Indian Economy: Growth -3

[Guest]

<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Rapid growth to hurt India's environment: World Bank  </b>
Chetan Chauhan
New Delhi, April 10, 2007
India’s growing economy that will scale a record high by 2020 will take its toll on environmental and financial resources, a new World Bank study has predicted.

<b>World Bank conducted case studies in seven states on three high-growth sectors - energy, highways and industry -to gauge its impact on environment and said it would be the "biggest challenge" for India in coming years. The study found that growth in these sectors was environmentally unsustainable. </b>

The 8,000-mw Singrauli Housing Power Generation that displaced more than three lakh people since 1960s is an example.

Environment Secretary Prodipto Ghosh admitted India's growing economy will put unprecedented pressure on environment and natural resources - water, land, air, soil and forests.

Relating "Country Environment Analysis for India" on poor compliance of industry norms, Kseniya Lvovsky, Lead Environment Economist at World Bank, said country-wise average compliance ratio of industries monitored is only 50 per cent though environment compliance is set to improve.

<b>India finds itself next to Bangladesh on global environmental sustainability index. </b>

Environmentalists say only bigger industries are monitored and small and medium scale industries that contribute 70 per cent to total industrial pollution load are let off the hook. The report urged the government to start specialised environment programmes for industries and improve their performance without affecting business. For instance, furnaces in Agra, adopted an indigenously-developed clean technology. World Bank said monitoring of Environment Impact Assessment (EIA) issued by government was not effective. It affected ecology and recommended strengthening of post EIA clearance.

Considering negative impact of economic growth on environment, World Bank has proposed measures to improve compliance, including transparency and accountability of the environment regulators, increasing their scope, better public participation in regulation and providing fiscal assistance to industry.<!--QuoteEnd--><!--QuoteEEnd-->
How to pull India down? Follow this report.

[Guest]

<img src='http://img.photobucket.com/albums/v130/indiaforum/imf.jpg' border='0' alt='user posted image' />

A graphic on world and regional growth forecasts from the International Monetary Fund's annual report. The International Monetary Fund said on Wednesday growth in India would slow to 8.1 percent in 2007 from 8.7 percent a year ago as the central bank raises interest rates further to tame prices.

[Guest]

<b>A Perspective on India</b>
Bayman, Scott R. President and CEO General Electric GE - India

Format: Speech
Last Airing: 2007-04-13
Event Date: 2007-04-12

Excellent, best I have ever heard. Very clear.

[Guest]

<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Dollar signs </b>
The Pioneer Edit Desk
100,000 reasons to buy the world
Nostalgists and cine-buffs will remember Around the World in Eight Dollars as yet another Raj Kapoor ode to Indian austerity, with a cameo appearance by cricketer Frank Worrell. Those who can remember foreign travel in the 1960s - or even two decades later - will not recall it with the indulgence reserved for an old film. A foreign exchange scarcity caused by policies that looked upon international trade as evil; an illegal financial transfer industry called hawala; a ridiculous FTA that made smugglers of good middle class folk, forcing them to hide dollars in suitcases and socks; vapid slogans like "Be Indian, Buy Indian" - it was a surreal world. Today, it seems so far away, a 20-something would be entitled to wonder if it were all fiction. Earlier this week, the Reserve Bank allowed every Indian who could afford it to send out of the country $100,000 a year, invest it in stocks and shares, buy property, gift it to a friend or child. A hundred thousand dollars cannot make you a millionaire in New York but it is not money to be sneezed at. It may seem a new toy for the very rich but it need not be so. It can allow salaried-class Indians to buy sea-facing apartments in Colombo should Chennai be too expensive or simply too crowded. It can allow the intrepid investor to hedge his bets and buy stocks listed on the Dow Jones or Hang Seng indices. In doubling the limit for the foreign exchange Indians can now repatriate, the RBI Governor has shed some of the defensiveness that have marked recent monetary policy - evidenced in, for instance, the gradual climb of interest rates . In 1991, India was a pauper, able to afford scarcely a few weeks of imports. A decade-and-a-half on, the central bank is sitting on a deep bed of dollars and encouraging people to spend. It is this confidence that is allowing Indian companies to borrow abroad and buy up companies overseas. It is this audaciousness that is now being transmitted to the individual.

Other than being a slap on the face of Cassandras who predicted the death of the Indian economy when reforms were initiated in 1991, the RBI's $100,000 bonanza indicates two things. <b>First, it is another step, innately cautious and calibrated in the best traditions of India's central bank, towards full convertibility. That fungibility is necessary for Mumbai to become the pan-Asian financial services hub that a recent Government committee says it can. Second, it allows Indian retail investors to jump across the infrastructural blips and policy-induced sluggishness that periodically subdue the Indian economy. Investments in foreign financial instruments are already possible through mutual funds. It is only a matter of time before directly buying and selling stocks on Wall Street is possible, through the empowering medium of web-based trading</b>. As numbers grow, the average cost of transaction too will fall, and small investors from Manali or Warangal will be able to buy little holdings in Microsoft or Wal-Mart. It's an inspiring thought for anybody who remembers Raj Kapoor and his eight dollars.
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[gangajal]

Indian GDP shatters the trillion $ mark.

[Guest]

<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>India's GDP crosses $1 trillion mark </b>
Pioneer.com
PTI | New Delhi
India has joined the elite club of 12 countries with a trillion dollar economy, thanks to the continuing rally in rupee against the US dollar.

The country's GDP crossed the trillion-dollar mark for the first time in history when rupee appreciated to below level 41 against the US dollar yesterday, Swiss investment bank Credit Suisse said in a report published today.

Countries like the <b>US, Japan, Germany, China, UK, France, Italy, Spain, Canada, Brazil and Russia </b>have all breached trillion-dollar GDP level in the past.

The bank put the country's GDP at around Rs 41,00,000 crore, which translates into a little more than one trillion dollar at the current currency level of Rs 40.76 per dollar.

Besides, the country's stock market capitalisation has rose to 944 billion dollars, which is also closing fast on the trillion dollar level, it added.

Before the rally began about a month ago when the rupee was hovering at 45 to a dollar, the country's GDP was estimated at around $900 billion.
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Private sector is doing great. I hope Government and Babus stay away from agenda and greed to mess up Private sector.

[Guest]

<!--emo&--><img src='style_emoticons/<#EMO_DIR#>/sad.gif' border='0' style='vertical-align:middle' alt='sad.gif' /><!--endemo--> Create Shariah index and watch Islamic funds flow in
SHAILESH MENON

TIMES NEWS NETWORK[ TUESDAY, MAY 01, 2007 04:02:39 AM]

MUMBAI: The Indian stock market may have been likened to a casino and a den of vice by some, but Shariq Nisar begs to differ. According Mr Nisar, an economist and expert in Islamic finance, the current share of the Indian Shariah compliant market capitalisation (at 61%) is the highest even when compared with a number of Islamic countries such as Malaysia (57%), Pakistan (51%) and Bahrain (6%).

Sectors such as computer software, drugs and pharmaceuticals and automobile ancillaries are all Shariah compliant. These sectors constitute about 36% of the total Shariah compliant stocks on the NSE.

