Doing business in India still not very easy

By Vipin Agnihotri

No one is going to argue with the fact that India is inching up the scale in terms of the ease of doing business. In my opinion, it seems to be moving quicker as compared to countries like China but still India has miles to go before it can catch up.

According to ‘Doing Business 2008’ report of World Bank, India improved its overall rank on ease of doing business to 120 out of 178 countries, up from 134 last year. If experts are to be believed, improvements occurred in mainly two areas, getting credit (a increase of 26 points) and cross border trade (a increase of 63 ranks) helped. On the other hand, China’s rank rose to 83 from 92.

It has come into the notice of The India Street that India has shown a decline on the other eight parameters, mainly because of other countries reforming much quicker. The most serious slippage of 18 places was in ease of starting a business.

It is worth mentioning in this regard that India requires entrepreneurs to go through 13 procedures, which by the way is double the average for developed nations and 50 per cent higher than its regional peers. In an ideal scenario, business owner will require at least 33 days to start a business in India.

Point to be noted here is that this World Bank report scope is restricted to business regulations, therefore there is an every possibility that the rankings may not tell the whole story. In my opinion, this is certainly the case with India, since the World Bank report links the pace of reforms to equity returns possible in the country.

Another issue is the roadbocks to foreign branded retail and opposition to loal retailers like Reliance Fresh. Walmart India is quietly entering Mumbai while other foreign brands are knocking on the door to India. The reception is luke warm by business people and violent by local opposition leaders.

Theoretically speaking, investors look for upside potential and they find it in economies that are reforming, irrespective of the starting point. Fact of the matter is that equity returns are the quickest in countries which are reforming the most and becoming transparent. While India may relish the returns and pace of reforms to date, things could be even better if there is improvement in tax payment systems, additional FDI reforms, and property registrations.

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Chinese products the bane of Indian retail market?

By Vipin Agnihotri

In my opinion, as Indians scale newer heights of consumption, retail shelves are becoming showcases of the competitiveness (or, in few situations, the lack of it) of Indian manufacturing. It has come into the notice of The India Street that bigger sections of these shelves are getting filled by products from China, particularly in categories such as toys, home decor items, luggage, consumer electronics, appliances, and stationery. Notwithstanding the lead paint scare in the US from Chinese made goods, India needs to take the initiative and start promoting Indian manufacturing.

If experts are to be believed, almost all organized retailers are reporting a growth in Chinese imports. According to sources, in a global economy, it is inevitable that Indian products will find markets abroad and foreign goods will be sold in India. But the million-dollar question is: Why would Indians go to China if Indian manufacturers can give them the same or better product quality, much safer, more variety and price?

There are some experts who are of the opinion that competitive products from China and other countries are benefiting Indian consumers and therefore India Inc. should have no objection to it. Point to be noted here is that only top quality Chinese products are gaining market share in India, not the shoddy ones. It is worth mentioning in this regard that Chinese consumer electronics are not selling in India.

It's a good possibility that in the next two or three years, some Indian industries will succumb to competition from imported goods, but large chunk of Indian manufacturers will pull up their socks and compete hard. No one will argue with the fact that organized retail has started a process of discovery for Indian manufacturers. As a matter of fact, they are finding their own strengths. In addition, they are preparing to give a fitting response to imported goods.

In theory, Chinese products are winning only in categories where Indian industry has failed to provide top quality products at competitive prices. India needs to step up and start promoting India products as a sfaer alternative to China. All in all, one can safely say that Indian manufacturers will have to shape up; or they will get edged out of their home market in few product categories.

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India Surges Past China in Number of Mobile Phone CDMA Users

India first reported to be ahead in CDMA mobile customers in December 2006, but due to a re-verification procedure the number of users dropped behind China. Recently in June 2007 the number of users crept above China and now India has a decisive lead over China by more than 7.8 million users.

As for total mobile users as of July 2007, China is the largest mobile market in the world with 491 million subscribers to India's 189 million. However India’s pace of mobile phone adoption exceeds the Chinese market. What’s most amazing to me is that India added an astonishing 12.4 million users in July. This by far is the highest figure for monthly net additions ever recorded anywhere in the world. Why the sudden jump is the question that needs to be answered. Knowing India, it’s probably a fluke counting error or someone has changed the definition of “mobile user”. However, if this jump is valid, get ready you may want to start investing in mobile related stocks in India.

