Mumbai Home For `A Girls Best Friend'

Diamonds - they say - is a Girl's best friend

Egged on by a Russia smarting under European sanctions, India wants to leverage long term buys of rough diamonds worth billions of dollars from the world’s biggest diamond miners -  Alrosa of Russia – to help turn Mumbai into a rival diamond trading hub to Belgium’s Antwerp.
Prime Minister Narendra Modi has announced that his government has decided to create a special notified zone, to which mining companies can import rough diamonds on a consignment basis and re-export unsold ones. The move, Indian diamtaires said could help turn India's financial capital into Asia's diamond trading bourse.
The Modi announcement came at a joint innauguration of a world diamond conference here with Russian president Vladimir Putin, whose Government owns 44 per cent stake in Alrosa, the mining giant which accounts for 30 per cent of the world’s annual yield of rough diamonds. About half  of its output is now sold to India through diamond bourses in Antwerp and Dubai, a fact which both Russia and India want to change by doing business directly.
“We get better margins and have stabler production regimes  if we can get into long term purchase agreements with Indian diamantaires… we used to have three such deals 4 years back, now this year we are increasing it to 12,” said Andrey Polyakov, vice president of the $ 5 billion mining giant which has since long overshadowed the more famous DeBeers in the diamond market.


Rough Diamonds - India Processes 70 % of Global Production

"We (Indian firms) will be buying diamonds worth $2.1 billion from Alrosa in the next three years," Gems and Jewellery Export Promotion Council Chairman Vipul Shah confirmed.
India sees this as a big opportunity to be grabbed to turn Mumbai into a rival to Antwerp and Dubai. “We are talking to the Government to give us a tax regime for diamond traders similar to Antwerp which has a small presumptive tax on trading profits and allows miners to bring sparklers here, sell whatever they can and take back unsold stones without taxes and hassles,” said Pankaj Parekh, vice chairman of the Gems & Jewelery Export promotion Council.
Russia is not averse to this as US and European sanctions means that it may not be able to sell directly in Antwerp, the largest market for diamonds in the world, and may have to resort to the Cold War period subterfuge of selling its diamonds through DeBeers or some other diamond miner.


The Modi-Putin Diplomatic Tango

At the `World Diamond Conference' here, the `Big Boys’ of the global diamond market – Alrosa, DeBeers, Rio Tinto came to mingle with India’s diamantaires. India already processes some 70 per cent of the world’s diamond roughs into polished diamonds or sets them into jewellery to be sold all over the world.
Forecasts by diamond miners’ associations say that the market for retail or finished diamonds in India and China is rising and taken together could equal that of the US, currently the world’s largest market within the next 6-7 years.
Alrosa’s interest in striking direct deals with Indian firms is but natural says Parekh. Polyakov avers : “We follow the trade.”
Parekh and other GJEPC office bearers have been doing the rounds of North Block and global mining capitals to try get their dreams of Mumbai rivalling Antwerp as a trading centre off the grounds. “Does Mumbai have the potential to be a diamond hub?,” asks Polyakov rhetorically. “I think the answer is – yes – you just need to follow rules  that other hubs do.”
There is of course more than `following the trade’ or `potential’ involved here. Russia is perhaps trying to make a statement to both India and the West. Russian analysts in recent weeks have been at pains to stress that sales of helicopters to Pakistan does not mean that the `special relations’ with India are to be endangered and the high profile visit along with help in transforming Mumbai into a diamond trading hub along with key defence, gas and nuclear deals are expected to be part of that statement.


Mumbai- the New Diamond Capital?

Thumbing Russia's nose at western sanctions is of course something which Putin has been working at for quite some time with gas deals with China and East European nations.  A diamond deal with India could well help him teach the European Union with which Russia is locked in a conflict over Ukraine, that in the resources market, it still counts.
 

Inherited Problems for Modi's Economy Czars

After the Tsunami of celebrations, the time to address immediate economic problems for the yet-to-be sworn in Narendra Modi government, has probably started even before it takes office.
Top mandarins say the BJP will inherit not only the iconic red sandstone buildings on Raisina Hill, which stand at the heart of Delhi’s power corridors, but also the myriad economic `time-bombs’ which the Manmohan Singh Government will be leaving behind.


