27 Jan, 2008

Global Uncertainty: An Angry India Demands Answers

Imtiaz Muqbil

Indian Finance Minister, Mr P. Chidambaram, in an address to the Lee Kuan Yew School of Public Policy in Singapore, voiced the concerns of the developing world by raising critical questions about global economic trends, the sub-prime crisis, oil prices, food inflation and the increasing use of bio-fuels.

In this dispatch:

1. GLOBAL UNCERTAINTY: AN ANGRY INDIA DEMANDS ANSWERS

2. INDIA LEADS EMERGING MARKET DEAL ACTIVITY — KPMG

3. INDIA SEEKS TO WIDEN ITS ENERGY BASKET

4. INDIA, VIETNAM SIGN MoU ON SECURITY COOPERATION

5. BID TO BUY DIAMONDS DIRECT FROM AFRICA

6. SOUTH-SOUTH TRADE BOOST SOUGHT WITH BRAZIL

7. MASTER PLAN TO REVAMP AIR NAVIGATION SUBMITTED

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[Editor’s Note: In order to prevent any inaccuracy, all numbers in the following are being retained in their original Indian reporting format. One crore is 10,000,000, and one lakh is 100,000. Pls use www.xe.com for conversion]

1. GLOBAL UNCERTAINTY: AN ANGRY INDIA DEMANDS ANSWERS

March 26, 2008 – Finance Minister, Mr P. Chidambaram, in an address to the Lee Kuan Yew School of Public Policy in Singapore, voiced the concerns of the developing world by raising critical questions about global economic trends, the sub-prime crisis, oil prices, food inflation and the increasing use of bio-fuels. His speech, excerpted below, provides a broad snapshot of the social, political and commercial complexities of managing a billion-plus population economy and the imperatives of ensuring global stability as a prerequisite for poverty alleviation. Must reading for anyone dealing with India. Begin text:

The Indian experience over the last three decades has been one of sustained growth, with each decade being an improvement over the previous one. Between 1971-72 and 1980-81 the average GDP growth was 3.2% a year. In the subsequent two decades, the growth rate was 5.4% and 5.6% a year, respectively. Since 2001-02, we have witnessed an average growth rate of 7.6% a year until 2007-08. This experience is unique in many ways since it has been based on the principles of democracy and rule of law. This has allowed us to carry the people with us at every stage and, in spite of numerous challenges, we have not deviated from our reform agenda. The agenda is one of sustained growth in a market economy that takes care of its poor and disadvantaged. While markets ensure efficiency, a democratic governing system ensures that the reform process has a human face.

The constant challenge is to maintain macro economic stability and, in particular, price stability. The two factors that cause misery to the poor are inflation and loss of jobs. As you are aware, these two factors are highly correlated to the structural adjustment process. When inflation rises or when there are large-scale job losses, the people begin to question the justification and advantages of reforms. In a democratic system, governments are under pressure to slow down – and some times reverse – the reform process. However, in India, we have been able to ward off such pressures by taking a number of steps to lessen the negative impact of reforms. We have not hesitated to use fiscal, monetary and public policy instruments to contain inflation and to ensure that the growth process creates jobs.

Let me recount the steps that we have taken to sustain economic growth amidst growing uncertainty. At the start of the tenure of the present Government, we took a bold step and notified the Fiscal Responsibility and Budget Management Act. In retrospect, it is acknowledged that it was a wise and courageous decision. The FRBM Act requires the Government to reduce the fiscal deficit every year by 0.3% of GDP and, eventually, to bring it to a level below 3% by 2008-09. It also requires the Government to reduce the revenue deficit every year by 0.5% of GDP and, eventually, to eliminate it by 2008-09.

The Government inherited a fiscal deficit of 4.5% in 2003-04. We are on course to bring down the fiscal deficit to 2.5% in 2008-09. Likewise, the Government inherited a revenue deficit of 3.6% in 2003-04. While we have been able to reduce the revenue deficit by 0.5% a year – and that means that we have adhered to the path of correction – we are not able to eliminate the revenue deficit and it will be 1.0% by the end of 2008-09. In order to eliminate the revenue deficit completely, we ought to have done better than a reduction of 0.5% a year. That, however, has not been possible because much of our expenditure on education, health care, drinking water, sanitation, rural roads etc is classified as revenue expenditure. Nonetheless, our achievement is considered very satisfactory. On a lighter vein I may add that critics of the FRBM Act have expressed satisfaction that we have allowed ourselves a revenue deficit of 1% and have not compressed unduly the revenue expenditure!

