News: Pantaloon Retail bid to woo women

(Sify 28/02/2006) Bangalore - Pantaloon Retail India Ltd is offering a co-branded credit card with ICICI Bank exclusively for women customers at Big Bazaar stores.

According to sources in the company, the card carries no fee and comes with a credit limit of Rs 5,000. "Customers would enjoy 50 days' credit period," they said.

Sanjeev Agrawal, President, Marketing, Pantaloon Retail India, confirmed that the exclusive card for women was being offered at Big Bazaar stores, but refused to give details as "we would like to make a joint announcement with the bank soon," he told Business Line.

In October last year, Pantaloon launched the Central-ICICI Bank card for its Central Mall customers. This card offers benefits such as reward points and a zero per cent EMI option.

News: Godrej-RPG mall opened in W Bengal

(ET 27/02/2006) KOLKATA - Godrej Properties on Monday made its maiden entry into West Bengal with the foundation stone laying of its Rs 175-crore shopping mall, a joint venture project with city-based RPG Group, while evincing interest in investing around Rs 200 crore in the state's IT sector soon.

Godrej Properties MD Milind Korde told reporters at the foundation laying ceremony today that the three acre shopping arcade would be developed as a joint venture with RPG Group company CESC.

"We are planning to invest in West Bengal in a bigger way with two more IT projects of around Rs 100 crore each -- one with Simoco and another with Infinity -- making for a total built-up space of 3.3 million square feet," he said.

Laying the foundation stone for the project at Park Circus, West Bengal Chief Minister Buddhadev Bhattacharjee said,"I have been pursuing Godrej for a long time to invest in West Bengal. What I could not do, RPG has done."

RPG group vice chairman Sanjiv Goenka said the although the group had its brand of hyper-market in Spencers', it has decided to join hands with Godrej as Spencers' was not into development of malls.

He said that Godrej Properties of Adi Godrej had the expertise of setting up malls and running them.

The CESC-Godrej Plaza would be completed within the next two years.

Column: FDI in retail must be allowed

(Rediff 24/02/2006) New Delhi - At present, foreign direct investment (FDI) in pure retailing is not permitted under Indian law.

In 1993, the then finance minister Dr Manmohan Singh had changed the law to permit FDI in retail trade. Dairy Farm, a multinational corporation entered India on that opening. But, the next finance minister, P Chidambaram, to curry favour with the Communists in the then United Front government, changed the law again in 1996 to ban FDI in retail trade, but as with every Indian law there is a loophole by which foreign retailers can (and some do) operate in India through local franchises.

Now, in 2005, the new United Progressive Alliance government is grappling with same question whether or not to permit FDI in retail trade, but with the same ministerial personnel in a Congress party musical chair circus!

What is then the answer to the question: should FDI in retail trade continue to be banned?

The answer is obviously 'no,' especially, after the World Trade Organisation's Doha Round of talks. The WTO mandate now requires that India lift the ban or face WTO's 'cross-retaliation' measures, such as withdrawal of tariff and trade privileges that are available to India under the new General Agreement on Tariffs and Trade.

The cost of continuing with the ban is therefore prohibitive and, in any case, much more than what the Leftist and bogus Swadeshites claim as the consequences of lifting the ban. A cost-benefit analysis clearly points to saying 'yes' to FDI in retail trade.

The Leftists and Swadeshites in India have been continuously crying wolf about foreign goods and funds. They are however ready to accept that foreigners can guide their ideology (e g, Karl Marx) or that foreign doctors may do their heart by-pass or knee replacements.

Some of them do not even mind if foreign-born guide the Indian political destiny. But to allow foreigners as shopkeepers in India? Never, they say!

The track record of crying wolf of these Leftists and Swadeshites is pathetic. In December 1990, I had as Union commerce minister led the Indian delegation to participate in final Uruguay Round to consider the new GATT draft.

I had announced then that India would sign the new GATT agreement after the Dunkel draft was adopted. There was howl of protest in Parliament from the Left and those with Socialist or Swadeshi pretensions. India would become a colony again, agriculture would be laid barren and industry wiped out, they warned.

Moreover, the 'yellow peril' would sweep the nation through cheap batteries and electronics. The scare created in the media was stupendous.

But in the end did the worst happen? On the contrary, during the ten years since the signing of the new GATT, thanks to private initiative, India has become an IT superpower. This was made possible because of foreign funds seeking research on the Y2K problem.

The Indian pharmaceutical industry is on the way to dominating the world and our biotechnology is blooming. Moreover, Indian youth manning telephones have outsourced out of the Untied States so much that it is the American who is now worried about globalisation.

If instead of shooting ourselves in the foot in pathetic self-pity as we did during the last ten years, if instead the Union governments that have come and gone had spent money on R&D, and concentrated on providing world-class infrastructure and modernisation of food processing and textile industry, India could have become a developed country by 2010, instead of having to wait now till 2025 or later.

India can become a giant in a short time span in food processing and textiles, for which we have the potential because Indian agricultural production is the lowest cost in the world, and textile labour is the cheapest internationally.

Allowing FDI in retail trade, especially in groceries and garments marketing, is one sure way of doing it. Food processing and textiles will grow very substantially from the linkage effects of a modernised, globalised retail trade that only FDI can ensure. The employment generation for Indian youth would also be enormous.

Indian retail trade is of enormous size ($180 billion), nearly 10 per cent of GDP, employing 21 million persons, which is about 7 per cent of the labour force. It is six times bigger than Thailand and five times larger than South Korea and Taiwan. China's retail trade is 8 per cent of GDP and 6 per cent of employment.

But the trade in India is fragmented, unorganised, unnetworked, and individually small. The 12 million kirana shops, are mostly family or 'ma-pa' owned, with little capital for expansion or credit to receive or to extend to consumers.

About 96 per cent of these shops have 500 sq ft or less of space with limited stock or choice to offer. During all these years, instead of shedding tears for indigenous trade and resisting FDI, had the government declared it an industry, it would done the trade a world of good. Now it is being said that allowing FDI in retail trade would destroy this commerce! Will it?

A study by the Associated Chambers of Commerce of Industry of India, New Delhi, concluded that at least for the next ten years that will not happen. Thereafter, the present fragmented system may get phased out or evolved into more integrated networked units.

This is already happening without FDI. For example, ready-made garments have displaced the family tailor (but not tailoring), horse buggies or tongas have made way for the automobiles (but not reduced travel), and dharamshalas have been replaced by hotels (but not the cuisine).

Labour has been retrenched, but re-tooled and made more productive. That is what happened with development in Thailand, South Korea and now in China.

Thus we cannot allow the way we do things to remain frozen just because of the paranoia of the Left and Swadeshites. We need a rational approach toward FDI in India's retail trade; in particular, how after it is permitted free access, it is subject to regulatory supervision.

Modern retailing is designed not only to provide consumers with a wide variety of products under one roof, but also of assured home delivery and information feedback between consumers and producers. A modern retail outlet will also make it easy to buy on credit and provide for servicing and repair of products sold.

