India's space mission

The flawless 11th flight of the Polar Satellite Launch Vehicle (PSLV-C8) of the Indian Space Research Organisation (Isro) is more significant than all its previous missions, though each one so far has marked a step forward in the country’s space capability. For one, the PSLV-C8 is the first purely commercial flight that has successfully put an Italian 352-kg astronomical satellite, called AGILE, into space orbit on a contract won against stiff global competition. In fact, Isro had to modify the standard configuration of the PSLV to meet the requirements of the low-weight AGILE, which, additionally, had to be placed in a low inclination orbit. For this, Isro had for the first time to do without the six solid propellant strap-on motors of the first stage and reduce the propellant in the fourth stage by 400 kg, compared to the previous PSLV flight.

Despite these design modifications, Isro has managed to recover the bulk of the PSLV cost, reckoned at around Rs 65 crore, by charging the Italian space agency a competitive price of $ 29,000 per kg. Indeed, the AGILE, too, is unique in certain respects. It is said to be the only European mission entirely devoted to high-energy astrophysics studies. Besides, it is the first satellite powered by commercially available, space-qualified rechargeable lithium-ion batteries.

As such, the country will now be viewed as a price-competitive contestant in the global satellite launch market, estimated at between $1.5 billion and $2 billion. Even if India manages to corner just 2 per cent of this market, as Isro hopes to do, it will mean substantial business in a wholly new sphere, and make Sriharikota the country’s first commercial spaceport. Considering the impeccable record of the PSLV—all its operational flights so far have been successful—and the deft design modifications to suit the customer’s needs, more orders are bound to be on their way for commercial space launches. In fact, since its first flight in 1994, the PSLV has accomplished several feats. These include launching eight Indian remote sensing satellites, an amateur radio satellite HAMSAT, a recoverable space capsule SRE-1, and six small satellites for foreign customers.
Amongst its most notable achievements is the launch of India’s exclusive meteorological satellite Kalpana-1 into geosynchronous transfer orbit. While undertaking a wholly commercial mission this time, Isro has also managed to use the spare capacity of the PSLV-C8 (which can carry a 1-tonne payload) for catapulting into space an advanced avionics module (AAM), weighing 185 kg, to test advanced launch vehicle avionics systems like mission computers, navigation and telemetry systems. Isro has so far been using mission computers developed in the 1990s. However, state-of-the-art navigational systems and computer aids have now become vital since it is the PSLV which is proposed to be used to launch India’s first spacecraft mission to the moon (Chandrayaan-1).

So great achievement & congrats to all the concerned personnel in ISRO
BS

Pfizer Earnings Fall on Drop in Norvasc, Zoloft Sales

Pfizer Inc.'s first-quarter profit fell 18 percent and the drugmaker cut its 2007 forecast, as competition from cheaper drugs hurt two of its best-selling products, Norvasc for blood pressure and Zoloft for depression.Net income for Pfizer, the world's largest drugmaker, declined to $3.4 billion, or 48 cents a share, from $4.1 billion, or 56 cents, a year earlier.Revenue this year will be $1.2 billion less than Pfizer projected after an adverse court ruling accelerated generic competition to Norvasc, and sales of the inhaled insulin treatment Exubera missed targets, the company said. Zoloft also faces generic rivals. Pfizer has said it is cutting 10 percent of its workforce by 2008 to offset the lost revenue.

The impact of generic Norvasc, coupled with increased promotional spending around Exubera, are contributing to a greater decline.Pfizer shares fell 10 cents to $26.97 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has risen 8.1 percent in the past 12 months. The shares have lagged behind the 14-member Standard & Poor's 500 Pharmaceutical Index, which has increased 20 percent in the past 12 months.

Revenue rose 6 percent to $12.5 billion on higher drug prices and an 8 percent raise in sales of its top-selling drug, the Lipitor cholesterol pill, the company said today. Profit excluding certain costs was 68 cents a share, beating the average estimate of 17 analysts surveyed by Bloomberg.

U.S. regulators today also favorably reviewed Pfizer's experimental HIV/AIDS drug maraviroc, according to documents posted on the Food and Drug Administration Web site. The agency staff report said maraviroc was effective and caused no unusual deaths A panel of advisers will recommend April 24 whether the FDA should allow the drug to be marketed.
Net income this year will fall to $1.30 to $1.41 a share from $2.66, before Pfizer sold its consumer unit, the company said. Excluding certain costs, profit will be $2.08 to $2.15 a share, lower than the $2.16 average estimate of 24 analysts surveyed by Bloomberg. Pfizer's January forecast was for $2.18 to $2.25.
The drugmaker will close two U.S. plants and five research centers in the U.S., Japan and France.
Lipitor sales rose 8 percent to $3.4 billion, beating the $3.1 billion estimated by J.P. Morgan & Co. analyst Chris Shibutani in New York.Prescriptions for Lipitor, which makes up about 40 percent of Pfizer's profit, have declined after cheaper, generic versions of a similar pill, Merck & Co.'s Zocor, became available last June and newer drugs, including Merck and Schering-Plough Corp.'s Vytorin and Zetia, have been gaining popularity.

Pfizer increased sales by raising the price 4 percent to 6 percent and offering fewer discounts, said Ian Read, Pfizer vice president of worldwide pharmaceuticals.Lipitor itself may lose patent protection as early as 2010 in the U.S. Pfizer is appealing a decision by a Canadian court to throw out its Lipitor patent. Lipitor had $800 million to $900 million in 2006 sales in Canada.
Sales of the two-year-old pain medicine Lyrica more than doubled to $395 million and sales of the smoking-cessation drug Chantix, approved in the U।S. in May, were $162 million.

Bloomberg

Who pays for low rupee volatility?

The recent high volatility in the rupee market is likely to continue in the months to come. This is an outcome of the RBI running into its limits of sterilised intervention. As the cost of sterilisation rises, the pressure on the RBI to step away from purchasing dollars and pushing more liquidity into the system will grow. As the latest RBI bulletin shows, the biggest event on the monetary policy front in February was not the public announcements made by RBI officials. It was the currency trading done behind the scenes. The RBI purchased dollars worth $11.9 billion, thus pumping liquidity into the economy. In other words, the monetary tightening is largely lip service to the cause of fighting inflation. While firms and households will find their interest burden and credit contraction painful, it is unlikely that the rate hikes will do much to quell inflation unless the behind-the-scenes story of dollar purchases also aligns itself to the same effect.

Why should ordinary people pay the cost for exchange rate stability? Firms and exporters, who have foreign currency exposures and who would suffer if the exchange rate moves, should be encouraged to hedge their own risk। A vibrant currency futures market will help. The emergence of such a market in Dubai shows that the demand for such hedging instruments is strong. To provide low exchange rate volatility as a public good to them, paid for by the entire economy at high cost, is bad policy. Moreover, it is unsustainable, because firms and households who end up bearing the cost of ‘hedging’ on behalf of exporters are not going to endlessly accept this as a happy equilibrium state. Then argument is being made that the higher volatility in the rupee should be countered by greater capital controls which would reduce RBI intervention, its sterilisation measures included. To solve the challenges to monetary policy posed by the ‘impossible trinity’ through capital account restrictions will be a setback to reforms. India should be moving forward and developing financial markets that its globalising economy needs. It should not solve these problems by trying to go back to the past.hey will protest.

FE

BASF sells Wibarco to Hansa Chemie

BASF has agreed to sell its Chemische Fabrik Wibarco subsidiary, which had been part of its Performance Chemicals division, to Hansa Chemie International, a Swiss-based holding company with stakes in a number of chemicals companies in Germany, Switzerland and the Netherlands। Terms were not disclosed. Once regulatory approval is granted, the deal should be completed in July.
Wibarco is based at Ibbenbüren, northern Germany, and employs about 80 people, who will all transfer। It mainly produces linear alkylbenzene (LAB), a starting material for linear alkylbenzene sulphonate (LAS), an ingredient in most modern detergents.

BASF explained that it regarded Wibarco as non-strategic, because LAB is not fully integrated into its Verbund concept, although it remains a strong player in detergents and cleaners. Hansa, by contrast, will be able to integrate Ibbenbüren into its surfactants value chain. It will add a new sulphation plant to the 37-year-old LAB facility at the site.