Shariah, the canonical law of the followers of Islam, has strictures regarding finance and commercial activities permitted for believers. Arab investors only invest in a portfolio of “clean” stocks. They do not invest in stocks of companies dealing in alcohol, conventional financial services (banking and insurance), entertainment (cinemas and hotels), tobacco, pork meat, defence and weapons.

In a research paper titled ‘Islamic investments opportunities in India’, Mr Nisar, writes: “The growth in market capitalisation of Indian Shariah compliant stocks was found to be more impressive than the growth in market capitalisation of non-Shariah compliant stocks. Another remarkable finding of the study is that even when the number of Shariah compliant stocks was very limited, the share of Shariah compliant market capitalisation never went below 50% of the total market capitalisation.”

If investors in Islamic countries buy Mr Nisar’s logic then Indian markets could see a huge inflow of capital in search for ‘Shariah compliant stocks’. Says Ashraf Mohammadi, managing director, Idafa Investments: “About $600 billion-worth Islamic investments are locked up in fixed deposits around the world, waiting for an attractive, but ethical, market to invest in. A significant sum of Arab investments also flow into the small Pakistani and immature UAE markets. With a dedicated Shariah index and some regulatory steps, Indian securities market can open the floodgates on Islamic investments.

Currently, there are more than 800 Shariah compliant stocks on the exchanges. Pakistan, a favoured Islamic capital market investment destination, has only 30 Shariah compliant scrips out of some 700-odd companies.”

One key development that could set off the flood of this capital inflow is an index that tracks Shariah relevant stocks. Experts believe that given the stagnation in European markets, a low-performing bullion market and falling crude prices, Indian markets could have fared better with a dedicated equity index for Muslim investors. The absence of such an index is inhibiting the capital flow. Take for example, the US and Pakistan. The US has the Dow-Jones Islamic Market Index (DJIMI) and Pakistan the Meezan Islamic Fund Criteria.

World over, Islamic investors have begun demanding more sophisticated instruments for investing their money. They want these investment alternatives to comply with both Shariah standards and international norms of financial investments. “In the past, observant Muslims were wary of being involved in financial investment vehicles for fear that they weren’t compliant with Shariah. A Shariah compliant index includes only those companies whose business activities and financial ratios comply with Shariah norms,” said Alka Banerjee, vice-president, Global Index Management, Standard & Poor’s, which recently launched its headline Shariah-compliant indices — the S&P 500 Shariah (for the US), S&P Europe 350 Shariah and the S&P Japan 500 Shariah.

Lack of awareness is a major impediment in the propagation of Islamic investments. “It is the religious requirement of a Muslim to be invested; rather it is un-Islamic to hold money. Interest is forbidden, but sharing risk and responsibility that is sharing profit and loss is acceptable. Equity investing is wholly acceptable under Shariah as long as it is in companies compliant with the Shariah rules,” says Zafar Sareshwala, managing director, Parsoli Investments.

shailesh.menon@timesgroup.com

[Guest]

A vicious cycle Ads By Google
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May 02, 2007
First Published: 23:17 IST(2/5/2007)
Last Updated: 12:55 IST(3/5/2007)


Ancient wisdom often helps in understanding contemporary realities. In an ancient Libyan fable, it is told that an eagle, when struck by a dart, said upon seeing the fashion of the shaft, “Not by others hands but by our own feathers are we now smitten?”

We recollect this in relation to the current preoccupation of the Planning Commission in assisting state governments “in capacity building” for “setting up public-private partnership (PPP) cells with a list of projects that are bankable and viable for PPP”. The Deputy Chairman of the Planning Commission, Montek Singh Ahluwalia, and the Finance Minister, P. Chidambaram, elaborated on this at a meeting of state chief secretaries convened in May last year. This is the only way, we are told, that India can create quality infrastructure. The committee on infrastructure, headed by Prime Minister Manmohan Singh, had estimated an investment requirement of Rs 210,000 crore for highways and Rs 50,000 crore for ports by 2012. And development of airports would require Rs 40,000 crore before the Commonwealth Games are held in 2010.

Writing in India Perspectives (January 2007), Chidambaram says, “An investment of about $ 320 billion would be required in the infrastructure sector during the Eleventh Plan period (2007-2012). These investments would be achieved through a combination of public investment, PPPs and exclusive private investments. In order to enhance public investments in infrastructure, it is essential to create fiscal space by restricting public expenditure. Furthermore, we have to levy and collect appropriate and reasonable user charges not only to attract private investments but also to ensure proper operation and maintenance of the assets that are created.”

There are certain issues that need to be examined in this line of reasoning. The first relates to the conception of PPPs; the second concerns the size of the resources that are being talked about; the third refers to ‘bankable’ projects; the fourth is ‘restricting public expenditures’; and the fifth concerns ‘user charges’.

The PPP being conceptualised by the Planning Commission is not the same as joint sector projects with private participation. Therefore, instead of “attracting private money for public sector projects”, as the Planning Commission claims, it may end up promoting private profit-making with public money. The Enron experience confirms this. The justification for bringing in multinationals in the name of augmenting infrastructure was accompanied by guaranteed rates of return in foreign exchange and ‘appropriate’ tax concessions. All this was sold as being in the national interest.

Invariably, such projects entail the jacking up ‘user charges’, which effectively prevents the poor from using these infrastructure facilities. Already, the poor are being prevented from using facilities such as roads, since they cannot afford toll taxes. Further, it is not as if separate investment would be undertaken to provide the poor with alternative facilities. Once PPP becomes the norm, all social amenities, such as water supply, electricity, etc., would come with user charges. This has happened in a telling manner in Latin American countries. India will be headed in that direction if this trajectory is followed. The hiatus between Shining India and Suffering India will only widen. The UPA, despite its concern for the aam admi, is being rejected by the electorate precisely because of this widening gap.

How else, it will be argued, can the government raise such huge resources? The first thing to remember is that the figures quoted above are cumulative till 2012. For one individual year, they come to about Rs 53,000 crore for roads, highways, ports and civil aviation. On these heads, the central Plan outlay for this year is a little over Rs 20,000 crore. When state outlay figures are added, this easily crosses Rs 30,000 crore. Even by the government’s own estimates, the additional amount required would be around Rs 23,000 crore annually, which is just 0.7 per cent of the current GDP. With a 9-plus growth rate and over 20 per cent additional buoyancy in tax collections, this is hardly a sum to attract which huge tax concessions are to be given to private capital. This, once again, confirms the apprehensions concerning PPP.

Though the Planning Commission talks in terms of a PPP plan being drawn up in addition to the state’s annual plan, this, in itself, will undermine the composite planning process. This is because these ‘plans’ will be competing for funds and if a growing number of projects gets routed through the PPP, less will be left for the non-PPP annual plan. Further, in a situation where the PPPs are decided on them being ‘bankable’, social amenities that are essential for people’s welfare but not profitable will be excluded.

In fact, the concept ‘bankable’ itself is ironic and constitutes essentially the demise of planning. Bankable means that what the banks consider profitable (even when nationalised) shall determine which project would be financed. We had nationalised banks in the 1970s in order to make them conform to social priorities. It was not the bank’s will that determined where finances went but social will expressed (notwithstanding its inadequacy or distortions) through a government answerable to an elected Parliament. By advancing ‘bankable’ PPP projects, social priorities are being quietly abandoned and buried.

