ISSUE

VOLUME

Stats Watch.........

IIP year on year Growth

Open Forum…….

This slowdown was coming

Cover StoryFall from Grace: India’s

Microfinance Industry

News ……

News on Industry and Emerging Markets

In Focus

Delhi Turns 100

InvesteursChronicles

Outlook

Euro

December 2011, Volume: 34

Figure

Facts

ForexForward Rates against INR as on 16thDecember, 2011

Spot Rate 1 mth 3 mth 6 mthUS 52.82 53.17 53.73 54.45Euro 68.84 69.33 70.09 71.09Sterling 82.09 82.62 83.43 84.47Yen 67.83 68.35 69.15 70.24Swiss Franc

56.28 56.7 57.37 58.3

Source: Hindu BusinessLine

Libor RatesLibor % 1 mth 3 mth 6 mth 12 mthUS 0.28 0.56 0.78 1.10Euro 1.05 1.34 1.61 1.97Sterling 0.76 1.06 1.35 1.84Yen 0.14 0.19 0.33 0.55Swiss Franc 0.03 0.05 0.09 0.32

Forward Cover1 mth 3 mth 6 mth

US 8.06% 6.99% 6.26%Euro 8.66% 7.36% 6.63%Sterling 7.86% 6.62% 5.88%Yen 9.33% 7.89% 7.20%Swiss Franc 9.08% 7.85% 7.28%As on 16thDecember, 2011 Source: Hindu BusinessLine

Commodities

Commodities Unit (1000kg)

Aluminum 104700

Copper 390650

Zinc 98500

Steel 34100

As on 17thDecember2011

Call Rates as on 17thDecember 2011

7.00% - 9.00%

Data from 5th December 2011 to 16thDecember 2011

16,805.3

3

15,491.35

5,039.15

4,651.60

Sensex Nifty

29119

27255

57201

53267

Gold (10 gm) Silver (1 Kg)

110.82

103.88 51.41

52.74

Crude Oil ($/barrel) Dollar

YEAR

EuroThe euro fell to an 11-month low (1.31$ in New York trade on evening of 13 th December 2011)

against the dollar on concern European leaders won’t agree on ways to expand the region’s

rescue capacities as debt-strapped nations struggle to fund their deficits. In addition to this,

U.S. currency strengthened due to renewed commitment by Fed Chairman Ben S. Bernanke to

keep interest rates low through mid-2013, while refraining from taking more steps to lower

borrowing costs.

The single currency also registered a hit due to a rating downgrade warning of European

Union nations by Moody’s over a very few new measures to tackle risk, as it said. Fitch also

appears to be in agreement with this stand.

The Euro-area growth forecast for 2012 has been lowered over the past few months. Within

the 2012 consensus forecast range, the most optimistic forecast is 1.5% while the most

pessimistic is -0.5%. The euro area can avoid an outright recession in 2012 if Germany and

France continue to grow at more than 1% and if Italy can avoid a recession. The downside

risks are high.

Market condition suggests that there still has to be further monetary easing by the European

Central Bank to support growth in the euro area for 2012 and beyond. There’ll be further

weakness, particularly in the first half of next year.

As a result, the single currency is expected to maintain its downward trajectory versus the

greenback in the first half of 2012 as the European Central Bank will be under pressure to ease

its monetary policy to help the region combat the debt crisis. EUR/ USD is expected to go down

$ 1.30 in the first quarter of the next year, then hit $ 1.25 by the middle of the year and recover

to $ 1.35 by the year-end.

“Qualified endorsement”

A signature on the back of a cheque or other negotiable that transfers the payment to another, or that restricts the condition of payment, such as ‘for deposit only’.

Stats Watch Outlook -Euro

Gloss

Cover Story

In the last week of November 2011, SKS, India’s leading microfinance institution reported that Vikram Akula had stepped down as Chairman of the company in order to pursue a

career in mobile banking. Whether a pause or full stop to Akula’s epic career in microfinance, the tryst of the India’s microfinance sector with controversies continue!