Dow Chemical May Become Takeover Target

Dow Chemical co, may become a takeover target even though Chief Executive Officer Andrew Liveris said he isn't interested in selling the largest U.S. chemical maker. Liveris fired executives Pedro Reinhard and Romeo Kreinberg yesterday for holding unauthorized talks with possible private- equity bidders. Shares of Dow jumped 2 percent yesterday, giving the company a market value of $44.1 billion. Shareholders may be open to a buyout. Dow had gained 8.5 percent in the 12 months before April 8, when the possibility of a buyout was reported in Britain's Sunday Express newspaper, trailing the 16 percent gain for the Standard & Poor's 500 Chemicals Index.
The shares trade at 10.8 times annual earnings, the lowest in the 13-member index, compared with 17 times for DuPont Co. and 37 times for Monsanto Co. Dow's profit excluding items, $3.82 a share last year, may drop to $2 to $3 a share by 2010. Sales totaled $49.1 billion last year.
U.S. buyout firms, including Kohlberg Kravis Roberts & Co., were joining with Middle East investors to prepare a takeover bid of at least $50 billion, according to the Sunday Express. Liveris, dismissed the report at the time, saying Dow had held no merger talks, and the board issued a statement saying it backed the CEO's strategy. The shares rose 4.9 percent nonetheless. The cost of five-year credit-default swaps on Dow debt more than tripled since February on investor expectations of heightened risk. Contracts on $10 million of Dow debt increased $1,000 today to $55,500, close to a two-year high, according to CMA Datavsion. Investors use credit-default swaps as an alternative to bonds to speculate on corporate indebtedness.

Kreinberg, yesterday denied the company's accusations that he held unauthorized talks with banks and foreign governments about a planned takeover, calling the claims unfounded and unsubstantiated.'' Reinhard, 61, was Dow's chief financial officer for 10 years. He said the two men were getting legal advice and declined to comment further.Dow spokesman Chris Huntley, responding to Kreinberg's comment, said, ``We have the information from a highly reliable source that would know what was going on, and who we have absolute confidence in.'' He reiterated Liveris's comments that the company has had no talks to be acquired.

A group of private-equity firms may offer to buy parts of the company, the Financial Times reported on Jan. 19. The stock surged 5.6 percent on March 15 on speculation Dow would combine assets with India's Reliance Industries Ltd. The Times of India said on Feb. 26 that Reliance may bid for Dow.

Dow may attract Middle East bidders that want to diversify away from oil and natural gas, Butler Wick's Batcheller said. The Express reported that at least half the financing for the KKR bid would come from investors in Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman.

The company's ratio of net debt to capital is 28 percent, a level that adds to its takeover appeal। Even if Dow isn't sold, the company may use the cash to expand production of faster-growing specialty chemicals.Other analysts said a takeover of Dow is unlikely. Goldman Sachs Group analyst Robert Koort said the premium a hostile bidder would need to pay for Dow wouldn't justify the returns, given that chemical profits are in a cyclical decline.

Bloomberg

RBI tigtening monetary policy to contain inflation

The Reserve Bank of India (RBI) today abandoned its monetary policy stance of equal emphasis on price stability and growth, and decided to remain solely focussed on inflation containment.As part of its further monetary tightening, the central bank raised the cash reserve ratio (CRR) for third time since December 2006 by 50 basis points to 6.50% with effect from April 28 and also raised the repo rate by 25 basis points to 7.75%, the rate at which it lends to banks against securities.“The stance of monetary policy has progressively shifted from an equal emphasis on price stability along with growth, to one of reinforcing price stability with immediate monetary measures, and to take recourse to all possible measures promptly in response to evolving circum stances,”RBI said.
The central bank’s monetary tightening measures came even as the banking system was reeling under severe liquidity strain, with call rates having in recent days shot up to ridiculously high rates of 70-80% and year-on-year inflation at around 6.5% for the third week in succession up to March 17, 2007.Since the February 13 measures, when CRR was raised by 50 basis points, RBI said data has shown that industrial production increased by 11% during April 2006-January 2007 as against 8% a year earlier and the year-on-year money supply (M3) growth up to March 16, 2007 was 22% as against 16.9% a year ago.At a disaggregated level, prices of primary articles, fuel group and manufactured products registered a year-on-year increase of 12%, 1% and 6.6% as on March 17, 2007 as against 3.7%, 8.9% and 1.7% a year ago.The year-on-year growth in non-food bank credit of scheduled commercial banks (SCBs) was 29.5% as on March 16, 2007 as against 32.7% a year ago.The third increase in CRR in five months will drain Rs 43,000 crore from the banking system. The RBI has also reduced the interest it will pay on CRR balances 0.50% from 1%.The RBI release issued this evening:In the recent period, monetary policy has been engaged in managing the transition to a higher growth path while ensuring that pressures on actual inflation and inflation expectations are contained. At this juncture, it is important to reinforce the measures already taken for maintaining price stability and anchoring inflation expectations in order to sustain the growth momentum. The role of monetary policy is to maintain stability and so contribute to growth on an enduring basis.As indicated in the Third Quarter Review of the Annual Statement on Monetary Policy for the year 2006-07, "the outlook for inflation assumes criticality in terms of policy monitoring and action" (paragraph 76). Furthermore, "a judicious balancing of weights assigned to monetary policy objectives would accord priority to stability in order to support growth on a sustained basis" (paragraph 82). Accordingly, it is necessary to reinforce the emphasis on price stability and well-anchored inflation expectations, as set out in the stance of the Third Quarter Review, with a demonstrated commitment in terms of credible policy monitoring and actions. The conduct of monetary policy should continue to demonstrate that inflation beyond the tolerance threshold of the Reserve Bank is unacceptable and that the resolve to ensure price stability is always backed by timely and appropriate policy responses.
In recognition of the cumulative and lagged effects of monetary policy, the Reserve Bank began a graduated withdrawal of accommodation in mid-2004. Since September, 2004 repo/reverse repo rates have been increased by 150 basis points each, the CRR has been raised by 100 basis points, risk weights have been raised in the case of housing loans (from 50 per cent to 75 per cent), commercial real estate (from 100 per cent to 150 per cent) and consumer credit (from 100 per cent to 125 per cent) and general provisioning requirement for standard advances in specific sectors has been raised to 1.0 per cent of standard advances. On February 13, 2007 a further two-stage increase of 25 basis points each in the CRR was announced, effective from the fortnights beginning February 17 and March 3, 2007. Liquidity management was modified on March 2, 2007 to put in place an augmented programme of issuance under the market stabilisation scheme (MSS) with a mix of treasury bills and dated securities in a more flexible manner. In view of the enhanced MSS programme and the need to conduct LAF as a facility for equilibrating very short-term mismatches, daily reverse repo absorptions were limited to a maximum of Rs.3,000 crore, effective March 5, 2007. The stance of monetary policy has progressively shifted from an equal emphasis on price stability along with growth to one of reinforcing price stability with immediate monetary measures and to take recourse to all possible measures promptly in response to evolving circumstancesSince the monetary measures that were announced on February 13, 2007 there have been some notable developments, namely,
(a) The general index of industrial production increased by 11.0 per cent during April 2006 to January 2007 as against 8.0 per cent a year ago, as per the release of the Central Statistical Organisation (CSO) of March 12, 2007.
(b) Year-on-year inflation based on the wholesale price index (WPI), has ruled around 6.5 per cent for the third week in succession up to March 17, 2007 as per the data released today. At a disaggregated level, prices of primary articles, fuel group and manufactured products registered a year-on-year increase of 12.0 per cent, 1.0 per cent and 6.6 per cent as on March 17, 2007 as against 3.7 per cent, 8.9 per cent and 1.7 per cent a year ago.
(c) inflation based on the consumer price index for industrial workers (CPI-IW), urban non-manual employees (CPI-UNME), agricultural labourers (CPI-AL) and rural labourers (CPI-RL) showed year-on-year increase to 7.6 per cent, 7.8 per cent, 9.8 per cent and 9.5 per cent in February 2007, respectively, from 5.0 per cent, 4.8 per cent and 5.0 per cent and 4.7 per cent, a year ago.
(d) The year-on-year growth in non-food bank credit of scheduled commercial banks (SCBs) was 29.5 per cent as on March 16, 2007 as against 32.7 per cent a year ago.
(e) The year-on-year growth in aggregate deposits of SCBs was 24.8 per cent as on March 16, 2007, over and above 18.0 per cent a year ago.
(f) The year-on-year money supply (M3) growth up to March 16, 2007 was 22.0 per cent as against 16.9 per cent a year ago.
(g) Continuation of accelerated external inflows has resulted in accretion of US $ 18.6 billion to the foreign exchange reserves, taking their level from US $ 179.1 billion at the end of January, 2007 to US $ 197.7 billion on March 23, 2007.
(h) Additional liquidity amounting to Rs.23,894 crore was absorbed under the market stabilisation scheme (MSS) during February 1 - March 30, 2007.
(i) Globally, the process of withdrawal of accommodation in monetary policy is being vigorously pursued. Since mid-February, 2007 among the leading central banks, the European Central Bank and the Bank of Japan have raised key policy rates by 25 basis points each, while the People’s Bank of China raised one year lending rates by 27 basis points and the reserve requirements by 50 basis points. There has been no change in the policy rates of the US Federal Reserve, the Bank of England, the Bank of Canada, the Reserve Bank of Australia and the Reserve Bank of New Zealand all of which had undertaken prior policy action.
In the light of the current macroeconomic, monetary and anticipated liquidity conditions, and with a view to containing inflation expectations, it is critical to take demonstrable and determined action on an urgent basis. Accordingly, the following monetary measures are being taken consistent with the stance of the monetary policy:
i) It has been decided to increase the fixed repo rate under the LAF by 25 basis points from 7.50 per cent to 7.75 per cent with immediate effect.
ii) The other arrangements regarding the operations of LAF announced on March 2, 2007 will continue until further notice.
iii) The policy of withdrawal of semi-durable and durable elements of liquidity through treasury bills and dated securities under MSS will continue. Accordingly, the Reserve Bank would, subject to variations in liquidity conditions, announce auctions of MSS covering issuances of treasury bills and dated securities on a weekly basis. The auction for Treasury bills under MSS would continue to take place by notifying the amounts under MSS every week along with the regular auction calendar as has been the existing practice. The Reserve Bank would retain the flexibility of reviewing the schedule of auctions under the MSS from time to time, in response to evolving circumstances.
iv) The cash reserve ratio (CRR) of scheduled commercial banks (SCBs), regional rural banks (RRBs), scheduled co-operative banks and scheduled primary (urban) co-operative banks is being increased by one-half of one percentage point of their net demand and time liabilities (NDTL) in two stages, effective from the fortnights indicated below:
Effective Date (i.e., the fortnight beginning from)CRR on net demand and time liabilities (per cent)
April 14, 2007 6.25%
April 28, 2007 6.50%
As a result of the above increase in the CRR, an amount of Rs.15,500 crore of resources of banks would be absorbed.v) The interest rate applicable on eligible CRR balances (i.e., the amount of reserves between the statutory minimum CRR and the CRR prescribed by the RBI) shall be reduced to 0.5 per cent per annum from the present 1.0 per cent per annum with effect from the fortnight beginning April 14, 2007.Active monitoring of macroeconomic, overall monetary and liquidity conditions will continue and all monetary policy actions would be considered in response to the evolving situation.
BS