Some, however, may argue that the PPP would help the government to concentrate on non-bankable projects, which are in the genuine interests of the poor. Scarce resources can thus be utilised for socially worthwhile projects. This is the classic argument of those seeking vacation of space by the government for private profit-making. The government, we are told, needs to move out of areas like hotels, etc (even while making profits) and concentrate on education and health. Then, we are told, since adequate resources are not available, both education and health need to be privatised. The government must concentrate on sanitation and water supply. And, now, we are told, that in this area as well, PPPs with user charges must be brought in. And so goes the story, where the government of the day has no space left to pursue socially-required projects or even express the popular will of the people.

Further, if PPP has to be generalised, as the Planning Commission seeks to do, then a host of concessions would have to be made to attract private capital. And, as Chidambaram states, “by restricting public expenditure”. This means the imposition of an expenditure deflation, which means that the government’s capacity to use fiscal means to finance non-bankable projects would get further undermined.

The problem with PPP is not only the widening of the gap between the two Indias, repugnant as it is. It also represents the inversion of development planning and the abandonment of the government’s capacity to exercise political will and, thus, the sovereignty of the people. By all means, attract private money for public sector projects but do not promote private profit-making with public money. In the process, the Planning Commission cannot be allowed to plan the demise of planning.

Unlike the eagle in the Libyan fable, India cannot afford to be smitten.

[Guest]

<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Bad 1990s again </b>
The Pioneer Edit Desk
Strong rupee spells disaster

India, being a late starter in the process of climbing the economic ladder, had the opportunity to learn from the mistakes and the successes of countries that have reached the top. One of the single most important lessons that our Government should have learnt was to make the national currency reliable. However, recent experience, plus knowledge flowing from deep within RBI and North Block, combine to make it apparent that the rupee's unprecedented 'strengthening' is the result of yet another policy disaster. Recall Planning Commission Deputy Chairman Montek Singh Ahluwalia's missive to North Block to rein in economic growth rate. At that time, there was concern expressed in these columns over how babus managing the national economy would respond; that concerns seems to have come true. Worried that robust capital inflow was overheating the economy, <b>the central bank bought $ 11.9 billion in foreign exchange. The next month, another $ 2.3 billion was mopped up, taking total purchases since November 2006 to $ 22 billion. </b>We now know the real story behind India's foreign exchange reserve crossing the $ 200 billion mark, but that's for another day. Ignoring what foreign funds were doing meanwhile as a matter of routine - <b>buying local equities - has proved costly because that has added more and more rupees to domestic money supply</b>. Then, the RBI tried to multitask by adding to the money supply, stoking price pressures and tightening policy to rein in credit growth and inflation. But it failed in all respects. By March, it also revived its old interest in buying dollars. This has led to the rupee rising to a nine-year high, leaving both Government and the central bank at a loss as to how to deal with exporters driven to despair, job cuts announced by BPOs and reports of dwindling bottomlines from the small and medium sectors. <b>One wonders if the country is back to the shaky 1990s when industry and finance were routinely hobbled by maverick decisions that led to India being rendered an unreliable trading partner.</b>

However, not all this may be a product of some innocent mistake.<b> There is the odour of a scam hanging thick</b>. How is it that despite all evidence, MNCs are stretching their PR budgets to assure all and sundry that things are fine and that the rupee is not rising at all? And why is the Government silent? <b>Herein lies the story. While small business have been hit by a double whammy (rising inflation plus less export earnings), the big players are partying. They have dollar denominated debts, which means their outflow in dollars remains the same while the rupee obligation reduces. The oil companies are breathing easy. But why is nobody, especially the CPI(M), talking of passing on the benefits to the people? Perhaps the reason lies in its desire to protect the interests of the Japanese MNCs at Haldia.</b> Since more than 80 per cent of exports are value-added items, those lacking the power to build up huge inventories would be left with no other option but to sell cheap. What would cause champagne corks to fly is manna from heaven in the form of double returns on scrips. <b>Foreign investors who invested in Indian stocks have multiplied their returns by twice over that of their domestic counterparts. In the current quarter, Indian bourses have given a return of 5.6 per cent in rupee terms, while that in dollar terms is a whopping 12.5 per cent. Clearly, trouble lies ahead</b>.

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[Guest]

The Rising Rupee
<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->Mercantilist monetary policies are popular in developing Asia, where central banks have plenty of money to intervene in foreign-exchange markets and keep their currencies cheap. But how long will the party last? At some point, intervention becomes too expensive and inflationary pressures too great.

That's the conundrum India is facing today, where waves of inbound foreign capital have led the central bank to abandon more than a decade's worth of heavy intervention in foreign-exchange markets to keep the rupee cheap. The rupee has risen by more than 8% since March, eliciting cries of pain from exporters and protests from the Commerce Ministry. But the move seems to have taken the edge off inflation, which has edged down to 5.4% at the beginning of this month, from a high of 6.5% in mid-March.

"We must learn to manage these inflows but we must not do anything that will restrict investment -- domestic and foreign, and private and public," Finance Minister Palaniappan Chidambaram told the Confederation of Indian Industry on Friday. That's exactly right -- though not always as easy a political matter.

Investment flows are an affirmation that foreigners judge India a good place to invest. They are a byproduct, too, of freer flows of trade and capital. India wouldn't be growing at 8 to 9% a year were it not for economic liberalization. But as the country opens up to trade and cracks open its capital account, it will be more exposed to global monetary policy.

Welcome to a world without stable exchange rates, in which central banks tussle with competing demands of keeping inflation under check while avoiding attacks on their currency. This year, the Reserve Bank of India found itself in a bind: It had to purchase the foreign currency to keep the rupee within its normal range, but it also had to sterilize those inflows' inflationary impact by issuing bonds. The costs of issuing the debt spiralled upwards, and in March, the RBI simply stepped back from the market, and the rupee shot up.

But will the RBI do what the Finance Minister suggests, and truly shed its old mercantilist ways? As soon as the rupee started to climb back toward its nine-year highs last week, the Reserve Bank started intervening again. Equally worrying, the central bank clamped down on real estate companies' ability to borrow abroad and repatriate the funds -- a major source of pressure on the rupee -- by setting limits on the bond yields they could offer.

Capital controls are distortionary, at best, and at worst, completely ineffective. Real estate companies aren't likely to stop raising money just because the RBI has discouraged them from selling bonds; they'll figure out other ways to do so. What's more, by capping the yields on bonds that real estate companies can raise, the RBI has tipped the scales in favor of larger companies at the expense of small and medium-size firms, which are the real drivers of India's economic growth.

New Delhi need only look to Thailand to see what broad capital controls can do to wreck a functioning economy. When the military-installed government -- pressured by the country's large exporting lobby -- clamped down on hard on incoming foreign-equity flows in December, the Bangkok Stock Exchange experienced a 15% one-day drop. In any case, the capital controls have done little to limit flows; the baht has continued to appreciate since December's action, and Bangkok has now lifted most of the controls.

India's exporters aren't happy with a rising rupee, but that's part of the price of doing business in an open economy. India could link its currency to the dollar, a la China, but that would mean abandoning its own monetary policy. It could, however, go on defense, and focus on what it can control: its domestic financial markets. It's past time India got serious about deregulating its banking sector, allowing futures and hedging markets to develop, and letting foreigners compete on an equal footing.

