Center plans 43 new IT cities in India

New Delhi: As rising cost of infrastructure and employees in big cities started threatening the Indian IT industry, the government has announced its plan to develop 43 new IT cities in the country, in order to tap the huge surge in demand for IT-enabled services over the next 10 years, while maintaining its cost effective appeal, reported The Economic Times.

The move comes when IT and BPO companies are losing their global cost advantage with the emergence of countries like Vietnam and the Philippines which offer similar services at cheaper rates and are threatening India's status as the world's back office.

The plan seeks to find a way out of the situation where companies find it difficult to recruit quality employees as the allure of BPO jobs dulls and attrition rates go up.

Infrastructure constraints in Bangalore, Gurgaon and elsewhere are other spanners in the work.

Source: SiliconIndia.com

It is felt that these new towns will provide a steady supply of workers besides being specifically geared towards the needs of the IT and BPO sectors. The proposal, suggested by a high-level group on service sector, has been cleared by the Planning Commission. "The modalities for the ambitious plan will be finalized very soon," sources said.

Indian inflation races to seven-year high

India’s inflation rate hit its highest level in seven years at the end of May, prompting speculation that the central bank would be forced to increase interest rates for the second time in a matter of weeks to contain soaring prices.
In a surprise increase, inflation jumped to an annual rate of 8.75 per cent on May 31, up from 8.24 per cent a week earlier, with economists warning it was likely to breach 10 per cent in figures to be released next week that will reflect fuel price rises at the start of June.

“Headline inflation is about to reach double digit levels,” Morgan Stanley economist Chetan Ahya said. “The RBI will likely hike the policy rate again.”
Central banks across Asia are facing off against inflation as a surge in the price of oil beyond $130 is driving up the cost of basic goods in a region that imports most of its fuel.
India’s United Progressive Alliance, the ruling coalition led by the Congress party, has taken a series of administrative measures to contain prices, ranging from curbing exports of essential commodities to suspending futures trading in key food items.

But the moves have proven largely futile in quelling inflation. Friday’s surprise increase was partly the result of a rise in the cost of some edible oils, an item whose price the government had earlier sought to control through import duty cuts and the suspension of futures trading.
Another contributor to Friday’s sharper-than-expected increase in inflation was the textile sector, an industry that is heavily dependent on petrochemicals as a raw material.
With the central government measures faltering, the RBI was forced to take emergency action, announcing after market hours on Wednesday an emergency increase in its key “repo” lending rate by 25 basis points to 8 per cent, its highest level in more than five years.
Economists now expect the RBI to increase rates by a further 25 basis points on July 29, its next scheduled policy meeting, in an effort to send a strong signal on inflation and to support the rupee, which has depreciated 8 per cent against the dollar this year.
Economists say India’s policymakers are now making a priority of controlling inflation even at the expense of growth – the economy expanded 9 per cent in the fiscal year that ended in March.
But with inflation emerging as the number one political issue ahead of a general election that must be held by May next year, that is a price India’s government is happy to pay.
India’s hundreds of millions of poor voters are highly sensitive to even minor increases in the cost of living.
Sonal Varma, an economist with Lehman Brothers, said the inflation figures for the week ended June 7, to be released next Friday, would probably reflect a government increase in India’s retail fuel prices of an average of 10 per cent as well as potentially an increase in aircraft fuel prices.
It is also likely to be driven higher by the base effect of a year earlier, when inflation dipped during the same period.
“Everything seems to be bunched up in a week where you will already have fuel prices and will already be coming off a negative base. That’s the reason why we are looking at a step increase up to 10 per cent next week,” Ms Varma said.