Abbott Dissolving Stent, Xience Product Show Promise

Abbott Laboratories' experimental heart stents may threaten the market dominance of Boston Scientific Corp. and Johnson & Johnson based on positive results from two studies released today.A new form of stent made by Abbott that dissolves in arteries after it's been implanted for about three years delivered a promising finding in its first human trial. Separately, Abbott's Xience, a permanent drug-coated stent marketed in Europe, was found superior to Boston Scientific's Taxus, the top U.S. seller, at keeping treated vessels open.
The findings, presented at a science meeting in New Orleans, position Xience at the front edge of new technology in the $5.4 billion-a-year drug-coated stent market, where devices seen as easier and safer to use are needed to help revive faltering sales. Patients getting Xience had fewer cardiac deaths, heart attacks and repeat procedures months later.
Xience patients ``were less likely to have blockages recur at eight months,'' said lead researcher Gregg Stone, director of cardiovascular research at Columbia University Medical Center, in an interview. ``What that means for the patient is better long-term outcomes without recurrent heart problems.''The results were presented at the annual meeting of the American College of Cardiology.

Stents are mesh tubes placed in arteries to keep them from re-closing after angioplasty, a procedure in which a balloon- tipped catheter is inflated to reopen a clogged blood vessel.

Coated Stents

Drug-coated stents release medicine to prevent scar-tissue formation. Boston Scientific and J&J's devices are made of polymer-covered metal and remain permanently in the vessel after the drug is gone. Bioabsorbable stents dissolve in about three years, leaving behind nothing but a healed blood vessel.

The dissolving devices are made from lactic acid molecules linked to form the stent, said John Ormiston, an investigator on the Abbott study and a researcher at Auckland City Hospital in New Zealand. Lactic acid is a chemical naturally produced when a person exercises. Other devices, including absorbable screws and stitches, are also made using lactic acid.

Sales have fallen for coated forms of the devices since European researchers last September tied them to formation of potentially deadly blood clots years after they were implanted.

The market for the devices peaked at $5.4 billion in 2006, below Wall Street's earlier expectations. The shares of Boston Scientific, based in Natick, Massachusetts, have fallen 36 percent in the past month to $15.22 as of yesterday in New York Stock Exchange composite trading. New Brunswick, New Jersey- based J&J shares are down 5 percent in the period to $60.51.

Some Skepticism

In the most recent studies, patients with the dissolving stents were followed for six months, while the Xience patients were monitored for nine months.Some doctors are skeptical about prospects for the dissolving stents.

``It's the devil you know versus the devil you don't,'' said William Maisel, a Harvard University heart specialist and chairman of a U.S. Food and Drug Administration advisory panel on heart devices, in a telephone interview. ``There's no replacing long-term follow-up.''

Positive results should help Xience gain market share in Europe, where the Abbott Park, Illinois-based company introduced it in October, said Phil Nalbone, an analyst at RBC Capital Markets Corp. in San Francisco in a March 21 note to investors. They also help lay groundwork for introduction of the device in the U.S., expected in the first half of 2008, he said.

Boston Scientific

Some analysts said a Xience advantage in the study would hurt Boston Scientific. When that company bought Guidant Corp. and Xience last year, it sold the vascular products division to Abbott and kept rights to use the technology in its own products.

As part of the agreement, though, Boston Scientific will market the Xience stent under a different name, Promus. Sales of that device may erode those of Taxus, which generates higher margins for that company, Nalbone wrote.

Boston Scientific's chief executive office, Paul LaViolette, said he sees the study as a win-win. ``There are two stents in that study, and we have them both,'' LaViolette said in a telephone interview.

Maisel's FDA advisory panel said in December that drug- coated stents, which have been on the market since 2003, could cause blood clots and fatal heart attacks years in one of every 200 patients after implantation. As a result, patients are being told by many physicians to take a blood thinner, such as Bristol-Myers Squibb Co.'s Plavix, for a year or more after they have a device implanted.

Dissolving Stents

Stents that dissolve after they've done their job have long been discussed as an option to the current use of permanent metal devices. The study announced today on Abbott's product is one of the earliest to show results.

In that study, Ormiston and Patrick Serruys of Erasmus Medical Center in Rotterdam followed 30 patients for six months and saw no blood clots. One patient needed a repeat procedure to reopen a vessel, and there were no deaths or heart attacks.

``The potential is to allow the patient's vessel to return to a more natural state without the permanent implantation of a mechanical structure,'' said James Capek, senior vice president of Abbott's vascular division, in a telephone interview.

Johnson & Johnson is working on a metal stent with a fully coating that will dissolve after the suppression drug has been delivered, leaving a bare-metal stent behind, company spokesman Chris Allman said.

Other competitors aren't convinced bioabsorbable stents will be safe.

Striking a Chord

``Some chord is struck with physicians who have the notion that the metallic implant seems unnatural and that it seems potentially desirable to have them go away,'' said Boston Scientific's LaViolette. ``It's an idea that has been interesting but always debated and always disappointing. The materials just never seem to be ideal.''Just the same, all stent manufacturers, including Boston Scientific, are pursuing bioabsorbable products, Maisel said.
``If it plays out that this is the way to go, they don't want to get caught with their pants down,'' he said. ``But they're not going to abandon developing metal stents.''

