The pros and cons of FDI in housing

Out of the four main factors of production — land , labour, capital, and organisation — capital becomes a critical factor, especially in the case of developing economies where there is shortage of capital and various sectors vie with each other for more and more investments. It is but natural that those who invest capital look for safety, security, and good returns.

In a globalised environment, the movement of capital investment can sometimes be volatile and sometimes can corner ownership to the detriment of domestic ventures. In order to protect domestic business, regulation becomes necessary and sometimes it can be counter-productive.

In the construction business this 100 per cent investment was extended in the year 2005. NRIs and PIOs were only permitted to invest in housing and real estate. Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through wholly owned subsidiaries or through joint venture companies in India along with a local partner

Advantages of FDI

Major benefits are:

* Application of international standards to construction.

* Large inflow of funds at comparatively low cost

* Support of experienced workforce in good numbers

The perceived fears are:

* Foreign control

* Takeover of domestic companies, especially small and medium construction companies

* Withdrawal of investment at unexpected times

For any developing economy, there is need for a cautious approach in allowing substantial foreign investment. Some sort of protection to domestic entrepreneurship, especially the small and medium industries, needs to be enshrined in the rules and regulations.

Employment opportunity to local talent is another area which needs protection. Semi-skilled and even unskilled domestic labour need to be upgraded to avoid overdependence on foreign help.

For sectors such as infrastructure and housing, the gap between funds availability and actual requirements needs to be reduced for reasonably fast and sustained growth. A balanced approach can be the best solution.

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F1 and Indian Economy

For the resolute few who had nurtured this sport from its earliest days over five decades ago, this was a day for India to truly celebrate. Yet, justifiably, questions have been raised on the relevance of Formula 1 to India.

First, we must recognise at least three manifestations of Formula 1 — as a pinnacle sport, a technology and auto-industry showpiece, and a global entertainment and media extravaganza.

As a sport, Formula 1 uniquely challenges brain and brawn. Take the physical strain, for example. An F1 driver typically loses about 3 litres of sweat and about 3-4 kg of weight over 90 minutes. 

Researchers have recorded sustained heart rates of over 150 beats per minute over this period and up to 240 beats per minute at the start. Drivers make about 100 gear-changes every lap for over 60 laps, each typically timed to be within a tenth of a second of its optimum.

At Buddh, drivers braked from over 280 km/h to less than 100 km/h, a bare 100 metres from the apex of the corner, enduring five times the gravitational force in deceleration. 

While doing this, they were managing throttle, braking and gear-shifts with a cockpit that combines the complexity of an aircraft and a sophisticated video game. All the while, their engineers in the pits, monitoring over 80 channels of telemetry, provide fresh inputs through their headsets: “...KERS position 5, DRS disabled this lap, Button plus 2..”.

Technology and glamour

Formula 1 has always revelled in its role as a technology tour de force. Imagine an engine, barely larger than that in a family car, capable of 800 horsepower. 

Consider that they run up to 18,000 rpm — which translates into 300 revolutions every second. Imagine pistons that rocket from rest to 90 km/h and then come to a complete stop all within four cm. 

Imagine a body-structure that weighs less than 100 kg and can protect the driver from a 180 km/h crash into a barrier. Formula 1 has also evolved from era to era reflecting societal and industry priorities. 

Engines have been downsized and while electric hybrid road-cars are still rare, most Formula 1 teams now employ KERS — a form of regenerating energy during braking.

It is also no coincidence that all the new destinations of Formula 1 are new global auto manufacturing centres and markets — China, Korea, Turkey and, now, India. Here, where auto manufacturing capacity crossed the annual one-million mark only a few years ago, it has now rocketed past the three-million figure.

Much of the new capacity at Maruti, Nissan and Hyundai is expected to also feed export markets. Honda, 

during its heyday in Formula 1, routinely rotated hand-picked technical staff through a tour of duty in Formula 1 — the exposure bred better and faster development. And while not all Formula 1 technologies have a direct bearing on the cars you can buy, they have a strong influence on technologies linked to driver aids — traction control, automated gear-shifts, etc.

Finally, few platforms offer the visible combination of glamour and technology as Formula 1 does. The races at Monaco, and now Abu Dhabi and Singapore, are major annual tourist events, attracting a huge number of foreign visitors and bringing global exposure to a degree that is seldom rivalled by any other sport.

Just recall Tata's entry into Formula 1, with the sponsorship of India's first Formula 1 driver, Narain Karthikeyan. The global exposure gained by the brand was very timely. We now see many new Indian brands leveraging this forum.

