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Caviar
Off Indian Officials’ Menu as Junk Rating Looms
For
Arvind Mayaram, India’s push to avoid having its credit rating cut
to junk means he’ll have to forgo caviar and a two-meter-long flat
bed in first class on his flight from New Delhi to Washington D.C.
this week
7
October, 2013
Mayaram,
India’s Economic Affairs Secretary, will fly business class instead
to the annual World Bank and International Monetary Fund meetings,
saving taxpayers at least $3,000. The change is part of moves to
narrow a budget deficit that reached almost 75 percent of the 5.4
trillion-rupee ($88 billion) target in the first five months of the
fiscal year, imperiling efforts to limit the widest shortfall in
major emerging nations.
Prime
Minister Manmohan Singh faces a slump in economic expansion that’s
hurting tax revenues as rupee weakness raises the cost of oil imports
and fuel subsidies. He’ll likely scale back spending on areas such
as research and development while maintaining energy, food and
fertilizer aid to court support before elections due by May, Religare
Capital Markets Ltd. said.
“A
spending slowdown may well further sap growth,” said Tirthankar
Patnaik, a strategist at Religare Capital in Mumbai. “But revenues
are meaningfully below budget forecasts, so the government has little
choice.”
Singh
seeks a deficit of 4.8 percent of gross domestic product in the year
through March 2014, down from 4.9 percent the prior year. Standard &
Poor’s reiterated on Sept. 3 it may lower India to junk on risks
including budget and current-account imbalances. S&P last
classified India as non-investment grade in 2007.
Austerity
Steps
The
rupee, which has depreciated about 16 percent against the dollar in
the past 12 months, weakened 0.6 percent to 61.775 per dollar as of
11:05 a.m. in Mumbai.
The
government in September imposed a 10 percent cut in a range of
administrative costs, describing the limits on travel, car purchases
and the use of luxury hotels as austerity steps.
Mayaram
may be saving at least $3,000 flying Deutsche Lufthansa AG’s
business rather than first class, based on prices on the airline’s
website. He confirmed he’s flying in the lower tier.
Finance
Minister Palaniappan Chidambaram, who has repeatedly said he’ll
stick to deficit targets, will reduce planned outlays on items such
as roads, ports and welfare programs by about 700 billion rupees this
fiscal year, according to Yes Bank Ltd.
Net
tax revenues in April through August rose 4.9 percent from the same
period a year earlier. The government’s budget estimate is for
growth of about 19 percent in the tax take in 2013-2014.
Prospects
Doubtful
“There’s
a possibility that revenues may pick up over the rest of the year,
but whether that’ll be enough to prevent further expenditure curbs
is doubtful,” said Rupa Rege Nitsure, an economist at Bank of
Baroda in Mumbai.
The
spending restraint may yet be insufficient to keep the nation’s
finances on track as revenues struggle. The budget deficit will widen
to 5.1 percent of GDP this financial year, according to a Bloomberg
News survey of 19 analysts conducted from Sept. 27 to Oct. 3.
Singh’s
second term in office has been marred by graft scandals, average
consumer-price inflation of about 10 percent in the past year and a
deteriorating economic outlook.
Government
spending has contributed to the price pressures, which the Reserve
Bank of India is trying to restrain. The RBI raised the benchmark
repurchase rate by a quarter of a percentage point to 7.5 percent on
Sept. 20.
Slowing
Growth
HSBC
Holdings Plc predicts economic expansion will weaken to 4 percent in
the year that began April 1 as investment moderates. That would be
the slowest pace in more than a decade.
The
premier began a policy overhaul in September 2012 to spur growth. The
steps have included gradual increases in diesel prices aimed at
containing subsidies, most recently by state-owned refiners such as
Indian Oil Corp. last month.
That
push has been undermined by the rupee’s slide, which has stoked
energy costs in a nation that depends on imports for about 80 percent
of its crude-oil needs.
Pressure
on the budget from food subsidies is also set to intensify. Singh’s
coalition won parliamentary assent this year for a bill that expands
the world’s biggest food program for the poor, a policy that will
cost about $20 billion in a full fiscal year, the administration’s
estimates show.
“India’s
government is still spending much more than it can afford on welfare
policies and not enough on infrastructure,” said Shubhada Rao,
chief economist at Yes Bank in Mumbai. “That needs to change to
restore the economy’s lost growth potential.”
In
other developments today, the World Bank lowered its 2013 growth
forecast for East Asia’s developing nations to 7.1 percent from 7.8
percent. Risks to the global recovery include fiscal deadlock in the
U.S. and the impact of the withdrawal of monetary stimulus from
advanced economies, it said.
