April - June 2009 | Deccan Despatch | 1

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April - June 2009 | Deccan Despatch | 1 Confederation of Indian Industry April - June 2009 | Deccan Despatch | 1 Southern Region Industry Economic Update 6 Budget’09-10: 2009 -10 Focus on Growth, The Indian Industry is on the path towards early recovery and thanks to the 12 Infrastructure and Inclusion various economic measures taken by the Government for a quick revival of economic growth. Even though India is projected to be the fastest growing nation in 2010, there World Environment Day are some significant challenges that lie ahead for the economy. A strong Celebrations at CII Southern focus on increasing the agricultural output, revival of manufacturing and Region 5th June 2009 16 increased spending on infrastructure would pave the way for achieving a robust economic growth. In Southern Region, we have been in continuous dialogue with the policy Power Scenario in makers in ushering reforms to propel the growth of key industry sectors in 19 South India each of the Southern States. I am happy to share with Members that CII recommendations such as; setting up of State Level Manufacturing Competiveness Council and the proposal for The Complexities in an Aero Park in Chennai have been formally accepted and also announced in Labour Legislations – the Tamil Nadu State Assembly. A Thought 24 Reforms in the power sector are one among the thrust areas of focus on our policy work. Unbundling of power sector, provision for open access system CSR Corner and encouraging private sector participation in generation and distribution are some of the key recommendation of CII. Corporate Social Responsibility at MphasiS an In this issue of Deccan Despatch, the article on ‘Power Sector Reforms in 31 EDS Company Southern Region’ by Mr A K Mathu, Executive Director, TATA Projects highlights the role of different stakeholders in making the power sector globally competitive. Special focus - CII, at the National and at the State Level is pushing for flexible and industrial friendly labour laws to make our industry more competitive. The article on Puducherry Highlights 34 ‘Complexities in Labour Legislations’ contributed by Mr K Varadan, Business Head (Labour Consultation & Audit Services), Aparajitha Corporate Services Business with Soul - pg 37 (P) Ltd presents insights on labour legislations and its impact on industrial development. CII Deccan Doings This issue also has a special focus on Puducherry, carrying a special message from Mr V Vaithilingam, Chief Minister of Puducherry on the industrial scenario Regional Activities, State of the Union Territory of Puducherry. 40 Activities, Zonal Activities We are also presenting to our readers, in this issue, the findings of the CII Southern Region Economic Update covering the key sectors – Textiles, Automotive and Auto Components, IT and IT-Enabled Services, Chemicals and Fertilizers, Pharmaceuticals & Biotechnology. YI in Action 66 We hope you would find this issue of Deccan Despatch interesting and informative. We would be happy to receive your feedback at [email protected] for suggestions and improvement of our newsletter. Edited, printed and published by: Regional Director, CII Southern Region on behalf of the Confederation of Indian Industry at 98/1 Velacherry Main Road, Guindy, Chennai 600 038, Tel : 91-44-42 444 555, Fax : 91-44-42 444 510, Email : [email protected], website : www.cii.in Confederation of Indian Industry SOUTHERN REGION INDUSTRY ECONOMIC UPDATE Economic Trends & Outlook investment is projected to rebound somewhat. India’s real growth in gross domestic product This should eventually feed through to stronger (GDP) exhibited a sharp slowdown from the consumption and the economy should regain latter half of FY2009 driven by the strong, momentum in late-2009. The increase in long- negative response of global demand to a term interest rates associated with a widening combination of the credit squeeze, negative fiscal gap, at a time when inflation is falling, wealth effects stemming from lower house and pushes real interest rates up, which might equity prices, and a generalised loss of restrain investment more than expected. On the confidence. From late-2008, even though other hand, higher equity prices could make it domestic investment and consumption growth easier to raise finance and might also generate held up to some extent, the slowdown and wealth effects that could help the economy grow subsequent decline in merchandise exports has faster. led to a marked slackening in output growth. Further weakening in external demand in early The exceptional contraction of world (and 2009, together with a likely unwinding of the India’s) trade from late-2008 is expected to excess stock building that occurred in gradually ease and come to a halt by end 2009, Q4FY2009, and has caused a contraction in with a recovery projected in 2010. The recovery industrial production in January-March 2009. is based on the expectations of improved credit However, industrial production has shown conditions, stronger GDP growth in developed modest growth of 1.9% during April-May 2009. economies, direct positive impact of the earlier improvement in financing conditions. Trade Although domestic real GDP growth has declined growth in developing economies is expected to from 9% in FY2008 to 6.7% in FY2009, GDP recover earlier reflecting recoveries from the growth could recover to 7.75% in FY2010 slowdown in growth in these countries. conditional on normal monsoons and likely recovery in the world economy. However, the world economic recovery is still fragile, and In the developed economies, the recession is domestic real GDP growth for FY2010 could be projected to bottom out in the second half of as low as 6.25% if there are delays in a US revival. 