Managing drought

Managing drought

The Centre has woken up to the reality of drought-like conditions perhaps a little too late.

Drought is like pregnancy; you cannot hide it for long. The Centre has woken up to the reality of drought-like conditions perhaps a little too late — after the southwest monsoon has crossed the half way mark. Over 70 per cent of the country’s farmlands are parched and thirsting for water and about a quarter of the total number of districts have already been declared drought-hit. Precious time has been lost in implementing any contingency plan or initiating relief measures simply because the Centre has been hoping against hope that the rains would not fail. The Meteorological Department forecasts have gone completely awry this season. Now that damage is staring the nation in the face, the Prime Minister has stepped in. Customary noises about sufficient foodgrain stocks, market intervention to contain price rise and crackdown against black-marketing have been made. Beyond that, there is no indication of a coherent and comprehensive action plan to augment availability of essential commodities, strengthen supply of foodgrains and other essentials through the public distribution system, curb speculative tendencies in the market and generally mitigate the negative effects of smaller harvest.

In some sense, the onus of fighting the drought has been passed on to the States many of which have neither the will nor the wherewithal to undertake effective relief work. While de-hoarding operations at the State level must continue, it is important that the Centre makes food product imports and movement smoother. For instance, greater coordination among agencies such as ports, customs and plant quarantine would help clear imports of pulses, sugar and edible oil faster. Movement of essential foods should be expedited by making railway rakes available on priority. It is important that the government does not send out panic messages of large-scale imports; they do nothing except propelling international prices up. Open market sale of rice and wheat must commence soon in a regionally-differentiated strategic manner intended to meet consumer needs.

For the aam aadmi, this festival season may not be as bright as he would have expected. It is absolutely essential that the rigours of the drought, especially affecting the poor, are mitigated as much as possible. This is possible only if the Government demonstrates through policy action enough commitment to advancing the welfare of the poor. If there is a fortuitous extension of the monsoon beyond September into the first two weeks of October, sub-soil moisture would improve, boosting the prospects for the rabi crop. That is a hope. Even after six decades of planned development if we have failed to make the economy substantially drought-proof, it is a sad commentary on our policies and administration.


An ageless proposition

An ageless proposition

The basic concept employed by Wipro to sell Santoor soap has not changed in over two decades..

Anil Chugh, Senior Vice-President, Wipro Consumer Care and Lighting

Anjali Prayag

For over 20 years now, the Santoor woman has continued to baffle people with her ‘ageless skin.’ Is this an adman’s bold bet on selling a concept or is it just a creative expression that has worked well for a traditional sandal p lus turmeric soap for over two decades?

Today, as the No. 1 soap brand in South India and No. 3 in the country, Santoor’s context of ‘mistaken age’ has not lost its sheen, insists Anil Chugh, Senior Vice-President, Wipro Consumer Care and Lighting. The need for maintaining a youthful skin is universal and cuts across cultures. “Women like their skin to lie about their age and in the last 20 years, we have made the context of ‘mistaken age’ contemporary and so it has not lost sheen,” argues Chugh in favour of the campaign retaining the same proposition for long.

Santoor, launched in 1984, was an atypical soap for the period, positioned in the ‘natural ingredients’ segment when the market was crowded with 100 brands from 20 companies with health, beauty and skincare and freshness as their selling points. The dominant brands then were Lifebuoy, Liril, Lux, Rexona, Hamam and Cinthol. An extensive market research threw up the answer for Wipro Consumer Care, a soap that would offer consumers the benefit of ‘younger looking skin’ with ‘natural ingredients’, and thus the beginning of a creative expression that has remained consistent through two decades.

Although the company has retained the concept in essence, it has allowed the protagonist to evolve from a traditional ‘mother’ to an achiever willing to step outside her home. The year 2003-04 was a landmark year for the company when the brand was re-launched with glamour and achievement both woven into the product. The white variant was launched in 2006 and the company brought in Bollywood actors Saif Ali Khan and Madhavan to add glamour and male admiration to the mix.

And so the mother-daughter characterisation continues. Chugh is confident that if the company continues to keep it current and relevant it will not lose its sheen even in the future. More importantly, it’s working well and there’s no compelling reason to change it, he believes.

When Wipro’s consumer care division test marketed Santoor in the country in 1984, it was found that the then four lakh-tonne soap market, growing at five per cent per annum, needed a soap that created a unique brand and what was desirable was ‘looking young.’ Three re-launches later and at a market size of 5.57 lakh tonnes and value exceeding Rs 7,606 crore, the original sandal plus turmeric (Orange) offering has two new variants (Santoor White and Glycerine). Why did the company take so long to experiment with the brand? Chugh says that any new variant should expand the market, adding new customers to the brand and enhance its equity, and all this without cannibalising the current customer base. Therefore, the company waited for its core offering to achieve critical mass before addressing new segments through variants. Santoor is now a Rs 600-crore brand with its three variants.

With a value share of 15.1 per cent in the South Indian market and 7.5 per cent all-India, it is now among the top three brands in the country, and grew at 18 per cent last year. But Chugh is all poised to replicate the soap’s success in the South in other upcountry markets. In Maharashtra, for instance, Santoor is a close No. 2 with 22.7 per cent market share in June 2009, just behind Lifebuoy which is at 22.9 per cent.

Santoor has now occupied two price positions in the soap market: Santoor Soap priced at Rs 18 for 100 gm in the popular price segment and Santoor Glycerine priced at Rs 20 for 75 gm in the premium price band. In 2008, the premium soap market was estimated at Rs 1,750 crore and the popular segment at Rs 4,184 crore. The sub-popular range accounted for about Rs 1,674 crore.