The second instrument to contain inflation as well as to stimulate job-creating growth is fiscal policy. In January 2004, the peak rate of customs duty was 25%. Today, it is 10%. In fact, the “collection rate” – that is the effective applied rate – for all goods is only 10%. Excise duty, which is a duty on value addition in manufacture, has also been moderated to 14%. In the cases of goods of mass consumption, the rates are even lower: many goods are at zero percent and many others are at 8%. Service tax, which is a tax on value addition in services, is kept at 12%, well below international benchmarks.

Let me give you two examples where fiscal policy has been used to advance the objectives of price stability and growth.

We think that India can become a hub for small cars. Accordingly, excise duty on small cars has been slashed to 12% and, when cars are exported, as in the case of all export goods, even that duty is refunded to the manufacturer. The second example would be the case of the food processing industry. Encouragement to this industry would mean that a large proportion of the agricultural produce – especially fruit and vegetables – will be processed; it would also mean that many thousands of jobs will be created. Hence, excise duty has been reduced to zero in the case of many processed and packaged food items or kept at a low rate of 8%. Last week, we slashed the customs duties on edible oils in order to cushion the impact of very high FOB prices of palmolein, sunflower oil and other edible oils.

Monetary policy has also played its part in maintaining price stability. Since June 2003, the Cash Reserve Ratio has been increased on ten occasions, by 0.25% each on the first eight occasions and by 0.5% on the last two occasions. Likewise, the Repo Rate – that is the rate at which the Reserve Bank of India will lend to the banks – has been increased since April 2005 on seven occasions by 0.25% on each occasion. Besides, as part of its policy of proactive liquidity management, the Reserve Bank of India has issued Market Stabilization Securities (MSS). These securities are issued to absorb the excess liquidity caused by the large inflows of foreign money. Over the past year, monetary policy has become tighter and the impact of higher interest rates has begun to be felt in different sectors of the economy.

The battle against inflation is a continuous battle. The struggle to maintain a balance between growth and inflation is also a continuous struggle. As growth rates have moved upward, higher demand has put pressure on prices. Yet, we were able to contain wholesale price inflation at an average level of 4.1% between 2001-02 and 2003-04 and, even as the growth rate of the economy accelerated in the last five years, we have been able to contain wholesale price inflation at 5.4% between 2003-04 and 2006-07.

Along with price stability, our primary concern has been employment. Estimates are however available only up to the period 2004-05. These estimates indicate that employment growth during 1999-2000 to 2004-05 accelerated significantly as compared with the growth witnessed during 1993-94 to 1999-2000. It is estimated that, in the later period, 47 million work opportunities were created compared to only 24 million in the earlier period. In terms of growth rate, it accelerated from 1.25% per year to 2.62% per year.

However, since the labour force grew at a faster rate of 2.84%, as against 1.47%, the unemployment rate also rose. We therefore have the paradox of more people, in absolute numbers, being employed even as more people find themselves without jobs. It is estimated that 9.0 million jobs were added each year during the period 1999-2000 to 2004-05. The share of employment in the manufacturing sector increased marginally. Trade, hotels, transport, communications, finance, insurance and real estate were the sectors that contributed significantly to higher employment growth.

There is also another dimension to the problem of unemployment. This is unemployment among the very poor whose livelihood depends upon earning a daily wage through low skilled manual labour. The problem is acute when there is no seasonal demand for agricultural labour or when there is deficiency in rainfall. These workers have little or no skills that can help them find work outside agriculture. Hence, in order to provide a safety net for these workers and to assure each family at least Rs.8,000 (equivalent to US$200) per year, we have introduced the National Rural Employment Guarantee Scheme. It is a wage employment programme that guarantees work for 100 days in a year at a wage of Rs.80 per day. In 2007-08, 27 million families have been benefited and 965 million person-days of work have been generated. It has also arrested distress migration. More than anything else, the wage employment programme has brought a degree of security to the most vulnerable sections of the population, namely, the agricultural labourers.

Looking back, from the point of view of prices, it was a benign world in 2004 and earlier. Let me share with you some numbers which will give you an idea of the enormous burden that is put on developing economies as a result of a relentless rise in commodity and food prices. Crude oil, Dubai, cost US$34 per barrel in 2004. By April 2007, it was quoting at US$64 per barrel; in February 2008, it was at US$90 a barrel; and, as you are aware, in recent weeks it has on several days crossed US$110 a barrel. Urea is another commodity that is vital for agriculture. India imports significant quantities of urea. The price of urea was US$175 per metric tonne in 2004. By April 2007, it had increased to US$288 per MT and in January 2008 it was quoted at US$370 per MT. The prices of metals and minerals such as copper, iron ore, lead, nickel, tin and zinc have either doubled or tripled or, as in the case of iron ore, quadrupled between 2004 and February 2008.