Akula remains a contentious character, whose very name incites admiration and criticism in equal measure. Some say that he gave birth to the microfinance industry as we know

it in India. Others say that his model of lending, pioneered by his company SKS Microfinance, gave birth to an almost unquenchable thirst for profit, driven by a business model

that has no place in ameliorating the state of the poor in India; a tremendously successful business model which has of late came under clouds of suspicion regarding its intent.

Industry, that was

Inspired by the Grameen Model of micro lending in Bangladesh, Indian MFIs had been growing by leaps and bounds over the last decade. Indian MFIs witnessed an

extraordinarily high growth rate from 2005-2010, with an average annual increase of 62 per cent in number of clients and 88 per cent in outstanding portfolio size – and around

32 million borrower accounts by end March 2011, India has the largest microfinance industry in the world. ‐ With interest rates for most MFIs as high as 30 per cent, some even

50 per cent, along with 99 per cent recovery, the steep profit was anyone’s guess. The high growth rate of microfinance over the five year period was fuelled by commercial bank

funding which inherently gravitated towards “for profit” institutional structures. Thus, there was an India wide trend towards the transformation of MFIs into for profit non‐ ‐ ‐ ‐

bank finance companies (NBFCs).

This worked a lot of people up. David Gibbons, a pioneer in the microfinance and head of Cashpor, an MFI which works in the poorer parts of Uttar Pradesh and Bihar, and Ela

Bhatt, founder of Self-Employed Women's Association of India (SEWA) and pioneer in cooperative women, and micro-finance movements, warned about organizations like SKS

creating debt treadmills, where a loan would be taken simply to pay off another. This didn’t deter SKS from planning an IPO in which some of the high profile investors invested.

However, close to heels, a troubling phenomenon surfaced on the MFI landscape. Between May 2010 and February 2011, 203 MFI-linked suicides were reported in Andhra

Pradesh, alone, according to data from Society for Elimination of Rural Poverty, Hyderabad.

India’s oldest microfinance firm, BhartiyaSamruddhi Finance Ltd (BSFL), is on the verge

of closure. With borrowers in Andhra Pradesh refusing to repay, bad loans are growing

and threatening to wipe out its entire net worth and reserves. As of 30 June, BSFL’s net

worth was Rs128 crore, down from Rs230 crore in September last year, and this will get

completely eroded because of accumulated bad loans of Rs450 crore. Since repayment

there has dropped to 10%, the only way to increase income would be to lend in other

states where repayments are assured. But BSFL has been unable to do so as banks are

unwilling to lend it more money. It seems that the controversial Andhra Pradesh

Microfinance Institutions (Regulation of Moneylending) Act, 2010 is all set to claim its

first victim.

Factors at play

MFIs were able to grow rapidly through better access to funding and by using the

proven methodology of a mono product offering rolled out over large numbers of‐

branches, in diverse locations using standard processes. This was often at the cost of

limited staff client interaction. The current crisis in microfinance is partly the result of‐

this over simplification of the MFI client relationship.‐ ‐

While large numbers may have been reached, the lack of commitment on either side led

to substantial multiple lending and created an environment of concern about the rights

of clients thathad been oversold microcredit. Some clients became over indebted as a‐

result and the media attention generated by the IPO of SKS Microfinance (at the time, by

far the largest microfinance NBFC in India) only led to further introspection about the

status of microfinance clients. With the reports of suicides in rural Andhra Pradesh

(something that regrettably happens virtually every year) thrown into the mix,

microfinance took the blame this time around. Given the populist nature of state level‐

governance in India, conditions were ripe for intervention and the AP microfinance

ordinance of 14 October 2010 was the result.