India
Unrest Puts 21 Million in Dark as Outages Threaten Google
Protests
against a plan to split a southern Indian state entered a fourth day,
leaving about 21 million people without electricity as outages
threatened to affect technology companies like Google Inc. (GOOG) and
Microsoft (MSFT) Corp
Bloomberg,
7
October, 2013
Striking
workers shuttered power plants and impeded distribution, extending
blackouts that started Oct. 6 in six districts of Andhra Pradesh. The
protesters oppose Prime Minister Manmohan Singh’s move last week to
divide the state before national elections due by May.
“It’s
as if the world has come to a standstill,” Buchi Babu Tanuku, who
works with a local daily newspaper in the state, said by phone from
West Godavari district. “Everyone’s staying indoors as there’s
nothing much to do.”
The
standoff risks disrupting the power supply to an area about the size
of Spain that holds 20 percent of the country’s 1.2 billion people.
The division will help Singh’s Congress party win some seats in the
newly created state of Telangana as it pushes to extend its nine-year
rule, according to N. Bhaskara Rao, chairman of the New Delhi-based
Centre for Media Studies.
“The
situation is becoming worse as there is no leader there having some
credibility to tackle the problem,” Rao said. “This mess will not
subside before the election. Protests will continue in one way or
other.”
Mobs
this week have thrown stones at police, set tires on fire and damaged
buses in Seemandhra, which will remain part of Andhra Pradesh. The
protesters want the state to keep Hyderabad, India’s sixth-largest
city that will fall in Telangana.
Microsoft,
Facebook
The
city, home to offices of Microsoft, Google and Facebook Inc. (FB),
will function as the common capital for both states for a period of
10 years, according to the decision by Singh’s cabinet. Control of
Hyderabad is a key reason behind the protests, state Chief Minister
N. Kiran Kumar Reddy told CNN-IBN television news channel on Oct. 6.
A. Satya Rao, press secretary to Reddy, didn’t answer calls to his
mobile phone.
Hyderabad
has seen a three-hour daily power cut as about 60,000 utility workers
have stayed home to protest the new state, according to a top
official in the local government’s electricity department who
requested anonymity as he isn’t an authorized spokesman. That has
removed 3,600 megawatts of generation capacity, or 20 percent of the
state’s total, he said.
Grid
Risk
Failure
to contain the demonstrations may prompt further distribution cuts to
sustain a power grid that connects all of southern India. Talks with
the labor unions of state power plants are on to prevent a repeat of
last year’s collapse of the northern power grid that left an area
inhabited by almost half of the population without electricity.
“The
situation is being monitored at the highest level,” said V. Sekhar,
executive director at Power Grid Corp. of India Ltd., which runs the
southern grid. “Every care is being taken to ensure there’s no
threat to the grid.”
In
the worst case, authorities would have the option of isolating Andhra
Pradesh from the southern grid, according to Debasish Mishra, head of
energy practice at Deloitte Touche Tohmatsu India Pvt. in Mumbai.
“Because
of the blackouts, the load has already gone down significantly,” he
said. “As long as they are able to match the demand and supply, the
grid should be fine.”
Representatives
of Google and Dr. Reddy’s Laboratories said the companies have yet
to be affected. The government has provided extra security to Tech
Mahindra Ltd. (TECHM), controlled by Mahindra & Mahindra Ltd.
(MM), India’s biggest maker of tractors and utility vehicles,
Aashish Washikar, a spokesman, said by phone.
‘Self-Flagellation’
“We
have had no interruptions due to power cuts or any other factors,”
Carson Dalton, head of corporate affairs at Facebook India, said by
phone. “It’s business as usual.”
Outside
of Hyderabad, the situation is becoming dire. Offices, schools and
universities have closed. Private hospitals are running on
generators, and non-critical surgeries have been postponed. Streets
are almost empty as petrol stations are shut.
“Food
prices are rising as supply is going down,” Patri Rajasekhar, who
sells mobile-phone SIM cards, said from Nellore, one of the affected
areas. “It’s like self-flagellation.”
The
50-year-old campaign for Telangana’s statehood got new life in
December 2009 when Singh’s government backed the idea as a local
leader’s hunger strike triggered protests that closed roads and
offices. The government made little effort to finalize the plan as
demonstrators for and against the new state clashed on the streets.
India
created three new states -- Jharkhand, Uttarakhand and Chhattisgarh
-- in 2000. The country has 28 provinces and seven union territories
that are administered by the central government.
Other
economic news....
U.S.
shares are headed for a big drop in the first quarter of 2014,
followed by a year-long period of stagnation, Societe Generale
predicts.
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