Unfortunately, those changes don't look likely under the current Congress-led government. <b>There may be an economist in the Prime Minister's seat, but it's Sonia Gandhi, president of the Congress Party, who's pulling the strings, and she's no friend to free markets. The closest this administration has gotten to financial-sector reform has been to crack open the capital account a little bit to let Indian investors put more money abroad, and to issue a few reports on what else needs to be done.</b>

New Delhi can't control how much money the U.S. Federal Reserve Bank releases into the global financial system. But it can control how efficiently it receives and distributes that money. The RBI may not be able to guide the rupee in the way it used to, but there are plenty of things it can do to bolster India's competitiveness.

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[Guest]

<b>Economy grows @9.4 pc, India Inc upbeat</b><!--QuoteBegin-->QUOTE<!--QuoteEBegin-->According to RBI's own projection, the economy is expected to grow at 8.5 per cent this fiscal.

World Bank, in its Global Development Finance Report for 2007, projected the Indian economy to grow at 7.8 per cent and 7.5 per cent in 2008 and 2009 respectively.

<b>"...Its (India's) restrictive policy conditions are expected to lead to deceleration in investment growth and weaker private consumption and government spending, contributing to a slowdown in GDP growth...,"</b> the report said.

For the whole year, growth in manufacturing and some services sector more than made up for a slowdown in agriculture and construction sector.

<b>Manufacturing grew by 12.3 per cent </b>in 2006-07 against 9.1 per cent in the previous year, while <b>trade, hotels, transport and communication services grew by 13 per cent </b>against 10.4 per cent a year ago.

Agriculture and allied sector's growth, however, slowed down to 2.7 per cent against six per cent and construction to 10.7 per cent against 14.2 per cent.

Mining and quarrying grew by 5.1 per cent during 2006-07 against 3.6 per cent in the previous fiscal, while electricity, gas and water supply registered 7.4 per cent growth against 5.3 per cent. Community, social and personal services grew by 7.8 per cent against 7.7 per cent.

However, services relating to financing, insurance, real estate and business growth slowed down to 10.6 per cent against 10.9 per cent.

For the fourth quarter of 2006-07, agriculture, construction, services relating to financing, insurance, real estate and social services growth slowed down year-on-year.

<b>Agriculture growth went down to 3.8 per cent </b>against 6.2 per cent, <b>construction to 11.2 per cent </b>from 16.1 per cent, services <b>relating to financing insurance, real estate and business to 9.3 per cent</b> from 14.2 per cent and<b> community, social and personal services to 5.7 per cent </b>from 7.2 per cent.

However, manufacturing grew to 12.4 per cent against 9.4 per cent, and trade, hotels, transport and communication activities to 12.4 per cent against 11.8 per cent.

<b>Mining and quarrying also grew by 7.1 per cent </b>against 5.2 per cent, while <b>electricity, gas and water supply by 6.9 per cent </b>from 6.1 per cent
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Agriculture growth is down again, it means majority of population is not growing. Infrastructure sector is also slowing down.

[Naresh]

[center]<b>REVISED ESTIMATES OF INDIA'S ANNUAL NATIONAL INCOME, 2006-07</b>[/center]

Cheers <!--emo&:beer--><img src='style_emoticons/<#EMO_DIR#>/cheers.gif' border='0' style='vertical-align:middle' alt='cheers.gif' /><!--endemo-->

[Guest]

India plays down race for Africa's assets

Why does India not admit that a country with the geographical and population sizes, it definitely will look for assets wherever it can find?

<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->India plays down race for Africa’s assets

By Alec Russell

Published: June 6 2007 22:16 | Last updated: June 6 2007 22:16

India’s minister with special responsibility for Africa has hailed a new era of Indian engagement and investment in the continent but firmly rejected talk of a race with China for its resources.

Indian traders often had an uneasy time in post-colonial Africa. But Anand Sharma, the minister of state for external affairs, told the Financial Times that India’s relationship with Africa had undergone a “major shift”.

“It is no longer a case of small traders coming out of India. It is Indian corporate giants which are coming, and Indian multinationals.”

While India had close diplomatic ties with Africa in the second half of the last century, it scaled down the relationship after the cold war. But trade figures point to a reawakening of interest.

In 1990 trade between India and Africa amounted to $967m (£485m). Just over a year ago that figure had increased to $9.6bn. In that period Africa’s share of India’s exports has more than tripled, to 6.8 per cent.

India has committed $200m to Nepad, the African development programme, $250m to the main development bank of the west African regional grouping and $500m of credit to help Indian companies invest in development projects.

There has been speculation that India and China are engaged in a scramble for Africa’s assets. Chinese state companies have outbid Indian companies on several large contracts, in particular for stakes in the oil fields of Nigeria and Angola.

But Mr Sharma played down the defeats, insisting India was not trying to compete with China. He said India was investing in a range of sectors, including pharmaceuticals.

He claimed India’s engagement is beneficial to the continent, citing investments in agricultural technology that are enabling countries to feed themselves. “Our companies are ethically very correct, they invest money, they generate capital and they generate employment.”

But a report into allegations of gold and weapons smuggling by United Nat­ions peacekeepers in Congo suggested not all Indian businessmen operated by such principles. It alleged that Indian traders from Kenya were middlemen in the scandal.

Analysts charting India’s courtship of Africa back its contention that its interests are broader than those of the Chinese, whose involvement has come under intense scrutiny. While many in Africa have welcomed Beijing’s offers of cheap loans and vast infrastructure projects, human rights groups argue it is over-ready to engage with regimes such as Sudan to feed its booming economy. There has also been concern that Chinese state companies tend to bring in their own workforce, and fear they could stifle local manufacturing.

Philip Alves, an economist at South Africa’s Institute of International Affairs, said as long as India accepted it would struggle to compete with China’s state-backed companies for Africa’s minerals, there need not be a “clash on the horizon”.

“The character of the Indian investment is different,” he said. “India is not as much of a manufacturing superpower as China. And China is not active in the service industries, in health, education, pharmaceuticals and telecommunications. There is so much scope for investment in Africa. There is plenty of room for everyone.”<!--QuoteEnd--><!--QuoteEEnd-->

[Guest]

What's up with The Economist, and the particular author. The choice of words reek of extreme bias.

Glodilocks tests the vindaloo
<!--QuoteBegin-->QUOTE<!--QuoteEBegin--> India's economy
Goldilocks tests the vindaloo

Jun 7th 2007
From The Economist print edition
India's monetary policy is still too loose

AMERICA was the original “Goldilocks economy” (neither too hot nor too cold), but the fair maiden has now moved to India. The bears there prefer curry to porridge, but once again Goldilocks is reported to judge the economy “just right”, with strong growth and falling inflation. Indeed, concerns earlier this year about overheating are fading. Wholesale-price inflation has dropped from 6.7% to 5.1%, even as India's GDP jumped by 9.4% in the fiscal year ending in March—its second-fastest growth on record. Palaniappan Chidambaram, the elated finance minister, says it is time to shed any scepticism about the sustainability of India's strong growth. The Economist remains unconvinced.