With IT application, the modern retail store can cut transaction costs such as due to inventory, delivery and handling. That is precisely how the US based Wal-Mart grew to be a giant because it reduced its distribution costs to 3 per cent of sales compared to 4.5 per cent of others.

With MIT Professor Sanjay Sarma's epochal innovation of RFID (radio frequency identification), which will do away with cash registers and clerks who are required to operate it, Wal-Mart will further reduce its costs.

Wal-Mart had entered the Chinese market a few years ago (in 1996). Now it wants to enter India and bring FDI to set itself up to network in India. As usual, the UPA is dithering on how to react because it is a coalition placed between a rock and quicksand. The WTO mandate is the rock, while the Left Front is the quicksand.

India is today the only major economy that still does not permit FDI in retail trade. In China, 35 of the world's top 70 retailers have already entered and set up business. They have helped boost exports. Wal-Mart alone exported in 2002 about $12 billion worth of goods. These retailers source their goods from inside China.

India is targeting for its GDP to grow by 8 to 10 per cent per year. This requires raising the rate of investment as well as generating demand for the increased goods and services produced. Exports is one way of generating that demand. Encouraging private consumption expenditure is another way.

Both these can be facilitated by allowing market-savvy, market-intelligent and best management practices, through corporations such as Wal-Mart, Carrefour, Ahold, JC Penny, et cetera to enter India.

These retail giant houses can bring their better managerial practices and IT-friendly techniques to cut wastage and set up integrated supply chains to gradually replace the presented disorganised and fragmented retail market. According to McKinsey, India wastes nearly Rs 50,000 crore in the food chain itself. These international retail outlets can help develop the food processing industry which requires $28 billion of modern technology and infrastructure.

As India's urbanisation grows, these modern food delivery systems are required. Foreign companies want to come in, and we need their money and techniques to prepare our transition to the inevitable globalised market of the future.

FDI in retail sector has been a key driver of productivity growth in Brazil, Poland and Thailand. This has resulted in lower prices to the consumer, more consumption and higher profit for the producer.

FDI in retail trade has forced the wholesalers and food processors to improve, raised exports, and triggered growth by outsourcing supplies domestically. The availability of standardised products has also boosted tourism in these countries.

Hence, time is now for us to shake off the last vestiges of Soviet-style socialism and comply happily with the WTO mandate to permit FDI in retail trade. The Indian consumer and the poor farmer will be the two biggest gainers from it.

Dr Subramanian Swamy served as minister of law, commerce and justice in the Chandra Shekhar government. A former professor of economics at Harvard, he is also president of the Janata Party.

News: Cracking open the jewel

(MW 23/02/2006) London - Major Western retailers and brand owners are champing at the bit to gain a foothold in India, but a combination of political opposition, lack of infrastructure and strong cultural influences mean the country is not quite as welcoming to these interests as China.

After a decade of heavy investment in China, western brand owners are turning their attention to another rapidly growing Asian economy with an expanding middle class. India's 7- 8% economic growth rate in recent years has flowed largely from its knowledge-based economy, based on offshore call centres and back-office outsourcing to western companies.

A skilled IT workforce, fluent English speakers, and links - through population movements - with Europe and the US, make India a tempting prospect for foreign investors. However, India's left-leaning government is allowing only gradual liberalisation in some of its markets, as it seeks to defend local interests from the onslaught of global corporations. The tensions between western pressure for free trade and India's protectionist instincts came to a head last month, when the country's government declared it would forbid investment by western retailers such as Tesco, Wal-Mart and B&Q.

These chains have been looking longingly at the country, which has a population of 1.1 billion and a burgeoning middle class of 90 million people. Its fragmented retail scene, made up of 9 million family-run corner stores and street outlets, boasts few shopping centres or large chain stores.

Modernisation is essential

There are huge opportunities for large-scale retailing interests to enter and dominate the market. Some argue that for western brands to extend their presence in India, modernisation of the retail infrastructure is essential.

Retailers have been wondering if India - a virgin retail territory, ripe for rapid store expansion - could become the next China. Tesco, Carrefour and B&Q have developed extensive retail joint ventures in China, and own hundreds of stores between them. Spanish-owned fashion chain Zara is also entering the country, and US company The Gap is considering a move.

But a lobbying campaign during 2005 spearheaded by Prime Minister Tony Blair, with the Confederation of British Industry (CBI) and the Department of Trade & Industry (DTI) in tow, failed to persuade the Indian government to allow western store groups to move in.

Instead, it announced in January that only "retailers which sell goods internationally under a single brand" would be allowed to buy up a 51% share in retail operations in the country. This is open to interpretation - it would seem to include McDonald's and Pizza Hut. But the DTI believes that the cap on foreign-partner equity could prevent bigger players such as Next and Ikea from finding partners with sufficient capital. They might even be deterred from entering the market unless they have full equity rights.

The ruling is interpreted as giving the go-ahead for luxury-goods stores, such as those run by Burberry, Gucci and Louis Vuitton, to be majority joint-venture partners. This is a significant development in itself since, at present, overseas retailers are only permitted to run franchises in the country, and chains such as Marks & Spencer and Mothercare owe their presence to franchise agreements.

Western lobbyists are putting a brave face on the limited concession wrung from the Indian government, claiming it is a first step in opening up the market to the global giants. The CBI denies the move goes against its lobbying efforts of the past year. CBI director of international operations Andy Scott says: "This is a small step in the right direction, but more needs to be done. It is hoped that India will realise the benefits of further opening to foreign investors."

This week, the City of London's chairman of policy and resources Michael Snyder was due to meet Indian officials, armed with plans to open an office in Mumbai to develop business links between India and the UK, and help Indian firms to gain a listing on the London Stock Exchange. City bosses already occupy offices in Beijing.

Tesco denies it took part in lobbying the Indian government, though a spokesman concedes: "It is a market we watch with interest." A fortnight after it was barred from entering India, Tesco announced plans to open convenience stores in the US.

Meanwhile, a B&Q spokesman says the rule change means the chain will still be excluded from investing in India because it sells multiple brands internationally. "India is a very interesting market, but the move recently made to open it up to foreign direct investment was a relatively cautious, limited one. We hope this is a first step to wider collaboration," he says.

Before they fling the doors open

India's ruling Congress party, in coalition with the Communist Party of India (Marxist), is under pressure from millions of small retailers to keep the giants out, although one source describes this group as a "not very well organised" force. At the same time, the country's government wants to give Indian multiple retailers opportunities to build their own businesses before flinging the doors open to western interests. India has suffered from the effects of foreign domination before. In the 19th century, British monopolies in textile manufacture and other sectors stunted the development of India's business class, a weakness that some believe has undermined the country's economy ever since.

However, in the newly confident India, an era of unprecedented development is dawning for indigenous retailers. Pyramid Retail is to launch 35 Megastores and Trumarts this year, doubling its coverage to 800,000 sq ft. RPG Group's Spencer Retail plans a $100m (£57.3m) expansion, while Pantaloon plans to launch 51 shopping malls, developing nearly 15 million sq ft of retail space with an investment of $550m (£315.2m).