In the last year, India has gained a staggering 78.2 million new users while China claims an almost equal 76.8 million. In balanced terms however, India far ahead, recording a proportionate annual customer growth rate of 70.3% to the end of July, compared to China's 18.5%. There are no signs of a growth slow down and with internet adoption at a much slower pace, business opportunities for mobile will be higher in the short term.

Data and Graph Source: The Mobile World Briefing, the weekly newsletter from The Mobile World

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VIDEO: India vs China - Which is Better?

The India Street Examines the differences between India and China business and real estate practices. Hal Wendel of C3K Group defends China while we try to convince Hal of India's allure.

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TELECOM -The Making of India’s Shenzhen

Editor Note: China take notice, the 2469 acre Sriperumbudur SIPCOT SEZ and other SIPCOT SEZ's are well on their way to challenging Shenzhen as the world's manufacturing hub. The location's citizens are far more educated and the majority speaks English. The Chennai Government is pro-business and respects intellectual property laws. The India Street predicts the area will be an equal competitor to Shenzhen within 5 years. Once infrastructure is fixed including more rail, roads and the new Chennai Airport, this area has all of the important logistical ingredients to become the top industrial manufacturing area in Asia.

How Sriperumbudur is emerging as India’s telecom manufacturing hub. By ANUP JAYARAM

Flextronics plant in Sriperumbudur

The sprawling lime green building is visible from a great distance. As you come close, you see workers in white hard hats and luminous orange jackets swarming all over like ants on a giant carcass. Spread over 250 acres, this site will house a massive integrated manufacturing complex for the $15.3-billion Flextronics Industries, a Singapore-headquartered manufacturer of electronic products. Its general manager and director (India operations) Gururaj A. says some 1,500 are employed on the site currently, trying to make sure the complex will be ready by September.

T. Murugan, 35, a contract labourer has some idea of what’s actually going on. “Inge naraiya velioor company factory podaraanga,” (Many foreign companies are setting up factories here), he says. Last year, he had worked on the $150-million Nokia project, a few kilometres away. And he has heard that soon some other velioor (foreign) companies will also start work. He hopes to find employment there. His news is correct. The manufacturing units of both Motorola and Foxconn are slated to come up over the next few months.

It was barely 15 years ago that Sriperumbudur shot to fame. It was India’s Dallas, where its young, 47-year-old ex-PM was assassinated. The horrific images of death had seared the nation’s consciousness. Yet, it is perhaps a fitting tribute that the town where a PM who had spoken of India’s role in the 21st century, modernised the telecom infrastructure and believed in the transformational powers of IT, and laid down his life, should emerge as ground zero of electronic manufacturing in India.

Gururaj A. general manager and director (India operations) Flextronics Industries

Consider that by October, Flextronics will begin to make a million mobile phones a month from the Sriperumbudur complex. (Nokia already makes 2.5 million phones a month.) It will also make base stations. That’s just the beginning. By year end, a second building will be ready that will make set-top boxes, DVD players, automotive components and PCs. By December 2007, at least 10 component suppliers who are part of Flextronics’ global supply chain will have their plants up and running in the campus.

Says Gururaj: “We will use the land discreetly. The idea is to ensure that all the key suppliers, both Indian and international, have a presence here.” This campus will provide jobs to 7,000 people by December 2007. According to officials in the Department of Telecommunications, by 2008, over $1 billion will be invested in Sriperumbudur for telecom manufacturing facilities alone. Of this, around $250 million has already been invested, mainly by Nokia ($150 million) and Flextronics ($100 million). By end 2007, all the new companies will provide jobs to over 50,000 people.

There are three types of operations coming up at Sriperumbudur. One, the OEMs like Nokia and Motorola. Then the EMS’ like Flextronics and Foxconn, who supply to OEMs around the globe. Finally, there are the component suppliers who work either with the OEMs or the EMS’. They include Aspocomp (global turnover euro 154 million; printed circuit boards), Salcomp (euro 156 million; chargers), Perlos (euro 667 million; mechanics) and Sanmina-SCI ($12.2 billion; network components).

Each of these outfits will be housed within an SEZ. Apart from them, Velankani Information System (which has set up an IT park in Bangalore that houses Siemens, Elcoteq and Patni Computers) is setting up an ITES SEZ that will house a 5 million-sq. ft manufacturing facility for another set of 20 global telecom suppliers (see ‘Feeding Into The System’). Says Rajiv Kochhar, CEO, Avista Advisory, a financial services group: “Today, all the key plots in Sriperumbudur are gone.” It is already beginning to look like a patchwork of SEZs.