Andhra Pradesh, promulgated a law in October to control microlenders, after a spate of

reported suicides following alleged coercive recovery practices adopted by some of

them. The law restricted MFIs from collecting money from borrowers on a weekly basis

and made it mandatory thatgovernment approval be obtained if a borrower takesmore

For several pioneers of microfinance, IPO was the proverbial last straw in scripting

the downfall of the Indian microfinance sector. Suicides by the farmers were referred

to as manifestations of the anomalies that had hit the sector. As Ela Bhatt puts it,

move from public service to private purpose and super profiteering appeared to be

the two main reasons for debacle of the MFI industry.

Unfolding of the crisis

To make matters worse, the Andhra Pradesh Microfinance Institutions (Regulation of

Moneylending) Act, 2010 came down hard on MFIs for what it thought was predatory

lending practices, but it has also curbed fresh lending and recovery of loans in the

state. Thus of the Rs 20,000 crore MFI industry in India, at least Rs 7,000 crore is set

to become bad debts in Andhra Pradesh, the state with the highest concentration of

the MFI industry.

The MFIs will have to raise as much as Rs 5,000 crore by March 2012 as equity on

account of these non-recovered loans through equity. With bank’s reluctant to lend,

MFIs across the country are facing the heat of the Andhra Pradesh regulations.

Recovery dropped from 100 per cent to less than 5 per cent in the last one year.

Today, the industry is gasping for survival.

Year Outstanding Loans

2004-05 1,500**

2005-06 2,700**

2006-07 4,400**

2007-08 9,500**

2008-09 18,500**

2009-10 24,000**

2010-11 30,000**

Present size 20,000**

*estimated    ** informal estimatesSource : Crisil/ MFIN

than one loan. While repayment rate dropped to 5-10% following the state law, commercial banks, which

typically provide 80% of the funds to the industry, stopped lending as a result. Future scenario is not too

optimistic about banks resuming lending to the industry, especially to those firms that don’t have sufficient

equity capital.

AP ordinance spread much more widely than the state of Andhra Pradesh. This effect was not due to any

delinquency contagion reaching clients outside the state but rather due to the drying up of bank funds to

MFIs. Thus, the manifestation of political risk that they saw in the form of the AP ordinance, resulted in banks

reducing their sanctions in the last quarter of the financial year to a minimal level. This affected MFIs all over

the country and is the primary reason for the low (25%) growth in net portfolio of the leading MFIs during

the year.

Indispensable

The collapse of the microfinance industry has suddenly infused life in traditional money lenders even as

borrowers are either selling personal assets to improve cash flow or halting business expansion.

This only proves that microfinance is now established as a significant component of the financial system in

the country and its contribution to financial inclusion continues to rival, if not exceed, that of the rural

banking system. However, the efficacy of that contribution is now under threat. Both internal factors (such as

high growth and over indebtedness plus a lack of adequate concern for product characteristics) and external‐

factors like the policy actions of the government of Andhra Pradesh are responsible for this.

Government of India seems to have taken note of this as it proposes to rectify the situation through the

proposed microfinance law. The law would provide the sector with the full attention of the central bank as

also continue with its primary task, which is to offer at least limited deposit services to low income families

(recognizing their need for savings facilities). The bill, further, strives to protect the sector from the whims

of local government by clarifying that microfinance is governed by national laws and is, therefore, not a

state level concern.‐

All said and done, there is no doubting the fact that microfinance has actually managed to bring about

considerable change in lives of atleast a few odd families at the bottom of the social and economical

hierarchy. Intuitively then, infusing a fresh lease of air in the sector is more rational a decision than allowing

it to die a slow death. Hopefully, through the proposed microfinance bill, microfinance sector in India would

be accorded the level of significance commensurate with its contribution to millions of citizens.

Microfinance BillThe Microfinance bill seeks to make it mandatory for all

micro-finance institutions to be registered with the

Reserve Bank of India and entrusts the task of regulating

the sector to the central bank. The draft Bill also

proposes that any micro-finance institution which is not

a company registered under the Companies Act, 1956,

and which becomes a systemically important micro-

finance institution shall convert its institution into a

company registered under the Companies Act, 1956,

with or without a licence, under Section 25 of the Act.