Gas Wars
Possibly the first challenging decision which the new BJP-led government will have to tackle will be  the gas pricing conundrum, which the Manmohan Singh regime will be leaving. Earlier this year, gas prices were sought to be hiked to over $ 8.40 a mmBtu, double the current rate.
The move which was stalled by the Election Commission as part of its code of conduct, will if accepted by the new Government, mean an immediate increases in the price of electricity, fertiliser, gas used by public transport, and plastics with its longer term knock-on effect on the price of almost every good and service in the country. 

For a government which would be trying to consolidate its recent massive mandate, any sudden price rises could translate into quick dampening of support and a reversal of voting trends in key state elections which would be coming up in the next two years.
However, not allowing any increase could damped investor sentiments in the oil and gas sector, which hasn’t seen any major discoveries in  recent past. Besides, the Reliance Industries Ltd, which was instrumental in seeking the rise in the first place, has sought arbitration proceedings on stalling of the price hike. The Government would have a legal fight on its hands which again would not exactly help build investor confidence, especially foreign investor confidence, something which the BJP-led government is believed keen on.
A possible way out would be to go in for staggered increase in the price of natural gas which could help keep prices under the lid and yet at the same time solve the possible legal tangle with the country’s largest industrial house, which many say is also close to both the new and former ruling parties.

Battle Over Money

The Yaksha & Yakshi Sculptures Guarding RBI
 

If India Inc., which so lustily cheered Narendra Modi’s victory on Friday, has any one demand they want fulfilled as of yesterday, it is a cut in interest rates. Their bitter complaint has been that high interest rates have locked out investment in new factories and projects and their one point demand in repeated meetings with finance ministry mandarins has been steps to reduce interest rates, to help drive back growth. India’s GDP grew by just 4.7 per cent last fiscal after falling to a decade low growth rate of 4.5 per cent in the year before.
However, with inflation still raging high, the country’s central banker, Raghuram Rajan favours continuing using interest rates to combat price rise. The country’s consumer-price inflation quickened in March for the first time in four months to 8.31 per cent from a year earlier, forcing Rajan to leave untouched key policy rates unchanged in the last review on  April 1, this year.
Speculation is already rife that this could lead to a battle royal between Rajan and the new Government.
In the run up to the elections, Rajan had told an audience in Switzerland that he “determine(s) the monetary policy. Ultimately, the interest rate that is set is set by me.” In response,  BJP leader Subramanian Swamy had reportedly lashed out at Rajan and his interest rate management and offered the advice : “We need to immediately drop interest rates.”
The BJP has however in recent days indicated that it would defend the RBI’s autonomy and Rajan’s job was not at risk.
How to manage the monetary policy to tweak growth and at the same time get Rajan to agree with the BJp's priorities, will be a concern for the Modi government. That could spell either the first public `war’ over economic policy-making or the first successful wooing of a `Congress’ econo-crat into the BJP fold.

Golden Goose

Raw Gold Bar

The government had increased the gold import duty and other curbs on the yellow metal to deal with the current account deficit, the difference between inflow and outflow of foreign currency, which had touched $88 billion during 2012-13. The curbs had brought down the yellow metal imports significantly to $32 billion in 2013-14. 
However, high duty of 10 per cent and insistence on minimum export before importing more gold has hit the gems and jewellery industry, which has been stridently seeking review of the policy. One of India's big ticket exports, this sector's sales to the world market have fallen 11 per cent in 2013-2014 to $ 34.79 billion after having grown at an average of 15 per cent over the last  5 years.
The BJP led government by Narendra Modi, coming from Gujarat, which is the epicentre of the gems and jewellery sector, is certain to seek changes in the policy. However, the government is expected to adopt a cautious approach and go in for a staggered duty cut.

Coal Bill

Open Cast Coal Mine
 

Part of India’s growth story dimming is because mines which feed India’s factories have been forced shut by environmental cases. While new mines have been stalled by red tape.
India, which has one of the largest coal reserves in the world, with some 293 billion tonnes of coal under its forests, farmlands and deserts. However, with the mining sector shrinking by nearly 3 per cent during the last two years, India has been forced to import coal worth $ 15 billion last year and is expected to import another $ 17 billion during the current year. Similarly, mining of iron ore, vital to India’s steel mills which seek to ratchet up output to 300 million tonnes over the next ten years, has been stalled in much of the country by environmental and legal activisim.
The Modi Model has long claimed that its problem solving capacity is far greater than the long drawn out consensus approach favoured by Manmohan Singh’s UPA Government. Many say the silent mines will be this Model of Governance’s real test.