Bloomberg

Stock market/Finance - Global Market turmoil

USA the world’s biggest and most liquid stockmarkets, and it has long been a cliché that when it sneezes the rest of the world catches a cold. But as other markets mature and capital moves more fluidly across the globe, the risk of infection spreading the other way grows.when shares dipped around the world after China’s stockmarket suffered its biggest drop in a decade (before rebounding somewhat on Wednesday). America saw its steepest points fall since the markets reopened after the terrorist attacks of September 11th 2001—and the end of its longest run without a 2% daily drop since the 1950s.
All eyes were on America on Wednesday. Shortly before the markets opened, the Bureau of Economic Analysis revised its estimates of fourth quarter GDP growth sharply downward, to 2.2% compared with a previous estimate of 3.5%. American traders shrugged off this bad news, however, and markets recovered slightly. By noon, the Dow Jones Industrial Average was up by over 50 points, while the NASDAQ and the S&P 500 had posted single-digit gains over the previous close. Shanghai also rebounded, but other markets in Asia were weak. European indices also lost ground, with the FTSE 100 giving up almost all the year’s gains by the end of day.
Tuesday's rout began when mainland China’s biggest market, in Shanghai, ended the day down almost 9%, as investors there became spooked that the authorities would clamp down on the irrational exuberance that has taken hold there in recent months. This triggered falls in Europe, where markets ended down by 2-3% (the FTSE Eurofirst 300 index fell by 2.86%). The Dow Jones Industrial Average dropped on its opening and continued to fall through the day, at one point plummeting more than 200 points in a couple of minutes.
There was much surprise that China could have had such an impact, despite its fast-growing influence on the world economy. In truth, it was merely one of several catalysts. Investors are becoming more worried about the state of America’s mortgage market—particularly “subprime” lending to less creditworthy borrowers—and the fast-proliferating derivatives linked to it; they were also unnerved by a warning from Alan Greenspan, former chairman of the Fed, that America could possibly be sliding towards recession; a fall in durable-goods orders added to broader economic concerns (though the latest consumer-confidence figures were good).
The resulting sell-off was nothing like the panic that gripped Wall Street on “Black Monday” in October 1987, when the Dow fell by 22.6% in one day. But it looked nasty compared with the long period of steadily rising share prices and low volatility that preceded it. Banks may be cutting their teams on the New York Stock Exchange’s trading floor, but activity was frenzied as volume soared to a record. The Dow ended the day down 416 points, or 3.3%, at 12,216.24. The Nasdaq Composite Index dropped 96.66, or 3.9%, to 2407.86, with 11 fallers for every gainer. It was its biggest percentage fall since December 2002. This sudden reassessment of risk sent investors flocking into ultra-safe Treasury bonds. The price of the benchmark shot up, pushing yields down to levels not seen since mid-December.
The worst point of the day was during a few mad minutes at around 3pm. The Dow, down by a little over 200 points at the time, suddenly plummeted by another couple of hundred points in less than a minute—a rate of decline that traders said was unprecedented. (It soon emerged that the suddenness of the fall was down to a delay in tabulating the index, itself caused by the massive volume of trading.) The Dow hit a low of 546 points below its starting point, before recovering somewhat.
The underlying fall may have been exacerbated by various factors. The NYSE runs a hybrid market: part “open outcry”, part electronic. There may have been a disconnect between the two bits, with traders on the floor reportedly struggling to keep up with computer orders. The popularity of exchange-traded funds—tradable baskets of stocks linked to an index—may also have played a part. Short-selling of these is thought to have added to the downward pressure during the day. Volatility, as measured by the VIX index, leapt by more than 60%, its biggest one-day rise since 1991.One concern is that the heavy wiring in the markets could not keep up with the rapid changes. Another is the rapid growth of derivatives. The problems in the subprime mortgage sector have focused attention on the slicing and dicing of risk using sophisticated instrument such as collateralised debt obligations and credit default swaps. Banks have used these to shed credit risk, but it is not clear where all that risk now lies. Financial shares were hit particularly hard on Tuesday, suggesting that nerves are starting to jangle over this uncertainty. Shares in Goldman Sachs, perhaps the smartest of the financial alchemists, ended down 6.6%. This was partly due to its Asian exposure (it owns a stake in a big Chinese bank).Now the bond market scam news just spreading & if the rumors are found to be true then no prize for guessing where the market is heading at least in the short term.

Indian Patent Law and the new turn

The legal challenge to India’s patent laws from Swiss drug giant Novartis has taken a knock with a crucial report that it is banking on being withdrawn by its authors. In an unprecedented move, R.A. Mashelkar, former director-general of the Council of Scientific and Industrial Research (CSIR), asked the government on 19 February to withdraw the report of the Technical Expert Group (TEG) that he had headed on account of “certain technical inaccuracies … that have inadvertently crept in”.
India’s chief boffin, who submitted the report before demitting office last December, offered his “unconditional apologies” to the government while taking full responsibility for “this unfortunate development”. Mashelkar has been accused by lawyers and health activists of pandering to the multinational drug lobby after Novartis submitted the TEG report to the Madras High Court on 15 February. Novartis is challenging a specific prohibition in the law, Section 3 (d), which restricts the grant of patents.
The Lawyers Collective, which is fighting the Novartis petition on behalf of the Cancer Patients Aid Association, had accused the TEG of lifting verbatim a paragraph from a 2006 report on limiting patentability by the Intellectual Property Institute (IPI), a UK-based think-tank that had submitted its position to the group. The Lawyers Collective pointed out that the report was authored by Shamnad Basheer, a doctoral student and an associate at the Oxford Intellectual Property Research Centre, University of Oxford, had been crowing on his website about his coup in getting the critical paragraph in the TEG report. They allege Basheer’s research was commissioned by the IPI and financially supported by Interpat, a Swiss association of major European, Japanese and US research-based drug companies committed to the improvement of intellectual property laws around the world.
Basheer had last month hailed the TEG’s recommendations, which support the contention of Novartis, as “a very sensible suggestion to me — not least because these conclusions were extracted from a report that I submitted to the committee”. Basheer had said it “flatters one to know that the extraction happened verbatim, though I would have been happier had the committee cited the source”.Mashelkar appears to have been left with little choice after the expose. However, his contention that he would submit a new report in three months after rectifying the errors, begs a question. Can a discredited committee be allowed to make a fresh submission without a new mandate? Top officials of the department of industrial policy and promotions (DIPP), which is looking at the report, were unavailable for comment. The government, meanwhile, is under pressure from the Indian drug industry to appoint a proper defence team to counter the challenge to its patent law.
BW

Highlights of India Budget 2007-08

• While Chidambaram kept income tax limit unchanged, he increased the threshold limit by Rs 10,000 giving every assessee a relief of Rs 1,000.
• Deduction in respect of medical insurance under Section 80 (D) increased to Rs 15,000 and Rs 20,000 for senior citizens.
• Exemption limit for women was increased to Rs 145,000 and for senior citizens to Rs 195,000.
• Dividend distribution tax raised from 12.5 to 15 per cent.
• ESOPs to be brought under FBT.
• Expenditure on samples and free distribution items to be exempted from fringe benefit tax.
• Additional revenue from direct taxes to yield Rs 3000 crore and indirect taxes revenue neutral.
• Tax exemption on aviation turbine fuel sold to turbo prop aircraft extended to all small aircraft less than 40,000 kg.
• Withdrawals by central and state governments exempted from Banking Cash Transaction Tax. The limit for individuals and HUF raised from Rs 25,000 to Rs 50,000.
• Two lakh people to benefit out of service tax exemption. Govt to lose Rs 800 crore as a result.
• Service tax on Residents Welfare Associations whose members contribute more than Rs 3,000.
• Surcharge on Corporate income tax on companies below Rs one crore removed.
• Tax free bonds to be issued by state-owned urban local bodies.
• Five year tax holiday for two, three, four star hotels and convention centres with a seating capacity of 3,000 in NCT of Delhi, Gurgaon, Ghaziabad, Faridabad and Gautam
• Minimum Alternate Tax being extended.
• Benefits of investment in venture capital funds confined to IT, bio-technology, nano-technology, seed research, dairy among some others.
• Excise duty on cement reduced from Rs.400 per tonne to Rs.350 per tonne for cement bags sold at Rs.190 per bag at retail market. Those sold above Rs.190 will attract excise duty of Rs.600 per tonne.
• Corporate tax: No surcharge for firms with a taxable income of Rs 1 crore (Rs 10 million) or less.
• E-governance allocation to be increased from Rs.395 to Rs.719 crore.
• Indian investors to be allowed investment in overseas capital markets through mutual funds. Mutual funds to set up Infrastructure Fund schemes.
• Any requirement for security of the nation to be provided.
• Backward Regions Grant Fund to be raised to Rs 5800 crore.
• A high-powered committee report aimed at making Mumbai a world class financial centre submitted. Public suggestions will be invited.
• Rs 50 crore provided to begin work on vocational education mission for which Task Force in Planning Commission is chalking out a strategy.
• 1,396 Indian Technical Institutes to be upgraded to achieve technical excellence.
• An autonomous Debt Management Office in government to be set up.
• Government to create one lakh jobs for physically challenged. Government will reimburse the EPF contributions of employers in the case of physically challenged people taken on rolls of the company and included in the PF scheme. A fund of Rs 150 crore to be started which will go up to Rs 450 crore.
• An Expert Committee to be set up to study the impact of climate change in India.
• Rs 150 crore to be given to Ministry of Youth and Sports for Commonwealth Games and Rs 350 crore to the Delhi Government for the purpose. Rs 50 crore to be provided for the Commonwealth Youth Games in Pune.
• Rs 100 crore for recognising excellence in the field of agricultural research.
• VAT revenues increased by 24.3 per cent in the first nine months of 2006-07.
• A national level goods and services tax to be introduced from next fiscal.
• Fiscal deficit to be 3.7 per cent in the current year and revenue deficit two per cent.
• Fiscal management enabled States consolidate debt to the tune of Rs.1,10,268 crore and 20 states availed of debt waiver to the tune of Rs.8575 crores. The share of States from the revenue expected to touch Rs.1,42,450 crore during 2007-08 as against Rs.1,20,377 crore during 2006-07.
• Total expenditure estimated at Rs 6,81,521 crore.
• Increase in gross tax revenue by 19.9 per cent, 20 per cent and 27.8 per cent in first three years of UPA government. Intend to keep tax rates moderate.
• Peak customs duty rate on non-agricultural items reduced from 12.5 to ten per cent.
• All coking coal fully exempted from duty.
• Duties on seconds and defective reduced from 20 to ten per cent.
• Customs duty on polyster to be reduced from ten per cent to 7.5 per cent.
• Fiscal deficit for 2007-08 pegged at 3.3 per cent of GDP at Rs.1,50,948 crore. Revenue deficit at Rs.72,478 crore which will be 1.5 per cent.
• Total expenditure during 2006-07 estimated at Rs.6,80,521 crore including Rs.40,000 crore for SBI shares.
• Duty on pet food reduced from 30 per cent to 20 per cent.
• Duty on sunflower oil to be reduced by 15 per cent.
• Duty reduced on watch dials and movements and umbrella parts from 12.5 to five per cent.
• Import duty of 15 specified machinery to be reduced from 7.5 per cent to five per cent.
• Economy grows 8.6 per cent in third quarter of this fiscal compared to 9.3 per cent in the year-ago period
• Three per cent import duty to be levied on private importers of aircraft including helicopters.
• No change in general CENVAT rate.
• Ad valorem duty on petrol and diesel to be brought down from eight to six per cent.
• Export duty on iron ore and concentrate at the rate of Rs.300 per tonne. Export duty on Cromium proposed at Rs 2000 tonne.
• Small-scale industries excise duty exemption raised from Rs one crore to Rs 1.5 crore.
• Manufacturing sector grows at 10.7 per cent, agriculture at 1.5 per cent during October-December 2006-07. 
• Excise duty for plywood reduced from 16 per cent to eight per cent.
• Food mixes to be fully exempted from excise duty.
• Excise duty for plywood reduced from 16 per cent to eight per cent.
• Bio-diesel to be fully exempted from excise duty.
• Water purification devices, small and big, fully exempted from excise. Specific rates of excise duty on cigarettes increased.
• Excise duty on Pan Masala without tobacco as mouth freshners reduced from 66 per cent to 45 per cent.