Source: FT.com

India's Business Schools Need an Upgrade

A business group study finds that most MBA programs need better faculty, texts, and certification
Business education is booming in India, but the bulk of rank-and-file programs in the country suffer from outdated textbooks, professors who don't keep up with economic trends, and narrow curriculums, according to a recently released report by an Indian business group.
The Business Barometer study was issued last month by the the Associated Chambers of Commerce & Industry of India (Assocham), the country's leading chamber of commerce organization. It found that beyond the top 30 institutions, most business school professors and lecturers in India's business schools are ignorant of the world's major economic trends and key developments, such as the subprime crisis in the U.S. Few read business publications.
The study's author, Jyoti Bhutani, called the findings "shocking," adding that Indian businesses are finding it difficult to get top-quality graduates. She said there is "a huge gap" between the pay packages offered to grads of top Indian business schools (BusinessWeek.com, 4/13/08) and those provided to grads of the lesser institutions.
Faculty Not Up to Par
The survey was done to assess the faculty's grasp on practical subject matter and general economic awareness at India's various MBA schools. The business school market in India has exploded in the past few years, with more than 1,600 business schools offering undergraduate business and MBA programs (BusinessWeek.com, 9/13/05). But their academic standards remain uneven: No single, independent regulator oversees the universities and colleges. As a result, the quality of many faculty members falls short, leaving students with a degree that is "devoid of any real value," said Bhutani, assistant director of Assocham's research bureau.
"While the top B-schools of India are increasingly getting recognized internationally, the remaining thousands of management institutes in the country have dismal standards of faculty," Bhutani said via e-mail.
The study found that only 6% of the 258 faculty members she surveyed read any business newspaper on a regular basis, with steady readership of business magazines "negligible." As a result, teachers are often unaware of key economic developments in India and the world. For example, 89% of the teachers did not know what India's gross domestic product growth rate was in 2006-07. Almost 92% weren't aware that the country's foreign exchange reserves have surpassed $300 billion. The study found that 91% of lecturers teaching a Business Environment class called did not know how to read financial documents, and 90% did not know that the U.S. might be in recession.
Additionally, most of the case studies or examples discussed in class are outdated because the library books used by lecturers are old. Many of the books are written by authors outside India, and teachers use case studies that lack Indian content.
A Patchwork of Certifying Agencies
"As the teachers themselves are ill-informed, even the students remain unaware of real-world developments," Bhutani said. "It has a direct bearing on the employability of the students."
Adding to the problem is a patchwork of more than a dozen accreditation agencies in India. The National Knowledge Commission, which serves as an advisory group to India's Prime Minister, criticized existing Indian regulators and accreditation bodies in a 2006 report.
"There are several instances where an engineering college or a business school is approved, promptly, in a small house of a metropolitan suburb without the requisite teachers, infrastructure, or facilities, but established universities experience difficulties in obtaining similar approvals," the commission wrote in the report.
M.S. Shyamsundar, deputy adviser for the government-run National Assessment & Accreditation Council, said his agency had accredited about 15 business schools, all of which adhered to his agency's strict criteria and guidelines. He acknowledged that the academic quality of business schools varies widely throughout the country. "I think we have different shades of quality institutions, ranging from very mediocre to very good," Shyamsundar said in a telephone interview.
Accreditation Must Be Improved
He said he hopes more business schools will come forward for accreditation in the next few years, a step that will go a long way to improve the reputation of these management institutions. "Quality is one of the pressing concerns," he said. "This is why we are asking them to come forward for accreditation. Once they do this, the schools can know their strengths and weaknesses."
John Fernandes, president of the U.S.-based Association to Advance Collegiate Schools of Business International (AACSB), said his agency is working with four or five of the top Indian business schools that are seeking AACSB accreditation. Most are members of the "elite" business school cadre in India, known as India Institute of Managements. None of the top Indian business schools has accreditation from AACSB, one of the leading business school accrediting agencies.
Setting a high standard for Indian business schools by satisfying a quality accrediting agency is an important step for Indian business schools, said Assocham's Bhutani. An improved accreditation process would have a ripple effect on all Indian business schools, he continued, forcing them to improve the quality of teachers, materials, and professional development.