There is no relief in food items either. Edible oil is an important part of the food basket of an average Indian home. Palm oil – which is taken as the benchmark – cost US$471 per metric tonne in 2004. By April 2007, the price had increased to US$710 per MT and by February 2008, to US$1177 per MT. The prices of maize, rice and wheat – all staple items of food – have either doubled or tripled between 2004 and 2008. While rising demand is one of the reasons for high food prices, the diversion of food items to produce bio fuels is another reason. It has been estimated that nearly 20% of corn grown in the United States is diverted for producing bio fuels.

As citizens of one world, we ought to be concerned about the foolishness of growing food and converting it into fuel. It is a sign of the lopsided priorities of certain countries that they will resort to measures that will produce fuel at a cheaper cost in order to meet the transport requirements of a section of their population even while a larger proportion of the world’s population is deprived of food at reasonable prices or, as in the case of some countries, deprived of food altogether.

Turbulence in the financial markets has added to the difficulties of sustaining high growth. As you are aware, it began with the sub-prime mortgage market crisis in the US. Some banks in Germany and the United Kingdom were also affected by the crisis and they were bailed out. There have been more bailouts in the U.S., the most recent being the case of Bear Stearns. There is a growing feeling among international experts that the US economy faces serious recessionary pressures. Indian banks, save one, did not have any exposure to the sub-prime mortgage market and hence did not suffer any first order consequences. However, as the crisis moved from one market to another, and when it entered the credit market, the consequences of the crisis are being felt in India too.

There are clear signs of a slowdown in the world economy. There are also signs of rising inflation in many countries of the world. Among the fast-growing economies, China’s inflation is estimated at 8.7%; Russia’s at 12%; and Vietnam’s at 15.7%. When stories of a growth slow down do the rounds, investors prefer to wait and watch. This has obvious negative effects on future growth. Global slow down, rising inflation and subdued interest in investment make for a combination that can have only negative consequences for developing countries. Anticipating these consequences, we have taken steps to stimulate domestic demand in the Indian economy.

We believe that the measures announced in the recent budget – including significant reductions in the personal income tax, expanding and deepening the corporate debt market, and large outlays of public expenditure on education, health, roads, irrigation etc – should encourage both domestic and foreign investors to continue to have faith in the India growth story. Gross capital formation (investment) has increased from 22.8% of GDP in 2001-02 to 35.9% of GDP in 2006-07. Broken down into sectors where investment has taken place, it is seen that investment in manufacturing grew at a phenomenal rate of 33.6% per annum during the period 2002 to 2007. This confirms the boom witnessed in the manufacturing sector. It is our intention to keep the environment for investment helpful and friendly to investors so that the investment-led India growth story continues to unfold and grow over the next ten years and more.

As far as India is concerned, growth is not an end in itself. Growth is the means to achieve the objectives that we desire. Among these are free and compulsory education for children; improvement of nutrition, standard of living and public health; adequate infrastructure including roads and connectivity; and full employment and a living wage for all workers. High growth has enabled us to increase the tax to GDP ratio from 9.2% in 2003-04 to 12.5% in 2007-08. We have budgeted for tax revenues that will increase the ratio to 13.0% in 2008-09. An increase of one-half % may appear small, but in real terms this will give us additional revenues of nearly US$25 billion. It is high growth in the last four years that has given us the capacity to provide large sums of money for health, education, drinking water, sanitation, roads and rural development. Therefore, it is imperative that we maintain high growth, raise more resources and acquire the capacity to spend more money on the provision of goods and services that will mitigate the hardship of millions of poor people and bring some cheer in their lives.

Under an umbrella programme called “Bharat Nirman” or “Building India”, we are implementing a four-year business plan for building infrastructure in rural India. The plan comprises bringing an additional ten million hectares of land under assured irrigation; connecting all villages with a road; providing drinking water to all habitations; reaching electricity to all villages; giving telephone connectivity to all villages; and constructing six million additional houses for the poor. We will, by the end of 2008-09, substantially achieve the physical targets that have been set under Bharat Nirman. However, the programme would have to be continued beyond 2008-09 so that more houses are constructed for the poor and more villages and homes are provided with drinking water, electricity and telephone connectivity.

