Delhi pledges to cut current account deficit but rupee unmoved

The rupee fell 0.7 per cent to Rs61.28 per dollar, but remained above last week’s record low of Rs61.80

Mr Chidambaram’s promise to limit the current account deficit to $70bn – and to help finance it by allowing more foreign borrowings from India-based companies – is the latest official attempt to stop the rupee from sinking following a sharp slowdown in economic growth and rising international concerns about India’s deficits.

In parliament, Mr Chidambaram outlined broad plans to curb the cost of gold, oil and luxury goods imports, while encouraging more external borrowing, especially in the form of quasi-sovereign debt issued by state financial and oil companies.

That initial statement of strategy was described by Nomura as “mildly disappointing”. Economist Sonal Varma wrote: “The measures broadly fall in the category of quick fix solutions.”

Mr Chidambaram later called a press conference at short notice to flesh out his plans, saying the country could save $5.5bn by limiting imports of gold and oil and would help fund the remaining deficit with $11bn of new foreign borrowing.

“I’m putting these figures in the public domain in order to indicate our commitment to contain the current account deficit,” he said. “We will be able to contain this year’s current account deficit at about $70bn.”

Since retaking the post of finance minister a year ago, Mr Chidambaram has unveiled reforms designed to boost foreign direct investment and economic growth while curbing the fiscal and current account deficits, but investors remain wary of regulatory obstacles in India and the poor state of the country’s transport and power infrastructure.

Trade figures for July gave the government a rare piece of good news on Monday, when they showed exports rising nearly 12 per cent to $25.83bn from the same month last year, while imports fell 6 per cent to $38.10bn.

That cut the trade deficit by nearly a third and suggested that the weakness of the rupee could already be helping to boost exports of Indian textiles and pharmaceuticals while limiting the country’s imports – although the export numbers were flattered by the low level of shipments in July 2012.

Other data were less encouraging. Industrial output fell 2.2 per cent year-on-year in June, while inflation in July as measured by the consumer price index remained high at 9.64 per cent.

Naina Lal Kidwai, president of the Federation of Chambers of Commerce and Industry, expressed concern about industrial output and said the figures “clearly indicate that supply side bottlenecks and weak consumer demand are weighing down on industrial growth”.

India’s governing Congress party and its rivals have begun to prepare their campaigns for the next general election due by May next year, which means politicians are unenthusiastic about the kind of fiscal and trade discipline that Mr Chidambaram is trying to enforce to defend the rupee.

Tapering growth forces companies to lay off staff, job market is likely to get much worse

While fresh hiring has already taken a hit, thanks to the slowing economy, India Inc has for the first time acknowledged that large-scale layoffs are already underway and the job market is likely to get much worse if growth isn't revived fast.

"Layoffs of contractual staff have already started and this could soon move to permanent employees," Ficci president Naina Lal Kidwai has said, warning the government of "a grim employment scenario" unless growth is revived urgently.

Food Packaging

Chitranjan Dar, the chief executive of cigarettes-to-hotels conglomerate ITC's food division, has had a career path as circuitous as the instant noodle he helped make a success. 

An engineer by profession and an IIM-A graduate, Dar started his professional career at ITC's packaging and printing business in 1981, giving it nearly 18 years before moving on to its paper business as marketing head. He was appointed head of ITC's lifestyle retailing arm in 2004, only to be made COO of the conglomerate's foods business four years later. The following year, Dar was named its divisional chief executive. 

It was around this time that ITC, which was still trying to find a footing in the domestic foods market, decided to venture into instant noodles. The project, Sunfeast Yippee, which took two years to execute, has now sailed past Hindustan Unilever's Knorr Soupy Noodles and Glaxo SmithKline's Foodles to the second spot behind Nestle's Maggi. 

Dar is often feted as a success story in a segment in which he had no prior experience. The other two master craftsmen in ITC's foods business are chairman Y C Deveshwar and director Kurush Grant, who is overall in-charge of the cigarettes and FMCG businesses. 

"Dar is the face of the food business, while the brain is collective effort of three. The trio runs the food business like entrepreneurs, rather than professionals," said a senior executive of a leading retail chain, who interacts with ITC frequently. 