                                     

• PAN to be made single identity card for all securities/stocks/MFs related transactions.
• Insurance companies to launch a senior citizens scheme in 2007-08.
• Defence budget increased to Rs 96,000 crore
• Tourism infrastructure to get an allocation of Rs.520 crore as against Rs.423 crore last year.
• The ceiling of loans for weaker sections under deferential rate of interest scheme will be raised from Rs 6500 to Rs 15,000 and in housing loan from Rs 5000 to Rs 20,000.
• Regulations would be put in place for mortgage guarantee company for housing loans.
• Regional Rural Banks, which are willing to take up greater responsibilities, to undertake aggressive branch expansion programme. One RRB branch for each of 80 districts so far uncovered. RRBs to accept NRE and FCNR deposits.
• FDI inflows between April and January this fiscal touched $12.5 bn while portfolio investment reached $6.8 billion
• Technology Upgration Fund in textiles to continue during the 11th Plan. Rs 911 crore to be provided for this.
• Allocation for National Highway Development programme to be stepped up from Rs 9,955 crore to Rs 12,600 crore.
• Work on Golden Quadrilateral road project nearly complete. Considerable progress made on North-South, East-West corridor and likely to be completed by 2009.
• Northeastern region will get Rs 405 crore for highway development. Road-cum-rail project over Brahmaputra in Bogibil, Assam.
• Health insurance cover for weavers to be enlarged to ancillary industries. Allocation increased from Rs 241 crore to Rs 321 crore.
• A scheme for modernisation and technologiucal upgradation of choir industry for which Rs 23.55 crore has been earmarked.
• Manufacturing growth rate estimated at 11.3 per cent.
• 9.2 per cent GDP growth rate estimated in 2006-07.
• Average growth for last three years is 8.6 per cent.
• Saving rate of 32.4 per cent, investment rate of 33.8 per cent will continue.
• A number of proposals to perk up agriculture to be announced.
• Average inflation in FY'07 to be 5.2-5.4 per cent; govt confident of managing inflation
• Bank credit rate grew by 29 per cent during first ten months of 2006-07
• Inflation during 2006-07 estimated at between 5.2 and 5.4 per cent against 4.4 per cent during the previous year.
• Abhijit Sen report on forward trading to be submitted in two months' time.
• Additional irrigation potential of 24 lakh hectares to be implemented, including nine lakh hectares under Accelerated Irrigation Benefit Programme.
• Economy in a stronger position than ever before.
• 15,054 villages have been covered under rural telephony and efforts to be made to complete the target of covering 20,000 villages by 2006-07.
• Allocation on Healthcare to increase by 21.9 per cent.
• Allocattion for education to be enhanced by 34.2 per cent.
• Two lakh more teachers to be employed and five lakh more classrooms to be constructed.
• Secondary education allowance to be increased from Rs.1,837 crore to Rs.3,794 crore.
• Government committed to fiscal reforms.
• Foreign exchange reserves stand at 180 billion dollars.
• Allocation under Rajiv Gandhi Drinking Mission stepped up from Rs 4680 crore to Rs 5850 crore.
• Government concerned over inflation and would take all steps for moderating it.
• Already a number of steps on fiscal, monetary and supply management side have been taken.
• Annual target of 15 lakh houses under Bharat Nirmal Programme to be exceeded.
• Allocation for National Rural Health Mission stepped up from Rs 8207 crore to Rs 9947 crore.
• Gross budgetary support in 2007-08 raised to Rs 2,05,100 crore from 1,72,728 crore in 2006-07. Of this, budgetary support to the Central plan will go up to 1,54,939 crore against 1,72,728 crore.
• School dropout rates high. To prevent dropout, a National Means-cum-Merit scholarship to be implemented, with an allocation of Rs 6,000 per child.
• Rs 1290 crore to be provided for elimination of polio. Intensive coverage will be undertaken in 20 districts in UP and 10 districts in Bihar. This will be integrated into NRHM.
• National AIDS Control Programme to achieve zero level disease.
• Measures for significant improvement of health care in rural area.

• Allocation for ICDS programme to be increased from Rs 4087 crore to Rs 4761 crore.

• 30 more districts under NREGA. Additional allocation of Rs.12,000 crore for it.

• Rs 800 crore for Sampoorna Gram Rozgar Yojana in districts not covered by NREGA. Swarna Jayanti Swarozgar Yojana allocation increased from Rs 250 crore to Rs 344 crore.
• Computerisation of PDS and integrated computerization programme for FCI.
• Allocation for schemes only for SCs and STs to be increased to Rs 3271 crore.
• Rs 63 crore for share capital for National Minorities Development Finance Corporation following Sachar Committee recommendations.
• Allocation for SC/ST scholarships enhanced from Rs.440 crore to Rs.611 crore.
• Scholarships programme for minorities students to be of the order  of Rs 72 crore for pre-metric, Rs 48 crore for graduate and postgraduate.
• Total Budget for the Northeastern region raised from Rs 12,041 crore to Rs 14,365 crore.
• New Industrial Policy for the northeastern region to be in place before March 31.
• Women's development allocation will be Rs.22,282 crore.
• Rs 7,000 crore allocation for better tax administration to be used for social schemes.
• Rs 2,25,000 crore farm credit proposed in the new budget. A target of additional 50 lakh farmers to be brought under farm credit.
• Farmers' credit likely to reach Rs.1,90,000 crore as against the targeted Rs.1,75,000 crore during 2006-07.
• Special Purpose Tea Fund to rejuvenate tea production.
• Rs 100 crore allocated for National Rainfed Area Authority.
• One hundred per cent subsidy for small farmers and 50 per cent for other farmers for water recharging scheme.
• World Bank signed agreement for revival of 5,763 waterbodies in Tamil Nadu. Loan component Rs 2,182 crore. To have a command area of four lakh hectares. Similar agreement with Andhra Pradesh in March for recharge of 2,000 bodies. Command area 2.5 lakh hectares.
• Bonds worth Rs 5,000 crore to augment NABARD to be issued.
• Death and disability cover for rural landless families to be introduced, known as 'Aam Aadmi Bima Yojana'.
• 70 lakh households to be covered under a social welfare scheme with LIC and with support from state governments.
• 50 per cent of the premium at Rs.200 per household to be given by the Centre. Rs.1,000 crore fund to be maintained by LIC for the purpose.
• Central public sector enterprises will be given Rs 16,261 crore as equity support and loans of over Rs 2600 crore.

Climate Change- Heating up

A man on the street in a put it succinctly: “Over 500 scientists from many countries spent a few years studying data, and then told us that human beings are to blame for global warming. I or any one could have told you that.” It is common sense, yet the report from the IPCC (Intergovernmental Panel for Climate Change), which says the same thing, is considered a statement in the strongest terms by some influential people (though the authors now say that man is “very likely” to be responsible, rather than just “likely”). So much so that the American Enterprise Institute, a US right-leaning think tank, offered $10,000 to any scientist who can write articles that contradict this report.
This is the first time that the IPCC has said almost categorically — with 90 per cent certainty, to be exact — that the warming that we have observed is because of human activity. IPCC has predicted a temperature rise of 1.8-4 degree centigrade by the end of this century. Sea levels are expected to rise by 28-43 cm. This is the crux of the first IPCC report. It will release four more reports by the end of the year.Warming seems to be accelerating somewhat. Eleven out of the dozen years from 1995-2006 were among the 12 hottest years since 1850, when temperatures were first widely recorded. So the estimate for the average increase in global temperature for the past century, which the third assessment report put at 0.6°C, has now risen to 0.74°C.The sea level, which rose on average by 1.8mm a year from 1961 to 2003, went up by an average of 3.1mm a year between 1993 and 2003. The numbers are still small, but the shape of the curve is worrying. And because the deadline for scientific papers to be included in the IPCC's report was some time ago, its deliberations have excluded some alarming recent studies on the acceleration of glacier-melting in Greenland.
Some trends now seem clear. North and South America and northern Europe are getting wetter; the Mediterranean and southern Africa drier. Westerly winds have strengthened since the 1960s. Droughts have grown more intense and longer since the 1970s. Heavy rainfall, and thus flooding, has increased. Arctic summertime sea ice is decreasing by just over 7% a decade. Five years ago, it had estimated temperature increases between 1.4 and 5.8 degree centigrade, and sea level rises between 9 and 88 cm in its previous report.
Some ocean scientists have pointed out that IPCC did not take into account the melting of polar ice. IPCC used data that is about a year old, and new research has shown that polar ice is melting at alarming rates.
Whatever happens in the end, we can be certain of one thing: Global warming is certain to do a lot of damage, but quick action could reduce this damage.