There is also the larger and more ambitious goal of improving infrastructure. Huge investments are required to be made in roads, railways, airports, seaports, power, telecommunications, mining, and oil and gas exploration. It is estimated that over US$500 billion will be required over a period of five years. The bulk of this investment ought to – and will – come from domestic sources, including Government. We cannot garner these resources unless there is high growth and unless Government and the private sector are able to realise and retain large sums of money that can be ploughed back as investment. In short, India has no option but to aim to grow at a high rate over the next 10-20 years.

I think I have made out a convincing case why high growth is an imperative. You will now, I am sure, better appreciate why we are deeply concerned about global developments that will affect our capacity to sustain high growth. I take pride in the fact that India has proved to be a model player on the global financial stage. India’s trade intensity – that is the value of merchandise imports and exports – is about 34% of GDP. The exchange rate of the Rupee is determined by the market. India has a modest current account deficit. India’s regulators, especially in the financial markets, have proved to be conservative and wise. India, therefore, has made little or no contribution to the current turbulence in the financial markets. We are therefore doubly unhappy that we should be, along with other developing countries, the helpless victims of global uncertainty.

Who is responsible for the global uncertainty? The sub-prime mortgage market crisis that seems to have triggered the current turbulence is solely due to poor regulations and lax supervision. A senior policy maker told me that it was because “innovation was ahead of regulation!” That is an ingenious spin on regulatory failure. Once the crisis exploded in the face of regulators and governments, there was little choice but to rush to the aid of failing banks and financial institutions. If this had happened in developing countries, we would have been lectured on the virtues of bankruptcy. Since this is happening in developed countries, no one pauses to ask whether all the old arguments are not being made to stand on their head.

The rise in the price of crude oil is another example of greed overtaking the common good of the world. What is the justification to price crude oil at US$110 a barrel? Surely, it is nobody’s case that the cost of producing a barrel of crude oil is close to US$110. Equally, it can be nobody’s case that the risks of exploring and producing oil have risen so high that the price of crude oil should spiral from US$34 to US$110 in a matter of four years. The same could be said of food prices. While there is indeed some supply-demand mismatch, there is no case for raising the prices so high that many poor people cannot afford to buy food anymore. I wonder what has happened to the brave declaration of the Millennium Development Goals. I wonder what has happened to the inspiring slogan “Make Poverty History.” If we are serious about ending poverty, the place to start is to make food and fuel available at reasonable prices – prices at which people can consume adequate quantities of food and at which fuel becomes, not a constraint, but a driver of growth.

I have shared with you both the achievements and concerns of India. I am certain that a similar story can be told about many developing countries. The world must heed the voice of developing countries. In the development of these countries lies the key to putting an end to poverty and making the world a better and safer place for all of humanity.”

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2. INDIA LEADS EMERGING MARKET DEAL ACTIVITY — KPMG

26 March 2008, (KPMG) – Bullish Indian companies are leading the charge for acquisitions within the developed economies, claims the latest version of the Emerging Markets International Acquisition Tracker (EMIAT) from professional services organization KPMG International. At a time when other buyers seem to be retreating from the M&A field, Indian companies’ acquisition activities have not slowed over the past six months.

The latest EMIAT, which analyzes deal flows between 10 selected emerging economies and 11 key developed markets, using data sourced from Zephyr, reports 35 deals between India and the developed economies in the second half of 2007, following on from 34 in the first half.

One country most definitely not showing such resilience is the U.S. Traditionally, the U.S. provides the bulk of the deals within the Tracker but the latest edition has seen the number of U.S.-backed deals into the emerging economies collapse from 67 to 39.

In all, 62 deals were reported with emerging market companies buying into the developed markets, while 105 deals were reported going in the opposite direction. In the first half of 2007, those numbers were 78 and 148, meaning that the post-credit crunch decline has been less marked in the developing markets. It also means that the emerging-into-developed deals now equate to 59 percent of the developed-into-emerging total; the closest the two totals have ever been.

Commenting on the results, Ian Gomes, Chairman of KPMG’s New and Emerging Markets practice for KPMG in the U.K., said: “The ability of the emerging economies’ trade buyers, especially those in India, to remain resilient in the face of the post-credit crunch fall-out is commendable. Before we get too carried away though, we should remember that many of the deals between emerging and developed economies are at the smaller end of the value spectrum – but the important point here is that the upward trend in deal volumes is continuing. In the first half of 2005, emerging-to-developed deals accounted for just under a quarter of the developed-to-emerging deals so that percentage has more than doubled in just two and a half years.