Predictably, the comparison with Shenzhen has already begun. In 1979, Deng Xiaoping used it as a test-bed for free market principles. It was then a town of 300,000 people, outside Hong Kong. Close to 80 per cent of Shenzhen’s revenue then came from agriculture. Today, Shenzhen covers 2,020 sq. km, much bigger than Delhi’s 1,483 sq. km, and has a population of 4.05 million.

This year, Chinese companies and global players like Foxconn, Philips and Samsung are expected to make 100 million mobile handsets in Shenzhen. That will account for close to 10 per cent of the mobile phones made globally.

NO BUREAUCRACY HERE: Jukka Lehtela director Nokia (India)

Going by calculations, during 2007, Sriperumbudur should make close to half of what Shenzhen will make this year — 50 million handsets, of which more than 30 per cent will be exported, much like what happens in Shenzhen.

Sure, Shenzhen isn’t about handsets alone. A whole range of items like computers, set-top boxes and laser printers are made there. Over the last two decades, it has seen investments of $30 billion. Moreover, it accounts for 9 per cent of China’s GDP. (SEZs collectively contribute 35 per cent of China’s GDP.) Clearly, therefore, it will be a while before Sriperumbudur can reach those levels. However, as Gururaj argues: “It has everything in place to emerge as India’s answer to Shenzhen in the next few years.”

Towards end 2004, shortly after he had taken over as communications and information technology minister of the UPA government, Dayanidhi Maran had persuasively argued with BW that while IT did put India on the global economic map, it was manufacturing that provided the jobs. Maran also figured that telecom and other allied electronic goods companies would perhaps be most open to persuasion given the opportunity India provided.

Consider that in 2005, Indians bought electronic goods worth $22 billion, making it the world’s seventh largest market. Again, during 2005, Indians bought 36 million mobile phones. That makes India the third largest market after China and the US for mobile phones. This year, demand for mobiles is expected to touch 50 million.

Little wonder, one of the first things Maran did as minister was convince Nokia’s then CEO Jorma Ollila to set up the company’s tenth bulk manufacturing plant in Sriperumbudur. Though by then Nokia had decided to set up a plant in India given the roaring business it was doing here, it hadn’t decided on the location. Maran was instrumental in convincing Nokia to choose Sriperumbudur over Bangalore, Hyderabad and the National Capital Region (NCR).

While this helped Maran politically — his constituency happens to be in nearby Chennai, barely 40 km away and Sriperumbudur has begun sourcing a lot of talent from there — Nokia did emerge as the pivot around which many of the other investments were centred. (The first ever investment in Sriperumbudur was Hyundai setting up its factory there in 1999, but between then and 2004, little else happened.)

Maran did a few other things. One, he made it a precondition for all equipment suppliers that were keen on participating in the big BSNL and MTNL expansion tenders to manufacture 30 per cent of the order in India. This would force them to manufacture in India, he reasoned. Companies like Nokia and Motorola have already participated in BSNL’s 60-million line expansion tender worth $5 billion.

He was also able to align the interests of the Tamil Nadu government with his own. Though till early this year, Tamil Nadu was ruled by the AIADMK, political opponents of Maran’s DMK — after the 2006 elections Maran’s uncle M. Karunanidhi was voted back to power — Maran was able to convince politicians (and therefore, bureaucrats) of the benefits of positioning Sriperumbudur as an electronics manufacturing hub.

Indeed, one of the reasons most companies say they have invested in Sriperumbudur is because of the state’s bureaucrats. Says Jukka Lehtela, director (India operations), Nokia: “The entire process from start to finish in Tamil Nadu was much faster than expected.” Nokia, which identified Chennai as its plant location in April 2005, had it up and running eight months later in January 2006. That compares with the best anywhere in the world.

Bureaucrats like Tamil Nadu industries secretary Shaktikanta Das say that presentations by potential investors are attended by an inter-departmental group of secretaries. Typically, Das convenes these meetings. They are attended by secretaries from the departments of finance, IT, energy, water supply, and taxes, along with officials from State Industries Promotion Council of Tamil Nadu

(SIPCOT) and the Industrial Guidance and Export Promotion Bureau. “At one meeting the investor gets a clear idea of all that needs to be resolved. The same panel also does a review meeting every month. All this makes things a lot easier for the investor,” says Das.