India has much to cheer about. The economic reforms of the 1990s and stronger investment have lifted its sustainable rate of growth. But demand has also been inflated by an unduly lax monetary policy. The government thinks its target of 9% average annual growth in the next five years can be achieved without pushing inflation up. But India displays more symptoms of overheating than China does: inflation is much higher, bank lending is growing almost twice as fast, and Indian share prices have risen by twice as much in dollar terms as China's since the end of 2002. The government, initially slow to react to higher prices, has cracked down this year with a series of administrative and fiscal measures, notably banning wheat exports and lowering fuel taxes; and the Reserve Bank of India (RBI) has tightened monetary policy.

Many local economists think there has now been enough tightening. Yet the idea that Indian inflation is tamed seems to be based on five common myths. The first is that the run-up in inflation could largely be attributed to higher food prices caused by “supply shocks” in the agriculture industry; so monetary policy does not need to be tightened. In fact, manufactured goods have accounted for much more of the rise in inflation over the past year. The main reason for higher prices is that aggregate demand is growing faster than supply.

A second misconception is that the government's various schemes this year, like the wheat-export ban, have done a better job in reducing inflation than monetary policy would do. But such measures merely suppress the symptoms; they do not tackle the underlying problem. Inflation can be genuinely reduced only by a period of slower growth. And although the various schemes have helped to reduce wholesale-price inflation, the measure that the government likes to focus on, consumer-price inflation, the choice of all other central banks, is still running at almost 8% (taking a crude average of the rates for industrial, non-manual and agricultural workers).

A third myth is that the increase in fixed capital spending from 23% of GDP in 2001 to 29.5% last year will immediately lift the economy's speed limit. In the long term investment will indeed add to productive capacity, but in the short term higher capital spending boosts demand and adds to overheating.

The fourth fairy tale is based on the idea that the interest-rate rises over the past year must eventually have more of an effect—and thus slow the economy in the coming months. Interest-rate hikes certainly take time to work. The snag is that in India rates have risen by less than the increase in consumer-price inflation, and monetary conditions are still too loose. India has by far the lowest real interest rates among the world's big economies. The RBI, constrained by politicians, has been too timid in cooling domestic demand. Its attempts, until recently, to hold down the rupee through heavy foreign-exchange intervention forced it to run an overly lax monetary policy. The good news is that the RBI is now allowing the rupee to rise (see article), which should make it easier to fight inflation—if the government allows it to do that.

Lastly some critics of the central bank say that proper monetary tightening would kill the expansion. In fact, expansion is far more likely to end prematurely if inflation gets out of control and imbalances widen, raising the risk of a hard landing. Controlling inflation is the best way to sustain growth.
The bear necessities

In the longer run India's ability to grow faster depends on it unblocking its infamous infrastructure bottlenecks, notably its <b>lousy roads, ports and power.</b> The increase in electricity capacity over the past five years was only 57% of its targeted level, so power cuts have worsened. Skills shortages will be eased only by improving education and reforming India's rigid labour laws. This will all take time. Meanwhile, India will have to accept slower growth to keep inflation in check. <!--QuoteEnd--><!--QuoteEEnd-->

[Guest]

<b> Dearer rupee may stall economic growth </b>

[Guest]

India's good Karma<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->BOOK REVIEW
India's Good Karma
Despite many hurdles, the country's potential is huge.
By Bob Frick
From Kiplinger's Personal Finance magazine, June 2007

It's the world's largest democracy, its technology sector is going gangbusters, and its stock market returned 34% annualized over the past five years. What could go wrong? As it turns out, plenty. So before you commit a nickel to investing in India, you'd best read In Spite of the Gods: The Strange Rise of Modern India (Doubleday, $26).

Smart investors know that stability, not profits, is the prerequisite for success in emerging markets. But you won't find a quick answer to the question of India's stability -- it's built neither on quicksand nor bedrock.

Unlike homogenous China, India is formidably complex -- an amalgam of Hindu, Muslim, Sikh and Christian populations layered in a fading caste system. Some 750 million of India's 1.1 billion people live in villages with inadequate health care and no schools, reports Edward Luce, the author and a Financial Times writer who spent five years in India.

The country's economic upswing began in 1991, when it ended a stifling system of controls and permits, the so-called License Raj. Since then, technology businesses, in particular, have taken off, although they still employ only one million people. In fact, only 35 million people in India have formal income to pay taxes on.

India has both powerful advantages and big disadvantages, says Luce. On the positive side: diversity, democracy, a young and hungry workforce, and a free media and judiciary. On the negative end: poor infrastructure, pollution, a growing AIDS epidemic, heavy-handed government regulation and corruption.

So India is a shifting mosaic, and Luce won't hazard a guess as to how the pieces will fall into place. But investing in India is worth the risk, long term, despite the volatility. The book's key takeaway for investors: <b>"India's growth potential is even more striking if you consider how much has been achieved with so little."</b><!--QuoteEnd--><!--QuoteEEnd-->

[Naresh]

[center]<b><span style='font-size:21pt;line-height:100%'>India's strong rupee</span></b>[/center]

<b>An enviable problem to have</b>

The Indian rupee has appreciated by nearly 10% since late 2006, posing an acute dilemma for Indian policymakers. In some ways, the present strength of the currency, which is now hovering just above the symbolic Rs40:US$1 mark, is an enviable problem. It suggests that the country's attractiveness to foreign investors is increasing and signals optimism about the Indian economy more generally. However, the concerns of exporters, who are part of India's economic resurgence, are rising as their goods become more and more expensive for overseas buyers.

The recent strengthening of the rupee is a dramatic departure from past trends. The currency depreciated steadily for a decade after being floated in 1993, dropping from an average annual rate of Rs31.37:US$1 in the 1993/94 fiscal year (April-March) to Rs48.40:US$1 in 2002/03 (an average annual depreciation of nearly 5%). Between 2003/04 and 2005/06, however, the rupee appreciated against the dollar by 3% on average a year—although there was considerable two-way movement of the rupee from month to month. The trend of steady month-on-month appreciation began in September 2006 and has been continuous since then. The average rupee-US dollar rate in May 2007 was the lowest since 1999/2000.

Although the rupee-US dollar exchange rate has the greatest impact on the Indian economy and business sector, the rupee has also appreciated against other currencies. In January-May 2007, the rupee's value in terms of pounds, euros and yen rose by 8%, 6.9% and 11.2%, respectively. During 2005/06, 86% of Indian exports and 89% of imports were invoiced in US dollars, according to the Reserve Bank of India (RBI, the central bank). The euro was a distant second, with shares of 8% in exports and 7% in imports.

<b>Explaining the rupee's appreciation</b>

The main reason for the rupee's appreciation since late 2006 has been a flood of foreign-exchange inflows, especially US dollars. The surge of capital and other inflows into India has taken a variety of forms, ranging from foreign direct investment (FDI) to remittances sent home by Indian expatriates. In each case, the flow seems unlikely to slacken. The main impact of these various types of flows is as follows:

<b>*</b> FDI. India's stellar economic growth has created a large domestic market that offers promising opportunities for foreign companies. Moreover, the country's rising competitiveness in many sectors has made it an attractive export base. These factors have boosted FDI; in 2006/07 FDI amounted to around US$16bn, almost three times the previous year's figure. More than half of these inflows arrived in the final four months of the fiscal year (December 2006-March 2007).