The Manifesto Game : Tweedledum & Tweedledee



Tweedledum & Tweedledee
 

 

In the land of Tweedledum and Tweedledee, what can you expect but election manifestos by ( who else? ) Tweedledee and Tweedledum, which read quite alike !

 

The Narendra Modi-led Bharatiya Janata Party, today came out with an economic manifesto seeking an India-wide Goods & Services Tax, which the Congress has been pushing for since when President Pranab Mukherjee was finance minister in the UPA Government.

 

Modi as chief minister of Gujarat had led a cabal of BJP-run state chiefs which had thwarted repeated attempts by Mukherjee, then finance minister and his successor in North Block, P Chidambaram who both sought to introduce the simple single point tax which would replace a plethora of central and state taxes and duties on manufactures, turning India into a single common market.

 

An attempt by Mukherjee, some five years back, to break the deadlock by jetting into Ahmedabad to hold direct talks with Modi did not succeed as the chief minister, while not objecting to the measure being brought in, brought in procedural objections.  Later on, attempts by Chidambaram to reach out to BJP leaders ahead of  Parliament sessions, met with similar objections. 

 

Narendra Modi with his Manifesto

The implementation of the new tax which will snuff out central excise taxes, additional customs duties, surcharges and state taxes such as VAT, entertainment and luxury taxes, lottery and gambling taxes etc., could well add 1-2 per cent to India’s growth rate, according to economists. Hence, the rush to be the author of scheme, and the desire to deny the other side the benefit of having launched it.

 

The on-going General Elections are widely expected by pollsters to yield a hung house, with BJP as the single largest party and Congress as the second largest. Regardless of which party is able to cobble together an alliance capable of forming a ruling coalition, this Government will depend on  other major parties for support in passing important legislation and hence a  consensus on GST is essential as the measure has to be passed by a two third majority in both houses of Parliament.

The original deadline for rolling out the nation-wide tax, of April 1, 2010 as well as several later deadlines have already been missed because of this crazy bit of opportunism and this may not be the end of the story if the Congress decides to do a BJP in case it sits in opposition ! 

The only major issue on which the two manifestos differed was on foreign investment in India’s $ 400 billion retail market. “Barring multi-brand retail, FDI will be allowed in sectors wherever needed for job  and asset creation, infrastructure and acquisition of niche technology and specialised expertise,” the BJP manifesto said.  Congress has already decreed it open, in the teeth of opposition from the BJP, the Communist parties and Trinamool Congress. While the Communists and Trinamool feel opening up retail to foreign investors like Wal-Mart, means selling out the country to global multinationals, BJP has more hard boiled electoral reasons for objecting to it.

 

Analysts pointed out that the 25-million strong small retail community in the country has traditionally been voting BJP and its earlier avatar Jana Sangh, hence it made sense for the party to oppose foreign investment into hyper-markets which challenge their businesses. Local big retailers like Reliance, Godrej and Big Bazaar have however not been opposed by the BJP, though business lobbies were quick to react to BJP’s opposition to FDI in retail terming it as “disappointing.” Said FICCI chairman Sidharth Birla “we feel disappointment on the stand on FDI in Multi-Brand Retail, we hold out hope for a possible review in the future.”

 

The BJP manifesto also blamed UPA for “tax terrorism” and uncertainty for denting the country’s image and creating anxiety among businesses, and promised a “non-adversarial tax environment”. The UPA government had brought in a retrospective tax law amendment after it lost a Supreme Court case against British telecom giant Vodafone from whom it had sought tax deductible at source for contracting purchase of Hutch Whampoa’s stake in its Indian arm at a tax haven. A case, which may have prompted Birla to describe the BJP manifesto as “investment friendly”.

 

The right-wing party’s manifesto also called for rationalising India’s tax system without going into any specifics. This is in sharp contrast to its 2009 manifesto where it sought raising tax free income to Rs 3 lakh a year, a demand which was echoed in a report on a Direct tax Code by a Parliamentary Committee chaired by Yashwant Sinha, former finance minister in the BJP led NDA government of 2001-2004.