Bureaucrats like Das, unlike investors like Gururaj, haven’t yet begun comparing Sriperumbudur with Shenzhen. But they do buy into the idea that if properly managed, Sriperumbudur could turn out to be something really big.

Investor Friendly: Shaktikanta Das Tamil Nadu industries secretary

Das points to fresh investments being made to develop the state’s infrastructure, which he believes will keep the FDI flowing in. Though Tamil Nadu is one of the few states with surplus power (current installed capacity at 10,011 MW, higher than maximum peak demand of 8,600 MW) close to 2,000 MW of fresh capacity will be commissioned over the next three years. This includes 1,000 MW at Tuticorin and Jayakondam.

Luckily for Das, private entrepreneurs have also spotted the Sriperumbudur opportunity, and have begun pitching in. Consider that real estate prices there have gone up by 20 per cent in the last one year — a rise that is comparable to Chennai’s. Two leading Mumbai-based builders are looking at housing projects there and have already begun asking Nokia and Flextronics on salary details of their executives. Again, global hotel chains from the US are looking at properties there, which should be up by next year. Says a consultant: “What hotels are looking at is to provide affordable rooms. It will save them the bother of commuting up and down from Chennai daily.”

Nokia’s Lehtela argues that Sriperumbudur will need to ensure that it stays easily accessible. (Currently, there is a four-lane highway that connects it to the nearest port and international airport in Chennai.) “The nature of the mobile phone business is such that you need very good logistics. It is not just the flow of goods into the factory that matters. Equally important is the flow of finished goods from the factory to the rest of India and abroad,” says Lehtela.

Telecom analysts say that for India to be seen as an alternative to China in telecom equipment manufacturing, costs have to be at least 4 per cent lower here. (Margins in this business are wafer thin.) Typically, materials account for 80-85 per cent of costs. Companies like Flextronics and Nokia, therefore, prefer to either have their vendors within the same compound (as is evident in Sriperumbudur) or manufacture in locations where it is logistically easy to source components.

BY all accounts, Sriperumbudur is showing the signs of an industrial cluster in the making — a few pioneer investors at first, a somewhat rough and ready ecosystem to support them and then the others start coming in, in a virtuous cycle of events. Also, the fact that the state churns out 2.5 lakh engineering graduates is a big plus.

While it is still premature to draw lessons from Sriperumbudur, it will still be worth watching how events unfold there. After all, there aren’t any high-tech manufacturing clusters in the country — and this one could just be the beginning of a new wave.

RBI working overtime to minimize liquidity in the face of relentless forex inflows

It has come into the notice that the Reserve Bank of India (RBI) and the government are working on new methods to minimize liquidity in the face of relentless forex inflows without only relying on instruments such as the cash reserve ratio (CRR).

In its recent currency and finance report, released last week, RBI said there is a requirement to explore further instruments or options for liquidity management, particularly in the context of a move towards fuller capital account convertibility.

“The government and RBI are looking at new options to counter liquidity,” pointed out a official at RBI. He also added that RBI would prefer using a ‘series of approaches with existing instruments’ without shutting off any one option completely, the source said.

Theoretically speaking, RBI has number of options to take into account and it can use a combination of measures to tackle forex inflows and liquidity. According to experts, these include diversifying a part of its foreign assets into non-sovereign assets like China has done, enhancing substantially the incremental CRR, go for a freer float of the rupee or even look at a disguised Tobin Tax to discourage the inflow of short-term hot money. It is worthwhile remembering that Tobin Tax is a levy on currency trades across borders to discourage short-term speculation in currencies.

The pivotal factor here is that last month; China’s new state investment agency invested $3 billion of its forex assets in US private equity firm The Blackstone Group. If experts are to be believed, these are unusual times, such unusual options can be looked at. But fact remains that such a proposal is fraught with risk since sovereign funds parked in such vehicles would expose RBI not only to currency risks but also to equity risk. “The list of entities that RBI can invest in can be expanded to accommodate not just sovereign debt but triple-A securities,” pointed out Kadar Khan, noted analyst based at India.