Investment would benefit locals

Western multiples could easily wipe out the indigenous competition if allowed in before local retailers develop their strength. On the other hand, western lobbyists argue that India needs to rapidly improve its infrastructure and build better roads, which their investments would help to fund.

Nirmalya Kumar, director of The Aditya Birla India Centre at the London Business School, says it is "only a matter of time" before India opens up to foreign multiple retailers. But he warns of structural problems that could restrict operations. India's 28 states impose tariffs on merchandise transfers, which is a disincentive for retailers to establish nationwide distribution systems.

Meanwhile, other sectors of India's economy are attracting foreign interest. The $1bn marketing services sector is growing strongly, at about 12% a year, and global giant Publicis recently bought Solutions Integrated Marketing Services in order to boost its Indian presence. Publicis Groupe president Maurice Lévy has said "India will be an increasingly critical area of the world for us".

But Simon Sherwood, worldwide chief operating officer of Bartle Bogle Hegarty, says it is still mulling over the possibilities of opening an office there. "It is an odd market. It is not very big, the 22nd largest advertising market in the world. The interest is in the potential, because it is talked of as the new China. I don't think it is going to explode like China, I don't get a sense of a great leap forward," he says. Hindustan Unilever dominates the market, which Sherwood believes makes ad agencies overly reliant on one client.

While China has come to be seen as the low-cost "workshop of the world", India positions itself as a centre for hi-tech skills and creative industries such as design, media production and film. It will be interesting to see whether India's comparatively restrictive approach to foreign investment gives its local entrepreneurs the space they need to build powerful global brands of the future.

News: RIL sets $20 bn target from retail business by 2010

(FE 22/02/2006) Mumbai - Reliance Industries Ltd (RIL) has set a revenue target of $20 billion from its retail venture by 2010, almost thrice the size of the current organised retail business in the country, according to a presentation made by its top management to senior executives recently. The entire organised retail segment is today pegged at $7 billion, just 3% of the total Indian retail industry estimated to be $230 billion in size.

Industry observers feel RIL's figures are on the optimistic side.

It dwarfs India's current numero uno in organised retail chain, Pantaloon Retail India, which has an annual turnover of $240 million from its 84 outlets spread over 30 cities. In fact Pantaloon, an established retail chain, has projected revenues of $2 billion by 2009 compared to RIL's target of $20 billion.

RIL's plans include a pan-India footprint in more than 800 cities and towns with a few thousand retail outlets of multiple formats and categories. The company has now moved into the execution phase with a team of 120 professionals drawn from the industry as well as from other business of Reliance, apart from hiring talent from India and abroad. It recently concluded the initial planning phase for its retail business with the help of some international consulting firms.

News: Pantaloon gets new identity

(TNN 21/02/2006) Mumbai - Pantaloon, the country's largest retailer, is all set to don a new corporate identity. It will now be called the Future Group, instead of Pantaloon Knowledge Group.

To be officially unveiled in two weeks, the new look shall include its swanky logo a human palm print done up in vibrant Indian colours, sporting the theme: India Tomorrow.

The Pantaloon Knowledge Group banner has also been replaced with the new Future Group and all Pantaloon group companies shall now display this new identity.

"Today, we are present in every aspect of the consumer experience from brands, property, home, leisure and entertainment to communications.

..Going forward, businesses like financial services and logistics will play vital roles. Hence, the need was felt to have a cohesive identity, which reflects the new face of the group," said Pantaloon CEO Kishore Biyani.

A privately held company Future Ideas, with its office in Nariman Point, Mumbai, will hold the Future Group brand. Future Ideas shall primarily be a think-tank which will undertake scenario planning, training and ideation for all group companies. Along with senior Pantaloon managers, industry experts and academicians are expected to be inducted.

"The basic idea is to create a centre of excellence and become a thought-leader," said Biyani.

But new look apart, the blueprint more importantly gives a glimpse into the kind of corporation Biyani wants to create. Pantaloon, which started off as an apparel retailer, today straddles nearly all segments of the consumer space ranging from food, fashion, home, general merchandise, leisure and entertainment to wellness and beauty.

..These products and services are delivered across a bewildering array of formats ranging from Big Bazaar, Food Bazaar to Home Towns and Centrals.

Alongside new lines of business have also been created: Future Capital Holdings, the holding company for its financial services foray is applying for an NBFC license and plans to distribute and market a range of financial products.

Kshitij, its retail property arm, has two real estate funds under its fold, including an international one. A $450 million consumer brand fund, Indvision, has been put into place to acquire domestic and international retail brands. Also on the cards are gigantic consumption centres, the first of which is coming up in Mumbai.

While Biyani has always set a scorching pace, of late, Pantaloon has stepped up its activities now that the threat of Reliance retail and international brands like Wal-Mart looms large.

News: Lesser Known Facts on the CSM

(JIS 20/02/2006) Kingston - In recent weeks, the CARICOM Single Market and Economy (CSME), and more specifically the CARICOM Single Market (CSM), which was launched in January 2006, has received considerable public attention.

While the single market and economy is not to be seen as a panacea for the region's challenges in the current market arena, the CSME when fully implemented by December 31, 2008 will offer a protective hedge against the full force of the global market winds.

The free movement of capital, goods, services and skills/labour and the Caribbean Court of Justice (CCJ) are two planks of the on-going CSME discourse.

On Monday, January 30, at the Mona Visitors' Lodge at the University of the West Indies, six countries signed a declaration recognising the existence of the CSM. They were Trinidad and Tobago, Barbados, Guyana, Belize, Suriname and Jamaica. In addition, six Member States of the Organisation of Eastern Caribbean States (OECS) signed a declaration of intent and announced that they should be ready to join the CSM by the end of June this year. These states are: Antigua and Barbuda, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines.

The Bahamas, Haiti and Montserrat are the other three CARICOM member states that complete the 15-member Community and have not yet signed on to the CSM.

Sovereignty

Speaking with JIS News, Ivor Carryl, Programme Manager of the CSME Regional Unit in Barbados, explains that the Community's single market and economy would operate as "a unit of sovereign states, not as a single union as the European Union." This insistence on sovereignty is part of the Treaty of Chaguaramas, which birthed CARICOM.

"The EU model has centralised political institutions such as the European Commission and the European Parliament, but CARICOM is maintaining sovereignty," clarifies Mr. Carryl.

However, he said that although there is no intended political integration, it is advisable that the Community's Finance Ministers constituting the Council for Finance and Planning (COFAP), consider CARICOM Member States when designing and implementing their respective country's macro economic policies.

Member State Portfolios

Whilst the CSM will maintain individual state sovereignty, Member States will have specific portfolio assignments. Barbados' portfolio, for example, is the CSME, including the Monetary Union, while Antigua and Barbuda is responsible for Services, including Information Technology and Telecommunications. For Belize, it is Sustainable Development, including Environment and Disaster Management and Water, while Dominica is responsible for Labour, including Intra-Community Movement of Skills.

