India strikes back: Prime Minister Manmohan Singh (left) with P. Chidambaram

And if there was any doubt about it, then last fortnight, there were a couple of events that dispelled them-from the acquisition of Corus by Tata Steel to the much-delayed upgrade of India's sovereign credit rating by rating agency, Standard & Poor's. In tandem, the Central Statistical Organisation revised its estimates for the growth of the previous financial year (2005-06) to 9 per cent from 8.4 per cent.

In the midst of this excitement, came another reiteration in the form of 'Global Economics Paper No: 152' from Goldman Sachs. It is an update on the original BRICs report-the one that started the India fire in the global investing community. The updated BRICs report just adds more fuel and cheer to the India party and says India's contribution to world growth will be even greater (and faster) than implied in the previous BRICs research. (see What the Reports Says).

The new BRICs report says: "Productivity growth has been the key driver behind the jump in GDP growth, contributing nearly half of the overall growth since 2003, compared with a contribution of roughly a quarter in the 1980s and 1990s." And improved productivity is coming from the movement of surplus labour from agriculture to industry and services that are at least four times as productive. "Thus far, the economy has logged high growth rates without significant increases in domestic and foreign direct investment. If it can accumulate significantly more capital to add to its favourable demographics and ongoing productivity gains, India could reach a growth rate of 10 per cent by 2010 and sustain it thereafter," the report adds.

However, these figures may well be pies in the sky since there are a few prerequisites for this projected prosperity which are nowhere in sight as of now. Subir Gokarn, Executive Director and Chief Economist, CRISIL, points out that the stress of 8 per cent growth is showing up already in the enormous skills shortage across industries. "A step-up to 10 per cent growth is not a mere mathematical increase. It will need significant inputs," Gokarn says, adding that human capital and infrastructure top the list of imperatives. A breakthrough in infrastructure alone will enable a step-up in economic growth to double digit levels, believe economists. And if more is done, the dividends have been spelled out clearly by Goldman Sachs.

Do we have any incentives to make these changes? It seems not. Chugging along at the pace that we are, there is reason to be pleased. Yet, sharper policy and regulatory interventions are needed to keep the momentum from flagging, believe economy watchers.

So what will trigger these changes? Maybe inflation, maybe employment (or shall we say unemployment). For now, no one has a clue.

INSTAN TIP
The fortnight's burning question.

Are the EPFO's fears about investing part of its corpus in the stock market justified?

No. M.K. Pandhe, President, CITU

Money meant for a social security scheme should not be invested in speculative trade. Argentina did exactly the same thing and bore the brunt. We are in a bubble economy and the bubble can burst, with dire consequences for everyone.

Maybe. Ashvin Parekh, National Leader (Global Financial Services), Ernst & Young

EPFO has very limited capability in asset management. It does not have management and trading skills. So, its fears are well justified on the grounds of its own limited exposure and capability. The fears are not justified if one were to look at the performance of stocks.

No. Abhishek Singhvi, Congress Spokesperson

Individual opinions do not matter. Once a policy decision has been taken, we must allow it to work itself out and not tie ourselves up in anticipatory intervention.

-Compiled by Aman Malik

Q&A
"Bank Deposits Our Competitor"

Richard Wastcoat, MD, Fidelity Investments International, who manages $62 billion (Rs 2,79,000 crore) in assets in the UK and India, was in India recently. He spoke to BT's Mahesh Nayak about his plans for the country. Excerpts:

How important is India for Fidelity?

Outside the US, we have the highest headcount in this country (5,000). The rising market has exceeded our expectations. The industry, which was $23 billion (Rs 1,03,500 crore) two years ago, now has $70 billion (Rs 3,15,000 crore) in assets. Our own growth has exceeded expectations. We currently have 800,000 investors and Rs 5,850 crore of assets in India.

What's the difference between India and other countries?

The growth in India is mainly coming from new fund offers (NFOs), while in other countries it's through the long-term approach. This will change over time as investors mature. We are focussing on investor education as part of our long-term strategy. Customers need to take a long-term view towards investing and judge funds on their track record.

How do you plan to take on the competition?

I am not interested in taking market share from other MFs. My competition is bank deposits. We will introduce products that appeal to investors and grow organically rather than inorganically.

