Despite a government whose policy-making is held hostage by Left partners, is the unthinkable happening? Has India's economy acquired a momentum of its own? Has it reached an inflexion point where a double-digit growth-or, at least, a sustainable 9 per cent rate-is within reach? As the country took stock of its GDP growth in the second quarter of this financial year, more than a few were surprised by the 8.1 per cent rate it had racked up (same period last year, the figure was 6.7 per cent). Prime Minister Manmohan Singh talked of pushing the growth to 10 per cent, but his chief growth strategist Montek Singh Ahluwalia and Finance Minister P. Chidambaram, spoke of a more realistic 8 per cent plus rate.

The good news: There are others outside the government who believe that the economy is on a roll. And here we are not just talking of stock market investors, who pushed the benchmark Sensex past the 9,000 mark a day before Chidambaram presented his economic scorecard to Parliament, and now have their sight set on 12,000. "An 8 per cent GDP growth is already here with all its built-in populism and without any additional reforms," notes economist Surjit S. Bhalla. His logic: a fall in interest rate of nearly 4 per cent, a reduction in fiscal deficit by 2 to 3 per cent, increase in the investment rate by 5 percentage points from the 1990s and a lower population growth have all contributed in putting India on a high growth trajectory. Industry has already started clocking 8 per growth and services over 9 per cent, and if agriculture can touch 3 per cent, India's growth rate will be clearly on the 8 per cent curve. Chidambaram said as much during his review, when he pointed out that had mining and electricity production not suffered, 2005-06 would have ended with an 8 per cent growth, and not 7 per cent as now expected.

In a way, Chidambaram put his finger on the problem with India's 8 per cent growth story. There are key sectors like manufacturing and agriculture where growth is retarded by all the well-known problems: poor infrastructure, especially the dismal state of the power sector, poor investment climate, rigid labour laws and little movement in the reform agenda. "The worrying part is the investment climate. Very few entrepreneurs are investing in greenfield projects and hence there's little scope for growth in employment," notes Subir Gokarn, Chief Economist at credit-rating agency crisil. Chidambaram red-flagged the investment pace, too, saying it would be difficult to sustain a growth rate above 8 per cent given the investment rate of 26.3 per cent.

So, how is India likely to catch up with China's rates of growth? Ironically, not because India will suddenly start pushing 10 per cent, but because China's stunning growth seems more likely to slow down. For instance, Bhalla says, a 10 per cent upward revaluation of China's currency yuan could shave 1.4 per cent off its annual growth. A high degree of export dependence-80 per cent of all goods produced is exported-makes it vulnerable to a slowdown in the US and European markets. Also, its FDI performance is unlikely to get any better. "No economy can increase its savings rate from the current 45 per cent and garner more than $50 billion (Rs 2,25,000 crore) a year in FDI every year. Its growth can only come down," says Nagesh Kumar, Director-General, Research and Information System for Developing Countries.

India, by contrast, has all the chances of attracting more FDI and improving its savings rate of 28 per cent. More importantly, as Kumar points out, unlike China, India's working population as a percentage of its total population will continue to grow in the next 25 years. So, incredible as it might seem, the Indian economy is far better placed to keep its growth up at least for another decade or so.

-Ashish Gupta

INSTAN TIP
The fortnight's burning question.

Q. Will the Rupee Bounce Back?

No. Jamal Mecklai, Chief Executive Officer, Mecklai Financial

The sentiment in the market is bearish. Rising current account deficit in the country and the dollar strengthening on back of rising US interest rates will see rupee further weakening from the current levels. A weaker rupee isn't bad, it signals economic growth.

Yes. Partha Mukherjee, Head of Treasury, UTI Bank

The recent weakness is due to corporate demand and on the back of oil imports. However, the inherent strength of the rupee and sustained inflows of foreign currency will see the rupee bounce back from its current lows. In the next one month, I think the rupee will quote at Rs 45.75/$ levels, while in the next 3-6 months, it may bounce back to the levels of Rs 45/$ to Rs 45.50/$.

No. U. Venkatraman, Head of Forex and Money Market, IDBI.

The rupee's movement will depend on the dollar's performance versus other major currencies, India's trade deficit and crude prices, which are not showing any signs of slipping below $55 or Rs 2,475 per barrel. Look at India's trade deficit: There is an average deficit of $3 billion or Rs 13,500 crore per month. If this is not matched by the corresponding capital flow, it will impact the rupee exchange rate.

--compiled by Mahesh Nayak

The Hong Kong Ho-Hum

Commerce Minister Nath (left): Getting complaints already

By the time this issue hits the news stands, the Hong Kong round of WTO talks would only be mid-way. But it's a foregone conclusion that there will be little headway in talks between the developed and developing countries. Days ahead of the meeting, WTO chief Pascal Lamy talked of "recalibrated expectations", and Union Commerce Minister Kamal Nath seemed to echo him when he said that "there is not enough time left and too many divergences...(and hence) the need to contain expecations". Why is there so much pessimism around ahead of the Hong Kong ministerial? Simply because there's little agreement on major issues. Take a look:

-Ashish Gupta

Win-win Deals
Contract farming is here to stay.

