Home/ Politics / News/  The week in review

New Delhi: With the elections around the corner, the government this week threw all caution to the winds and opened the floodgates for unbridled spending. Stand-in finance minister Pranab Mukherjee, who stuck to the rule-book in the interim budget, announced a third stimulus package on Tuesday that would cost the exchequer an additional 0.5 % of GDP. Two days later, commerce minister Kamal Nath announced sops for exporters worth Rs325 crore.

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The government raised the dearness allowance for central government employees and pensioners by 6%, costing another Rs6,000 crore to the exchequer. Petroleum minister Murali Deora hinted that he could cut diesel prices and the Opposition was quick to hit at out at the government.

BJP spokesperson Rajiv Pratap Rudy said: “It is a desperate bid to position themselves politically. I don’t think people are going to accept them through their press conferences. What they should have done was to perform, which they have not done in the last five years."

According to some economists: “The RBI is now expected to cut rates further. But that alone may not help."

“The revival package addresses some of these concerns but as you know the slowdown has come after one and a half years of squeezing in monetary policy. I don’t think you can expect overnight improvement in performance either. One thing RBI can do to discourage banks form keeping funds with the RBI is to cut down reverse repo rates further", says Anjan Roy, Advisor, FICCI.

Meanwhile the real economy continued to gasp for breath in intensive care. Third-quarter GDP estimates plunged to 5.3% as opposed to 6% predicted by most polls. The rupee plunged to record low of Rs50.69. In the coming days, it is expected to go even lower at Rs51 to a dollar. S&P lowered its outlook on India and it now appears that Indian economy is in deep slowdown as any other Asian nation and in fact China may recover faster.

At fraud-hit Satyam, the suspense over who would hold majority stake in the company may be coming closer to an end. Although the company’s new board has not yet made an announcement, Mint has reported it will initially offer only a 31% stake to a strategic investor through the preferential route. It wants the winning bidder to buy a further 20% through a mandatory open offer to minority shareholders. The board would consider another preferential offer if the investor fails to get a 51% stake after the open offer concludes.

An official who did not want to be named told Mint that the intention was to provide an exit route to the company’s minority shareholders through the open offer and to bring much needed funds into the company.

In the boom time preceding the slowdown, Indian companies went shopping across the globe and many high profile deals were struck, the high point being Tata’s $12.1 billion acquisition of UK steel giant Corus and Hindalco’s Novelis buy of nearly $6 billion. But with the meltdown kicking in, doubts are being raised about the rationale of such deals.

Counting deals only above $100 million - 54 listed Indian companies concluded $45 billion worth of mergers and acquisitions between 2005 and 2008. Now, 85% of these deals are valued at a loss and together they are worth less than half at $21 billion.

Says CEO and equity head SMC Capitals, T. Jagannadham: “This raises the questions whether such deals were smart buys by Indian companies or smart sales by foreign companies."

Apart from telecom all other sectors have seen massive wealth erosion. The auto sector has seen maximum deterioration with media and entertainment coming second. Hospitality and aviation deals too are seeing a rough time. Analysts say part of the reason is the deals were done at the peak of their respective industry cycles, with no thought of a possible downturn. Perhaps indicating that it is time for Indian dealmakers to reassess their M&A strategies.

When Slumdog Millionaire swept the Oscar awards, it didn’t come as a surprise to the world. The movie was a favourite through the run up to the final event. India rejoiced with A.R. Rahman winning two, one along with writer Gulzar and the third going to sound recordist Resul Pookutty. Those in the Mumbai music industry were ecstatic.

Resul Pookutty’s win for sound engineering is expected to do a lot for the industry. The Oscar wins have made India proud. Now it is to be seen, how good the win will be for business.

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Updated: 27 Feb 2009, 11:36 PM IST
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