Source: BusinessWeek

Why the Indian markets falling

It all started with the US subprime problem and the global credit crunch, which led the BSE Sensex nosediving from its peak of 21,206 on January 10, 2008 to 14,677 on March 18. A part of the fall can also be attributed to the concerns pertaining to the increase in crude oil prices and its impact on India's economic growth.
Some of the early signs were also visible from rising inflation and the slowdown in domestic industrial production numbers. This further led to concerns over high interest rates, slowdown in GDP and thus, corporate earnings as well.
Sensing these developments, foreign institutional investors were the first ones to move out of the market, and they partly became the reason for the markets to fall.
End of the bloodbath?
If the global and domestic problems persist, experts predict the Sensex to fall to 12,000-14,500 levels. Though bold and unbelievable, there are few players who are predicting that the Sensex may touch the 9,000 levels.
While we are not predicting the Sensex levels, we jot down and bring certain factors that may determine the future course of the markets and what investors should do during these uncertain times.
Crude realities
No investor will be willing to invest in an asset headed for reporting lower profits and no asset can be profitable if costs are higher than realisations.
Crude oil is one such commodity, whether it is the economy (macro) or corporate profitability (micro), which is considered to be the source of most of the problems.
While crude oil prices had corrected to $125 levels, after crossing $135 a barrel mark, it again scaled a new peak of $139.12 a barrel last week. There are reports predicting that it will go to $150 to $200 a barrel.
There are several reasons attributed to the recent spike in the crude oil prices including increased financial investments and a marginal rise in costs of oil production.
Whether the crude oil price rises to such high levels or not, experts suggest that the good old days of cheap oil may be gone for a long time to come.
Bloating deficit
According to studies, a $10 increase in the crude oil prices may reduce India's GDP growth by about 0.3 percentage points and an increase in the consumer price index by 1.2 percentage points.
India imports about 70 per cent of its oil requirements, suggesting that at current levels, it will have to pay a significantly higher amount to meet demand. It has already led to a large trade deficit (over 7 per cent of the GDP).
How they compare
Fiscal deficit, which is currently at about 3 per cent of the GDP, could reach to 10 per cent levels if the fertiliser, food, farm and oil subsidies are added.
Hence, further rise in crude oil prices will only make things worse. Not only this, rising oil will have serious consequences on others things as well.
"If crude oil touches $150 levels and sustains there, it will be a crude awakening for the global as well as for India. India's annual import bill will touch to $140 billion against the $78 billion estimated for the FY08," says Devendra Nevgi, CEO and CIO, Quantum Mutual Fund.
High inflation
High crude oil prices would have a sweeping impact on the Indian economy.
To put forth some of them: Higher inflation rate, rupee depreciation, increasing trade account and fiscal deficit, and firm interest rates. The other side of an oil shock would probably the ensuing political instability and social unrest.
Sector fortunes
The inflation rate, which is already high at over 8 per cent, could emerge as a key concern. Economists share different views with regards to inflation reaching the double digit figure in the short term, and if not, it could range at about 7-8 per cent, especially after the recent hike in the petrol and diesel prices
Source : Business Standard

IT tax sop scheme might extend beyond 2009

The Indian government is likely to extend the tax-free software technology parks of India (STPI) scheme beyond 2009, a central minister said on Wednesday.

"The STPI scheme, initially brought out to develop IT industry in the country, might be extended so that IT industry continues to achieve its stupendous growth," said Communications and IT Minister A. Raja here.

He was addressing the India Leadership Forum 2008 organised by the National Association of Software and Services Companies (Nasscom).

The minister said his ministry was in complete sync with the demands of the STPI and special economic zone (SEZ) schemes for the industry and was pushing its case.

The STPI scheme, which is set to expire in 2009, provides a 10-year income tax exemption for units situated in software technology parks. Nasscom had Monday sought the extension of the STPI scheme.