In my opinion, RBI can look at hiking CRR on incremental flows, rather than total deposits, as suggested by SS Tarapore, chairman of the committee on fuller capital account convertibility. In an ideal scenario, incremental CRR prescribes a reserve ratio based on the extent of growth in deposits. “The impact of this is in stemming excess liquidity in banks showing high growth without penalising the entire system,” pointed out official at finance ministry.

While there is no denying the fact that commercial banks are not needed to presently maintain incremental CRR, in the past they were required to maintain a 10% incremental CRR on non-resident deposits to reduce the liquidity created by flow of funds from NRIs. “The option of using dollar swaps to manage liquidity becomes limited as the rupee gains strength. RBI will not close the CRR option. It will look at augmenting its existing instruments to tackle inflows and liquidity, “ pointed out highly placed source at RBI. For instance, a slew of auctions will be conducted this week. This normally does not happen often.

Besides, with a 60% appreciation in the ECB limit from $14 billion to $22 billion in a single year, it significantly contributed to forex inflows. Whatever the options are, the time is now ripe for RBI to experiment, given that inflation is under control at 4.68 percent.

Source: The Economic Times.

Indian govt may cut customs duty to keep inflation below 5 per cent

By Vipin Agnihotri

Indian government may minimize custom duties on number of items to keep inflation below 5 percent. Finance Minister P Chidambaram, while talking to The India Street said government was ready to take further fiscal steps to control inflation and keep it below 5 percent.

It is worth mentioning in this regard that inflation had crossed 6.7 percent in starting of the year- the highest level seen in more than two years. Though, due to number of measures taken by government and Reserve bank of India (RBI), it has since softened to 5.7 percent by the end of April.

“It is still above the tolerance limit. Our objective now is to keep inflation between 4 and 4.5 percent. We will make every effort to bring it down,” pointed out Chidambaram. The pivotal factor here is that if government’s fiscal measures would not be adequate, the central bank would also take further monetary steps towards this end.

If experts are to be believed, government’s determination to check inflation between 4 and 4.5 percent and not allowing rupee to depreciate, in turn, will see continuation of tightening of the money supply. From the starting of the year, government has taken various measures such as reducing custom duties on the import of pulses, edible oils, steel, cement and other essential commodities.

In addition, Reserve Bank of India also took a number of measures to restrict the money supply. These sorts of steps led to rise in interest rates, which affected sectors like real estate and consumer durables. Statistic wise: In the last three months, home loan interest rates have increase by around three percentage points to 12 percent from 9 percent. What’s more, the consumer loan rates have also increased substantially. The increase in the interest rates have also raised interest burden on the companies.

“To contain inflation through restricting money supply, Reserve Bank of India almost stopped buying dollars from the market. This has led to steep appreciation of rupee by around 8 percent since the starting of the year,” pointed out Dr Suvrokamal Dutta, renowned finance expert.

This move has affected exporters very badly. But one thing is for sure; it has helped the government to contain inflation. In other word, as rupee appreciated, the prices of imported items in rupee term declined, which has forced the domestic producers not to increase prices of their products.

At the same point of time last year, inflation had moved up in the range of 5 percent, lots of analysts were of the opinion that it would automatically come down to around 5 percent in the next two weeks because of the base effect. But, fact remains that if government is interested in bringing down inflation in the range of 4 percent to 4.5 percent, the high interest rate regime would continue for some more time.

Finance minister has already said that high global prices of crude oil and metals were due to rising demand in India and China, besides stagnation in Indian agricultural production, were the main reason behind high inflation. “There is no short cut to bring down inflation. Prices will not come down unless we augment supply of food grains including wheat, rice, pulses and edible oil,” pointed out Chidambaram.

Indian realty in superfast lane

London/Mumbai: London may top the global property rates chart, but it’s high-end Indian real estate prices that are growing the fastest in the world.

A new study — ‘Wealth Report 2007’ — by real estate consultancy Knight Frank and Citi Private Bank shows that prime real estate rates in India, along with those in Russia and China, soared 40 to 50 per cent over the last year. The British capital, in comparison, recorded a price growth of 30 per cent in the high-end segment.

Pranay Vakil, chairman of Knight Frank India, told HT: “India’s most expensive residential properties, at an average of Rs 50,000 per sq ft, would be in Mumbai. This includes properties like the Chattan Bungalow on Malabar Hill or Sunita Apartments on Napean Sea Road.”