“To see that India’s corporates have been able to remain on the acquisition trail is particularly pleasing. Six months ago, we reported that many Indian deals were highly leveraged and that this could be dangerous if market conditions turned. Debt finance now typically accounts for 30-40 percent of the purchase price being offered and, bearing in mind that most deals are in the US$50m-80m bracket, this does not represent a prohibitively high amount of debt. Indian corporates and their lenders have continued to act sensibly since the credit crunch commenced, taking advantage of the retraction of financial buyers and the depreciation of the US dollar to push their growth agenda.

“In addition, they are financing acquisitions though a combination of local currency denominated debt (secured on the Indian business) and foreign currency debt (mostly on the target company) which, for the size of the deals being pursued, is accepted in the current financing environment.”

The U.S. is the one country whose activity has tailed off the most, according to the Tracker. After recording 83 deals into the emerging markets a year ago – and another 67 six months ago – American deal activity collapsed to just 39 deals this time round. The reason seems quite clear – China. Having accounted for 73 U.S. backed deals in the previous twelve months, China registered a mere eight in the past six months.

Gomes continued: “The EMIAT shows how China was the U.S.’s destination of choice for some time. However, recent developments have really slowed down the American trade buyers. For example, many of the ‘easy’, obvious deals have already been done and new rules concerning the use of Special Purpose Vehicles (SPVs) have reduced their attractiveness as a route into China. On top of this, some Chinese firms now seem to prefer the idea of floating their own business, as opposed to putting themselves up for sale, as a way of securing necessary development capital. The sort of P/E multiples currently available to companies floating on the domestic stock markets mean that the ‘For Sale’ signs on Chinese companies are now less in evidence.

“It’s also worth bearing in mind that while Indian deals for example have been at the lower end of the value spectrum, deals involving U.S. companies have typically been worth rather more, getting to the sort of the size at which many buyers and lenders may now be balking as the liquidity squeeze continues. Deals will still happen though so, if China is to be less of a factor, then the challenge for possible M&A targets in the other emerging markets over the next six months is to make themselves as attractive as possible to potential U.S suitors whose roving eye may now be looking elsewhere.”

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3. INDIA SEEKS TO WIDEN ITS ENERGY BASKET

Monday, March 24, 2008 – The Prime Minister, Dr. Manmohan Singh, laid the foundation stone of Pragati Phase III Power Project at Bawana in Delhi today. The Rs.4000 crore, gas-based project is designed to meet the power required for Delhi to host the Commonwealth Games. It is part of the Indian government’s efforts to widen the energy basket. The Prime Minister called upon the young people to start a new campaign for energy conservation. An edited text of his address:

Delhi, and the National Capital Region around Delhi, is among the fastest growing urban agglomerations in the country. Delhi is not just one city. It is an ancient city, with layers of history and today encompasses many cities within itself. Today, we are witnessing a New Delhi growing in front of our eyes. To keep pace with this growth, we have to increase investment in infrastructure. Delhi has many pressing needs. We need improved public transport, we need better sanitation and urban upkeep, we need more space for our children to play, for people to walk and homes for all our citizens.

The most important need of the citizens of Delhi, as in other cities too, is access to drinking water and to good quality electricity. The Bawana gas-based power project will address an important need of the people of Delhi. This project, with an investment of over Rs. 4,000 crore will bridge a major gap in the city’s electricity requirements. It will also meet the power required for Delhi to host the Commonwealth Games in 2010. I am sure Delhi will host a great sporting event. I have been assured that our two major public sector organizations, BHEL and NTPC, will begin work on this project immediately and ensure its prompt completion in time for the Commonwealth Games.

I am happy that a power project associated with the Games is based on liquefied natural gas. This is an environment friendly project. It will help us in controlling the problem of pollution in Delhi. I am also happy to learn that another gas-based power station is to be set up at Bamnauli in South West Delhi. This is our commitment to protecting our environment and addressing the challenge of climate change.

With our economy growing at 8 to 9 % per annum, with growing urbanization and rising prosperity, the demand for electricity is outpacing existing sources of supply. India is blessed with vast reserves of coal. Our Government has taken many steps to increase coal production. We are also trying to develop hydro-electricity. But, we also have to keep in mind environmental concerns and concerns about people displaced by mining and dams. We are blessed with ample solar energy but it will be some time before we can tap this source in a large quantity.