It is heard in ITC circles that both Deveshwar and Grant coordinate closely with Dar even in activities like launch of newer variants and marketing initiatives. 

Be that as it may, Dar is widely seen as the groundsman who drives both topline and bottomline of ITC's food business. Although Dar did not participate in the story, persons close to him said he is focused on operations and target and does not fuss much over monthly market share data. 

"From a leadership perspective, he is known to be more patient than aggressive, said Shirish Pardeshi, co-head, research, at financial services firm Anand Rathi Financial Services. "He drives direction and initiative in a steady manner... in a competitive world, that sometimes works better rather than short bursts of aggression." 

ITC's foods' portfolio includes Kitchens of India ready-to-cook products, Aashirvaad packaged flour (atta), Mint-o and Candyman confectionery, Bingo chips and snacks, and Sunfeast biscuits, pasta and noodles. People in the know say the company is working on a strategy to enter dairy, drinks and functional foods, with health as core focus area. 

The company is currently market leader in two large food categories-flour (Aashirvaad brand) and premium cream biscuits (Sunfeast brand)-with 70% and 27% market share, respectively. Similarly, its Candyman brand leads in confectionery segment. In terms of annualised consumer spend, the Aashirvaad and Sunfeast brands account for over Rs 2,000 crore each, while Bingo! and Candyman are over Rs 500 crore each. 

ITC's food business, which broke-even two years ago, now drives profitability of the group's non-cigarette FMCG business. 

"They (ITC Foods) seem to have gotten into the knack of springing surprises every now and then... they keep coming up with something new in foods..." said the head of a rival biscuits company. ITC's food business contributes 67% to its non-cigarette FMCG business, which also includes personal-care brands Vivel and Fiama Di Wills, lifestyle retail ventures Wills Lifestyle and John Players, education and stationary products, and incense sticks and safety matches

Infosys Q3 net seen up 22% to Rs 2322 cr

Earnings season for the third quarter will be kicked off with Infosys on Thursday. The company is expected to do well due to rupee depreciation but macro environment remains edgy.

Country's second largest software services exporterInfosys is expected to report a profit after tax of Rs 2,322 crore in the third quarter of FY12, a growth of 21.8% as compared to Rs 1,906 crore in the previous quarter, according to CNBC-TV18 estimates.

Revenues are seen going up 13.9% to Rs 9,223 crore from Rs 8,099 crore during the same period while the company expects a growth of 9-11.3% in revenues at around Rs 8,826-9,012 crore in the quarter ended December 2011.

Earnings before interest and tax are likely to be at Rs 2,785 crore as against Rs 2,281 crore quarter-on-quarter. During the same period, EBIT margin is expected to improve at 30.2% versus 28.16%.

Infosys is likely to post earnings per share of Rs 40.4 in the third quarter of FY12 versus Rs 33.36 crore in previous quarter. The company expects EPS growth of 15.4%- 17.5% at Rs 38.51-39.20. 

CRR cut unlikely?

All eyes will be on the RBI as it unveils in monetary policy on the January 24. The country's top bankers met central bank officials today, as part of the pre-policy consultations and a key takeaway from the meeting is that the RBI is not concerned about the liquidity situation - a view that dampens hopes of a CRR cut this month. CNBC-TV18's Gopika Gopakumar reports.

Banker's including Pratip Chaudhuri of SBI, Chanda Kochhar of ICICI Bank, MD Mallya of Bank of Baroda and MV Nair of Union Bank all met RBI today ahead of the credit policy to discuss various issues including liquidity, growth, asset quality and so on.

On liquidity, bankers have expressed their concern that the system could face some liquidity tightness going forward. They anticipate that the money deployed in deposits could move out of the system and be reinvested in tax free infra bonds.

However, RBI seems to be confident that liquidity is comfortable in the system and that deposit growth is much faster than credit growth, that's the second highlight of the meeting today. Bankers seem to suggest that they will be unlikely to meet the RBIs target of 18% credit growth for FY12. In fact, they are expecting credit growth to be around 16%.

MD Mallya, CMD of Bank of Baroda told CNBC-TV18, "As of we had been around 17% on a year on year basis, at the moment we still look at around 18% for the full year, but then it depends on how exactly the subsequent 2 months they will behave."

GOLD price history

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