A rich harvest: Some day, they too will work for a company

Dnyneshwar Khiladi, a farmer in Manchar, a village about 60 km from Pune, is bullish about the future. He is among the 150 farmers in this hamlet contracted by Sami Labs Limited to grow a medicinal herb called Coleus forskohlii, which promises to fetch a gross income of Rs 40,000 per acre and a net profit of Rs 25,000. That's a huge improvement over approximately Rs. 7,000 (per acre) he earned till last year, growing potatoes and onions on his two-acre plot. "The company will buy all my produce; so my income is guaranteed," he says.

FieldFresh Foods, promoted by the Mittals of Bharti Group, Pepsi and the Mukesh Ambani-led Reliance Group have also jumped on this bandwagon. The business model presents a win-win situation for everyone concerned. Guaranteed offtake by the contracting companies and the absence of middlemen-the scourge of Indian agriculture-assures the farmers of higher incomes. The company gains as it gets crops of a standardised quality at pre-determined prices.

Facilitating this transition to contract farming is the Agriculture Ministry's initiative to get all the states to amend the Agricultural Produce Market Committee Act, thus, allowing private players to enter the fray. About 60 per cent of the states have already done so, and the rest are expected to complete the formalities over the next quarter. Says Rakesh Mittal, Director, FieldFresh Foods, which has about 1,500 acres under contract in Punjab, Rajasthan, Uttaranchal and western Uttar Pradesh: "Such deals can increase farmers' incomes by a factor of 2 to 3." Adds Abhiram Seth, Executive Director, Exports & External Affairs, PepsiCo India: "Both productivity and income go up." PepsiCo's farmer-partners typically earn Rs 50,000-60,000 per acre for citrus crops compared to Rs. 8,000-10,000 per acre for potato. Affirms Muhammed Majeed, Chairman, Sami Labs: "It makes good business sense and is also an act of social responsibility."

-Ahona Ghosh

Killing The Pension Bill

CPI(M)'s Prakash Karat: Left has its way

The pension regulatory and development Authority Bill 2004, withdrawn from Parliament under pressure from the Left parties, may actually be passed in the current session of Parliament. The government believes its amendments have addressed most of the Left's apprehensions. The Bill makes it mandatory for private insurers launching pension plans to invest only in government securities or debt funds. Contributors, therefore, need not worry that their money will be frittered away on the stock market.

Secondly, it has introduced a 26 per cent cap on FDI in the Bill itself, instead of leaving it to the discretion of the pension regulator. The funds collected will also have to be invested within the country. These, the government expects, will assuage the Left's fears of foreign MNCs siphoning money out of India.

Lastly, the government has already launched the "defined contribution pension scheme" from January 1, 2004. Earlier, pensions were based on a "defined benefit plan", where the government made all the investments and not the individual. Therefore, the Left hostility to this provision in the amended Bill is really a case of crying fire after the house has burnt down. "Since all their concerns have been addressed, there is little reason for the Left to block the Bill now," says Kapil Mehta, VP, Max New York Life. True. Too much time has already been lost.

-Ashish Gupta

Airport Bids Hit Air Pocket
Allegations of wrongdoing dog the bids for the Delhi and Mumbai airports.

There's a scent of a scam. The evaluation of technical bids for the Mumbai and Delhi airports is learnt to have thrown up only two qualifiers- the Reliance-Mexico Airport consortium and the GMR-Fraport combine. Only these two, out of six bidders, secured more than the qualifying marks of 80 per cent on various parameters like track record in operating airports, construction and infrastructure, real estate development, duty free-retailing and financial and management. Reliance's partner, Mexico Airport, was ranked 119 among the world's airports by the Skytrax Airport of the Year Survey, 2005. But the combine still managed to edge out bidders like D.S. Construction-Munich Airport; the latter was ranked fourth in the same survey, which, however, is based on opinions of airline passengers. The evaluation was done by the government's consultants, Airplan and ABN Amro.

One of these consultants is also allegedly advisor, financial manager and marketer to one of the two qualifiers. There's more: the CPI(M) and the RSP have alleged that law firm Amarchand & Mangaldas & Suresh A. Shroff & Co, legal consultants appointed by the government, represents Reliance and its promoters in various legal matters. A spokesperson of the law firm declined to comment on the matter.

The bidding process has had more than its share of dramatic turns. Reliance (now Anil Dhirubhai Ambani Enterprise) hadn't yet roped in a partner by May 24, 2005, the deadline set for the purpose. But two hours before midnight that day, the Civil Aviation Ministry faxed a letter to all pre-qualified bidders, extending the deadline to June 3, 2005. Then, the Request For Proposal (RFP) was modified on August 30, 2005, giving bidders only 15 days to submit their bids. The Changi-Bharti consortium found the amended conditions unacceptable and pulled out.