Hence, we must widen our energy basket to ensure energy security. In recent years we have expanded the use of natural gas as a new source of energy. At the same time, we must also further develop our nuclear energy potential. Our Government is committed to further development of nuclear energy both as an environment-friendly source of power and as a means of widening the energy basket available to us.

Our strategy for energy security is a multi-pronged strategy. We do not have the luxury of depending on only one or two sources. While some sources of energy may be cheap today, we have to think for the future. Our energy needs are bound to grow. We will be failing in our duty to our nation, and to posterity, if we do not look ahead and take steps not just for today or tomorrow, but for future generations.

Increasing the supply of energy is one way of dealing with energy shortage. A second way is to improve energy efficiency. I urge the citizens of Delhi – and all fellow citizens of India – to exercise restraint in the use of electricity and adopt measures that will increase the efficiency of the energy being used. When I was a child, we were told to switch off the light when leaving the room. These days, it has become fashionable to keep all the lights switched on in homes. We must rediscover the value of austerity in the use of scarce energy resources.

I want the young people of our country to start a new campaign for conservation of energy. Let us think of new ways of dealing with some of our energy problems. I hope the construction technologies being used for the Commonwealth Games will be resource-efficient and energy-efficient. I am happy to learn that Delhi is promoting the use of CFL lamps and solar water heating systems to conserve power.

The Delhi government has worked tirelessly over the last ten years to change the face of Delhi. Work has been done on an unprecedented scale in building new flyovers and roads and in improving the facilities available to the citizens of Delhi. Everyone who has traveled by the Delhi Metro would appreciate that the Metro has made travel within the city extremely convenient and comfortable. We are expanding the Metro to new areas of the city so that its benefits can be felt by lakhs of other citizens. The Delhi Government has also opened many new schools and hospitals, has expanded the basic amenities available to jhuggi-jhonpri colonies, and has worked hard to improve the living conditions of the weaker sections of society. I have no hesitation in saying that today, Delhi is one of the cleanest, greenest and most beautiful cities in the country.

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4. INDIA, VIETNAM SIGN MoU ON SECURITY COOPERATION

Monday, March 24, 2008 – India and Vietnam have signed a Memorandum of Understanding (MoU) for bilateral cooperation in security matters which would include international terrorism, illicit drug trafficking and trans-national crime. The MOU was signed here today following delegation-level talks between the Union Home Minister, Mr Shivraj Patil and the visiting Vietnamese Minister for Public Security, General Le Hong Anh.

Mr Shivraj Patil had earlier paid an official visit to Vietnam from 8th to 10th October last year. During the visit, a Treaty on Mutual Legal Assistance in Criminal Matters between India and Vietnam was signed. The Treaty facilitates widest measures of mutual assistance in prevention, investigation and prosecution of crime, service of summons and other judicial documents, execution of warrants and other judicial commissions, and tracing, restraint, forfeiture and confiscation of proceeds and instruments of crime.

During the visit, India had agreed to impart training to officers of Vietnam in investigation of bank fraud cases, organised crimes, money laundering, economic offences, drug trafficking, cyber crime and scientific investigation. Two courses have since been conducted and more are likely to be conducted shortly. India had also agreed to set up in Vietnam a laboratory on cyber forensic at an estimated cost of 2.2 crore rupees in a phased manner.

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5. BID TO BUY DIAMONDS DIRECT FROM AFRICA

Sunday, March 23, 2008 – As the first-ever India-Africa conclave organised by the Ministry of External Affairs approaches, the Union Commerce Ministry has, for the first time, taken the initiative to establish systems for the direct imports of rough diamonds from Africa. To kick-start this initiative, the Minister of State for Commerce, Mr Jairam Ramesh is leading a high-powered delegation to Namibia and Angola beginning March 26th. Joining him are senior representatives of the Gems and Jewellery Export Promotion Council (GJEPC).

India must buy rough and uncut diamonds directly from these and other African countries, Mr Ramesh said on the eve of his six-day trip. He also said that in the next couple of months, he would be visiting other important diamond producing countries like South Africa and Botswana as well. He emphasised that in future India will find it difficult to source rough diamonds unless it demonstrates to African nations that it will collaborate actively in helping them move up the value-chain and assist in value-addition in these producing countries itself. The Africanisation of the diamonds processing industry is not a threat to India but a great opportunity which we must proactively embrace, Mr Ramesh explained.