Grenada has the portfolio of Science and Technology; Guyana, Agriculture and Food Security; Jamaica, External Trade Negotiations; St. Kitts and Nevis, Health, including HIV/AIDS and Human Resource Development; St. Lucia, Justice and Governance; and St. Vincent and the Grenadines, Bananas and Air Transport.

For Suriname, its portfolio responsibility is that of Community Development and Cultural Co-operation, including Culture, Gender, Youth and Sport, and Trinidad and Tobago has Security as this relates to Drugs and Illicit Arms, and Energy.

Geography and Areas of Economic Strengths

Often described as one of the most politically stable regions of the world, the Caribbean area is also located between the North American and South American markets.

With the exception of Suriname, which has a civil law tradition, all the Member States that will be signed on to the CSM by the end of June this year, are democracies.

Aside from regional political stability and prime location, the Caribbean countries participating in the CSM and CSME also have a mix of resources, services and general market strengths to trade among each other. These include: tourism, oil and natural gas, bauxite, marine resources and fertile agricultural land.

Whilst tourism seems to be the strength shared by all, Antigua and Barbuda, for example, is efficient in rum and cotton production and produces light assembly goods and agricultural products. The strengths that Barbados has are tourism and offshore financial services. That country also has small oil, manufacturing, sugar and agricultural industries. For Belize, most of its income come from agricultural crops such as maize, rice, citrus, bananas and sugar.

As it relates to tourism, the situation in Dominica is different. The tourism it enjoys is eco-tourism, mainly because of its rain forest and volcanic scenery. The manufacture of soap and coconut oil is second to that country's eco-tourism offer.

For Grenada, the main industries are agriculture and light manufacturing and for Guyana, it is mining (gold and diamond), and agriculture (sugar, rice, fish and shrimp). Sugar, cotton and coconuts are the popularly exported goods from St. Kitts and Nevis, whilst for Suriname, it is minerals such as bauxite, gold, petroleum and kaolin, rice, palm oil, bananas and prawns. St. Lucia exports goods that are produced through light manufacturing and agriculture. The same goes for St. Vincent and the Grenadines, whose agricultural exports include, arrowroot and ground provisions.

Bauxite mining and agriculture, particularly products such as coffee, spices, hot peppers, cocoa, bananas, citrus and sugar are popular Jamaican exports. The reggae music is also another prized industry in the country.

Aside from manufacturing, the major economic activities of the twin island Republic of Trinidad and Tobago are centred around its oil and natural gas resource. They produce and export petroleum and petroleum products, ammonia products, methanol, urea and natural gases.

Passports

It is expected that by 2008 there will be one CARICOM passport. Five Member States have already introduced a passport that identifies its holder as firstly a CARICOM national and secondly a national of the individual state. These are Suriname, St. Kitts and Nevis, Dominica, St. Vincent and the Grenadines and Antigua and Barbuda.

Steven MacAndrew, Free Movement Specialist at the CSME regional Unit tells JIS News that, "Trinidad and Tobago and Guyana have indicated that by July this year, they would have introduced the CARICOM passport". He also says that Jamaica will institute the passport by 2007, having recently upgraded its passport to a machine-readable state.

With the introduction of the CARICOM passport, the need for a national passport will be eliminated.
Interestingly, one of the spin-off benefits of the CSM is that many hotels in Member States are offering CARICOM nationals cheaper rates than international occupants.

News: The impact of the CSME on the EPA would be great

(TE 17/02/2006) Port of Spain - They are in places no more than 100 hundred miles distant. Some are members or associate members of Caricom. They have close cultural, linguistic and family ties that spread across the Caribbean. They are a part of the region, yet apart.

They are the British and Dutch overseas territories in the Caribbean and their cousins, the French the Départements d'Outre-mer (DOM).

The British overseas territories (Anguilla, the British Virgin Islands, Cayman, Montserrat and Turks and Caicos) are almost all in a process of a form of constitutional advancement that does not necessarily imply a desire for independence. With the exception of Montserrat they are quietly some of the wealthiest small islands in the world with GDP figures that in certain cases exceed or are better than those of most developed countries.

The Dutch overseas territories are also in a similar economic situation but are in a state of constitutional flux. Under a new political structure, agreed with the Dutch government in late 2005, the federation of the Netherlands Antilles will be dissolved by July 2007. Curacao and Sint Maarten will each become autonomous territories of the Netherlands. Bonaire, Sint Eustatius and Saba will become ‘kingdom islands’, a newly-created status that has still to be defined in detail. Aruba was already a state apart from the Federation with its own status.

In contrast, the DOM (Martinique, Guadeloupe, and Guiane) are Europe in the Caribbean. They are remote parts of France sending elected representatives to the French Congress and the European Parliament. They are formally, in the language of the European Commission (EC), the ‘outermost regions’ of Europe and as such have special provisions enshrined in an article of the European Treaty. This recognises that because of their ‘remoteness, insularity, small size, difficult topography and climate, as well as economic dependence on a few products’, the DOM are ‘permanently’ and ‘severely restrained in their socio-economic development’: a legal definition of special and different that the rest of the region would be glad to have.

As a consequence, Europe has adopted three well-funded priorities for action for the DOM. These are to promote accessibility; to improve competitiveness through the creation of an economic environment that favours the establishment of businesses; and to prioritise regional integration in a manner that develops trade in goods and services with neighbouring countries with the ultimate objective of integration into the surrounding geographical area.

Yet irrespective of the unusual range of ties that the overseas territories and the DOM have to Europe, they are all faced with a challenge for which there is no precedent.

The creation of an Economic Partnership Agreement (EPA) between the independent Caribbean and Europe (and the Caribbean Single Market and Economy) will potentially have the economic effect of isolating the Overseas Territories from the independent Caribbean. It will create different trade relationships with Europe and with neighbours in the region.

Paradoxically after 2008 in the case of the DOM, an EPA will have the reverse effect. As a part of Europe, albeit remote, the DOM will then be subject to the phasing in of the same trade reciprocities as are agreed for Continental Europe.

At a policy level Europe’s draft communication on the Caribbean seeks to encourage as ‘a part of the wider integration process’, cooperation between the independent Caribbean, the DOMs and overseas territories. This, the document suggests, will be in the field of trade but also in other areas of common interest, such as migration, transport, health, justice and security.

The European Commission has given some thought to the detail but regards the matter as complex. It is already struggling to find ways to incorporate some form of variable geometry into an EPA that takes account of the very different levels of development of Caricom members. This, it is suggested, makes it less than likely that Europe will want to find a way to incorporate the overseas territories into an EPA unless specifically requested to do so. It also has to recognise that in the case of the British and Dutch overseas territories it cannot act without the agreement of the member states concerned. However the EC has held a seminar for the DOM and Overseas Territories and is engaged in a direct dialogue that will involve direct exchanges with the Development Commissioner on these and other issues.