The empowered group of ministers headed by Defence Minister Pranab Mukherjee will take a decision on the matter on December 19, 2005, after an inter-ministerial group of secretaries reassesses and revalidates the technical bids. But with the air thick with controversies, there's every chance of the bidding process being scrapped. "If that happens, the government should simply forget about the 2010 deadline," says a consortium member.

Says G.R. Gopinath, MD, Deccan Airlines: "London has five airports; the smallest handles more flights than Mumbai. Why are we bent on building private monopolies? Why can't we have competing airports chasing us like we chase our passengers." Why not, indeed?

-Kumarkaushalam

Q&A
"Organic Growth Is Our Overall Strategy"

As an ordained priest, Stephen Green often gets on to the pulpit in his neighbourhood church in London. A minor problem: It doesn't pay him anything. Lucky, then, that Green has a weekday job: He is the Group CEO of HSBC. In India recently with the bank board, Green, 57, who moves up as Chairman next May, spoke to BT's R. Sridharan on business and religion. Excerpts:

"The economic modernisation of Asia is the most important seismic consequential act in the globalisation..." this is a quote from one of your recent addresses. I can't think of anyone else so bullish on Asia.

If you take a historical perspective, then around the beginning of the 19th century, China and India were the two largest economies. Since then, Europe and America grew and there was stagnation in parts of Asia. But what's happening now, and will continue to happen over the next few years, is a rebalancing back to the balance that existed before. If you take Asia, it accounts for half the world's population, and other things being equal, it should account for half the world's economy.

Do you expect HBSC, as a bank founded in Asia, to have an edge in tapping Asian revival?

I think it's true to say that we have a good franchise based on brand in the Asian context. It's a good platform to build on. But I am not naïve about competition. There are many other financial services institutions that see the same things that we see.

At least in India, organic growth will be what drives HSBC till 2009, when bank M&As will be allowed. What are the new services you are looking at? Insurance...

We believe that in the context of Indian personal financial services market, there are many things we can do. We have been growing our mortgage business significantly, we have increased our credit cards business. As for new businesses, we will look at financial services broadly in the context of a rapidly growing economy. So absolutely, we will look at insurance.

Is HSBC bitter about the UTI bank episode?

Not at all.

So you plan to stay invested?

That's absolutely the case.

Will you consider acquisitions once regulations allow you to?

We see organic growth as the core of our strategy, that's what we'll do Monday-through-Friday. If proposals come our way, we will, of course, consider them.

Switching tacks, I am told that you are an ordained priest and that you still read sermons at your neighbourhood church.

I do, yes. Not every Sunday but, yes, I still do that.

When was the last time?

The last time was about three weeks ago.

How do you balance commerce and religion. What comes first?

That isn't an either or question. For anybody who has a commitment, that underpins everything else. It underpins the way you approach life. Whether it's commerce, your family, or your social activity.

HSBC is committed to being carbon neutral. I am not being sceptical here, but do you think your shareholders will reward the bank for it?

I think our shareholders do appreciate our commitment to the environment, and our commitment to education around the world. I think shareholders increasingly expect companies such as ourselves-and not just in the financial services industry-to have a responsible commitment in the communities in which they do business. And so far as the environment is concerned, there can be nothing more important for all of our children, grandchildren and great grandchildren.

Finally, I believe there are others in HSBC who get paid more than you do. As the CEO, how do you react to it?

I don't mind at all. I think people should be paid for what they contribute and that truly needs to reflect market realities in different businesses and in different countries where they operate. Money is not everything.

The Clause 49 Bonanza

ICRA's Choudhary: Business unlimited

India Inc has only the remaining days of December to fall in line with the provisions of Clause 49 of the Listing Agreement with the stock exchanges laid down by SEBI. The clause, which makes it mandatory for all listed companies to have at least 50 per cent independent directors on their boards, kicks in on January 1, 2006. Sebi Chairman M. Damodaran has made it clear that "there will be no extension of this date, come hell or high water". The implementation of Clause 49 is expected to lead to greater transparency in the functioning of companies; CEOs and CFOs will, henceforth, be held accountable for all acts of omission and commission. Non-compliance will result in stiff penalties, ranging from fines to delisting of the offending companies. IT, insurance and risk assessment companies see this as an opportunity. Says P.K. Choudhary, MD, ICRA: "We can guide companies on the issues involved. Our governance model focusses on substance rather than form." Private insurance companies also see a huge market emerging for their Directors and Officers Liability (D&O) policies. These cover directors, officers and employees against any claims made against them for "wrongful" acts. "A D&O policy covers the cost of investigation or legal expenses incurred on any investigations by the regulator," says Shiva Prasad Krishnan, Head (Liabilities), ICICI Lombard. Similarly, IT companies like ISG Novasoft, a K.K. Birla enterprise and Newgen Software Solutions have also lined up compliance software that automates the risk management and compliance process.

-Anand Adhikari