Interest Rates to Stay High

With the inflation monster roaring again, Y.V. Reddy (above), Governor, RBI, had little choice but to make money dearer

Rising interest rates are expected to hit corporate and retail lending as well. Says V.P. Shetty, CMD, IDBI: "There is massive inflationary potential-particularly demand-pull inflation-in the economy due to high GDP growth, and this is a major cause of concern for RBI."

International rating agency Standard & Poor's recent upgrade of India will result in further capital inflows into India. This, ironically, is likely to accentuate inflationary trends by increasing the supply of money. "While short-term rates will remain high, even the long-term rates might move higher," says Shetty. In fact, even the high GDP growth rate will only compound this problem.

Empirical evidence from other countries suggests that in such a situation, personal consumption takes a hit, as higher EMI payments on past loans reduce surpluses in the hands of most households. HDFC Bank's Puri, however, does not foresee much immediate impact on loans for small cars and on credit card spends. "They are small-to-mid ticket items," he explains.

But it is the inflation rate-which has been hardening in recent times-that will really determine the future direction of interest rates. The rising trend in prices, which had eased slightly after October 2004, has reversed again and ended at 6.1 per cent in the first week of January this year against the projected figure 5-5.5 per cent for 2006-07 (see Steady Increase).

Despite these worrying developments, everyone BT spoke to was unanimous that there is no real danger of the economy slowing down as the country embarks on its much-delayed programme to build its infrastructure. Also, there is at least sufficient cushion to absorb moderate hikes in the interest rate. How? Says HDFC Bank's Puri: "The incremental increase in salaries and wages over the last two-to-three years has far exceeded the incremental rise in interest rates." That should provide Reddy and his team some cold comfort.

-Anand Adhikari

For a Few Eyeballs More

The battle in the English movies space on satellite television may have just begun afresh. For a long time, channels like HBO, STAR Movies, Zee Studio and Hallmark were the dominant players. Now, other channels want to muscle in on this territory. Result: channels like The History Channel and Zee Café have jumped into the English movie bandwagon.

"Our theme is history and we have begun airing movies that fit in with this theme in order to make the channel more exciting, vibrant and informative," says Rajesh Sheshadri, Vice-President (Marketing), The History Channel. So, it has adopted new formats like Jumbo Movie and Double F under which films like Marilyn & Me, Spartacus and Advance to Ground Zero have been telecast. History Channel, which started airing movies from May last year, shows them on Fridays at 9.00 p.m. and over the weekend as well.

Zee Café has been a late starter and began broadcasting movies in January this year in the 7.00-9:30 p.m. time band every Saturday. "The target audience is young male viewer in the metros who, typically, leads an active life. We saw this as an ideal opportunity to tap this market," says Ashish Kaul, Senior Vice-President, Zee Network. Zee Café has aired films like Fear and Loathing in Las Vegas, Havana and Universal Soldier.

Industry observers peg the ad spend for the English movie channels at over Rs 200 crore for 2006. HBO and star Movies account for three-quarters of that. Is there space for so many channels? "Yes, there is, since movie viewing is more title-led rather than channel-led. Over time, with CAS and DTH, one will see the emergence of the discerning viewer," says Kunal Jamuar, Associate Vice-President, Lintas Media Group.

-Krishna Gopalan

Now, You Can Buy Hallmarked Diamonds

Taking a cue from the bond movie diamonds are forever, the diamond trading Corporation (DTC), the sales arm of De Beers in India, has launched a new branding initiative called "Forever". Every DTC diamond of above 30 cents will be inscribed with the Forever mark and also have a unique identification number. "Hallmarked gold and silver have become popular, and there is a pent-up demand for a similarly hallmarked diamonds," explains a DTC executive. Cherie Tandon Saldanha, Managing Director, DTC Marketing India, emphasises that the unique identification number and the Forever mark can be read by DTC machines without removing the diamond from its setting.

In India, customers depend on the opinion of their trusted jewellers while buying these stones, but DTC is out to change that. Says Jithendra Vummidi, Director, Vummidi Bangaru Chetty & Sons, a leading jeweller in Chennai: "We have equipment that can identify synthetic diamonds. The Forever mark will sell because of the unique identification number. It will also help in cases of theft." Hallmarked stones are more expensive than regular ones, but DTC is confident that this will not affect sales.

-Nitya Varadarajan