Liam Bailey, head of residential research at Knight Frank, said upcoming prime locations included St Petersburg and Moscow in Russia, Delhi and Mumbai in India, as well as Guangzhou and Beijing in China.

The report points to the growing influence of high net worth individuals — defined as those with $10 million (Rs 40 crore) in investable assets — on the global property market. This is indicated by the fact that prices for the most expensive properties rose on average by more than 14 per cent in 2006 compared to a 9 per cent rise in the mainstream market.

Rapid economic development, together with the creation of new wealthy sections of society, led to intense competition for the best apartments and villas in prime neighbourhoods — and boosted prices, the report said.

Bailey said prime property would continue to outperform mainstream markets. “Over the next five years, we believe the trend of growing wealth and greater wealth concentration will continue,” he said. “There will be a significant demand and supply imbalance in the best prime market locations. Price growth this year will be lower than in 2006, although prime markets will outperform mainstream markets by quite a margin.”

Incidentally, London is home to the most expensive residential property in the world. Prime property in the British capital costs $4,590 (Rs 1.87 lakh) per sq ft, just ahead of Monaco at $4,370 (Rs 1.79 lakh).

Hyde Park is among the most expensive in London, commanding a price of $8,000-$10,000 (Rs 3.26 lakh to Rs 4 lakh) per sq ft, said Vakil.

Source: www.hindustantimes.com

India slides back on SEZ

By Dhruva Jyoti Chowdhury Kolkata, India: Land is a life long asset to the poor rural people an immovable asset that never undergoes depreciation. The plan of the government to withdraw intervention from this process of land acquisition may bring even worse affect for the society. Since India cannot afford to invest a huge amount of money to develop the infrastructure of the whole India, setting up Special Economic Zone (SEZ) is the only viable option to match Chinese economic development to attract Foreign investment as well as from the residential industrial community. But due to lack of home work to built up infrastructural facilities for the land owners the Indian Government has gone on the back foot is at present is moving at a snails pace in this regard. The Chinese started their liberalization and industrialization with the formation of SEZs in late 70s and early 80s. But in india, the liberalisation process started after about a decade from China. But still the land acquisition process for the SEZs still a dream for the Government as hasty decisions and lack of home work pre acquisition of land for setting up SEZ are turning into a source of societal conflicts and revolts. The basic concept of the Indian government is to promote Special Economic Zone in India to generate additional economic activity, promote exports, promote investments, create employment opportunities and develop infrastructural facilities.

A 19 member inter-ministerial SEZ Board of Approval (BoA) has also been formed as a single window SEZ approval mechanism. Very recently, the BoA has put a limit on the maximum land acquisition by a SEZ project to 5000 hectare. It has also laid down compulsory export business for such projects. Apart from this, it has been made mandatory to provide employment to at least one member of the displaced land owner’s family. However, these Suez’s are expected to generate 50,000 direct jobs by the end of financial year 2007-2008. Currently, more than one lakh seventy thousand people are employed in these SEZ’s, 40% of which are women. As a matter of fact, SEZ is being incorporated 15 years after the start of liberalization process. Comparing China, the process of acquiring land and laying down infrastructure was a slow process. The Government convinced the land owners how beneficial it will be for the development of the country. The Chinese Government had a Master Plan and an economic framework on how to build and proceed with SEZs, most probably inspired by the success of Asian Trading Hub, Hong Kong. The Dragons started building massive cities for manufacturing and industrialization under their SEZ framework. Dragons also rolled out red carpet for foreign companies to build and operate from these SEZs. Now the question arises how the Government wants to facilitate the Indian and Foreign companies through SEZs ? Well, the answer is that lots of incentives are being provided to the businesses operating under SEZ’s, some of which are duty free imports or domestic procurement of goods for development, operation and maintenance of SEZ units, exemption from minimum alternate tax, exemption from central sales tax, 100% IT exemption for the first 5 years, 50% during the next 5 years and 50% of the ploughed back export profit for the next 5 years. But the real answer is quite different from the above. These mega projects ask for hundreds and hundreds hectare of land which are normally bought from respective rural land owners at a rate fixed by the government. In the past too, people have given away their land much below the then market price. All those projects could not also generate expected level of employment for the local residents due to their financial structure and lack of any formal training. Witnessing this situation, the group of ministers has come out with a provision that will ensure direct dealings between the farmers and the land acquirers. There is also a fair chance of overlooking the issues and problems of the weaker section of the country regarding acquisition of land for setting up Special Economic zones as after ‘massacre’ in Nandigram in West Bengal, the Government is fearing of violent protests all over the country against the forcible acquisition of fertile agricultural land which will lead to penury for the landless farmers Even the journalists were not spared by the hooliganism by the ruling party cadre but even by the police force. Few incidents in the past and current, like Nandigram incident have brought a great deal of uncertainty in implementation of SEZ plans towards industrialization of the nation, where many people died in police firing while opposing the acquisition of their land for a proposed SEZ by a Indonesian company, The Salem Group. The West Bengal government's decision to put on hold the proposed special economic zone at Nandigram has sent the Orissa government on the back foot forcing the Naveen Patnaik government to cancel a proposed project by the Orissa Industrial Infrastructure Development Corporation (IDCO) at Kalinga Nagar. The state-owned IDCO had earlier proposed to establish a sector specific metallurgical-based engineering and downstream industry for manufacturing stainless steel spread over 250 acre at Kalinga Nagar Industrial Complex The cancellation took place in order to avoid any violence over land acquisition which will profusely hold up many foreign companies who have already been invited for setting up industry in Orrisa. Though the Orissa government does not want to express its apprehensions over the SEZ issue, ruling BJD-BJP alliance insiders admitted that the administration does not want to have a repeat of the Kalinga Nagar blood spill. The state government has so far received proposals for setting up 17 SEZs. The center has announced hundreds of SEZ plans all across the nation, but their future seems to be uncertain. Recently, another such social revolt has been registered in the state of Maharashtra, where Reliance Group has declared to acquire 10,000 (approx) hectare of land for building up two mega SEZ projects.