<b>*</b> External commercial borrowings (ECBs). Indian companies have borrowed enormous amounts of money overseas to finance investments and acquisitions at home and abroad. This borrowed money has returned to India, boosting capital inflows. India's balance-of-payments data (available to December 2006) reveal that inflows through external commercial borrowings (ECBs) amounted to an enormous US$12.1bn during April-December 2006, a year-on-year jump of 33%. The flood of borrowed money is likely to grow in 2007. In the first three months of the year, Indian companies notified the RBI of plans to raise nearly US$10bn in overseas debt.

<b>*</b> Foreign portfolio inflows. India's booming stockmarket embodies the confidence of investors in the country's corporate sector. Foreign portfolio inflows have played a key role in fuelling this boom. Between 2003/04 and 2006/07, the net annual inflow of funds by foreign institutional investors (FIIs) averaged US$8.1bn. Trends during the first five months of 2007 indicate that this flood is continuing, with net FII inflows amounting to US$4.6bn. Another major source of portfolio capital inflows has been overseas equity issues of Indian companies via global depositary receipts (GDRs) and American depositary receipts (ADRs). Inflows from GDRs and ADRs amounted to US$3.8bn in 2006/07, a year-on-year increase of 48%.

<b>*</b> Investments and remittances. Indians settled in other countries have also been a major source of capital inflows, with many non-resident Indians (NRIs) investing large amounts in special bank accounts. While NRIs' emotional connection to their country of origin is part of the explanation for this, the attractive interest rates offered on such deposits also provide a powerful incentive. In 2006/07 NRI deposits amounted to US$3.8bn, a 35% increase over the previous year; the outstanding value of NRI deposits as of end-March 2007 was US$39.5bn. Another large source of foreign-exchange inflows has been remittances from the huge number of Indians working overseas temporarily. Such remittances amounted to a colossal US$19.6bn in April-December 2006, a 15% year-on-year increase.

<b>Export risks</b>

Buoyant export growth has also built up India's foreign-exchange holdings. IT and business-process outsourcing (BPO) exports have expanded at an especially robust pace, with exports of software services reaching US$21.8bn in April-December 2006 (a year-on-year increase of 31%). However, the rupee's appreciation is alarming exporters, as it makes their products more expensive in overseas markets and erodes their international competitiveness.

The RBI's deputy governor, Rakesh Mohan, recently referred to the effects of the rupee's appreciation as a case of "Dutch disease". The term refers to episodes where large inflows of foreign exchange—usually as a result of the discovery of natural resources or massive foreign investment—leads to appreciation of the currency, undermining a country's traditional export industries. ("Dutch disease" originally referred to the adverse impact of the discovery of natural-gas deposits in the Netherlands on that country's manufacturing exports.)

There is already evidence in India of an export downturn in a number of sub-sectors. In the apparel sector—one of India's major export industries--the strong currency has eaten into the value of exports to the US, which declined by 3.5% year on year in January-April 2007. During the same period, apparel exports to the US by China, India's most important competitor, rose by 57%. Moreover, for India the decline marks the reversal of a positive trend—apparel exports to the US rose at an average rate of 21% a year after import quotas were phased out at the beginning of 2005.

<b>Policy dilemma</b>

Indian policymakers face a difficult dilemma. On the one hand, the rupee's appreciation has benefited the economy by making imports cheaper. This is no small benefit--containing inflation has been high on the policy agenda during the past year, as the annual inflation rate (as measured by the point-to-point change in wholesale prices) rose to 6.1% in January 2007, compared with 4.2% a year ago. The inflation rate has subsequently moderated. This may offer the RBI some comfort in its battle against inflation, but the bank's new, stricter inflation target (4.5-5% in 2007/08, down from 5-5.5% in 2006/07) suggests that there will be one more increase in interest rates by the end of 2007.

On the other hand, for both economic and political reasons, policymakers cannot afford to ignore the problems of exporters. Although exports account for a relatively small share of the economy, India's rapid export growth in recent years has been an important catalyst of economic growth. Given the limited extent to which the RBI can intervene in the foreign-exchange market in the face of large and sustained capital inflows, policymakers can only stem rupee appreciation substantially by easing limits on domestic firms' overseas investments or restricting inflows--for instance, through further controls on ECBs. The RBI has already taken tentative steps in this direction, making it more difficult for Indian firms to borrow in foreign currency and eliminating the exemption from ECB limits previously enjoyed by real-estate firms.

In confronting this dilemma, government policymakers are undoubtedly hoping that there will be no need for a major intervention. However, the problem is unlikely to disappear soon. <b>The Economist Intelligence Unit forecasts an average annual exchange rate of Rs41.3:US$1 in 2007 (a 13.5% real appreciation year on year) and Rs40:US$1 in 2008 (6%).</b>

Cheers <!--emo&:beer--><img src='style_emoticons/<#EMO_DIR#>/cheers.gif' border='0' style='vertical-align:middle' alt='cheers.gif' /><!--endemo-->

[Guest]

http://images.google.ro/imgres?imgurl=http...l%3Dro%26sa%3DN


Economic map of India

[Guest]

<!--QuoteBegin-->QUOTE<!--QuoteEBegin--><b>Help wanted </b>
The Pioneer Edit Desk
Rosy statistics don't create jobs
The Government's assessment that unemployment in India will be taken care of by 2010 would seem a trifle optimistic. It would also call into question what exactly is meant by "full employment", and whether even temporary work opportunities would qualify as proper "jobs". Mr C Rangarajan, chairman of the Prime Minister's Economic Advisory Council, a former Reserve Bank Governor and one of India's most respected economic policy-makers, told a news conference earlier this week that, based on projections of a GDP growth rate of eight per cent a year, the work-force will equal the labour force by 2010. Is this a miracle come true, or a statistical anomaly? The second may be more likely. There is little doubt that economic reform has created new, hitherto unknown jobs, particularly in services and, to a degree, in value-added manufacture. Yet, certain characteristics of the Indian economy as well as peculiarities in data gathering methods ensure that the NSSO survey data, on which the Government has based its cheerful predictions, do not necessarily reflect reality. <b>For instance, the large part of the Indian workforce is in the unorganised sector and may be in seasonal, irregular employment. These facts are the statistical equivalent of 'invisibles' - they do not necessarily find adequate reflection in Government records. To qualify for the latter, a person may be considered employed even if he has work for only one hour a week.</b>

Mr Rangarajan's report, presented to a Prime Minister who obviously knows better, does not reveal the complexity of the employment situation or that there may actually be a job crisis building up in the country. It is a politician's document, rather than an economist's. In actuality, there is a huge oversupply of labour that subsists mostly on 'below poverty line' income.<b> A young population - one-third of India, a full 440 million people, is below 18 - only means a continuous addition to this labour force, even as the problems of concealed unemployment, partial employment and underemployment - all salient phenomena in the agricultural sector - persist.</b> As long as the bulk of India's investment in agriculture is pre-harvest rather than post-harvest, this trend will continue. The entry of organised retail and its ability to enter into long-term supply contracts with farmers will make a dent, but only a dent. Neither is India's economic reform story going to generate mass-scale industrial jobs like China. That country's wonderfully liberal - or wonderfully exploitative - labour laws and early-mover advantage have made it the world's workshop for low to mid-technology goods. India's growth story so far has been services-driven. With focussed investments from economic partners like Japan, there is now a concerted effort at new manufacturing. This will use a technology a generation ahead of the Asian Tigers and make India globally competitive in some aspects of manufacture - such as has happened in automobile components. Yet, these temples of post-modern India will not employ hundreds or thousands of workers.<b> Rather, they will be technology-driven, run by innovative IT programmes written by Indian software writers, but, eventually, surrendering the production cycle to intelligent machines rather than a sweating proletariat. Should this scenario play itself out, it will make India, paradoxically, both a rich country and a job scarce one. The Government's in-house wonks are expected to square that circle, not pretend it doesn't exist.</b> <!--emo&--><img src='style_emoticons/<#EMO_DIR#>/biggrin.gif' border='0' style='vertical-align:middle' alt='biggrin.gif' /><!--endemo--> <!--QuoteEnd--><!--QuoteEEnd-->

