Business Briefing 10/10

The super Rupee; and LN Mittal’s India land woes

Last year was horrible for the rupee, as it depreciated almost 29 per cent to trade at a low of Rs 51 per dollar. Well, get ready for the Super Rupee. A recent report by Barclays has pointed to the possibility of the rupee appreciating by 5 per cent by the end of 2009, making it worth Rs 45 to a dollar. This will mean bigger revenues in dollar terms for Indian firms. Imports such as oil will be cheaper and thus help boost India’s cash reserves. With a stronger rupee, the country’s purchasing power goes up, which translates to cheaper imports, easier overseas buys, and a better quality of life. Policy wonks in the US, keen that Asian dollar reserves are not built on ‘artificially depressed currencies’, will also applaud. All this, however, may not please India’s troubled exporters, who will have to sweat harder to win and retain customers as their costs/prices in dollar terms rise. The Federation of Indian Export Organisations is complaining that should the rupee’s rise continue, India’s export competitiveness will be harmed. One big reason for the rupee’s rise is the comeback of capital inflows, aided partially by the ‘carry trade’ (take cheap loans in the US, bet on a declining dollar, and invest in India)—despite, or perhaps because of the global slowdown. Foreign firms have bought $13 billion worth of Indian shares in 2009 so far. The RBI has let the rupee rise, since growth is its priority, not inflation right now. However, with the widening budget deficit, being financed by overseas funds in a way, it may not be long before the RBI has to get back to its 2007 currency tactics.

He may be the richest man with an Indian passport, but LN Mittal’s plans to plough in some of his vast wealth into the country of his birth never seem to progress beyond the drawing board. In a move that has caught the Orissa and Jharkhand governments by surprise, Mittal indicated that was looking to abandon his plans to build a steel plant in each of the two states with a combined capacity of up to 24 million tonnes. The slow pace of land acquisition for industrial projects has thrown a spanner in Mittal’s works. “If we cannot make progress in these two sites, we will have to abandon the idea of starting the projects there, and look for other places in India for our expansion,” Mittal told the Financial Times. He added that Indians need to be “educated” into supporting gradual industrialisation, including the need to build new steel plants on agricultural land, in the wake of his experience in land acquisition and Tata Motors’ pullout from Singur. ArcelorMittal has operations in nearly 60 countries, but only a negligible presence in India. In 2008, it pulled out of a consortium comprising Hindustan Petroleum, Oil India, Gail and Total SA of France to build a $10 billion petrochemical complex in Vishakhapatnam. His only big investment has been the acquisition of a minority stake in Mumbai-based speciality steelmaker Uttam Galva for an estimated Rs 70 crore. But that’s chump change for a man who spent close to Rs 430 crore for a home in London’s Kensington Gardens in 2004.

currencyinvestmentLN Mittalrupee