Dr. J J Irani, former CMD of Tata Steel and currently one of the powerful Directors on Tata Son's is of the opinion, "India should also go slowly like China has done".

Mohandas Pai, Executive Director, Infosys Technologies said,"We should look at entire districts, with a port and a hinterland for SEZ. We should make large-scale investments in that so there is synergy, and we should ensure that manufacturing has priority, followed by services, but the vision has to be much larger. The way it is today, the vision is too myopic, and too small, and I am afraid we will not get the benefit that China did".

It`s a Real Estate hunt

With experts concurring that India and China are lucrative markets for real estate, a comparison between the two countries is inevitable, writes Ravi Teja Sharma.

India and China are similar in many ways. Rapid GDP growth, huge urbanisation, growth in middle-class spends, a boom in housing, organised retail malls and a growing choice of products.

Most macro-economic factors are similar for the two but China is ahead in some developments by at least two-four years — and real estate is one of them. India, however, is fast catching up and most international companies wanting to invest in real estate consider both China and India top markets.

It is true the Indian economy only began to open up after 1990 and should not be compared to China, where free-market systems began to take hold after 1978. Only now are the effects of Indian reforms beginning to become evident. Nevertheless, a comparison is always imminent when one is talking about real-estate developments in the two large countries.

While China began to allow overseas businesses to mainland China in 1978, it took them 10 years to allow private ownership of real estate. Prior to that all housing was owned by the government, says CY Leung, chairman, Asia Pacific, global property adviser, DTZ Debenham Tie Leung.

In fact, Leung was one of the first to help the Chinese government sell the first parcels of land in Shanghai in 1988-89. Since then, he says, the country has invested heavily in building infrastructure, roads and tunnels. State governments that sold land in their cities plowed back the money into large infrastructure development projects.

Some experts feel that India’s story is better than that of China. While India’s story is based on IT and knowledge, China’s is manufacturing-based. Growth for India is comparatively easier with less infrastructure required for IT as compared to manufacturing, which needs large, complex infrastructure including huge highways and machinery.

Still, a lot of what of the infrastructure projects and real estate scale we’re seeing in India today has also happened in China a few years ago. Take SEZs, for example, which in India are sprouting up almost everywhere. If all of these are approved, we might see hundreds of SEZs, big and small, in the next couple of years.

The Chinese model, though, is different from ours. An SEZ in China is not a small affair. There, entire cities are part of these zones, which is why there are only four SEZs in China — Shenzhen just across the border with Hong Kong, Zhuhai, Shantou and Xiamen. Apart from these, there are enterprise zones at a subsidiary level.