[Guest]

<b>India: the Empire strikes back </b>
Mirror: http://tinyurl.com/2vqub2
Last Updated: 12:01am BST 03/08/2007 (Telegraph, UK)

From Raj to riches: as India celebrates 60 years of independence, acclaimed historian William Dalrymple salutes a country returning to its pre-colonial wealth
When I moved back to India with my family four years ago, I took a lease on a farmhouse five kilometres from the boom town of Gurgaon on the south-western edge of Delhi. From my road I could see in the distance the rings of new housing estates, full of call centres, software companies and fancy apartment blocks, all rapidly rising on land that only two years earlier was billowing winter wheat.
The first time I lived in Delhi, in the late 1980s, Gurgaon was a semi-rural Haryana market town, with a single large Maruti car plant to one side; it was home to no more than 100,000 people.

Now it had become a city of several million; some said three million, some said more - the speed of growth was so enormous that it was difficult to obtain accurate figures. Either way, Gurgaon was now home to a population almost equal to that of my native Scotland.

Here an increasingly wealthy middle class had suddenly taken root in an aspirational bubble of fast-rising shopping malls, espresso bars, restaurants and multiplexes. These new neighbourhoods, most of them still half-built and ringed with scaffolding, were invariably given such unrealistically enticing names as Beverly Hills, Windsor Court, West End Heights - an indication, perhaps, of where their owners would prefer to be and where, in time, they might eventually migrate.

Four years later, Gurgaon has galloped towards us at such a speed that it now abuts the edge of our farm and the proudly-touted "largest mall in Asia" is arising a quarter of a mile from my house.


What was farmland and a pool for water buffaloes when I moved in is now a mass of cranes, flanked by billboards advertising the latest laptops and iPods. There are still no accurate figures but the population has probably topped five million.

The speed of the development of Gurgaon is breathtaking to anyone used to the plodding growth rates of western Europe: the sort of construction that would take 25 years in Britain comes up here in five months, even if, at the end of it, the "luxury" flats will probably only have electricity for a couple of hours a day and the water supply will be intermittent at best.

The speed of change in Gurgaon reflects that of the growth of the Indian economy in general: economic futurologists all agree that China and India will at some stage in the 21st century come to dominate the global economy.

The various intelligence agencies estimate that China will overtake America between 2030 and 2040, while India will overtake the US by roughly 2050, as measured in dollar terms. Measured by purchasing-power parity, India is already on the verge of overtaking Japan to become the third largest economy in the world.

Incredibly, India now trains a million engineering graduates a year (against 100,000 each in America and Europe) and stands third in technical and scientific capacity - behind the US and Japan, but well ahead of China.

Today India's IT sector alone annually earns the vast sum of almost $25 billion, mostly in export earnings. With an average growth rate over the last decade of 6 per cent and current growth of 9 per cent, it is little wonder that average incomes are doubling every 15 years: the number of mobile-phone users has jumped from 3 million in 2000 to 100 million in 2005; the number of television channels from one in 1991 to more than 150 last year.

It is a similar picture on India's roads: in the early 1990s, as India was starting to relax import and investment restrictions on foreign manufacturers, there were only six or seven makes of car.

More than 90 per cent of them were Hindustan Ambassadors, the Indian- made version of the 1950s Morris Oxford - effectively clumpy vintage cars. Now the new six-lane highways are full of sleek and speedy Fiats, Fords, Mercedes-Benz and even the odd Porsche and Bentley.

So extraordinary is all this to us today, particularly to those who knew the sluggish India of 20 years ago, that it is easy to forget how little of it would have surprised our ancestors who sailed there with the East India Company<b>. The idea of India as a poor country is relatively recent: </b>historically, South Asia was always famous as the richest region of the globe, whose fertile soils gave two harvests a year, and whose mines groaned with minerals.

Ever since Alexander the Great first penetrated the Hindu Kush, Europeans fantasised about the wealth of these lands, where the Greek geographers said that gold was dug up by gigantic ants and guarded by griffins, and where precious jewels lay scattered on the ground like dust.

In Roman times, there was a dramatic drain of Western gold to India. This is something the Greek historian Strabo comments on with great anxiety in his writings - an image graphically confirmed by the recent finds of huge Roman coin hoards around Madurai in Tamil Nadu and a large Roman coastal trading post near Pondicherry.

<b>At the peak of the trade, during the reign of Nero, the south Indian Pandyan Kings even sent an embassy to Rome to discuss the latter's balance of payments problems. </b>Even today, the English "pepper" and "ginger" are loan words from Tamil - respectively, pippali and singabera, testaments to the spice trade that was once a staple of this lucrative Indian export traffic.

It was similar legends of India's extraordinary wealth that drew the merchant adventurers of the Company eastwards. They came not as part of some Tudor aid project, or on behalf of a charitable Elizabethan NGO, but as part of a desperate effort to cash in on the vast riches of the fabled Mughal Empire, then one of the two wealthiest polities in the world.

What the Poles are to modern Britain - economic migrants in search of better lives - the Jacobeans were to Mughal India.

At their heights, the Mughal Emperors were really rivalled only by their Ming counterparts in China. The Great Mughals ruled over most of India, all of Pakistan and Bangladesh and great chunks of Afghanistan.

Their armies were all but invincible, their palaces unparalleled and the domes of their many mosques glittered with gold. For their contemporaries in distant Europe, they were potent symbols of power and wealth. The word Mughal (or Mogul) is still loaded today with connotations of this, even when it is divorced from its original Indian context.

In Milton's Paradise Lost, for example, the great Mughal cities of Agra and Lahore are revealed to Adam after the Fall as future wonders of God's creation. This was hardly an understatement: by the 17th century, Lahore had grown larger and richer even than Constantinople and, with its two million inhabitants, dwarfed both London and Paris.

"The city is second to none either in Asia or in Europe," said Portuguese Jesuit Father Antonio Monserrate, "with regards either to size, population, or wealth. It is crowded with merchants, who foregather there from all over Asia. There is no art or craft useful to human life which is not practised there. The citadel alone has a circumference of three miles."

It was, in terms of rapid growth, instant prosperity and unlimited opportunities, the Gurgaon of its day.

<b>What changed all this was quite simply the advent of European colonialism. </b>

Following Vasco da Gama's discovery of the sea route to the East in 1498, bypassing the Middle East and conquering the centres of spice production in South Asia, European colonial traders - first the Portuguese, then the Dutch and finally the British - slowly wrecked the old trading network and imposed with their cannons and caravels a western imperial system of command economics.

It was only at the very end of the 18th century that Europe, for the first time in history, had a favourable balance of trade with Asia. At the same time, the era of Indian economic decline had begun and was most precipitous in the region around the British headquarters in Calcutta.