Extravaganza justified?

As for the race, well, after the CWG episode, it was comforting to see things come together. The track, built to international standards, was described by drivers as technically challenging and very fast. 

Unlike in Korea, fans and corporates seem to have taken to the event with great enthusiasm. And the race was run very well, with the top three teams finishing in the top three positions.

So, where do we go from here? For India, any public expenditure or allocation of its assets must have as its result, common good. So, will this milestone lead to a more mature, globally competitive auto industry, creating more jobs? Will corporates such as Airtel, Sahara and Amul build upon this exposure to global sales conquests like Red Bull?

Will this emerge as an important tourism magnet? Will this be another step in India's slow but determined march to becoming an economic power to reckon with? If the answer is ‘yes', then we can justify this extravaganza. If we fail to capitalise on this investment, then the voices that question this indulgence would be justified.

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New manufacturing policy

 THE National Manufacturing Policy (NMP) cleared by the Cabinet recently comes in the backdrop of falling business confidence, slowing investments and slowdown in manufacturing. The growth of the sector was at a 21 month low at 2.3 per cent in July this year.

It has been saddled with assorted problems including lack of infrastructure, multiple clearances and compliance issues, regulatory environment and multi-tier decision making, land acquisition problems, lack of skilled manpower, bad business sentiment, lack of labour reforms and delayed environmental clearances. Data compiled by the centre for monitoring Indian Economy reveals that investment has declined sharply in the manufacturing sector. Foreign Direct Investment too has shown a major decline. According to World Bank parameters for ease of doing business, out of 183 countries, India ranked at 134, way behind Bangladesh, Sri Lanka, Nepal and Pakistan.

The NMP has set a target of creating 100 million jobs by 2025. Manufacturing has a multiplier effect as each job creates 2-3 additional jobs in the ancilliary sectors. The sector contributes 12 per cent of the work force which compared to other developing and advanced countries is low. The creation of seven National Investment and Manufacturing Zones (NIMZ) on the Delhi-Mumbai Industrial Corridor is the first step in creating large scale China style industrial zones where compliance is easier and faster clearances are provided with softer labour and environmental clearances.

The policy is a positive initiative but only the actual results on the ground will prove its success. One will have to see how fast the seven NIMZs take off. Interestingly, some of the problems with manufacturing are already being addressed by some states which are able to attract huge investments. Entrepreneurs and capital go where there is opportunity to make money. If the NMP is one such game changer it will revive manufacturing projects at a time when few are in the mood to invest.

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RTE Act and further steps

India has achieved close to universal enrolment. The small proportion of children who are still out of school, the hardest to reach, will be pulled in by the efforts emanating from the Right to Education (RTE) Act. Now we must focus on the next challenge, a massive and less visible one, that of ensuring that every child gets an effective education of good quality. Schools must give children a real chance to reach grade-level skill and knowledge. This is not happening now. This is a time bomb: On current trends, the bulk of the current generation of children will come into the labour market without the skills demanded of a globalising India, creating a slow-burning crisis for equality, growth and democracy.
The last five years have produced ample evidence to show that India is in a 'big stuck' as far as children's basic learning levels are concerned. Huge, nationwide annual surveys by Annual Status of Education Report (Aser) Centre, in-depth research by Educational Initiatives and the government's own studies of student achievement show that learning levels are totally unsatisfactory and have experienced little improvement over time. A study of 900 schools in 15 districts released by Aser Centre last week followed 30,000 Class 2 and Class 4 students over 15 months. The results show that children learned modest amounts during this time, but most remained at least two grade levels behind where they should be, including in the best performing states.
So what can be done? This is a systemic problem. We can think of two system-wide strategies. First, the curriculum and textbooks need to be aligned with the ability of most children, most teachers, most schools and most families, especially for the early years in school. Absent of such alignment, then, in the words of Harvard economist Lant Pritchett, the "overambitious curriculum" destroys the very foundation of the education system we are trying to build. Our current curriculum framework emerged from a large national consultation effort in 2005, but it needs to be adapted to the new information on the depth and nature of the quality problem. And it is unacceptable that even in Class 1, the level of the textbook is far beyond what children can do in their first year in school.
Second, whether or not, we leave the curriculum and textbooks as they are, there is evidence on the potential for reorienting efforts within the system. Recent rigorous research studies, involving randomised evaluations, in different parts of India, point to promising strategies. Some of this is described in Abhijit Banerjee and Esther Duflo's new book Poor Economics. Additional work is being done by Karthik Muralidharan and his team with government schools in Andhra Pradesh.
Here, we highlight the evidence from a study of a joint intervention carried out by the government of Bihar and Pratham in West Champaran district in Bihar. Three important findings are relevant. First, when children are taught from where they are - rather than based on where they ought to be - they make progress. The Bihar government, in the summer of 2008, carried out one-month summer camps for children who were in Classes 3-5 but were unable to read or do arithmetic even at the Class 2 level.
The pedagogy was aligned with their levels and used existing teachers. Children who attended enjoyed significant learning gains, which persisted over the following two years. Second, while government school teachers were able to effectively help children in the summer camp, the same teachers made no difference during the regular school year, which remained locked into the age-grade-curriculum-textbook gridlock. Third, the study showed, in common with earlier studies, that village volunteers can also improve learning levels when they are trained in a pedagogy that is aligned with where children start from.
The movement for effectively implementing the RTE is gathering steam across the country. Whichever path we choose as a country or as states, it is clear that business as usual will fail to solve the problem of improving learning outcomes. All the recent empirical studies indicate that just inputs are not enough. New thinking, new strategies, new actions are needed. The good news is the evidence that learning can occur with existing teachers. The bad news is that this happens rarely, because the system is not allowing it. The RTE's main objective is "age-appropriate mainstreaming" for all children. This will occur only if the system changes curriculum, adopts practical pedagogy and begins to measure what works. The challenge is for policymakers and practitioners to take a hard look at reality, absorb the available evidence and plot the new steps ahead that will genuinely enable every child in India to learn well. This is what our education guarantee should be.