 

The Congress-led UPA had  proposed the Direct Tax Code. However, it was unwilling to accept the Committee’s report in full, leading to a parliamentary deadlock on the passage of that vital legislation too. North Block had dismissed the demand for raising the tax ceiling and other sops sought by the committee, stating this could lead to an annual revenue loss of Rs 60,000 crore to the exchequer, which the Government could ill-afford. Some feel that with chances of being able to cobble a ruling coalition becoming brighter, the right-wing party now feels it is best not to make promises which may be difficult to keep.

 

However, this was not the only subtle indication that if voted to power, BJP’s economic agenda would be no different from that of the Congress. Both parties promised in their manifestos to boost India’s manufacturing sector, with BJP calling for turning India into a “Global Manufacturing Hub” and Congress calling for “building India as the world leader in manufacturing ... ensure(ing) 10 per cent growth”.



Rahul Gandhi with the Congress Manifesto
 

 

Both said they want to create a “single-window system” both at the Centre and States to expedite land, environmental, power and other approvals for investors. Both backed food subsidies, despite also calling for fiscal discipline in the same breath.

 

Not surprisingly, both BJP and Congress also promised to build high-speed rail, a project which was first thought of during the Manmohan Singh government’s as India's response to China's high speed tracks. The Government identified some six routes for taking up the high speed project. Said a Railway Board member “like everything else both parties want to take credit for whatever the system throws up which may prove popular and disavow hard decisions like raising fares and cutting subsidies, which prudent economics demand.”

Reforms & Dismal GDP Forecasts



Amul ad poking fun at the Sensex

India’s dismal early forecast for 2012-2013 financial year’s economic growth, at a decade low of 5 per cent, should have meant glum faces at North Block, home to the country’s finance ministry.

However, strangely, not too many of the Mandarins who work in that cavernous red stand-stone Raj-era building seem too worried, rather they seemed perversely pleased. Probably, because the figures could actually come in handy for finance minister P.Chidambaram and his economist boss, Dr Manmohan Singh, when the duo argue for tough reform measures with cabinet colleagues and Congress party leaders, who ahead of crucial general elections early next year, want to see more populist measures and less of belt-tightening reforms.

Data released by the Central Statistical Organisation places growth forecasts far below an earlier 5.5 per cent prediction by the Reserve Bank and an optimistic 5.7-5.9 per cent target set by the finance minister P.Chidambaram and far average growth rate of 8-9 per cent, achieved through the last decade.

Singh-Chidambaram duo

The Singh-Chidambaram duo will have the advantage of this gloomy picture to force reluctant colleagues into agreeing to slash oil subsidies and fat defence budgets as well as steering opening up of the economy to more foreign investment and cutting red tape in doing business. 

The schism within the cabinet had often spilled out in the open in the last few months, with tough decisions like subsidy cuts being pushed on the backburner several times at cabinet meets, before being finally accepted. Spats over auctioning gas blocks between petroleum and defence ministries and opening up coal mines between steel and environment ministries still remain unresolved despite the Prime Minister chairing meets to sort out such rows.

No wonder Indian industry has been talking of policy paralysis.

To make things tougher for the Congress leadership, BJP’s poster boy and almost certain prime ministerial nominee Narendra Modi, has begun selling the `Gujarat development model’ with slogans like “minimum government and maximum governance” and "inculcate skill, scale and speed to compete with China”.  

Singh and Chidambaram desperately need now to show that they do have a `Delhi  development model’ up their sleeves and that too speedily!

Narendra Modi sells Gujarat Model

Yesterday’s data forecast said farm sector could grow by just 1.8 per cent in 2012-2013, compared with 3.86 per cent in the previous year, while manufacturing could slow down to 1.9 per cent from 2.7. This is the slowest pace of growth for the manufacturing in the past 14 years. Even the services sector which for the better part of the last decade grew in double digits, could grow by 8.6 per cent.

In the first half (April to September) of the financial year, the economy grew at 5.4 per cent, today’s data indicates that the economy may have grown by just 4.2 per cent in the quarter ending December 31, 2012 and may grow by 5 per cent in the current January to march quarter.