Finance- Economy vs Real exchange rate

The Chinese experience shows the costs of under-valuation are a lot less than the benefits in terms of jobs. In recent years, as China’s exports have grown rapidly, and the country is registering increasingly larger surpluses on the current account (an estimated $140 billion this year), it has faced a lot of pressure for a “more flexible” exchange rate regime. Instead of openly calling for an upvaluation of the currency, the politically correct euphemism is to use the term “more flexible exchange rate”.
After holding on to a steady yuan-dollar exchange rate for more than a decade, China has engineered a modest appreciation (5.4 per cent) over the last year and a half. China’s exchange rate policy is clearly rooted in the need to create manufacturing employment. China needs to create at least 25 million non-agricultural jobs a year, considering the number of new entrants in the job market, as also the vast immigration from rural to urban areas. Most of these would have to be in the manufacturing industry, and its global competitiveness is, therefore, of crucial importance. Hence, the undervalued yuan. Indeed, for many years, the yuan’s fall in real effective terms was even more than in nominal effective terms, because China has had lower inflation than the US for nine years! This is remarkable at a time of surpluses on current account and huge capital inflows (in theory, both generate inflation pressures), resulting into reserves accumulation of a trillion dollars. One advantage China has in sterilising the excess money supply is that domestic interest rates are lower than the dollar or euro interest rates: this means that there are financial gains to the central bank in sterilising the growth in money supply. China is not only keeping domestic inflation low but, as a low-cost manufacturer, is a major contributor to keeping global inflation low despite the very high commodity prices of recent years.
But there is also a major risk in the reserve accumulation. As argued earlier also earlier, given the huge deficit on current account in the US, the possibility of a sharp fall of the dollar can hardly be ruled out. Indeed, diversification of Chinese reserves into other currencies (as Russia, Switzerland, Italy and the UAE are already doing) could itself trigger such a fall: it is Chinese investments in the US treasury market that keep the dollar from falling and the yield curve flat to negative. On the other hand, should the yuan appreciate against the dollar, there would be huge paper losses for the central bank as dollar assets become worth less in yuan terms. Assuming that, currently, 70 per cent of the reserves are in dollar assets, even a 5 per cent yuan appreciation against the dollar would lead to a translation loss of something like 250 billion yuan! Clearly, the authorities are treading on delicate ground trying to balance the needs of the real economy with the possibility of large paper/financial losses if and when the yuan is forced to appreciate in dollar terms.
Arguably, the root cause of the large and increasing surpluses China is registering on the current account, is the savings-investment imbalance. Despite huge investments, the savings rate is so high, above 50 per cent of GDP, that the excess savings result into a surplus on the current account. Interestingly, the household sector savings in China as a percentage of GDP are actually less than in India — this, despite the fact that personal consumption in China per capita is only about 70 per cent higher than in India, while per capita incomes are 2.5 times as large. The real cause of excess savings is the corporate sector: the corporate sector’s savings amount to as much as 30 per cent of GDP, with retained earnings alone contributing two-thirds of that. One reason, it seems, is that Chinese companies do not distribute dividends. At the macro level, one way of reducing the excess savings and the politically sensitive surplus on current account, is to get the public sector companies to distribute dividends, and spend the money on needed social services like health care, higher old age pensions, and so on. Sooner or later, we should see some movement in this direction even as the yuan gradually appreciates. Incidentally, the non-deliverable forwards market is factoring a yuan rise of just about 3 per cent over the next 12 months.
One point on which we need to learn from China is the focus on the real, job-creating economy rather than philosophical arguments about market versus managed exchange rate, the cost of sterilisation, and so on. On the second issue, what we often seem to overlook is that the cost to the real economy of an appreciating currency (jobs uncreated or lost, business profitability, forgone GDP growth, and so on) can be far, far bigger than the financial cost of sterilisation. To be sure, these costs are not as easy to calculate as the cost of sterilisation — but are, nevertheless, as concrete and perhaps even more important.

The research Gap

India’s R&D appears to be going somewhere finally. R&D expenditure, in absolute terms, is up three-fold over the last decade. While 70 per cent of R&D in India is still government-funded, and 60 per cent of this goes towards defence—with very few commercial spin-offs—this picture is changing as private investment in R&D is now rising faster than government spending. Apart from the pharmaceuticals sector’s R&D outlay, which has risen rapidly for understandable reasons, India is now host to 150 R&D centres set up by international companies—or so, says a report from Demos, one of the UK’s influential think tanks. More than 100 of these were opened in the last four years. Another figure, to buttress the same claim, is that foreign firms invested over a billion dollars in Indian R&D centres between 1998 and 2003.

The question then is, why does India continue to lag behind other countries in the World Bank’s Knowledge Index? Worse, why has it even slipped vis-à-vis itself? On the World Bank’s latest Knowledge Economy Index, which takes into account not just R&D but the entire ecosystem that allows R&D efforts to blossom into something meaningful, India scored 2.8 in 1995 and a marginally lower 2.71 in the most recent score card.
China, by way of comparison, has raised its score from 2.83 in 1995 to 4.26 in the most recent score card, and Brazil from 4.73 to 5.1, while Russia has remained more or less at the same score of 5.9. India’s numbers are slightly higher if you do not weight the index by population, but then so are those of other countries and the net impact is the same—India has lost ground. The standard argument given for this has been the low level of R&D spending in the country, the small number of papers by Indians that get cited in respected scientific journals (between 1997 and 2001, India had 77,201 citations, versus China’s 115,339), the low levels of literacy and the limited number of college graduates. If weight them by GDP per capita, India tops the global charts with 32 scientific publications in the Scientific Citation Index; China is at 23 and the US is only seven. All that may well be true, but many will question this as a basis for judgment. In any case, it does not allow the country to get away from the fact that India’s R&D output lags behind that of competitors like China. Its 229 universities are manifestly unequal to the task of rapidly ramping up the number of PhDs, critical for any R&D expansion programme. The issue here is not just R&D spending, which is important, but also the environment for such activity. Universities continue to be tightly controlled by the government and are mired in red tape and bureaucratic procedures—not to mention virtually frozen pay scales at a time when salaries in the private sector are rising rapidly. And when it comes to industries such as pharmaceuticals, which drive R&D to a large extent, the government’s policy has been to control prices and profits, thus taking away the ability to spend on research. In short, while foreign companies may set up research centres in India to make use of the country’s low-cost technical manpower, that should not be taken to mean that things are going well on the research front. A great deal of action is required on multiple fronts before that claim can be made.

BS

Out-licensing, Is it growth or survival strategy

Indian majors are exploring out-licensing deals for lower risks and bigger profits. The strategy of the fittest is finally coming into play in the Indian pharma market. Some of the strongest pharma companies are flexing their muscles across Europe and announcing their arrival on the global platform in the process.

As in-licensing deals become a norm, out-licensing deals are the latest to catch the fancy of Indian pharma majors. Out-licensing deals are deals wherein an Indian pharma company licences a foreign pharma company for the development of a particular molecule into a drug. Dr Reddy’s Laboratories, for instance, entered into an agreement with ClinTec International in 2006 for the development of an anti-cancer compound. Having completed the first phase of clinical trials for the compound, Dr Reddy’s has allowed ClinTec to carry out phase II and III of the trials. Once the product is commercialised, Dr Reddy’s will receive royalty on sales by ClinTec International in its designated territories and ClinTec International will receive royalty on sales by Dr Reddy’s in the US. The trend of out-licensing deals has recently picked up in India because Indians have now started working on basic research and discovery of molecules. If the international companies see value in the molecule, they pick it up. But what is really taking Indian companies to foreign shores is the unavailability of expertise or resources to take a molecule through its various stages in the drug development cycle. Such deals usually spell a win-win situation for an Indian company, which is investing only half the capital, bringing down cost and risk factors. The royalty acquired from the deal is often much more than the investment.
By out-licensing, the new innovator, with a high potential molecule in early stages of development, has an opportunity to take it through the expensive stages of development and a share in the risk and reward. Glenmark Pharma was an early bird to join the out-licensing bandwagon. In 2004, the company entered into a collaboration agreement with Forest Laboratories for the development, registration and commercialisation of a compound for North America. Experts, however, don’t see the trend trickling down to smaller pharma companies in the country any time soon. “Even though this would be an ideal route for any new entrant in the field. Out-licensing requires a lot of investment, and for a small company, this might not be possible. Breaking even also takes a long time, and smaller companies may not have the staying power to wait that long. Big and small pharma companies can, however, look forward to more and more in-licensing deals, raking in more investment than ever before. And the benefits are passed on to the consumer, who get new products at lower costs. In-licensing in the post-patents regime has enabled us to have a stronger product pipeline and provided Indian physicians and patients with novel products meeting their unmet needs.
But despite the piling up of in-licensing deals, the involvement of the Indian pharma in the deal is still restricted only to the packaging and marketing of the drug and not its manufacture. Foreign companies don’t want to out-licence to India for manufacture because the market here is still very small, thus increasing the risk factor.