This should happen within six months from the date of

the balance sheet that shows the MFI has become a

systematically important micro-finance institution in

terms of the rules prescribed by the central government.

The RBI may pass an order directing a micro-finance

institution to cease and desist from carrying out micro-

financing if it is found acting in manner prejudicial to the

interest of its clients or depositors.

The bill is proposed to be tabled in the parliament in the

winter session. The draft Micro Financial Sector

(Development and Regulation) Bill, 2011, was circulated

for public comments in July this year. The government

had introduced the Micro Financial Sector Bill in the

LokSabha in March, 2007. However, the Bill lapsed when

the term of the 14th LokSabha expired in 2009.

Food inflation falls sharply to 4.35%; lowest since February

2008

Food inflation fell sharply to 4.35 per cent for week ended

December 3 - its lowest reading since late February 2008, from

6.60% in the previous week. Last week, food inflation dropped to

almost a three-and-a-half-year-low of 6.6% for the week to

November 26 as a good harvest drove down vegetable prices

further, raising hopes that the stubborn inflation will finally ease.

RBI keeps key rates unchanged in its mid-quarterly

monetary policy review

RBI on 16th December has kept repo and reverse repo rates

unchanged to arrest rising inflation and slowdown in Asia's third

largest economy. The RBI kept repo rate, at which it lends to banks,

constant at 8.5%, reverse repo rate at 7.5%. The RBI also left the

cash reserve ratio, which is the amount of cash the banks have to

maintain with the central bank, unchanged at 6 per cent, despite

market speculation that it might cut the ratio in order to bolster

market liquidity.

Founder duo exits Ambuja, deal valued at Rs 185 cr

Three-and-a-half decades after they founded it, Narottam S

Sekhsaria and Suresh Kumar Neotia have completely exited as

promoters of Ambuja Cements, by selling their 0.79 per cent stake

in the company to a unit of Swiss cement major Holcim, the majority

owner. The transaction value has not been disclosed, but the stake

sold is valued at Rs 185 crore at on 15th December 2011) close of Rs

153.65.

Oct IIP sinks to -5.1% vs 11.4% y-o-y

India's industrial output shrunk by 5.1% in October after

witnessing a sustained slowdown over the past few months, led by

a steep fall in production of almost sectors, particularly

manufacturing, mining and capital goods. Factory output, as

measured by the Index of Industrial Production (IIP), had grown by

11.3% in October last year.

Food Bill put on the backburner

Fearing repeat of a recent fiasco triggered by its move to permit

FDI in retail, the union cabinet on has deferred a decision on what

can be called the present govt’s most ambitious social welfare

scheme: the Food Security Bill.

DLF set to ink Rs 900-cr Pune SEZ deal with Blackstone

DLF is close to signing a deal with private equity major Blackstone,

as the country’s largest real estate developer by market

capitalisation is planning to offload its entire stake in the special

economic zone (SEZ) in Pune. DLF is targeting this deal for 2012,

and industry sources say the announcement is likely to come

within days. (The company declined to comment on the matter.)

The deal size is pegged at around Rs 900 crore.

Food inflation falls sharply to 4.35%; lowest since February

2008

Food inflation fell sharply to 4.35 per cent for week ended

December 3 - its lowest reading since late February 2008, from

6.60% in the previous week. Last week, food inflation dropped to

almost a three-and-a-half-year-low of 6.6% for the week to

November 26 as a good harvest drove down vegetable prices

further, raising hopes that the stubborn inflation will finally ease.

RBI keeps key rates unchanged in its mid-quarterly

monetary policy review

RBI on 16th December has kept repo and reverse repo rates

unchanged to arrest rising inflation and slowdown in Asia's third

largest economy. The RBI kept repo rate, at which it lends to banks,

constant at 8.5%, reverse repo rate at 7.5%. The RBI also left the

cash reserve ratio, which is the amount of cash the banks have to

maintain with the central bank, unchanged at 6 per cent, despite

market speculation that it might cut the ratio in order to bolster

market liquidity.