In the independent Caribbean these are not matters much considered. At the level of an EPA the Caribbean Regional Negotiating Machinery is aware of the issues but as yet has undertaken no specific studies or consultations and is not seeking to incorporate any special language or provision into a draft EPA relating to the DOM or any overseas territory. For its part Caricom is aware of the difficulties posed by Montserrat which as a full member and if the UK were ever to agree, could become a part of the CSME and then potentially of a EU/Caribbean EPA.

In the overseas territories the implications of an EPA or the CSME have not been widely considered. Notably the British Virgin Islands is considering the implications of both, but most other British Overseas Territories are hoping that greater clarity will be forthcoming from London and Brussels on the issue.

Much better prepared are the DOM. In all three there is concern and a gradual move to try to seek economic advantage from a changed economic relationship using European regional funds to try to identify opportunities for economic integration with Caribbean neighbours.

It is easy to argue that for the most part trade between Caricom members, the Overseas Territories and the DOM is minimal and that as such the CSME and EPAs are of little consequence enabling the DOM and overseas territories to continue in economic isolation. But the reality is that Europe and the independent Caribbean are about to take far ranging decisions that may effect on overall competitive environment in which all nations in the region operate.

There will be negotiations on trade in services involving potentially the liberalisation of financial services and tourism, matters close to the economic heart of all of every Overseas Territories. The DOM will undergo a sudden integration into regional economy as a result of a trade arrangement with Europe. More generally the negotiations will also lead over time to a new economic future for the region in which all are located.

No one would argue that the initial impact of the CSME or an EPA on the non-independent Caribbean other than the DOM would be great. Despite this, it is startling how little thought or research has gone into the ways in which the independent and for the time being non-independent Caribbean will relate to one another in the future.

News: Pepe plans to bring watch & fragrance brands to India

(TNN 16/02/2006) Bangalore - Pepe Jeans has firmed up plans to bring innerwear, timewear and fragrance range to India through a licensing arrangement. “We are open to partnerships with other companies who can help us leverage this business opportunity,” said Chetan Shah, managing director, Pepe Jeans London (PJL) Clothing (India).

With a 25% market share of the premium jeans and casualwear segment, PJL has 51 exclusive stores, 75 large-format stores and 2,000 multi-brand outlets in India.The company plans to expand its retail footprint by doubling the number of exclusive stores and a higher market penetration in the next two years. “With investments between Rs 30 lakh to Rs 1 crore per standalone store, Pepe will add another 50 such stores in the country by ‘08,” Mr Shah said.

While the company’s growth in India is led by the western region, the southern region has emerged as its fastest-growing market. Pepe has 16 concept stores in the four southern states.

Currently, the company’s accessories division including bags, belts, caps and wallets contributes a mere 5% in value terms to its total turnover. Mr Shah said that this is likely to rise to 10% within the next one year. However, the contribution of Pepe India to its global parents has remained stagnant at nearly 10% for the last two-three years.

Column: CSME - Free movement and a larger Fund

(AS 15/02/2006) Antigua - The 13 operational countries of the Caribbean Community and Common Market (Caricom) should agree to the completely free movement of people from Less Developed Countries (LDC’s) to the More Developed Countries (MDC’s) on a non-reciprocal basis as the first step to encouraging them into the Caribbean Single Market (CSM).

The Bahamas and Haiti are excluded from this proposition.

There should also be agreement that the seven LDC’s would be allocated at least 60 per cent of the resources of the Regional Development Fund (RDF) to implement structural adjustment programmes. And, the Fund itself should be larger than is presently contemplated.

Since it is unlikely that the Caricom countries alone can contribute the resources that an enlarged RDF would require, contributions should be sought from outside countries and regions.

Thus, Caricom should commit itself to placing on the agenda of its negotiations with the European Union (EU) for Economic Partnership Agreements (EPA’s) the proposition that the EU should contribute to funding adjustment in the LDC’s through the RDF.

After all, the loss of preferential treatment for bananas in the EU market has materially hurt the economies of St. Lucia, St. Vincent & the Grenadines and Dominica. And, the sugar industry of St. Kitts – already ailing – fell to the EU hatchet that hacked the preferential price paid for sugar.

Agreement from the EU to contribute to the Fund for the structural adjustment of the OECS countries should find resonance in Canada, the United States and Japan – all three of which enjoy trade surpluses with the OECS nations.

These two practical measures of non-reciprocal freedom of movement of people from the LDC’s to the MDC’s, and the larger allocation of the RDF’s resources to the LDC’s would, undoubtedly, embolden the countries of the Organisation of Eastern Caribbean States (OECS) to join the CSM on 30 June without equivocation.

There can be no doubt that regional integration for Caricom countries is a necessity.

In this connection, even if the OECS countries do proceed to establish an Economic Union on 18 June, they will still be weaker and less able to manoeuvre in the international community than if they were part of the CSME.

By the same token, a CSME of thirteen countries is also stronger than the group of six that kicked it off on 30 Jan. The two groups need each other.

But, there are genuine concerns among the OECS countries, and they should be addressed, particularly as the issues are not insurmountable.

The primary concern of the OECS, or LDC’s, is not about the movement of skilled Caricom nationals into their countries. Both the governments and the private sectors in the OECS recognise that they need skills if their economies are to grow. They also recognise that some of their own skilled people will move to other Caricom countries, and they will have to be replaced.

Their bigger fear is that, under the CSM, competition from better resourced companies in larger Caricom countries will close their local companies, creating unemployment and social and political upheaval. In their view, therefore, dislocated labour – particularly unskilled – should be able to move to other countries.

If such dislocated labour does move to other Caricom countries and finds employment, then clearly they will be satisfying a need and contributing to that country’s economic well being.

Given that there is little unemployment benefits in Caricom countries, labour is very unlikely to move from being unemployed in their own homeland, where they at least have the benefit of a family network, to being unemployed in another country where there is no support at all.

Consequently, the prospect of huge numbers of unskilled labour from the OECS swelling the ranks of the unemployed in the rest of Caricom is most unlikely.

With regard to the RDF, Trinidad & Tobago, Jamaica and Barbados should acknowledge that the benefits of trade in goods under Caricom have flowed primarily to them. In recent years, a similar development has taken place in financial services especially.

Trinidad & Tobago has been the greatest beneficiary both in trade in goods and services to the rest of Caricom and, on a comparative basis, more particularly to the OECS. Consequently, it is in Trinidad & Tobago’s self interest to be generous in its contribution to the RDF.

Of course, the Trinidad & Tobago government would be right in pointing to the Venezuelan PetroCaribe facility to which the OECS countries have signed-up as a diminution of its market within Caricom, and, therefore, reason to be less supportive of these countries.

That argument, of course, speaks directly to the danger that PetroCaribe poses to the project of deeper integration within Caricom.