BS

Tamiflu Vs Bird Flu, who cld be the major threat

The cure may, at times, be worse than the disease. That would now seem to be the case with tamiflu, the drug used more than any other for treating and preventing the dreaded bird flu — caused by the pathogenic H5N1 virus. Going by the findings of a study by researchers of the Oxford-based Centre for Ecology and Hydrology, the consequences of large-scale consumption of tamiflu can be scarier than even those of a bird flu outbreak. The main fear is that the many tonnes of this drug that are in stock in various countries for combating a possible pandemic would, on consumption, play havoc with wildlife besides increasing human health hazards. Specifically, the scientists have warned that the bulk of this drug would get excreted through urine and flushed down sewers into natural water bodies and rivers, devastating aquatic bio-life. The worst hit would most likely be micro-organisms, including all manner of useful bacteria, present in these waters. This is because oseltamivir carboxylate, the active anti-viral ingredient of tamiflu that also kills bacteria, is resistant to bio-degradation and cannot be eliminated through normal sewer water treatment. Its toxicity can, therefore, persist in water bodies for weeks, even if only treated water is released in them. As a result, fish, birds and other creatures that dwell in these tanks and rivers or feed on them could face ruin. Man, too, needs certain kinds of bacteria in the gut for the digestion of food. All these systems could go haywire if the need should arise to use tamiflu on a mass scale. As if this scenario were not alarming enough, the scientists have also pointed out that widespread consumption of this drug can create conditions in which the H5N1 virus, which normally infects only birds and some animals and does not get transmitted to humans, can mutate into forms capable of being passed on to humans. Another likely fall-out could be the development of immunity against oseltamivir carboxylate in H5N1 virus itself, rendering tamiflu ineffective. This would further heighten the risk of a flu pandemic. And, what is worse, should this happen, mankind would find itself fighting a losing battle till an alternative vaccine targeted specifically at the new form of virus is developed, which might take months. Of course, it can be argued that these dreadful implications are hypothetical even though they emanate from a scientific study carried out on rivers in the US and UK. In any case, the possible hazards are far too serious and indeed unnerving to be disregarded. The bird flu has not yet been eradicated and its incidence continues to be reported from the south-east Asian region. What needs to be remembered is that the flu outbreak of 1918, albeit of a different virus strain, had killed nearly 50 million people. Equally essential to bear in mind is the alarming decline in the population of vultures, which are nature’s scavengers, owing to the indiscriminate use of diclofenac, an anti-inflammatory drug, for the treatment of animals. Its residual toxicity in animal carcasses is killing the vultures who feed on them. It is, therefore, imperative to revisit the strategies devised to cope with the bird flu menace and to look for safer drugs. An anti-influenza vaccine developed at the Bhopal-based high security laboratory of the Indian Council of Agricultural Research is believed to be a less harmful alternative to tamiflu. If that is indeed the case, enough stocks of this vaccine, as also adequate production capacity, need to be built up. Simultaneously, research needs to be initiated to evolve suitable biological and chemical treatments for sewer water to minimise its residual toxicity before the discharge is put out into natural water bodies.

Agricultural reform

When the National Commission on Farmers (NCF) mooted the idea of putting agriculture on the Concurrent list of the Constitution so as to bring it under the direct control of the Centre, nobody expected the states to readily agree to this radical suggestion and that’s what happended during the meeting of state agriculture ministers who met in New Delhi last week to discuss the recommendations of the NCF. No party in power would want to give up control over policies and programmes that could influence the vast rural vote bank. But that does not mean that there is no merit in NCF’s proposal, which was aimed primarily at addressing the issue of multiplicity and dissimilarities in taxes and levies, marketing laws and curbs on goods movement in different states.

The present scenario is far from conducive for creating a single all-India market for agricultural produce, which is what has been suggested by the NCF in one of its preliminary reports. While getting agriculture onto the Concurrent list will not happen in the foreseeable future, it is good that the states have endorsed most of the other recommendations of the NCF which included, significantly, the point that a distinction should be made between minimum support prices (MSP) and the procurement prices at which the government buys grain for its buffer stocking operations and for feeding the public distribution system. This means that market intervention at the MSP should be only to prevent distress sales by farmers, while grain procurement for the public distribution system and the various welfare schemes (like food-for-work) should be on commercial terms. Had such an approach been adopted in the last rabi marketing season, wheat procurement would not have been so low as to necessitate 5.5 million tonnes of imports by the government, at heavy cost to the exchequer.

Equally noteworthy is the NCF’s recommendations regarding the conservation of soil and water resources, and its opposition to the allotment of prime agricultural land for the creation of special economic zones and other non-agricultural purposes. Any perceptible shrinkage of farm land would not be advisable, especially at a time when the overall farm productivity has tended to stagnate, for it would gravely impact growth in the agricultural sector. In fact, what is needed is reversal of the process of land degradation through a massive programme for the reclamation of degraded lands so as to bring them under crop cultivation or, else, under productive plantation or forest cover. The objective of most NCF recommendations is to improve livelihood and income opportunities for farmers so as to prevent them from falling into a debt trap, leading to extreme cases like suicides. The need for moving in this direction is borne out by the National Sample Survey finding that over 40 per cent of farmers want to give up farming because it does not yield an adequate income. The NCF has suggested creation of income-generating opportunities in villages through activities allied to agriculture, besides in the non-farm sector. Now that the formulation of a national policy for farmers has begun, on the basis of the recommendations of the NCF and the views of state governments, these issues should be kept in focus and emphasis must be laid on the farmers income & livelihood rather than the cheap vote bank politics which politicians are exploiting for last several decades.

Money - 7 good reasons to invest in SIP's

Fact No. 1: Over a long term horizon, equity investments have given returns which far exceed those from the debt based instruments. They are probably the only investment option, which can build large wealth.
Fact No. 2: In short term, equities exhibit very sharp volatilities, which many of us find difficult to stomach.

Fact No. 3: Equities carry lot of risk even to the extent of loosing ones entire corpus.

Fact No. 4: Investment in equities require one to be in constant touch with the market.

Fact No. 5: Equity investment requires a lot of research.

Fact No. 6: Buying good scrips require one to invest fairly large amounts.

Systematic Investing in a Mutual Fund is the answer to preventing the pitfalls of equity investment and still enjoying the high returns. And it makes all the more sense today when the stock markets are booming.

1)It's an expert's field – Let's leave it to them
Management of the fund by the professionals or experts is one of the key advantages of investing through a mutual fund. They regularly carry out extensive research - on the company, the industry and the economy – thus ensuring informed investment. Secondly, they regularly track the market. Thus for many of us who do not have the desired expertise and are too busy with our vocation to devote sufficient time and effort to investing in equity, mutual funds offer an attractive alternative.

2. Putting eggs in different baskets Another advantage of investing through mutual funds is that even with small amounts we are able to enjoy the benefits of diversification. Huge amounts would be required for an individual to achieve the desired diversification, which would not be possible for many of us. Diversification reduces the overall impact on the returns from a portfolio, on account of a loss in a particular company/sector.

3. It's all transparent & well regulated

The Mutual Fund industry is well regulated both by SEBI and AMFI. They have, over the years, introduced regulations, which ensure smooth and transparent functioning of the mutual funds industry. This makes it safer and convenient for investors to invest through the mutual funds.
4. Market timing becomes irrelevant One of the biggest difficulties in equity investing is WHEN to invest, apart from the other big question WHERE to invest. While, investing in a mutual fund solves the issue of 'where' to invest, SIP helps us to overcome the problem of 'when'. SIP is a disciplined investing irrespective of the state of the market. It thus makes the market timing totally irrelevant. And today when the markets are high, it may not be prudent to commit large sums at one go. With the next 2-3 years looking good from Indian Economy point of view, one can expect handsome returns thru' regular investing.
5. Does not strain our day-to-day finances Mutual Funds allow us to invest very small amounts (Rs 500 – Rs 1000) in SIP, as against larger one-time investment required, if we were to buy directly from the market. This makes investing easier as it does not strain our monthly finances. It, therefore, becomes an ideal investment option for a small-time investor, who would otherwise not be able to enjoy the benefits of investing in the equity market.
6. Reduces the average cost In SIP we are investing a fixed amount regularly. Therefore, we end up buying more number of units when the markets are down and NAV is low and less number of units when the markets are up and the NAV is high. This is called rupee-cost averaging. Generally, we would stay away from buying when the markets are down. We generally tend to invest when the markets are rising. SIP works as a good discipline as it forces us to buy even when the markets are low, which actually is the best time to buy.