Founder duo exits Ambuja, deal valued at Rs 185 cr

Three-and-a-half decades after they founded it, Narottam S

Sekhsaria and Suresh Kumar Neotia have completely exited as

promoters of Ambuja Cements, by selling their 0.79 per cent stake

in the company to a unit of Swiss cement major Holcim, the majority

owner. The transaction value has not been disclosed, but the stake

sold is valued at Rs 185 crore at on 15th December 2011) close of Rs

153.65.

Oct IIP sinks to -5.1% vs 11.4% y-o-y

India's industrial output shrunk by 5.1% in October after

witnessing a sustained slowdown over the past few months, led by

a steep fall in production of almost sectors, particularly

manufacturing, mining and capital goods. Factory output, as

measured by the Index of Industrial Production (IIP), had grown by

11.3% in October last year.

Food Bill put on the backburner

Fearing repeat of a recent fiasco triggered by its move to permit

FDI in retail, the union cabinet on has deferred a decision on what

can be called the present govt’s most ambitious social welfare

scheme: the Food Security Bill.

DLF set to ink Rs 900-cr Pune SEZ deal with Blackstone

DLF is close to signing a deal with private equity major Blackstone,

as the country’s largest real estate developer by market

capitalisation is planning to offload its entire stake in the special

economic zone (SEZ) in Pune. DLF is targeting this deal for 2012,

and industry sources say the announcement is likely to come

within days. (The company declined to comment on the matter.)

The deal size is pegged at around Rs 900 crore.

Emerging Markets

Brazilian prosecutors seeking $10B in damages

from oil company Chevron for offshore leak

Brazilian federal prosecutors said Wednesday (14th

December) that they are seeking $10.6 billion in damages

from U.S.-based Chevron Corp. because of environmental

harm caused by an offshore oil leak. The prosecutors are

also asking a judge to order Chevron and Transocean Ltd.,

the drilling contractor for the well where the leak

occurred in November, to halt all activities in Brazilian

territory for an indefinite period.

Russia: WEF Raises Financial Rating

Russia has moved up one step to 39th place in a global

ranking of financial development according to the World

Economic Forum's Financial Development Report, which

analyzes drivers of financial system development in 60

leading economies. In terms of financial intermediation,

Russia continues to show strong results in nonbanking

financial services, coming in at ninth place. Healthy

mergers and acquisitions and securitization activity drive

the solid ranking, the report said.

Philippines: World Bank commits $1.5B to PH

The World Bank has committed a multibillion-dollar loan

assistance to the Philippines over the next three years to

finance priority projects under the Philippine

Development Plan for 2011 to 2016.Under its current

Country Assistance Strategy (CAS) that covers up to June

2013, the World Bank committed an expanded program

of support in response to the government’s request for

larger lending operations.

Philippines: 2011 budget nearly spent

The national government has consumed nearly its entire

budget at end-November, according to the Department of

Budget and Management.DBM Secretary Florencio Abad

said that as of the first 11 months of the year, his

department released P1.53 trillion in allotments.

Such amount represents 93.2 percent of the P1.645

trillion General Appropriations Act (GAA) for 2011. Abad

said the near-complete release of this year’s allotment is

in line with the Aquino administration’s thrust to

implement its priority programs and projects that have

direct, substantial and immediate impact on the Filipino

people, especially the poor and marginalized.

SA factory gate prices ease

Statistics South Africa said on Thursday (15th

December) producer inflation, which represents

domestic output, slowed to 10.1% year-on-year (y/y)

in November from 10.6% in October. The consumer

price index rose to 6.1% y/y in November - a 20-

month high and the first time it was outside the

Reserve bank’s 3% to 6% target since January 2010.