While large companies could move over to SEZs, small and mid-sized companies were finding it difficult to follow suit owing to cost barriers. SEZs are mostly located in and around large cities.

Raja said his ministry is trying to extend the concessions currently available to SEZs.



He lauded the IT industry for achieving its targeted growth despite global recession and a strong rupee.

"I am deeply impressed that the IT industry is on par to reach $60 billion in revenues by 2008 and provide employment to two million people, an increase of 370,000 over the previous year."

Raja called upon the IT industry to come out with innovative products and services to help reach the rural India.

"Eighty per cent of the population is bereft of Internet connectivity and the IT industry should come with affordable products and services so that the fruits of IT revolution will reach the masses."

Raja also said the IT Ministry was planning to develop tier I and tier II cities into major IT hubs.

IT sector plagued with under-skilled staff

Insufficient IT staff availability, service delivery issues, and difficulty in proving the value of information technology (IT) continue to plague executives at IT organizations around the world, says a new report by the nonprofit, independent IT Governance Institute (ITGI).

ITGI commissioned a global survey of 749 CEO / CIO level executives in 23 countries to determine their IT governance priorities and their organizations' IT-related problems. According to the IT Governance Global Status Report 2008, which is available as a complimentary download at www.itgi.org, 58 percent of respondents noted an insufficient number of staff, compared to 35 percent in 2005.



Also, 48 percent said that IT service delivery problems remain the second most common problem, and 38 percent point to problems relating to staff with inadequate skills. Thirty percent of respondents also reported problems anticipating the return on investment (ROI) for IT expenditures.

The study is a follow-up to ITGI's 2003 and 2005 surveys and tracks IT governance trends over the past four years. Several important business developments relating to IT are identified in the report, including.

For 93 percent of respondents, IT is somewhat very important to the overall corporate strategy, while 32 percent of respondents say that IT is always on the board agenda - up from 25 percent in 2005. IT department, according to 18 percent of respondents, informs the business about potential business opportunities, up from 14 percent in 2005.

Fifty percent of respondents were aware of the Control Objectives for Information and related Technology (COBIT) framework for IT governance, nearly doubling since 2005.

Alignment between IT strategy and corporate strategy is average, poor or very poor, feel 36 percent of respondents. According to the survey, the percentage of organizations that are in the process of implementing or have already implemented IT governance practices in different regions are: South America - 27 percent, Asia - 44 percent, Europe - 50 percent, and North America - 50 percent.

"The bottom line is that many organizations around the world are needlessly sacrificing money, productivity and competitive advantage by not implementing effective IT governance," said Lynn Lawton, International President of ITGI.

India 4th biggest loser among emerging markets in Jan: S&P

A study by financial market data provider Standard and Poor's (S&P) says that India has become the fourth worst performer among all the emerging markets in the first month of 2008, with a loss of close to 16 percent. In 2007, the country emerged as one of the top performers in the equity markets.

"If investors thought the market could only go up, January's wake-up call pulled them back into reality," S&P said in its monthly update on world equity markets.



A bearish sentiment across both emerging and developed markets caused loss of a whopping $5.2 billion to the global stock markets, marking one of the worst ever starts to a new year, S&P said.

"There were few safe havens in January as 50 of the 52 global equity markets ended the month in negative territory, with 25 of them posting double-digit losses," S&P's Senior Index Analyst Howard Sliverblatt said.

While developed markets suffered a loss of 7.83 percent, the emerging markets registered a loss 12.44 percent during the month.

All the 26 developed markets posted negative returns, with 16 of them losing over 10 percent, reflecting a disappointing trend in emerging markets despite gains seen by Morocco (10.17 percent) and Jordan (3.11 percent).

Among emerging markets, Turkey was hit the hardest losing 22.70 percent followed by China at 21.40 percent. Russia lost 16.12 percent, while India lost close to 16 percent, S&P said.