India’s estimated imports of rough diamonds in 2007/08 is around $ 10 billion, while estimates of exports of cut and polished diamonds in 2007/08 are about $ 14 billion. It is the world’s largest importer of roughs and exporter of cut and polished diamonds with over 90% market share. “I started this initiative largely because the diamonds cutting and polishing trade is very employment-intensive and provides livelihoods to over 10 lakh families in our country”, Mr Ramesh added.

Rough diamonds are procured presently through a variety of sources with the bulk of it coming into India through Antwerp in Belgium. Mr Ramesh pointed out that it is in India’s long-term interests to establish direct relationships with supplier countries, cutting out all the middlemen. He said that he had opened a dialogue with all major diamond producing countries and Alrossa, the Russian diamond producing company has recently sold roughs directly to Indian buyers. The quantities are small and need to be built up quickly, the Minister of State of Commerce said.

Angola produces about 10% of the world’s rough diamonds and is also a country with which India has been trying to establish a relationship in the oil industry since Angola is rich in oil. Namibia accounts for about 6% of world rough diamonds production. Angola and Namibia are the world’s fifth and sixth largest producers of diamonds respectively after Botswana (25%), Russia (22%), Canada (12%) and South Africa (12%). India’s diamond cutting and polishing industry will continue to be entirely dependent on imports of rough diamonds for a long time to come.

India must take care to see that it is not perceived as being interested only in Africa’s raw materials and resources, Mr Ramesh said. India’s is uniquely placed to respond to the challenge of building up human skills and human resources in Africa in different areas and it should leverage this to build long-term partnerships in diamonds as well, Mr Jairam Ramesh added. Partnerships, not procurement should be our strategy, he said. And partnerships in diamonds must be embedded in the framework of broader economic and technological cooperation, he noted.

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6. SOUTH-SOUTH TRADE BOOST SOUGHT WITH BRAZIL

Wednesday, March 26, 2008 – The Minister of Petroleum and Natural Gas, Mr Murli Deora has emphasized the need for India and Brazil to further enhance cooperation between the two countries specially in the oil and gas sector. During a meeting with Mr. Miguel Jorge, Brazilian Minister for Development, Industry and Foreign Trade, here today, Mr Deora said the two national oil companies, ONGC (India) and Petrobras (Brazil), are to work together in exploration and production of hydrocarbons in India and Brazil.

To a suggestion by Brazilian Minister to enhance ethanol blending Mr Deora informed that Government has already decided to endeavour blending ethanol with petrol at 10% against 5% being blended at present. The two Ministers expressed satisfaction at the efforts being made to take forward cooperation between the two leading developing countries which are emerging as major economic powers.

Mr Kamal Nath said that India realizes the importance of Latin America and Caribbean. A special programme, FOCUS LAC, has been initiated to encourage trade relations. The Minister stated, Over the years, Brazil has emerged as our biggest partner in the LAC region with our bilateral trade crossing 3 billion marks in 2007. Bilateral trade has jumped to US$ 3.12 billion in 2007 from merely US$ 488 million in 2000. However, the volume of trade could be enhanced manifolds to meet the target of US$ 10 billion by 2010.”

The Indian pharmaceutical companies have made a success story of their entry in Brazil. Almost all the major pharma players of India have established their presence in Brazil with supply of bulk drugs, finished formulations and establishment of manufacturing units and joint ventures. Areas of mutual interests between our countries cover pharma, aviation, engineering products, agriculture based industries including equipments and food processing industries, energy including ethanol, chemical products, auto parts and vehicles and two wheelers, IT, banking and urban infrastructure. South-South cooperation is an integral part of our bilateral relationship. India and Brazil have demonstrated their determination in reformulating the big questions that affect foreign policy and trade at the international level. India and Brazil must continue to be close partners in the UN, WTO and other international fora on issues such as social development, health care, sustainable economic development and poverty alleviation.”

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7. MASTER PLAN TO REVAMP AIR NAVIGATION SUBMITTED

Tuesday, March 25, 2008 – The Minister for Civil Aviation, Mr Praful Patel today received the Report of the Committee under the Chairmanship of Mr Ajay Prasad which had been set up for formulating a Master Plan for Next Generation Futuristic Air Navigation Services. The Committee had been set up on 20th March, 2007. It has made several recommendations on various aspects of Air Navigation Services:

<> The Airports Authority of India (AAI) should immediately implement the International standards of International Civil Aviation Organisation (ICAO) which stipulates that Air Traffic Flow Management shall be implemented for airspace where air traffic demand at times exceeds capacity. The Committee has also stressed that Automation is essential and there are a number of solutions available like Terminal automation, Integrated Automation, Intergraded Oceanic, Strategic Flight Planning across airspace etc.

