' General Awareness Updates – April 2010


General Awareness Updates – May 2010

Economy / Business:

Bharti buys Zain’s Africa biz for U.S.$10.7 bn

India’s top private telecom company Bharti Airtel has acquired the African assets of Kuwait’s Zain for U.S.$10.7 bn in what will make the combined entity, the world’s fifth largest mobile telephony firm.

This is the largest overseas acquisition of assets in Africa by an Indian company, even though it does not cover the assets of Zain in Sudan and Morocco. Chairman Sunil Mittal, on behalf of Bharti and his counterpart from Zain, Asaad Al Banwan, signed the legally binding definitive agreement.

“This agreement is a landmark for the global telecom industry and a game changer for Bharti. More importantly, this transaction is a pioneering step towards South-South cooperation and strengthening of ties between India and Africa. With this acquisition, Bharti Airtel will be transformed into a truly global telecom company with operations across 18 countries fulfilling our vision of building a world-class multinational,” Mr. Mittal said.

Post the deal, Bharti will become the world’s fifth largest wireless company with operations across 18 countries. Its total customer base will reach around 179 million, including Zain Africa’s mobile operations in 15 countries with over 42 million customers. This was Bharti’s third attempt to enter the largely untapped African market after failing to enter into a merger pact with South Africa’s MTN on two occasions. Africa accounts a little over 60 per cent of Zain’s 71.8 million customers.

Bharti Airtel is among Asia’s leading telecom service providers with operations in India, Sri Lanka, and Bangladesh. As on January 31, it had the largest market share of 23.33 per cent in India’s mobile telephony segment with 121.71 million subscribers.

 

India will grow at 8.2 per cent in FY10, says ADB

The Asian Development Bank (ADB) has said that India is poised for an economic growth of 8.2 per cent in 2010 although rising inflation would remain a concern. Noting that India’s rebound from the global crisis is set to accelerate this year, the bank said the stimulus measures taken by the government would be gradually rolled back as the economy sets itself on the high growth path.

“India’s rebound from the global crisis is set to accelerate in 2010, with an estimated growth of 8.2 per cent, although rising price pressures present a challenge to policy makers as they steer the economy’s recovery,” ADB said in its report.

The report said even though overseas demand will take some more time to revive, robust domestic consumption and rising investment would place the economy firmly on the growth trajectory. “Expansionary fiscal and monetary policies are now being wound back gradually as the rebound gains traction. While trade flows have yet to return to pre-crisis levels, rising private consumption and investments are likely to underpin growth over the next two years,” it said.

After clocking an impressive 9 per cent growth for the previous three fiscals till 2007-08, India’s GDP grew by a relatively modest 6.7 per cent in 2008-09. The multilateral lending agency said prompt fiscal and monetary stimulus measures, improved overseas demand and increased capital inflow would help the Indian economy grow at the government-estimated 7.2 per cent in 2009. It expects the economy to expand by 8.7 per cent in 2011.

The report, further noted that the positive developments could be offset by signs of increasing inflation following a poor summer monsoon and floods, as well as expectations of further increase in fuel prices this year and the next.

Weak agriculture sector and infrastructure bottlenecks remain as obstacles to longer-term growth. ADB expects the 2010 annual inflation to be at five per cent and to rise further to 5.5 per cent in 2011. Moving forward, India will have to resort to a range of measures like boosting farm gate prices and addressing distribution and streamlining subsidies to counter the trend of rising food prices and strengthen agricultural output, the study noted.

“More government spending on infrastructure is also needed, which may require a tightening of subsidies as part of fiscal consolidation, as well as more public-private investment partnerships,” it said. The lending agency further added that the economies in the Asia-Pacific region are recovering strongly from last year’s slowdown. Developing Asia, a group of 45 economies, including India, China and Singapore, was set to grow at 7.5 per cent in 2010 and 7.3 per cent in 2011, higher from 5.2 per cent in 2009.

 

Indian remittances surge, touch U.S.$55 bn

At a time when the global economy has been staring at across-the-board job and salary cuts, inward remittances by Indian expats have continued to surge. This reflects a flight to safety by the Diaspora on the back of the economy’s resilience amid the global crisis. The provisional balance of payments data released by the RBI shows that overseas Indians remitted U.S.$55.06 billion in 2009, around 17 per cent higher than what the World Bank had projected for the year.

India has been the largest recipient of remittances by its expats for over a decade now. Unlike NRI deposits, which are repatriable, remittances are permanent transfers and hence, add to the external sector strength of an economy. According to the World Bank, India continues to be the top remittance receiving country in the world, having attracted significantly higher inflows of U.S.$51.6 billion in 2008 (followed by China with inflows worth U.S.$48 billion and Mexico with U.S.$26 billion) compared with U.S.$37.2 billion in 2007. The World Bank had, however, estimated that remittances would decline to U.S.$47 billion in 2009, reflecting a lagged response to a weak global economy.