But, Trinidad & Tobago’s government should take up the gauntlet thrown down by St. Lucia’s Prime Minister Kenny Anthony – it should work with the Trinidad oil companies to match the Venezuelan terms, and by so doing, not only maintains its market in Caricom, but also safeguards the regional integration project. Other countries within Caricom – such as Guyana and Belize – may well argue that their own situation also demands special attention. Unquestionably, they do.

Guyana is a Highly Indebted Poor Country (HPIC) and it will shortly face the loss of millions of dollars of annual revenue from the cut in the price that the EU will pay for its sugar.

Belize has already suffered the loss of a preferential price for its banana exports to the EU and will join Guyana in enduring a slash in the price for its sugar.

The situation of these two countries strengthens the argument for a larger RDF, and one to which significant contributions are made by the EU, the US, Canada and Japan.

But to encourage the support of external countries, Caricom nations must show themselves ready to make the hard decisions that are necessary to show that they are serious.

Therefore, the CSME must move ahead at full pace with the OECS joining on 30 June as pledged. If non-reciprocal free movement of people from LDC’s to MDC’s helps, there is no harm in granting it.

And, a larger RDF with specific allocations to the LDC’s to assist with structural adjustment is patently necessary. Caricom should now move to put implementing and management capability in place for the CSME – one that would command the support and confidence of the international community.

It is time for the Caricom Commission to be established with the CSME as the full time task of one of the Commissioners.

By Sir Ronald Sanders, a former Caribbean diplomat, now a corporate executive who publishes widely on small states in the international community.

News: Reid & Taylor to add 150 Indian outlets

(TNN 13/02/2006) Kolkata - Reid & Taylor, the speciality suitings division of S Kumar’s, is in the process of rolling out an aggressive plan to enlarge its retail presence this year. It is adding some 150 new retail outlets across the country, up from the present level of 21 stores.

“We have lined up big plans for expanding our visibility and retail presence across the country. This year, alone, we are in the process of adding 150 new outlets,” Ashwani Misra, senior vice-president, marketing, Reid & Taylor, told ET. He was in the city to attend the inauguration of Reid & Taylor’s second exclusive outlet. The new outlets coming up this year will mostly be exclusive franchisee stores in the form of both stand-alone high-street outlets and in stores in malls.

S Kumar’s, which now has the sales licence for the brand across the Middle-East region, in addition to India, hopes to stitch up a 40% growth in revenues in ’06. Last year, the brand grew at a similar rate to contribute some Rs 250 crore in sales across the country, while the combined turnover across the Middle-East, India and other neighbouring countries like Nepal was around Rs 400 crore.

“The dominant global trend in the menswear fashion is towards ready-to-wear and stitched clothing. In India, we are witnessing a similar trend. In line with this, we are positioning ourselves to meet the growing demand,” Mr Misra said. Reid & Taylor’s recent foray into ready-made shirts has met with good success since it has strengthened the brand’s range of offerings in the menswear segment, he added.

The company is also on the look-out for prime acquisition targets. It now has only one factory in Bangalore, but it is planning to buy out tailoring units that can meet the demand for tailored men’s garments.

Reid & Taylor, which has seen sales volume surge with Big B as its ambassador, is also believed to be talking to Abhishek Bachchan for brand endorsement. If it manages to clinch the deal with the younger Bachchan, the company will be able to cater to younger clientele as well.

Artikel: Wat zijn opties?

(DWT 11/02/2006) Paramaribo - Men kan naast aandelen en fondsen ook beleggen in de zogenaamde derivaten, ofwel afgeleide producten. De bekendste hiervan is de optie. Dit is het recht om een onderliggende waarde, doorgaans een aandeel, tegen een vooraf bepaalde prijs te kopen of te verkopen. Het is een overeenkomst tussen twee partijen die voor de ene partij de plicht meebrengt te kopen, voor de andere de plicht te verkopen.

Een optie verkrijgt men door een premie te betalen, de optieprijs. Op de vervaldag (de afloop- of expiratiedatum) van de optie kan men als houder het recht uitoefenen het aandeel te kopen of te verkopen tegen de vastgelegde prijs.

De schrijver, of verkoper, is de tegenpartij van de optiehouder. De schrijver is verplicht het aandeel van de optie te leveren of te kopen tegen een vastgestelde prijs. In ruil hiervoor ontvangt hij een premie.

Soorten opties

Er zijn twee soorten opties: callopties, ofwel aankooprechten, en putopties, de verkooprechten. De koper van een calloptie verwerft het recht om het aandeel tegen een bepaalde prijs te kopen. De schrijver ervan heeft de plicht het aandeel te verkopen tegen de overeengekomen uitoefenprijs, zodra de houder van de call hem hierom verzoekt.

De koper van een putoptie heeft het recht om het aandeel te verkopen tegen de uitoefenprijs. De schrijver ervan heeft de plicht het aandeel van de optie tegen die prijs te kopen, zodra de houder van de putoptie hierom vraagt.

Strikt genomen is het zo dat de optiebeurs waar gehandeld wordt een schrijver van een call of put zal aanwijzen, om aan de leveringsplicht te voldoen, wanneer hierom verzocht wordt. Die aanwijzing gebeurt willekeurig. Deze procedure is noodzakelijk omdat de optiebeurs bij het afsluiten van elk order onmiddellijk in de plaats van de tegenpartijen treedt (en op die wijze de correcte afwikkeling van alle transacties garandeert).

Als men een optie koopt, koopt men eigenlijk een verzekering. Tegen de betaling van de optiepremie verwerft de optiehouder gedurende de looptijd de zekerheid dat hij de onderliggende waarde tegen een vooraf bepaalde prijs zal kunnen kopen of verkopen. Men kan de premie dus beschouwen als een vergoeding voor het kunnen inspelen op de koersontwikkeling.

Er is een verschil tussen opties van het Europese en van het Amerikaanse type. Bij een ‘Europese optie’ heeft men te maken met een optiecontract dat alleen uitoefenbaar is op de expiratiedatum; een ‘Amerikaanse optie’ is op elk ogenblik van haar looptijd uitoefenbaar.

De onderliggende waarde van de optiecontracten kan heel divers zijn. De bekendste opties zijn die op aandelen of op aandelenindexen. Daarnaast zijn er ook opties op valuta, grondstoffen, obligaties, futures enzovoort.

© Drs. Benjamin R.H. Bremmer, InCar Trust (bremmer@incartrust.com)
InCar Trust is het aanspreekpunt voor Sares Invest in Suriname en het Caribische gebied

News: Wal-Mart's Ambitions in India

(BW 09/02/2006) New York - Global retail giant Wal-Mart is still bullish on India despite bearish signals from the Indian government.

After trying for months to move into the world's second-most populous nation, the giant merchant won't be checking out of India just yet, in the opinion of Standard & Poor's Equity Research Services, despite a trade policy that prohibits foreign general merchandisers to set up shop there. Wal-Mart stated on Feb. 2 that it has applied to create a separate entity in Bangalore devoted to "market research and business development in relationship to the retail industry in India."

"I think that has been no secret that we think the market opportunity in India is really outstanding," Wal-Mart spokeswoman Beth Keck told the Associated Press on Feb. 2.