<> On Airspace Management, the AAI should consolidate airspace from the existing four Flight Information Region (FIRs) to two FIRs with two Area Control Centres, one at Delhi and the other at Mumbai. The Airspace should be an integrated one with automated Air Traffic Management (ATM) system and have networked Radars and Very High Frequencies (VHFs).

AAI should immediately review Air Traffic Control (ATC) Procedures being followed at various airports, especially at Metro Airports and initiate action to increase the capacity of handling air traffic. AAI should take this as a continuous exercise and strive to achieve optimization of the procedures. AAI should also implement these Area Navigation (RNAV) and Required Navigation Performance (RNP) procedures at Mumbai and Delhi as soon as they are finalized.

<> On ATC delays, an ATC delay of more than five minutes should be considered as significant and the capacity to handle the air traffic should be determined accordingly. Once a capacity is analyzed scientifically, the system should not be overloaded.

<> On Voice Communication System (VCS), the AAI plan to complete VHF coverage through out the continental space at a height 20,000 feet and above should be implemented on priority by May, 2008. To meet the International Standards of ICAO, AAI should provide VHF coverage in Area Control Centres which have been declared as Class ‘D’ airspace and are required to provide VHF coverage to all Instrument Flight Rules (IFR) and Visual Flight Rules (VFR) flights. AAI should use the Dedicated Satellite Communication Network (DSCN) for operating the Remote Control Air to Ground (RCAG) VHF equipments.

<> On Data Link Communication Systems, the AAI should upgrade the Automatic Terminal Information Service (ATIS) facility to Digital Automatic Information Service (DATIS) facility having both Voice and Data Link capabilities at the earliest. AAI should provide Data link Application for departure clearances and facility for data communication link to communicate with all Air Traffic service units – especially for Mumbai and Delhi by August, 2008.

<> On Navigation Systems, the Area Navigation and the Required Navigation Performance (RNP) routes which significantly enhance the capacity of air space, should be adopted by AAI for both domestic and international routes. The AAI should on priority design and provide Approaches with Vertical Guidance for runways not equipped with Instrumental Landing Systems (ILS). AAI should also install Ground Based Augmentation System (GBAS) at Delhi and Mumbai airports.

<> On Surveillance Systems, the AAI should operationalise Behrampur Radar immediately by using dedicated Satellite Communication System. AAI should install all 10 Radars on priority as it helps reducing the spacing of aircraft and increasing the capacity of airspace. AAI should network all Radars by 2008-09 and the 10 new Radars being procured should be commissioned in the network permitting them to operate from the Area Control Centres of Delhi and Mumbai.

<> On Air Traffic Services (ATSs), the Air Traffic Control Officers (ATCOs) should be provided standardized functional capabilities of Air Traffic Services support systems like conflict prediction, detection, advisory and resolution needs.

<> Flexible Use of Airspace should be accepted as underline basis for optimizing the use of Indian airspace for meeting the needs of both military and civil aviation for the country, which has been accepted by the Ministry of Defence and the Indian Air Force (IAF). A high-level committee of the Government should be constituted for common use of Indian airspace and for working out ways of flexible use of airspace. The Committee feels that the IAF should review the Restricted and Danger Areas expeditiously.

<> As a first step, the airspace above 29,000 feet could be released for civil traffic in the presently defined restricted/danger airspace. The Defence requirements would have a priority of not only increasing their height requirements but also expanding the restricted airspace, whenever required. To divert the planned civilian traffic and not to cause undue hardship to passengers, a notice of at least 24 hours would need to be given. The normal air Defence traffic would continue to use the upper airspace above 29,000 feet along with the civilian air traffic as at present.

<> On Aviation Weather Services, the Committee has stressed the necessity for seamless bi-directional flow of Met-Data between the Meteorological Department and AAI. It has recommended the setting up of a National Aviation Meteorological Centre (NAMC) under the Indian Meteorological Department to meet aviation weather requirements of all stakeholders. There should a provision of web based meteorological briefing system to enable user agency to have direct access to weather information. The Committee has also recommended clear demarcation of the dual functional responsibilities of AAI as an ‘Aerodrome Operator’ and of an Air Navigation Service provider.

The Ministry of Civil Aviation will now consider the recommendations of the Committee.