As the 18th century historian Alexander Dow put it: "Bengal was one of the richest, most populous and best cultivated kingdoms in the world… <b>We may date the commencement of decline from the day on which Bengal fell under the dominion of foreigners."</b>
This was certainly the view of Edmund Burke, <b>who impeached Warren Hastings, India's first Governor General, charging him with oppression, corruption, gross abuse of power and ruthlessly plundering India. </b>

On February 13, 1788, huge crowds gathered outside Parliament to witness the members of the House of Lords troop into Westminster Hall to sit in judgement on Hastings.

Tickets for the few seats reserved for spectators were said to have changed hands for as much as £50. In the audience was Sarah Siddons, the great society actress (and courtesan), as well as Edward Gibbon, Joshua Reynolds, the novelist Fanny Burney, the Queen, two of her daughters and most of the ambassadors in London.

For all the theatre of the occasion - and, indeed, one of the prosecutors was the playwright Richard Sheridan - this was not just the greatest political spectacle in the age of George III. It was the nearest the British ever got to putting the Empire on trial and they did so with Edmund Burke, one of their greatest orators, at the helm, supported by the similarly eloquent Charles James Fox.

<b>Hastings stood accused of nothing less than the rape of India - or as Burke put it in his opening speech: "Cruelties unheard of and devastations almost without name… crimes which have their rise in the wicked dispositions of men, in avarice, rapacity, pride, cruelty, malignity, haughtiness, insolence - in short everything that manifests a heart blackened to the very blackest; a heart dyed in blackness; a heart gangrened to the core… We have brought before you the head, the captain general of iniquity - one in whom all the fraud, all the tyranny of India are embodied."</b>

When Burke began to <b>describe the violation of Bengali virgins and their mothers by the rapacious tax collectors the British employed - "They were dragged out, naked and exposed to the public view, and scourged before all the people… they put the nipples of the women into the sharp edges of split bamboos and tore them from their bodies" </b>- Mrs Sheridan "was so overpowered that she fainted and to be carried from the hall".

Hastings was in many ways the wrong target for Burke's Parliamentary offensive and, after a trial lasting nearly 10 years, he was eventually acquitted on all charges.

But it is worth recalling the damage that the Company undoubtedly did to the flourishing economy of India as the 60th anniversary of Indian Independence dawns amid unprecedented excitement at India's rapid rise towards its projected superpower status.

Today, academics, historians and economists are fiercely divided between those who believe European colonial rule brought great benefits to India and those who believe Britain put India into irreversible political and economic decline.

Given the complex and emotive issues involved, it is hardly surprising that there is little neutral territory in this politically super-charged debate: did Western mercantile-imperialism bring high capitalism and free trade to India, as supporters such as historian Niall Ferguson would have us believe; or did it irrevocably destroy millennia-old trading networks?

Did it bring democracy to a part of the world inured to despotism and tyranny; or did it remove political freedom of expression from lands with long traditions of debate and public expression of dissent, as argued by the Nobel Prize winner Amartya Sen?

Did the British Empire bring in constitutional guarantees of the freedom of the individual; or promote slavery, exploitation, indentured labour and forced migration? Did the British bring just governance and irrigate the deserts, or did they plunder natural resources, drive a number of species to extinction and preside over a succession of famines that left many million dead while surplus grain was being shipped to Britain?

Most important of all, did the British promote religious tolerance, or did they instead sow the seeds of religious conflict with cynical policies of sectarian divide and rule - thus laying the scene for the politico-religious divisions we see around us and what Bernard Lewis and Samuel Huntingdon would have us believe are today's civilisational clashes?

There are no easy answers to any of these questions. Looking back at the role the Europeans have played in South Asia until their departure in August 1947, there is certainly much that the West can unambiguously be said to have contributed to Indian life: the Portuguese, for example, brought that central staple of Indian life, the chilli pepper; while the British brought that other essential staple, tea, as well as the far more important innovations of democracy and the rule of law, along with the railways, all of which have helped India rise again to greatness.

In the light of so much post-colonial disapproval, it is also worth remembering the impeccable reputation Victorian rule in India (if not that of the Company) once enjoyed, even from Britain's fiercest critics.

Bismarck thought Britain's work in India would be "one of its lasting monuments". Theodore Roosevelt agreed that Britain had done "such marvellous things in India" that they might "transform the Indian population… in government and culture, and thus leave [their] impress as Rome did hers on Europe".

The French traveller Abbé Dubois extolled the "uprightness of character, education and ability" of British officials in India, while the Austrian Baron Hübner ascribed the "miracles" of British rule to its administrators' "devotion, intelligence, courage, and skill combined with an integrity proof against all temptation".

It is also true that factors such as cricket and the English language have been crucial to India's modern success, cultural indicators that in their different ways set Indian eyes looking westwards to the rising power of Britain, and later the US, and away from the declining Islamo-Persianate culture of Central Asia and the Middle East, a world that would go into ever greater cultural and economic decline as the 19th century gave way to the 20th.

In the days that followed the fall of the Mughals after the great Indian Mutiny of 1857, this turning away from the old cultural moorings and the reorientation of India towards the West caused heartbreak to the old Urdu- and Persian-speaking elites.

As the poet and critic Azad wrote: "The glory of the winners' ascendant fortune gives everything of theirs - even their dress, their gait, their conversation - a radiance that makes them desirable. And people do not merely adopt them, but they are proud to adopt them."

Yet it was the depth of that reorientation and adoption, and the ease which Indians can now cross the globe and work in either Britain or the US, that today has given the country's anglicised elite such easy access to the jobs and opportunities of the Western economy.

Nevertheless, for all this we British should keep our nostalgia and self-congratulation over the Raj within strict limits. For all the irrigation projects, the great engineering achievements and the famous imperviousness to bribes of the officers of the Indian Civil Service, <b>the Raj nevertheless presided over the destruction of Indian political, cultural and artistic self-confidence, while the economic figures speak for themselves.</b>

<b>In 1600, when the East India Company was founded, Britain was generating 1.8 per cent of the world's GDP, while India was producing 22.5 per cent. By 1870, at the peak of the Raj, Britain was generating 9.1 per cent, while India had been reduced for the first time to the epitome of a Third World nation, a symbol across the globe of famine, poverty and deprivation.</b>

Today in India, the dramatic increase in wealth that we see on all sides is less some sort of economic miracle - the strange rise of a once impoverished wasteland, as it is usually depicted in the Western press - so much as things slowly returning to the traditional pattern of global trade in the pre-colonial world. Last year, the richest man in the UK was for the first time an ethnic Indian, Lakshmi Mittal, and our largest steel manufacturer, Corus, has been bought by an Indian company, Tata.

Extraordinary as it is, seen from the wider perspective the rise of India and China is merely nothing more than a return to the ancient equilibrium of world trade.

Today, we Europeans are no longer the gun-toting, gunboat-riding colonial masters we once were, but instead are reverting to our more traditional role: that of eager consumers of the much celebrated luxuries and services of the East.

<i>William Dalrymple's new book, The Last Mughal: The Fall of a Dynasty, Delhi 1857, published by Bloomsbury, has just been awarded the Duff Cooper Prize for History.
http://tinyurl.com/2e7rf5 </i>