2009. A slow recovery in activity is projected to Further, monsoons are likely to be deficient with start towards the end of 2009, with stimulatory rainfall likely to be 93% of long-period average. policy settings together with a gradual normalisation of financial conditions and a pick- up in growth in the emerging and developing India’s economic recovery is likely to be assisted economies helping support consumption and by the likely developments in the external investment growth which will gradually gather sectors. As exports start to grow once again, strength in 2010. driven by weaker exchange rate, a recovery of world trade and a lower cost of capital, business 6 | Deccan Despatch | April – June 2009 Confederation of Indian Industry above three items, followed by some slippage in May 2009. Readymade garments production A recovery already appears to be in motion in growth seems to have recovered however. most large non-Organisation for Economic Co- operation and Development (OECD) countries. This is particularly so in China, against the After five years of increase, India’s cotton background of substantial monetary and production is expected to decline 7.9% in especially fiscal stimuli. At the same time, these CY2009 to 4.93 million tonnes (mt). However, countries do not suffer from the kind of balance- in the wake of firm prices and possible demand sheet damage that afflicts many OECD countries. recovery in 2009-10, India’s cotton acreage may increase marginally in CY2010 with consequent marginal increase in cotton production. After a Global financial conditions appear to have eased period (mid-2004 to late-2006) of strong in the course of the first half of 2009. An increase consumption growth, India’s cotton in risk appetite has led to a rally in stock prices consumption growth has slowed down in world and Indian markets. Although cuts in significantly from early 2007. Weak domestic policy interest rates, continued provision of and export demand prospects for 2009 are ample liquidity, credit easing, public guarantees, expected to result in a 4.6% decline in domestic and bank recapitalisation have lowered concerns consumption in CY2009, compared with a 9.4% about systemic failure and have supported annual average growth during CY2005-07. financial intermediation; confidence in the Similar factors have been behind the decline in banking system remains depressed, and MMF production and consumption in FY2009. institutional lending worldwide and in India However, production has increased at a modest could continue to post lower growth through rate in April-May 2009, driven by some demand 2009. It could take some more time for the recovery and stock rebuilding. unprecedented fiscal and monetary measures implemented so far to translate into a durable normalisation of financial markets. World and domestic cotton prices had increased sharply during 2003-08. However, cotton prices TEXTILES have plunged sharply from September 2008 onwards, because of lower expected global demand in 2009, and uncertainty regarding the Following strong growth during FY2005-07, consequences of the global financial crisis. there has been a sharp slowdown in domestic Although prices have recovered in recent textile and clothing (T&C) production during months, this rally has not been sustained as FY2008 and FY2009, with the index of industrial demand remains subdued. production (IIP) for cotton textiles and man- Prices are expected to slide further on strong late made fibre (MMF) declining in FY2009. season arrivals and government price measures However, the IIP for textile products (including to liquidate stocks. In India, polyester fibre and wearing apparel) continued to increase at modest yarn increased sharply during the first half of albeit lower rates in FY2008-09. India’s T&C FY2009 due to a significant increase in raw industry has reported deteriorating performance material costs caused by record crude oil prices. during FY2008-09 because of exchange Prices then declined sharply because of a sharp fluctuations, high input costs for most of the decline in crude oil prices. period, incomplete pass through of costs in the face of weakening demand, and a sharp Prices of MMFs are likely to mirror movement slowdown in demand from 2008. A moderate in crude oil prices, but price levels are expected recovery was witnessed in April 2009 in all the to be firm to declining because of uncertain demand prospects.
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