Hindustanis.Org

The economies of India and China are much smaller than previously thought, when measured by buying power in US dollars, according to data released on Monday, which could weaken their call for more clout at the IMF. The preliminary International Comparison Program report on purchasing power parity — or PPP — was coordinated by the World Bank and based on price data on goods and services in 146 countries, adjusted to reflect local cost and affordability, and converted to dollars.

The report has no bearing on the actual size of those economies, but rather looks at them with a different measuring tool — one that many emerging economies argue is a more accurate representation of their growing global influence since it takes their hefty buying power into account.

Many of those countries want the IMF to take PPP into consideration, when allocating voting rights, a contentious issue that is expected to be high on the agenda at the fund’s spring meetings in April 2008.

An IMF spokesman said there was “growing consensus” that PPP should play a role in determining voting quotas, which would raise the relative weight of developing countries.

“The impact on individual countries depends on the data for them and this new set of PPP data will ensure that any calculations done for PPP purposes will reflect the most up-to-date situation,” IMF’s William Murray said in an e-mailed response to questions.

PPP is designed to provide an apples-to-apples comparison for the buying power of countries around the world, and also gives insight into the cost of living, consumer spending and investment from country to country.

One of the best-known examples is the “Big Mac Index,” which compares the cost of the same McDonald’s sandwich in different countries.

The report takes data collected by the World Bank, Eurostat and the Organization for Economic Cooperation and Development to calculate each country’s PPP for 2005. (http://www.worldbank.org/data/icp)

China’s share of the global economy in terms of PPP fell to 9.7 per cent from an estimated 14 per cent. This was the first time that China participated in the survey, so the prior figure was calculated last year by extrapolating from old data, using a model that has since proved to be faulty.

India’s share of the world economy based on PPP dropped to 4.3 per cent from a previous estimate of 6 per cent. This was the first time India had participated in the survey since 1985.

“These are changes in estimates, the previous ones having been based on very old and very limited data,” the ICP report noted. “The real outputs of their economies have not changed, only the way we measure them has.”

Political Ramifications

When measured by market exchange rates instead of PPP, China’s share of world GDP is just 5 per cent, and India’s is less than 2 per cent — about half of their size using PPP. That explains why the report may have political ramifications as fast-growing emerging markets fight for more say at the IMF.

Emerging markets argue that the big industrialized countries have too much influence over the fund, in part because voting rights do not take into account PPP — something they hope will change in the IMF’s revised quota system.

But because India and China are smaller than previously thought in PPP terms, they may have a harder time winning support for sizeable increases in their voting rights.

Some industrialized countries worry that China and other emerging markets will surpass them in voting power if PPP is taken into consideration. In PPP, China is the world’s second- biggest economy, behind only the United States. By market exchange rates, it trails countries such as Japan and Germany.

The report shows that 12 countries account for more than two-thirds of the world’s output, including five emerging economies: China, India, Russia, Brazil and Mexico.

Overall, the results show that the size of the world economy measured in PPP terms is smaller than previously estimated. Asia’s economies are one-third smaller than previously thought, largely because of the downgrades to India and China, while Africa’s are one-fourth smaller.

Source - Express India 

For private equity (PE) players, mid-sized, family-owned companies in India still retain their charm. Leading PE firms are learnt to have evinced interest in a major fund-raising programme by Trichy-based Cethar Vessels, a Rs 1,100-crore boiler manufacturer, which has lined up an ambitious expansion programme to meet the growing demand for power generation.

Private equity players such as Chryscapital, CVC and UTI Ventures are some of the names that the closely-held Cethar is learnt to be talking to for offloading part of the promoter stake. The funds infusion could be in the range of $50-100 million, according to people close to the development.

The funds would be used up for Cethar’s expansion programme. The boiler maker had earlier said it would need about Rs 900 crore to build facilities for boiler auxiliaries and pressure parts. It also plans to raise Rs 500 crore from private equity funds and tie up with banks and institutions for the remaining amount.

When contacted, K Subburaj, chairman, Cethar Vessels, told ET: “We have mandated SSKI to find a private equity investor. We are meeting with Chryscapital. But it is one of the many meetings that SSKI is arranging for us. It will be at least a month before an investor is finalised.” Cethar is also likely to soon appoint an audit firm to do financial auditing and get another investment bank to help arrive at a valuation.

The company has been talking to a number of audit firms, including KPMG, for the purpose.Sources said Cethar intends to raise private equity money before March 2008 as it will help the company chip in with additional promoter’s equity for raising funds from banks and FIs. The company, which reported a revenue of Rs 1,100 crore last fiscal and has set its sights on about Rs 1,750 crore in the current year, has plans to go public before 2009.

Source - Economic Times 

As if the Federal Reserve didn’t have enough headaches these days, inflation appears to be on the march after a long period of relative quiet. Case in point: The release of the U.S. consumer price index for November on Dec. 14. The headline CPI surged 0.8% on the month, while the core rate, which excludes food and fuel, rose 0.3%. Markets expected tamer rates of 0.6% and 0.2%, respectively, according to S&P MarketScope.

Boosting the rate, not surprisingly, was energy, up a huge 5.7% after a 1.4% push in October. Gasoline prices climbed 9.3% and are up 37.1% year-over-year. Transportation costs were up 2.9%. Housing costs rose 0.4%, with a 0.3% increase in owners’ equivalent rents and a 1.5% gain in fuels and utilities.

Rounding out the ugly picture, apparel prices were up 0.8%, food rose 0.3%, and education increased 0.1%.

On a year-over-year basis, the headline rate accelerated to 4.3% from a 3.5% rate in October. The core rate was up 2.3% from 2.2%, and above the Fed’s implicit 2% ceiling for inflation. The stronger than expected data will be a major concern for Treasuries and restrict the Fed’s willingness to loosen, notes S&P Economics.

Action Economics expects the year-over-year headline CPI index to remain at 4.0% or above through at least February if energy prices remain at current levels. The figures proved as troublesome as the 3.2% surge in the November producer price index (BusinessWeek, Dec. 13) reported Dec. 13, accompanied by a firm 0.4% gain in the core PPI, and the jumbo November trade price gains released on Dec. 12.

Action assumes the same 0.8% headline gain for the personal consumption expenditure (PCE) chain price index in November with a 0.3% core gain. Huge gains in headline inflation will keep Federal Reserve policymakers on their heels regarding inflation risks, even if the market remains more interested in recession risks.

As could be expected, bond investors didn’t appreciate another round of hot inflation data after a big pop in the November producer price index on Dec. 13. The November CPI release drove Treasury yields sharply higher in early trading Dec. 14, though some of the news was discounted in advance of the CPI figures. The dollar firmed following the hotter than forecast CPI data, while stocks appeared headed for a negative start.

Source - BusinessWeek