This data points to the desperate need to bring in reforms to boost infrastructure and manufacturing growth. Industry chamber Ficci has already flagged: “Quicker implementation of the National Manufacturing Policy, speedier decision making under the aegis of the Cabinet Committee on Investments, ushering in the Goods and Services Tax regime, passage of the insurance and pension bills in the next session of the Parliament and bringing greater competition in the coal mining sector” as ways to get ahead.

The industry wish-list more or less tallies with Chidambaram’s reforms-to-be-taken-up list, with additions like less largesse on populist subsidies and tax reforms which help Indian firms stand up better to foreign competition.

Finance Ministry officials want to redraw duty structure so that domestic capital goods, electrical gear, telecom industries and even steel which have been facing import pressure can again revive.

Proposals in the offing would place higher duties on imports in these sectors, while reducing duties on raw materials such as iron ore, coal as well as components which go into making electrical or telecom gear and having a tax structure which encourages domestic telecom and electric equipment.

India had drawn up a tax structure which imposed high duties on finished cars imported into the country, less taxes on semi-finished cars and far lower taxes on cars which were at least 70 per cent indigenous. A similar structure is being looked at for the telecom equipment industry.

However, what industry captains really want is ground level reforms such as setting up a coal regulator. India has long been debating setting up an independent coal regulator as besides the single monopoly coal producer – Coal India – a large number of firms have been given captive coal blocks and some have been allowed to trade surplus production.

Amul ad on Coal scam

The government is also expected to step up the gas and put up some 54 coal mines up for auction to a limited field of buyers –iron and steel factories and cement and electricity plants - over the next four months. The auctions, speeded up by allegations of scams in earlier allotment of mines, are expected to yield precious revenues to state government coffers and much needed coal to fire coal-burning furnaces and power plants.  

The Government has cut base prices for another round of telecom auctions, which should bring in some more money into government coffers and at the same time give telecom firms more radio-waves to base future mobile connection sales. India has about 935 million mobile connections for 1.2 billion people, and unless better connectivity and services can be ushered in, growth may soon flatten-out after slowing down to just 2.25 per cent on a year-on-year basis.

Officials say Prime Minister Singh is also pushing them to clean up a Direct Tax Code, which could jiggle tax rates, while enlarging the tax base. The DTC is expected to simplify tax laws, lead to less legal disputes over taxes and ultimately bring better compliance. Industry says any tax reform measure always helps business grow and bring more of the `parallel’ economy over-ground, with more businesses declaring their tax liability. 

However, two reform measures promised to industry at large and foreign investors in particular could remain in doldrums unless the government does a better job at floor management inside the parliament.

In the last parliament session, the government was unable to go ahead with voting on the insurance bill as no agreement could be reached in back-room parleys with opposition and supporting parties on a clause which seeks to raise FDI to 49 per cent.

Officially the debate will be shifted to the next session of Parliament. The BJP had earlier agreed to help pass the insurance bill, provided the foreign investment cap was retained at the current level of 26 per cent.

Linked to this is the fate of the pension regulator bill, which gives teeth to the regulator and allows foreign investments into pension funds. The FDI limit in pensions is linked to the limit in insurance firms. It could be taken up separate from the insurance bill and passed, allowing foreign pension funds to buy up to 26 per cent stake in Indian pensions for starters, but a final call on this could depend on how the voting numbers stack up in the coming Parliament session.