South African Banks Hire Staff as New York,

London Cut Jobs

South African lenders are hiring more staff to target

the country’s poorest people as banks from New

York to London slash jobs to cut costs. Employment

in financial services climbed for a fourth consecutive

month in November, rising 0.7 percent to 1.63

million, according to an index compiled by

Johannesburg-based recruitment company Adcorp

Holdings Ltd. That growth rate was only exceeded by

South Africa’s transport industry.

SA factory gate prices ease

Statistics South Africa said on Thursday (15th

December) producer inflation, which represents

domestic output, slowed to 10.1% year-on-year (y/y)

in November from 10.6% in October. The consumer

price index rose to 6.1% y/y in November - a 20-

month high and the first time it was outside the

Reserve bank’s 3% to 6% target since January 2010.

South African Banks Hire Staff as New York,

London Cut Jobs

South African lenders are hiring more staff to target

the country’s poorest people as banks from New

York to London slash jobs to cut costs. Employment

in financial services climbed for a fourth consecutive

month in November, rising 0.7 percent to 1.63

million, according to an index compiled by

Johannesburg-based recruitment company Adcorp

Holdings Ltd. That growth rate was only exceeded by

South Africa’s transport industry.

This slowdown was coming

Most commentators watching the UPA government wrestle feebly with the Opposition

over its most prized and significant reform to date, seem to be missing a bigger problem

confronting the beleaguered government. The organised economy is falling and the

slowdown may not be a blip, but a flattening curve. Much as policymakers may want us to

believe that the next quarter will set the economy on the right course, it is difficult to

figure out, on the basis of the evidence, just how they could do it.

Many experts, including HDFC Bank Chairman Mr Deepak Parekh, who exhorted “India

Inc” to support FDI-in-retail, seem to think that this would turn the tide — but it won't.

The problems confronting the economy are systemic and not all the grandstanding by

policymakers, whether it concerns inflation control or economic revival, can turn the

curve upward.

GOVT SPENDING HELPED

And jarring as the latest CSO data on GDP for July-September might be, it certainly isn't

surprising. The rate is the lowest in nine quarters, but for almost a year, signs have been

aplenty of the GDP's reversal. The more disturbing news that investment, or gross fixed

capital formation, has also contracted isn't startling either, given its gradual deceleration

since 2009-10.

The best way to get a sense of how fragile the recent growth has been is to refer to

successive reviews of monetary policy by the RBI. Read together, the quarterly and mid-

quarterly reviews construct a narrative that offers us more illuminating clues on the

economy's prospects than policy cheerleaders tiptoeing around systemic crises.

In January, the RBI's review of 2010-11 was fulsome in its praise of domestic growth in

the first half of the year, despite inflation and a gloomy global scenario. The economy, it

gushed, had with 8.9 per cent growth in the first half, “returned to the high growth path”

with industrial output expanding 9.5 per cent between April and November 2010. But the

review noted disquieting signs: the growth pattern has, “however, been volatile through

the current year” (2010-11). Growth, the bank found, “was not broad-based”. Nearly 73

per cent of the expansion was driven by the top five manufacturing industries, with a

“combined weight of 24.6 per cent.”

Open ForumInFocus

Delhi Turns 100

As Delhi marks its 100th birthday this year, something which is most striking about

the city is its transition into being a microcosm of the entire country.

Delhi was proclaimed as the capital of British Raj on December 12, 1911, shifting

from Kolkata, by then Emperor of India George V thereby returning to the historic

city its lost glory. Between the 12th and the 19th century AD, Delhi was the capital

for many rulers. Delhi, it is said, is a cluster of 8 different cities. Siri, Tughlakabad,

Jahanapanah, Ferozabad, Dinpanah, Shergarh and Shahajahanabad are the historic

‘seven cities’ that took shape in Delhi. The eighth city, or the present New Delhi,

was built by the British Empire and is the one which is celebrating its 100 years.