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Government E-Payment System to be Inaugurated

The Controller General of Accounts (CGA), Department of Expenditure, Ministry of Finance has developed a fully secured Government e-payment system for direct credit of dues from the Government of India into the account of beneficiaries using digitally signed electronic advice (e-advice) through the ‘Government e-Payment Gateway’ (GePG).  
 Government e-Payment Gateway (GePG) is a portal which enables the successful delivery of payment services from Pay & Accounts Offices (PAOs) for online payment into beneficiaries’ accounts in a seamless manner under a secured environment. 
GePG serves as middleware between COMPACT (Computerized Payment and Accounts) application at Pay & Accounts Offices and the Core Banking Solution (CBS) of the agency banks/RBI to facilitate paperless transaction, reducing overall transaction cost and promoting green banking.

This system will bring transparency and expedite direct payments from central paying units relating to subsidies to the users and consumers of fertilizer, kerosene and cooking gas which is already a declared objective of the government. This will increase the adoption of other e-services due to its efficiency and ease-of-use for all Central Government Ministries and Departments for online payment transactions. 
The digitally signed e-advices uploaded by the PAOs on GePG portal is downloaded by the concerned banks to credit the beneficiaries’ accounts through CBS/NEFT/RTGS as applicable. 
The e-payment system will save time and efforts in effecting payments and will facilitate elimination of physical cheques and their manual processing. Further the constraints of manual deposit of cheque by the payees into their bank account would also be eliminated. The system will also have online reconciliation of transactions and efficient compilation of payment accounts.

This system covering all Central government departments and ministries is expected to eliminate almost two crore cheques. When it becomes fully operational in Civil Ministries, Defence and Railways, it is expected to cover a total payment of over Rs 6,00,000 crore. 

The consulting firm McKinsey, in its report last year had remarked that the infrastructure to enable an e-payment model will entail a one-time cost of Rs 60,000-70,000 crore, an amount that can potentially be paid back within one year from the savings incurred through an e-payment infrastructure.

The report talked about how the current payment inefficiencies cost Rs 1 lakh crore annually with a large share of that amount — Rs 71,000 crore — attributed to welfare schemes disbursed by the Government.

Employees of 11 Central ministries and departments, such as Petroleum and Natural Gas, Civil Aviation, Coal, Health and National Information Centre, will get their salary through the new mechanism.

Outside entities working for these ministries will also receive their payment through the mechanism. The Government aims to bring all the Civil Ministries and departments into the system by March 31, 2012. Defence, Post & Telegraph and Railways are the civil ministries

Under the traditional system of government payments, paying units in central government are using cheque, cash, DD or in few ministries ECS for payments to employees and vendors. In the past few years RTGS and NET faculties provided by RBI are also being utilized for central government payments in various ministries through the banking channel.