DOORS OPENING? "This is just another example of Wal-Mart's efforts to expand operations in India," says Joseph Agnese, an equity analyst with Standard & Poor's. "The company already sources a significant amount of goods from India. There is plenty of room for expansion internationally, in our view. The company is looking at India as one of many opportunities." Economists expect India to increase its gross domestic product by about 7% in fiscal 2006 (ending March). That's about the same as the country's income growth rate, estimated between 7% and 7.5%.

"Total consumption expenditure is likely to grow at over 6%," Siddhartha Roy, chief economist at Tata Group, estimated during a recent economic panel discussion.

The Indian government opened the doors of its retail market to 51% foreign direct investment (FDI) two weeks ago. But this most recent economic liberalization applies strictly to companies that sell goods through single-branded stores. The partial allowance permits a direct majority ownership interest by foreign entities, which, we think, is good news for many of the world's marketers of top labels.

GROWING MARKET. In S&P's view, the widely anticipated FDI policy for limited retail investment, however, effectively slams the "Closed" sign on big-box chains and particularly Wal-Mart, feared by India's Communist party as potentially putting mom-and-pop stores out of business by sheer virtue of its size. The retail behemoth rang up slightly more in retail sales for the year ending January, 2005, than the entire Asian subcontinent sold to its population of more than 1 billion, a quarter of whom live in poverty.

Still, Agnese believes that the FDI policy is a step in the right direction toward India opening its retail industry to 100% investment one day. Currently, annual retail sales in India are estimated at between $200 billion and $280 billion. Wal-Mart has been arguing that it is a prime candidate to benefit the most from retail FDI in India, where it has been lobbying for policy change while looking for an Indian joint-venture partner.

India's booming economy, consumerism, and middle class is a key focus for the giant chain. In June, John Menzer, then-president and CEO of Wal-Mart's international operations, devoted most of a 30-minute speech to an account of his recent trip to the subcontinent. "The consuming class has grown from 35 million families in 1996 to an expected 80 million [in 2005]. That's roughly in line with the U.S.," Menzer explained to shareholders and analysts.

BUYING IN. Wal-Mart's experience in emerging markets is the crux of its battle plan. Bentonville has been down this path of limited investment in retail before. Not too long ago, it battled anti-FDI sentiment in Mexico. In S&P's view, Wal-Mart won that battle. It is now the biggest private employer in Mexico and operates more than 780 stores in that country. And even in communist China, Wal-Mart operates 56 joint-venture stores as of Jan. 31.

The new India policy, while disallowing much foreign direct investment, does not prevent institutional investors from acquiring more than 51% of any Indian retail company. Foreign institutional investors (FII) can own 100% of Indian retail companies. Some Wal-Mart watchers say it may go the FII route, now that the FDI route is blocked.

Wal-Mart, however, says that's not the plan. "Wal-Mart executives still hope to be able to open up stores in India in the future," Agnese said, after speaking with Wal-Mart management about India plans. "When I asked about the possibility of Wal-Mart entering [India's retail sector] by taking an equity interest in an existing company, the response was that it currently is not interested in any existing operations in the country."

QUICK CHANGE. Ajit Dayal, CEO and chief investment officer at Quantum Advisors, an asset management company based in Bombay, says that foreign big-box retailers would have to surmount many operational challenges in India if they were to enter India directly or through an investment partner.

"We're not sure that what is considered a prime location for a retailer today is going to be defined as a central business district tomorrow. There is so much growth that centers of gravity within the time frames of available financing shift too quickly," he says.

Dayal believes that in addition to the pace of change that redefines business districts at an exponential pace, logistics on the size and scale that Wal-Mart is accustomed to would not be plausible to implement. He thinks that the current environment does not bode well for Wal-Mart or other big-box operations, based on the stark difference between the current benchmark for a typical retail store in India and Wal-Mart's traditional footprint. So while Bentonville remains positive on the subcontinent, its passage to India may be a difficult one.

News: Countdown to India's retail revolution

(BBC 08/02/2006) Mumbai - The economy is growing by 8% a year, its stock market rose by nearly 40% in 2005 and foreign investors are flooding in.

Whichever way you measure it, business in India is booming.

And as the economy grows, so does India's middle class.

It is estimated that 70 million Indians in a population of about 1 billion now earn a salary of $18,000 a year, a figure that is set to rise to 140 million by 2011.

Many of these people are looking for more choice in where to spend their new-found wealth.

Protectionist

The Indian retail sector is now worth about $250bn (£140bn) a year, but it is heavily underdeveloped. Well over 95% of the market is made up of small, uncomputerised family-run stores.

Now there are finally signs that the Indian government is dropping its traditionally protectionist stance and opening up its retail market to greater overseas investment.

Last month it eased restrictions on foreign investment, allowing overseas retailers to own 51% of outlets as long as they sell only single-brand goods.

For the first time, chains like McDonalds, Marks & Spencer, Body Shop and Ikea can, if they want to, open and control their own operations in India.

Previously, many of them had gone down the path of working with franchise partners, a policy followed by M&S which supplies clothes to eight "Planet Sports" stores.

They look like M&S stores on the inside, but they are owned by local retailers, and the UK retailer has no plans for that to change.

"This is now our policy for overseas expansion," said a spokeswoman.

"We rely on franchisees who know their local market, it's working very well in India."

Stiff opposition

But allowing in the big multi-brand, international retail groups like Wal-Mart, Tesco and Carrefour was considered a step too far, says Kamal Nath, India's Minister of Commerce and Industry.

"We have announced a partial opening of our retail market, to single-brand retailers," Kamal Nath told BBC News.

"But beyond that, we need to find a model that doesn't displace our existing retailers."

The Indian government has been conducting an impact analysis of how the introduction of supermarket chains like Tesco and Carrefour would hit its retail sector.

Further retail reforms are likely to be opposed by the Communist Party, a key ally of the Congress Party-led government.

Many politicians still feel they have a duty to protect the livelihoods of the small shopkeepers they represent.

But the government does realise that foreign investment is badly needed to provide the infrastructure - the warehousing, distribution and processing operations - that are needed to upgrade India's chaotic retail industry.

An estimated 50% of the country's fruit and vegetables rot by the roadside before they reach market.

New jobs

It's a challenge that some of India's own industrial conglomerates are taking up.

Last January, Reliance Industries said it was investing $5bn in creating a chain of hypermarkets and back-end retail services.

Its plans called for the creation of a whole new supply chain, with new stores, cold storage facilities, food processing units and contract farming.

It will initially launch pilot projects in three Indian states before potentially rolling the strategy out to 500 Indian towns and cities.

The investment could create up to 400,000 jobs, it believes.

Elsewhere, consumer goods group ITC has set up its "e-Choupal" scheme to try and improve the productivity of farmers that supply its food processing operations.

It has built internet kiosks in rural villages to help give farmers access to the latest information on things like the weather, current market prices and what foods are in demand.