7. Helps to fulfill our dreams
The investments we make are ultimately for some objectives such as to buy a house, children's education, marriage etc. And many of them require a huge one-time investment. As it would usually not be possible raise such large amounts at short notice, we need to build the corpus over a longer period of time, through small but regular investments. This is what SIP is all about. Small investments, over a period of time, result in large wealth and help fulfill our dreams & aspirations.

Technology- Digital printing market in India

It’s a war out there to grab a share of the growing digital printing market in India. The printing and graphics industry is expected to turn a shade brighter in 2007-08. The Indian digital printing industry is projected to grow to $17 billion by 2010, from an estimated $11 billion in 2005 (as per print and packaging research organisation, Pira International). Gone are the vendors’ obsessions with niches where digital printers might be lucky enough to find a hundred thousand impressions per month. For that matter, a number of the digital print providers who pursued those niches are gone, too.
A buoyant industry estimates that between 2006 to 2015 digital printing products (world-over) will account for almost 30-35 per cent of the overall printing market. In 2005-06, the emphasis shifted from the niches for digital printing to sheer volumes as vendors ramped up shipments of new high-capacity digital colour presses with lower operating costs. The resulting explosion in volume was no surprise. “Digital colour printing is finally on the threshold for the explosive volume growth that monochrome digital printing experienced in the last decade.
In its endeavour to spread awareness about the digital printing industry, Xerox India along with Karnataka State Printers Association and the Government of Karnataka announced a joint tie-up for setting up the first-of-its kind print testing and training centre in Bangalore and has also set up a Xerox Innovation & Technology Excellence Centre with an investment of Rs 5 crore. Expecting growth for personalised print jobs, print-on-demand, shorter run lengths, Xerox and HP hope to tap verticals such as banking, telecom, insurance, retail, manufacturing and graphic arts. HP also intends to play an important role in all the e-governance projects defined by the government of India. Lexmark, on the other hand, is aiming for the Internet companies, BPOs and KPOs to fuel its growth. “With India being one of the world’s largest IT hot-beds, the demand for digital printing equipments is bound to escalate. With one third of digital work expected to be personalised by the end of 2006, personalisation and customisation are the two big trends where Xerox, HP, Lexmark and Canon hope to play a key role.
In an industry dominated by low-cost conventional printing technologies such as offset, flexography, and gravure, it is not surprising to note the demand for digital printing is shaping out to be highly elastic in nature. Applications like Web-to-print, variable data printing and short-run digital printing have been a hit among creatives and publishers, telecom and financial institutions. “Innovation from a product generation perspective would continue to be around the three vectors — cost of printing (a combination of equipment media and ink), image quality and speed.” HP has recently revealed a breakthrough technology, Edgeline, which, it claims will change the way enterprise customers look at printing. The penetration of digitised variable data printing is facilitated due to the need for regional or local messaging (in B and C class cities) either on the telephone bills, tax statements, and receipts that no offset printer can manage. Digital monochrome and colour printing together account for less than 3 per cent of the volume of publication and commercial printing in 2006 but is predicted to reach 25 per cent by 2010. Nevertheless, digital printing is not going to overpower the traditional industry anytime soon. However, the digital segment will soak up most of the growth across the total market. That sure is great news for those print providers who are going digital and is also a challenge for the rest to get moving.

Money- Why to worry on Hedge funds

Indian financial regulators get skittish when the word “hedge fund” is used. Recent announcements suggest some movement by Sebi and the ministry of finance in their favour, while the RBI continues to argue against. One source of fear of hedge funds is the notion that all hedge funds act in concert. However, the global hedge fund industry is highly competitive. Over $1 trillion is managed by more than 8,000 hedge funds, each of which fights to gain an edge over the others. Coordination between such a large number of adversarial entities is impossible. Though a herd mentality can set in, on any given day some hedge funds will buy and some hedge funds sell.

The customers of hedge funds are institutions and sophisticated individuals. They have the wherewithal to monitor hedge funds, and shift assets to the best return-to-risk ratio. They keep the hedge fund manager on his toes. Marketing gimmicks targeting retail investors can put money into the hands of an incompetent manager. Such gimmicks do not work in the hedge fund sector, which is meritocratic and performance-driven. Fearful third world regulators like the RBI harp on the LTCM episode of 1999. Just as one plane crash does not render all plane travel useless, the case for hedge funds is not invalidated by one problem. The recent demise of Amaranth—where losses bigger than LTCM took place—shows improving institutional structures. From a regulatory viewpoint, Amaranth was a pleasant episode. A few rich men lost money, while hedge funds as a whole continued to trade every day, making markets more efficient.
There are two alternative strategies for regulation. On the one hand is the US path, where the government is not involved in the relationship between the hedge fund and his customer. Alternatively, in the UK and in Scandinavia, there is some light-touch regulation. In either case, the activities of hedge funds in securities markets have to comply with all margin requirements, position limits, etc. In India, given the penchant for turning a whiff of regulation into an onerous licence-permit raj, the US route would be better. A US-style policy framework needs to be created, to support both foreign and domestic hedge funds. The international consensus today says that hedge funds engage in rational trades and supply liquidity. The smartest analytical financial economics, the best Ph.D.s, and the best computer technology for trading are now in the hands of hedge funds. India needs their risk-taking, their liquidity provision, their analytical minds, and their systems. Foreign hedge funds are useful since they would not get shaken by the ups and downs of the market in the way that local investors do. On the interest rate and currency markets, India has failed to build meaningful markets; the active and intelligent trading of hedge funds can induce a paradigm shift. On the equity market also, the volatility of May 2006 has given a drop in liquidity which has still not been erased. Monthly traded volumes in equity spot and derivatives markets have dropped sharply. The gutsy retail liquidity providers of India have been shaken by the volatility of May 2006. Globally diversified hedge funds are a useful source of liquidity provision in Indian financial markets.

BS-editorial

Dollar- Uncle Sam's worry

Those who react to last week’s fall in the dollar’s exchange rate and predict that the US currency is set for a further dip, would be well advised to read some of the forecasts made a couple of years ago, when the dollar had suffered a similar decline. Currency experts, bankers and economists were predicting then that the dollar would drop to as low as $1.50 against the euro, even $1.80 and $2.20. None of that happened, the dollar recovered, and life went on as usual. Now there is another round of nervousness, with the dollar dipping noticeably last week and having fallen by about 15 per cent this calendar year (though by barely 2-3 per cent against the rupee).

Is the long-predicted decline of the dollar about to happen at last, or is this another false alarm? That there is reason for worry, if not alarm, is easy to see. US housing has dipped for seven months in a row, US manufacturing has dipped for the first time in two or three years, and if the Federal Reserve drops interest rates (after a five-month hiatus) to try and revive the economy, capital could flow out of the US and further weaken the currency. If the Asian economies that hold foreign currency reserves of between $1.5 trillion and $2 trillion, decide that the dollar is not a safe store of value and look for alternatives, that will put still more pressure on the currency. ( Iran has decided to Euro against USD, thought it’s a different question why???) If, on the other hand, the Fed leaves interest rates untouched (for it is also worried about continuing inflation), it could slow down the US economy even more—and add to problems from another direction.

Surveying the flurry of comment on the subject, the most noteworthy is what has been said by The Economist. In a leading article it argues that, contrary to popular opinion, US productivity levels have not been improving faster than European levels, and that it is Europe which has greater room for productivity improvement. If true, that would argue in favour of a further weakening of the dollar as it argues in favour of switching to the euro as the currency of choice. With the dollar already close to its all-time low against the euro, some new currency benchmarks might well be set in the coming weeks. The other point worth noting is that the dollar has not really gained much ground this year against either the yuan or the rupee. Trade with India is not significant for the US, but that with China is—and if the yuan does not appreciate, much of the gains to be achieved from a cheaper dollar (through a reduced trade deficit) get nullified. From India’s perspective, the economy’s undoubted gains in productivity should help the rupee climb against the dollar, but the continuing weaknesses in the physical and financial infrastructure prevent that from happening, and the Reserve Bank is left with the task of pursuing an otherwise illogical currency policy and continuing to accumulate foreign exchange reserves in order to make up for the failures of the reform programme. There is no gainsaying that the US needs to do quite a lot of course correction in order to tackle its twin deficits (fiscal and trade), but if the dollar does fall further, it will test the quality of response from the other major economies—which now include India. If they fail the test, then global growth will be the casualty