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Formula 1 Grand Prix Race To Help India Brand Promotion Globally

The Formula 1 Grand Prix race in India could generate revenues of over Rs 90,000 crore in the next ten years and create 15 lakh new jobs opportunities for technical, skilled and commercial workers.

The first ever event at Greater Noida this weekend is expected to generate business worth Rs 10,000 crore from sale of tickets, advertisements, hospitality and travelling, besides creating new business hubs and giving a boost to commercial and residential properties.

The intangible benefits could be much more as India has thousands of companies with ambition to compete on the global stage. While many of these companies have blue-chip brands domestically, they are either lesser known or unknown to a global audience.

“Indian companies can get their message across to a much wider audience using F1,” said Mr D.S. Rawat, secretary general of The Associated Chambers of Commerce and Industry of India (ASSOCHAM).

India is way behind in international branded merchandise market. Events like the F1 can prove to be unconventional avenues to position high-end value-added designer products like apparel, gems and jewellery, engineering goods, software, hospitality, food and beverage, automobiles and airlines, he said.

“Companies can use their association with F1 or one of its 12 racing teams to engage with a global audience in a cost-efficient and targeted way, which will yield superior and tangibly measurable results compared to traditional media.”

For an Indian company breaking into new markets, the power of three-day gala motor event should not be ignored. “Not only will the hotel and tourism industry get an immediate boost, the country’s profile too will get a lift. It is a great opportunity to tell the world that India is growing and world-class sports facilities are becoming affordable to a large number of people,” said Mr Rawat.

F1 represents cutting-edge technology, reliability, speed, efficiency, teamwork, high performance, innovation, dynamism, fun and glamour – positive values that companies can spend decades trying to associate with their brands.

Sport is a powerful marketing medium because it engenders strong emotions. F1 offers the opportunity to tap into the passion of viewers to link those emotions with the brand. “Companies can create brand engagement in a compressed timeframe, and this can drive measurable business performance

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RBI frees deposit interest rates

For decades, those who deposited their money in bank savings accounts had little choice - they got the same interest rate no matter which bank they chose, and predictably this rate of interest was low, as banks felt no need to compete among themselves for the deposits of investors. That may be about to change, with the recent notification by the Reserve Bank of India, freeing banks to determine their savings deposit interest rates.

In its 25 October circular to all scheduled commercial banks, the RBI issued new guidelines for savings bank deposits. The circular sets two conditions, subject to which banks may freely set their own rates. These conditions are that (a) for amounts less than Rs.1 lakh, the rate of interest shall be uniform to all account holders, no matter what the amount in the account is; and (b) the banks shall not discriminate between depositors who invest the same amounts on any given date.

The RBI also clarified that the freed rates are also limited, for the moment, to accounts held by resident Indians only, and accounts of non-residents would continue to attract regulated rates of interest (currently at four per cent).

Consumers can now look forward to competition between banks to get their savings deposit funds. In the coming weeks, it should become evident if banks are responding to RBI's move by hiking interest rates for deposits (the current rate of interest on savings depostis is 4%, set earlier this year). If that happens, hundreds of millions of bank accounts will yield better returns for their holders.

But where will this money come from? The bank 'spread' in India - the difference between the interest rate paid to depositors and the interest rate charged to borrowers by the bank - is quite high, compared to global norms. This has provided banks with a giant cushion across their operations. With this move by RBI, banks may find that their cost of funds obtained from depositors is no longer as low as it has been so far. To maintain the same level of profits, therefore, their loans to borrowers - e.g. businesses, mortgage owners - would have be that much more efficiently disbursed and managed.

Another result of the new rules could be higher churn in the deposits themselves - as customers move their money between banks to take advantage of better rates through comparison shopping. The rise of electronic transfers (one in seven transactions is now carried out online, up from just 1% in 2007, according to a McKinsey report, and this share is rapidly growing while the share of in-branch transactions is dropping) means that it is also quite easy to move money between banks, further requiring banks to work hard to retain their depositors in a competitive market.

For the RBI, this move is part of a broader pattern of reforms and deregulation it has been pursuing, to make financial services more accessible to all Indians and to give consumers better control over the application of their funds. Also this week, the central bank proposed to relax the rules for opening bank branches in Tier 2 towns (population above 50,000 but less than 1 lakh), which would allow the banks to set up their branches without first seeking the RBI's permission.

For consumers, who have in recent times been battered by inflation and rising interest rates for almost every kind of borrowing, the possibility of higher yields from their deposits is much-needed relief. But they will have to wait to see if the bounty really arrives. Banks may not be quite ready to give up the generous interest spreads they have enjoyed for decades

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