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Root lessons, rupee's slide & more... - Views on News from Equitymaster
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  • Sep 8, 2008

    Root lessons, rupee's slide & more...

    'Root' lessons for India Inc.
    Ratan Tata can heave a sigh of relief or so it may seem. West Bengal state's opposition party Trinamool Congress party, which had been spearheading opposition to the company's 'Nano' plant, is reported to have reached a deal with the state government that would see some of the land for the nearly-complete factory returned to displaced farmers.

    At a price of just US$ 2,500, the Nano was billed early in its development as the world's cheapest automobile. It was supposed to be the only car that was both affordable and practical enough for India's fast burgeoning middle class. However small it may be, the car has now come to symbolise the human cost of rapid industrialisation.

    Considering that India has around 70% of its billion plus population scattered throughout almost 660,000 villages, the process of development through urbanisation has already been difficult. And now with mass protests in the country's hinterland (propagated by political interest) against business houses blamed to be grabbing land in the name of industrial development, the inclusive and well spread-out growth remains a distant dream.

    The Tatas may well be successful in their endeavours at Singur, but there are some core lessons that these incidents leave for India's industrialists to ponder. One of the most important being that a majority of Indians identify themselves with the land they own. Separate them from their land and you are sowing the seeds of a crisis.

    India's (nuclear) promises to keep
    India needs to keep its moratorium on nuclear-bomb tests, asked the 45-member Nuclear Suppliers' Group (NSG) as it lifted a 34-year ban on the country on nuclear trade. India now has the right to buy atomic-energy equipments to increase its nuclear power generation capacity multifold. This shall bring some respite to the power-starved nation which suffers from peak deficit of nearly 18% currently. However, it will still take years before the power facilities come up to fire India's sustainable growth ambitions.

    Real estate developers far from gloomy
    While the sector fortunes have been battered and bruised on the bourses in the past twelve months, the optimism of the firms have definitely not! We are referring to the real estate industry. As per a recent survey by Ernst & Young, 62% of real estate developers have opined that the high growth trajectory that the sector has entered into is here to stay for the long-term and the current slump is only a momentary one. Further still, a vast section of the respondents also expressed great willingness in entering the affordable housing space provided certain factors like government and basic infrastructure support and low cost of land work in their favour.

    Not harbouring any wrong notions, a majority of these respondents defined affordable housing in the range of Rs 1 - 2.5 m and also demonstrated their keenness to move beyond the obvious 8 cities as hedge against market fluctuations. The survey comes as a breath of fresh air in an industry that has struggled to make ends meet in recent times and further endorses the industry body, Assocham's projections of a 14 fold growth in the sector over the next decade. Besides spiraling land costs, the respondents have identified rising manpower and material costs as their biggest challenges

    Rupee's another record-breaking move
    Barely has the ink dried on news of rupee's record rise against the US dollar, the currency has swiftly moved in the opposite direction and now a new 18 month record is staring it in the face. With the so called 'hot money' invested in the Indian stock market making a hasty retreat, the Indian rupee has continued to come under pressure against the US dollar and had it not been for the Reserve Bank of India (RBI) intervention, it would have closed below the current level of 44.7. Indian stock market are off nearly 33% from their highs so far this year with FIIs being the wreckers in chief. This has led to huge outflow of dollars and with the crude prices also at higher levels as compared to last year, problems for rupee had compounded, leading to its slide. This is likely to go down well with export dependent sectors like IT and pharma and give them a breather in wake of rising wage and raw material costs respectively.

  • Also read - India rupee to depreciate by 6.4% against the US dollar



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