100 years of Delhi has seen so much that none who knew the city then in 1911

would be able to recognize it now. This city has entered a kind of transition which it

is unable to equate with. A hundred years back, Delhi did not go beyond the area of

Shahjahanabad. Today this portion of Delhi is known as Puranidilli.

100 years of Delhi has seen the initial population of one lakh going up to the

present day 22 million. The explosion is so much that even a creative planner

wouldn’t have expected this. Delhi has evolved over the years, from an imperial

capital to the capital of a thriving economy. It has grown to become a cultural

centre and its reputation of being merely an administrative capital has undergone a

change. It has evolved into an economic and cultural focal point.

Yet, one thing remains unchanged. The charm, the specialty and warmth about the

city remains the same. Its about time that we raise toast to that!

with a “combined weight of 24.6 per cent.”

That was not all. Six core industries grew just 5 per cent in April-October 2010; electricity generation remained “modest” and coal supplies, could “fall short of target”.

What fuelled this high GDP rate? Partly private consumption and final government expenditure. The RBI tells us that even though the government had rolled back its fiscal

concessions of late 2008-09, its volume of expenditure remained high, with a focus shifting to capital expenditure on infrastructure.

So the first half of 2010-11 witnessed robust expansion, all set to return to 2008-09 levels on the basis of private consumption and government spending. Where was private

investment?

OPTIMISM COMES UNSTUCK

In its monetary policy statement for the new fiscal issued in May, the RBI could get a handle on the whole year's developments; what it found exposes the unstable foundation

of the organised economy's growth. Government expenditure was decelerating on account of fiscal consolidation. “However, aggregate investment moderated somewhat in Q3

of 2010-11.” The contraction in government spending wasn't compensated by private investment. Twelve months ago, in a period of high growth, brisk corporate sales, high

capacity utilisation and pricing power (a euphemism for manufacturing inflation) gross private investment was dismal.

As the central bank concluded, “this slowdown was also reflected in the contraction in capital goods output and weaker new project investments indicated by banks…” This

sluggishness, it warned, “needs to be reversed to bolster the potential growth of the economy”. High base effect and “moderation in investment demand” decelerated industrial

growth. Yet, the RBI remained optimistic on the economy maintaining an 8 per cent average, in the new fiscal 2011-12.

By July, it had toned down its optimism. The slowdown in Q4 of 2010-11 to 7.8 per cent, against 8.3 per cent in the previous quarter, and 9.4 per cent in the corresponding

quarter a year ago, had forced a rethink.

As for private investments, here is what it said in the review, with a long glance at the previous fiscal's robust growth: “Aggregate demand decelerated in Q4 of 2010-11,

mainly due to investment slowdown. Corporate investment intentions also moderated significantly during H2 of 2010-11.” It turned to the immediate future and complained:

“There are no signs of improvement in investment during 2011-12 as yet. Private consumption demand may be adjusting downwards, but still remains strong.”

Predictably, the scaling-down continued. In September, the RBI found Q1 GDP falling marginally. Cumulatively, the IIP increased by 5.8 per cent during April-July 2011, against

9.7 per cent in the corresponding period of the previous year. The CSO data for the second quarter then confirms a pattern in decline of not just GDP but of investments by the

private sector.

FDI FLOWS

It's not very different with FDI. A recent report in this paper mentions a spurt of $1.3 billion in the power sector in just six months of the current year. But that's piffle against

the Eleventh Plan requirement of $230 billion or $46 billion a year. In aggregate terms, India has had a poor record of FDI inflows even during high growth periods, compared

with some other emerging market economies.

In the meantime, Indian firms with sticky fingers when it comes to domestic investments are looking globally to invest in plunging economies. Acquisitions are gathering pace.

This is a ‘flight' of capital: only it is legal.

TeamChronicle

Bhavna Goal bhavna@investeurs.com

Akanksha Srivastva akanksha@investeurs.com

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