Today's Chanakya

New Delhi, June 17, 2010: Its 10.40 AM and I am  on the airport tarmac with an air force officer waiting for India's finance minister Pranab Mukherjee to arrive. I am supposed to accompany the man who heads more ministerial groups than he can remember, on a trip to diamond city Surat and Gujarat's capital Ahmedabad.
His car screeches to a halt. Petroleum minister Murli Deora has driven down with him, perhaps to brief him on the need to raise petrol prices to save state run oil firms from bankruptcy. A move which their cabinet colleague from Bengal, Mamata Banerjee successfully stalled last week.
Pranab starts walking briskly towards a waiting Embraer jet. I just about manage to catch up with the man who is 75 years old. "Your direct tax code changes are being talked about." The finance minister on Tuesday released a set of changes to a planned direct tax code which saves pension savings from being taxed.
"Yes, people seem to have liked it ... lets see how it goes in Parliament," Pranab says smiling slightly. The man who troubleshoots on almost all issues for the government and the Congress party seems a little tired, despite his surprisingly young gait.
His aides say he works most nights, poring over files. But still manages a grueling 12-hour schedule the next day perked up by about 10 to a dozen cups of black tea and coffee at intervals.
Once inside the aircraft, sure enough Pranab orders hot beverage for all and tries to catch up on his newspaper reading. He has been a newspaper addict since the age of 10.
Surat arrives almost before breakfast is over. We have to rush to catch up with Pranab, He has finished with tarmac greetings, bouquet exchanges and pleasantries and is in a waiting sports utility vehicle, even before his aides can get into their cars.
His hosts are his companion in his vehicle. The idea, someone explains to me, is that in case of a terror attack others who can rally around and get help should not be in the same vehicle!
The cavalcade swings onto a highway and winds through rich sugarcane fields  into a modern conference center. A huge congregation of diamond traders and textile mill owners are waiting for the man who they hope will help give them tax breathers to recoup losses they ran up in the last two years of global downturn.
Eight out of ten diamonds cut and polished in the world are worked upon in the port town of Surat. But the problem is that with western economies spinning into a nightmarish recession over the last two years, diamonds, celebrated in songs and films as a `woman's best friend' have found fewer buyers in the last two years.
Textile and garment mills in Surat too have had to lay off tens of thousands of workers as global orders plummeted. Businessmen say the city which boasts of the highest annual household income in the country - Rs 4.57 lakh - lost out some Rs 3,600 crore of business in 2009 out of the Rs 12,000 crore of garments business it does in a normal year.
The finance minister talks of growth, promises help, assuages hurt by calling Surat a victim of the global downturn and asks entrepreneurs not to lose heart but work to create more wealth and jobs. "We want more growth and more jobs" is met with thunderous applause.
The man who has represented Gujarat for six years in the upper house during the 1980s, has a surprisingly strong fan following here, despite not speaking any Gujarati. Businessmen and women are nodding in agreement with his appraisal. A textile trader who is sitting next to me whispers "He is really running the country, you know after all the economy is the country ... after Manmohan (Singh) he is the best man for this job (Finance Minister)."
A short flight takes us to Ahmedabad. A meeting is slated with Narendra Modi, Gujarat's chief minister, in the city's circuit house. Pranab wants Modi to agree to a nation-wide Goods and Services Tax which will replace the current system of VAT taxes. And the BJP leader has been playing hardball.
Pranab's motorcade is treated like a visiting head of state's. Streets have been cleared of traffic. Saluting policemen dot the route. Even pedestrians aren't allowed on the road.
A beaming Modi comes out to greet Pranab at the circuit house: "instead of a bouquet, I would like to offer my `buk' (heart) to you." Pranab smiles cautiously. After all this is a political rival with whom his party will have to contend in the  years ahead.
Pranab promisses he will take care of any losses states run up in implementing GST, a simpler taxation model which businessmen feel will reduce taxes and the government believes will boost revenues for states. But Modi, a seasoned politician, is ambivalent and wants a test pilot project before agreeing. The Gujarat chief minister is the key to a cabal of BJP chief ministers running Chattisgarh, Madhya Pradesh, Uttarakhand and Himachal, coming on board.
Modi uses the example of a successful bus corridor in Ahmedabad compared to an unpopular bus corridor in Congress ruled Delhi. "I accept new things after testing them out." North Block believes the BJP ruled states will ultimately agree but will try stalling as long as long as possible.
"You are not just the finance minister ... you have a lot of influence in all ministries," Modi says as the meeting is coming to an end, presenting a list which seeks arrears in sales tax rebate, money for a notional `loss' on crude royalty because the royalty formula was changed, lower price for natural gas and more gas among other things.
A Pradesh (State) Congress Committee delegation walks in as Modi strides out towards waiting flashlights and TV cameras. Congressmen want to complain to Pranab about Modi's verbal attacks on the Congress and the central government.
Its 6 O'clock. But the day is not yet over for the finance minister. The last job of the day is to unveil a bust of Third century BC Indian master-statesman Chanakya, at the local income tax office. Its a lovely piece of sculpture in black stone. As Pranab, who is known to have studied Chanakya's treatise on statecraft `Arthshastra' and quote him in budget speeches, pulls the veil of the bust, a young officer whispers to another "It's this century's Chanakya paying homage to an earlier one."