According to an RBI study on ‘Invisibles in the Balance of Payments’ released in April 2010, higher remittance flows to India could be attributed to relatively higher growth of the Indian economy, making it an attractive investment destination, a hike in interest rate ceilings on NRI deposits since September 2008 and uncertainty in oil prices, which might have induced workers to remit their money to India as a hedging mechanism because of its relatively good growth prospects.

The World Bank has said though remittance flows to developing countries had shown relative stability during the past crises, during the recent global economic crisis, with both the developed and developing countries facing an economic slowdown, it was argued that remittances to developing countries could witness a significant slowdown.

Apart from falling income on account of jobless growth, the increased uncertainty about exchange rates during periods of heightened volatility and immigration controls are expected to depress remittance flows. From a longer-term perspective, the sharp increase in remittances started with the booming oil industry in the Gulf in the early 80s, resulting in the surge in migrant labour to the region and later in the 90s, the technology boom resulted in a surge in migration of skilled IT professionals in North America and Europe.

Also, back home, the RBI progressively eased restriction in the currency markets since 1991, thereby almost eliminating the illegal ‘hawala’ market for such remittances by Indians, especially from the Gulf market. Besides, local banks and currency dealers have also devised attractive products to woo inflows from such formal sources.

 

 

Dr. Henry Edward Roberts (right), the ‘Father of the Personal Computer’ who kick-started the careers of Microsoft founders Bill Gates and Paul Allen, has died at the age of 68.

Dr. Roberts was the inventor of the Altair 8800, a machine that sparked the home computer era. Mr. Gates and Mr. Allen contacted Dr. Roberts after seeing the machine on the front cover of a magazine and offered to write software for it. The program was known as Altair-Basic, the foundation of Microsoft’s business.

Dr. Roberts was the founder of Micro Instrumentation and Telemetry Systems (MITS), originally set up to sell electronics kits to model rocket hobbyists. The company went on to sell electronic calculator kits, but was soon overshadowed by bigger firms. In the mid-1970’s, with the firm struggling with debt, Dr. Roberts began to develop a computer kit for hobbyists. The result was the Altair 8800, a machine operated by switches and with no display. It took its name from the then-cutting edge Intel 8080 microprocessor.

 

Global financial services major Morgan Stanley has appointed P. J. Nayak as its new Country Head and CEO for India. Mr. Nayak was the Chairman and CEO of Axis Bank from 2000 to 2009.

 

China’s economic growth surged to 11.9 per cent in the first quarter but inflation was lower than expected, easing pressure on Beijing to hike rates and cool the boom. Consumer prices rose 2.2 per cent compared with a year earlier, the National Bureau of Statistics said, well below the government’s ceiling of 3 per cent for the year. The data suggested Chinese leaders are succeeding in their effort to keep stimulus-led growth high while preventing inflation from spiking up. Analysts were closely watching this data to see whether interest rate hikes or more drastic action was required to prevent overheating.

The surge in economic expansion — up from just over 6 per cent in the same quarter a year ago — was supported by a 19.6 per cent rise in industrial output over a year earlier and a nearly 26 per cent rise in investment in factories and other fixed assets. The latest growth rate was up from 10.7 per cent in the final quarter of 2009. Chinese leaders face a challenge in checking inflation and curbing reckless, stimulus-fuelled spending on unwanted factories and other assets that could leave a mountain of bad debts.

 

All 16 Eurozone countries have agreed on providing a €22bn financial plan to help debt-laden Greece. The safety net would total about €22bn. It would apply only if market lending to Greece dried up.

Eurozone countries would grant co-ordinated bilateral loans, and there would be “substantial” IMF loans. The majority funding would be European.  The plan was worked out at a summit in Brussels. Greek Prime Minister George Papandreou (left) called it “a very satisfactory” move.

 

The Union Government says it has started implementing liberal foreign direct investment (FDI) rules under which proposals upto Rs.1,200 crore equity would be cleared by the Union Finance Minister without seeking approval of the Cabinet Committee on Economic Affairs. Earlier a proposal above Rs.600 crore FDI was referred to the CCEA.

 

Taking its anti-smoking drive forward, the Central Government has banned foreign direct investment (FDI) in cigarette manufacturing in the country. FDI will be prohibited in cigarette manufacturing, whether it is for domestic consumption or for exports. The approval is expected to enhance public accountability by way of the government’s commitment towards proliferation of anti-smoking regime in the country.

The decision to ban FDI is the latest in the government’s long-standing drive against smoking. In 2008, the government had banned smoking at public places and put a curb on tobacco advertisements. The proposal for banning FDI in cigarette manufacturing was mooted by the Department of Industrial Policy and Promotion and approved by the Cabinet Committee on Economic Affairs (CCEA) in its meeting.