424 nautical miles (780 km) and nearly 36 hours in sailing distance and time. Other benefits include savings on docking charges in Colombo and better safety to the vessels plying the route.

The canal's bigger promise, however, is to transform Tuticorin into a trans-shipment hub by taking some business away from the Colombo port, which gets 60 per cent of its trans-shipment traffic from India. The project is also expected to catalyse the development of other southern ports like Nagapattam and Rameshwaram and help economic activity in the hinterland. However, shipping ministry officials believe that Tuticorin cannot really displace Colombo in terms of importance as a port, since the bigger Indian vessels will still need to sail around Sri Lanka (because of a lack of canal depth) and dock at the Colombo port. Besides, international shipping would continue to take the route around Sri Lanka.

The ruling party in Tamil Nadu is opposing the project on environmental and livelihood issues, but the real reason could be that it doesn't want the credit for the project-a long-standing Tamil dream-to go to rival DMK to which Union Surface Transport Minister T.R. Baalu belongs. To the others, it doesn't matter who takes the credit-as long as it helps Indian shipping.

-Ashish Gupta

STRIKING GOLD
Afloat On Gas

Gas-rich region: A Reliance ship in the basin

A consortium led by Gujarat State Petroleum Corporation (GSPC), a state PSU owned by the Gujarat government, has found natural gas reserves of 20 trillion cubic feet (TCF) 5 km below the sea bed in the Krishna-Godavari basin off the Andhra Pradesh coast in the Bay of Bengal. This gas field is expected to yeild gas worth Rs 2,00,000 crore over a period of 20 years. To put the find in perspective, Reliance's gas fields in the same basin are reported to have reserves of 14 TCF.

GSPC leads the consortium with an 80 per cent stake; the remaining 20 per cent is split equally between the Noida-based Jubilant Enpro and the Canada-based Geo-Global Resources.The state PSU, which earned a net profit of Rs 300 crore on a turnover of Rs 1,100 crore in 2004-05, expects to begin operations in the gas field by 2007. The investment on infrastructure needed to exploit the gas block: Rs 1,500 crore. Says D.J. Pandian, Managing Director, GSPC: "Funding our share of the investment is not an issue. We are looking at a Rs 300-500 crore IPO (initial public offering) in the next 6-12 months. The project is likely to be funded through an equal mix of equity, debt and internal accruals." India's gas story just got better.

-Kumarkaushalam