"India's greatest need is to take the benefit of retailing to the doorstep of the farmer," ITC chairman YC Deveshwar says.

"There is such potential if we can invest in greater food processing. India has the most irrigated farm land in the world."

Tentative steps

So while Indian businesses forge ahead with their own plans to take a big share of Indian consumers' spending, and the Indian government slowly refines its retail roadmap, where does that leave supermarket giants such as America's Wal-Mart, Germany's Metro and Britain's Tesco?

For years, their plans for domination of the Indian retail scene have been sitting gathering dust.

German store group Metro has made tentative steps, via its chain of wholesale cash & carry centres in cities like Bangalore.

About 90% of the goods it offers come from local producers and suppliers, which could give it a head-start if the rules on selling to individual shoppers are relaxed in the future.

Tesco and Wal-Mart also have a limited presence in India.

But they are not selling anything to anyone: Wal-Mart's 80 staff in India are there to look after the retail behemoth's purchasing in the region.

Even so, it has been lobbying the Indian government to allow it to open an office in Bangalore where it could research the Indian retail market and the possibilities for developing its operations there in the future.

Bangalore is also home to Tesco's Indian outpost, an office which looks after some of its back-office finance operations.

It says it has no firm plans for the region - it will not open up a wholesale operation like Metro - but admits it is watching for any further relaxation of retail regulations.

Inevitable

Most Indian business experts think it will not have to wait long.

"The recent move was just the first step," says Dr Mohan Kaul, chairman of the Commonwealth Business Council.

"Maybe this time next year there will be a further announcement.

"It's inevitable, there is no way that an open market for retailing will be stopped."

Column: How the West views Indian economy

(BS 06/02/2006) Mumbai - I was in Europe recently and was quite overwhelmed by the attention that India got in the European press, courtesy the Davos jamboree. While the Financial Times carried a special supplement on India, the mainstream British, French, Dutch, and German papers all had India-related stories on their front pages at least a couple of times that week.

India seems to have replaced China as the flavour of the season, a view endorsed by most of the fund managers and analysts I met. Investors and other India watchers seem convinced that the economy is on the threshold of a phase of long-term "structural" expansion.

The problem is that their conviction about the short-term prospects for the economy is somewhat more muted. They have broadly three sets of concerns.

First, there are the usual apprehensions that infrastructure shortages could constrain growth.

Second, the economy depends a bit too heavily on short-term portfolio flows to fund its current account deficit. If global liquidity were to dry up, so would these portfolio inflows. This could mean currency depreciation and potentially trigger an interest rate shock.

Third, the knock-on effects of the increase in oil prices are yet to be transmitted fully, and were this to happen, monetary policy could tighten further and impede growth. It is reasonable to expect that domestic investors would also have similar apprehensions.

I think that there is a fundamental fallacy in the notion that short-term economic dynamics can be viewed as being independent of long-term structural change. If indeed the economy was to lose traction in the short term, it could affect long-term "structural" expansion and set the process back by a few years.

Take the case of the mid-nineties. With the economy having opened up just a couple of years earlier, one would have expected the potential for structural expansion to be enormous.

This should have offset the impact of a short-term correction in the growth momentum. Yet, the combination of high interest rates, over investment, and the Asian crisis (all essentially short-run problems) pooped the party for the long term. It took a good six to seven years for India to get back on the global economic map.

The bottom line is that for the long-term expansion the economy cannot afford to lose its short-term momentum. I, for one, do not believe that near-term conditions warrant a significant correction in momentum.

In fact, there is much to be said in favour of India's short-term macro parameters, especially in comparison with the mid-nineties. With foreign exchange reserves at 20 per cent of GDP, tiding over a couple of years of a largish current account deficit should not be too difficult.

I am aware that the ratio of portfolio inflows to foreign exchange reserves is high at almost 70 per cent. However, to expect a large bit of these investments to disappear at the slightest whiff of economic stress would be a little cynical and completely unrealistic.

What are the other short-run buffers? The domestic savings rate has climbed up significantly and is at roughly 29 per cent. Some of the rise has come from better fiscal balances and, with these likely to improve further, the savings ratio should go up quite a bit.

Despite an increase in oil prices and healthy domestic demand, headline inflation is below 5 per cent, which to me suggests that we are in a much more competitive pricing environment.

The improvement in roads, telecom connectivity, better port infrastructure, and rail operations has led to significant efficiency gains for the economy and made a 7-8 per cent growth rate possible even over the medium term.

My apprehension is that negative signals from the political and policy-making establishment could obfuscate these short-term comforts and affect investor expectations adversely.

This might just tip the economy into a downturn not because of real bottlenecks but merely because expectations are not managed well enough. In that context, I see the following short-term risks:

First, I see the initial signs of the central bank turning from cautious to plain alarmist. Last fortnight, the RBI raised its signal repo rate despite remarkably benign headline inflation numbers. This came in the wake of a severe liquidity crisis that banks are facing following the repatriation of the India Millennium deposits.

The RBI chose not to speak of a comprehensive solution to this liquidity problem, nor did it even recognise the fact that the problem of (potentially inflationary) excess liquidity has, quite dramatically, disappeared.

This stance has left the money markets so bewildered and jittery that any further adverse news flow could suddenly ramp up interest rates. Instead of a "soft landing" or a mild moderation in growth, the economy could fall flat on its face if borrowing costs spiral up sharply.

Second, the elections in critical states are in the offing and the principle of competitive populism that drives election campaigns in India could mean that our recent efforts at fiscal consolidation will get the short shrift.

The Prime Minister's announcement of instituting yet another pay commission for government employees and the decision to postpone the food subsidy cut are examples of this.

Finally, over the past months, the finance minister's public comments on interest and exchange rates have often been at variance with the central bank's statements or actions.

Having an independent central bank is healthy but increasingly market players and investors are getting the impression that the government does not speak with one voice and this makes them nervous about the business environment.

John Keynes apparently once said that the short run was all that mattered since in the long term "we are all dead". I hope India's economic managers and politicians use it as their guiding principle.

Abheek Barua is chief economist, ABN Amro. The views here are personal.

News: Dexia eyes Brazil, China, India

(RTR 02/02/2006) Brussels - French-Belgian banking group Dexia could look to offer public financing in Brazil, China, and India in the future, the head of the division at the bank said in an interview with a local daily on Thursday.

Dexia's expansion plans have been at the centre of speculation in recent months with the arrival of Axel Miller as the new chief executive of the world's largest government lender.

"Among the motors for the future, we find countries which all the world is interested in but which are not yet mature in terms of risk: China and India," division head Bruno Deletre was quoted as saying by local business daily L'Echo.

"Brazil could also be a market which would one day be interesting for Dexia," he added.

As for Turkey, in which Dexia has expressed interest, Deletre said it had its risks. Rumours abound about negotiations with various banks in the country.

"It is a market which is not very large in terms of volumes for our first business line and which has certain risk factors ... if Dexia invests in Turkey, it would not be specifically for the first business line," he said.