The manner in which projects are financed is different too. In India, the IPO market for real estate developers has just opened up. “There was a phase in the ’90s when there were several IPOs in the Chinese real estate market. After that, till 2003, it was dry and, since 2003, the size of transactions has been growing. A typical IPO in 2005 would be valued at $200-215 million while in 2007 it has gone up to even $1 billion-plus. The size of transactions has more than doubled in 12 months,” says Anthony Ryan, head of real estate and investment banking at JPMorgan.

“China is more an IPO and pre-IPO market, and real estate funds are starting to come in now. In China it is possible, today, to do corporate level debt equity financing or pre-IPO financing to get a push to raise funds for new projects,” says Ryan.

“In India, pre-IPO financing is limited and the pressure to go into an IPO is stronger, which is why we see many companies hitting the market today,” adds Kaustubh Kulkarni, ED, investment banking, JPMorgan.

In 1988, the Chinese government took some very bold steps. It removed all restrictions on foreign money coming into the country, and saw investors from all across — Singapore, Hong Kong, Japan — moving in.

Foreign investment got in a lot of expertise and modern techniques into the real estate sector. That is what is likely to happen in India now, says Leung, with FDI flowing into India’s real estate sector.

One of the apprehensions about allowing foreign investment in the sector is the fear that they will overshadow domestic real estate investments by local companies. Leung clears the point by saying that real estate investments are mostly domestic.

In Hong Kong, most investment is local. Of the hundreds of cities in China, there are no foreign investors in 600 cities. Of the ones that do have foreign investment, they make no more than 15 per cent of the market.

“Even if India opens up further, the situation is going to be pretty much the same. No market will ever be dominated by foreign investors. An open door policy, in turn, will allow competition and better expertise,” he says.

Ryan feels the scale of development might end up a lot larger in India than even China. The ability to get large tracts of land is limited in China. All land in China is owned by the government, every inch of it, with the exception of a cathedral in Hong Kong that is on a long-term lease.

In communist China, most developers are pretty new. There are no traditionally wealthy families who got into the real estate business leveraging family land banks, which is the case with many companies in India.

The scale and number of developers, though, is larger in China. There are a huge number of real estate developers. India is a two-speed market with small and large players. In China, the size of companies is more uniform and there is huge competition. No developer dominates more than 2-3 per cent of any market.

According to reports, in China, for every $1 being invested, there is $12 of investment waiting to be invested. In India, for every $1, there $8-10 of investment waiting.

For the moment, there are chances that investors will prefer China over India. In the near term, there is a chance that the Chinese currency (RMB or Yuan) will appreciate and over the next few years investors would want to invest equity to get additional appreciation.

Apart from the growth in real estate prices, an investor will be able to benefit through currency appreciation. “Since India’s political system is more defined, investor appetite in India is longer term — 6-10 years, says Kulkarni. In China, equity investors are more likely to commit to three years,” says Ryan.

Overall, net and gross profit margins are lower in China and profitability is higher in India. Net profit in China for listed companies ranges from 15-25 per cent while in India it could be 30-40 per cent or, in some cases, even higher.

Some experts feel that corporatising in India is at a nascent stage and as the market matures, as it has in China, profit margins will come down.

There are more margins to be made with larger developments but the Chinese government regulates how much land it gives out and at what price. There is also increased regulation on how much affordable housing needs to be provided.

Vincent Lottefier, country head, Jones Lang LaSalle, says the Chinese government has started implementing land policy initiatives that provide the first steps toward the creation of a national land use planning and sustainable development policy framework for managing urban growth.

These include adoption of local comprehensive plans, zoning maps, integrated land development reviews and also distribution of various types of land uses.

“Some first tier cities have their own urban planning bureaus that are responsible for their master planning and even more detailed planning (area or precinct based). For instance, the Shanghai government has its Shanghai master plan 1999-2020. As for land-use, the government pre-specifies the use of each plot which will be transferred in the following years (at least five years),” he says.

Whether the Chinese real estate sector will sustain itself in the long run will depend on several factors. The environment will be one of the biggest of them. Beijing and some cities don’t see clear skies for days on end.

Environmental pollution is massive owing to the large manufacturing hubs. India’s IT buildings doesn’t pollute as much, actually not even close to the kind of pollution there is from manufacturing units in China, say developers here.

Why, there is also a plan to shut down factories around Beijing for weeks before the Olympic Games in 2008 for participants to enjoy the blue sky!