Apart from the soap variants, Santoor has extended the brand to new but related products: cream, face wash and talc. Though Chugh refuses to divulge individual sales details, the talc is doing well with a market share of around seven per cent in some of the core Santoor markets, he says. The company has effectively used the modern retail format for these products. Enchanteur and Romano, brands from Unza, its overseas acquisition, were launched to address the needs of the customers walking into these stores. Enchanteur is a fragrance-led brand in personal care for women with products in the deodorant, perfumes, talc, hand and body lotion and handwash categories. Romano is a male grooming brand with hair gel, shaving foam, shampoo, talc, shower foam and deodorant.

In fact, the brand’s regular categories have a respectable presence in these stores and its market shares are relatively higher here than traditional trade market shares. These stores give the company the opportunity to interact with customers more closely, he says.

With Santoor wooing the 30-something Indian woman, isn’t it an oversight to leave out the majority of the potential user segment? Isn’t the brand alienating the man of the family, who’s left to admire the ‘woman with young-looking skin?’ Chugh explains that the brand’s positioning of ‘secret of younger looking skin,’ is universal and cuts across all age groups. The mother-daughter combination connotes that it is a soap for the family. We are not alienating the ‘man’ in the family, insists Chugh, explaining that in India, sharing a soap among family members is quite common. Moreover, soaps targeted at men or the ‘masculine soaps’ segment is very small in India.

The company is also betting on another variant with natural ingredients that would address customers in the urban and Tier I cities seeking premium and luxury offerings. Chugh says the ‘modern’ variant would be launched during the coming season and would be priced at Rs 18 per 100 gm pack. The Santoor woman has thus evolved with the soap while the soap has evolved with her.

Environmental fundamentalism

Environmental fundamentalism

11 Aug 2009, 0223 hrs IST, M K VENU, ET Bureau
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A climate of intolerance, indeed a new environmental fundamentalism, is developing among the western elite over the climate change debate as

governments around the world prepare for a new consensus on emission reductions at Copenhagen, end-2009.

Nobel laureate Paul Krugman has said those who oppose the new climate change Bill in the United States are committing “treason against the planet”. Other less reputed academics have said irresponsible environment policies must be treated as “crime against humanity”. Some are saying there is too much democracy which is preventing a firm decision on emission cuts to be undertaken by all countries.

In principle one agrees that all nations must be sensitive to global warming and its disastrous impact on the world at large. However, one is not sure whether it is good to become fundamentalist about issues relating to climate change.

For instance, a call has been given by Al Gore that there should be an immediate moratorium on coal-fired power plants. Look at how this will impact India. More than half of the 8,00,000 mega watts of power India plans to produce by 2030 are to come from coal-fired plants. Simply because India has abundant coal resources.

What most western analysts don’t realise is nearly 550 million Indians do not have formal access to any source of electricity.

To draw a comparison, it is a bit like the entire US population and half of the European Union living without any regular access to electricity. Can you estimate the enormity of this problem? This is what Prime Minister Manmohan Singh told former US President George Bush at the G-8 summit in Japan last year when the US tried to force India to commit carbon emission cuts. India merely said it would keep its per capita emissions at below the developed world average.

India’s per capita annual emission (PCE) is about 1.1 tonne. The United States’ per capita carbon emission is over 18 tonnes and the world PCE average is around five tonnes. So India still has scope to increase its per capita emissions by about four times and yet remain below the current world average.

However, the western governments are in no mood to allow India go up to the world average level of emissions, and they want caps on emissions put in a manner that it will become difficult for India to meet the basic energy needs of the people using local resources.

For instance, India’s per capita annual electricity consumption is only 500 units compared to 8,000-10,000 units per capita consumed by the western societies. Look at the yawning gap. It is morally shocking. Also, nearly 800 million Indians must be consuming less than 100 units per capita every year.

This is simply because in Uttar Pradesh and Bihar, with populations of over 300 million, there is no electricity on average for 8 to 10 hours a day, apart from a large number of villages all over which are not connected to the grid at all.

So it is quite reasonable to expect that India’s per capita electricity consumption will go up from the present 500 units to at least 3,000 units in the next 10 years. But India will still consume less than half of the present per capita electricity consumed by the west. This difference of magnitude is what the west needs to appreciate.

Now much of the incremental electricity has to be coal-fired because India has over 250 billion tonnes of coal reserves. If the west does not want India to use coal, it must compensate India for using other clean fuel-fired electricity. If compensation is determined on this basis, the west may have to pay India over $130 billion every year as additional cost of substituting coal with other clean fuels.

Is the west willing to pay such costs to India and other developing economies like China? If this aspect of the climate change debate is ignored, then the Copenhagen consensus will be seen by the developing world as an instrument of power being wielded by the west to control trade, investment and technology flows in the emerging globalisation sweepstakes.

The G-8 is currently talking about two broad parameters which are likely to become the basis of undertaking emission cuts by all countries. One, overall emissions must be reduced by 50% from current levels by the year 2050. Two, the world must limit the global warming up to 2 degrees from pre-industrial levels. However, according to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC), only an 85% reduction in emissions (from 2,000 levels) can possibly prevent a global warming of 2 degree and more.

According to a rough calculation by a member of the prime minister’s advisory panel on climate change, an 85% reduction in the overall global emissions would mean that the world per capita emissions should fall from about five tonnes at present to 0.75 tonnes in 2050.

This has major implications for the developed economies. The per capita average emission for developed economies is about 10 tonnes at present. So if the developed world is to move from a per capita emission of 10 tonnes at present to 0.75 tonnes in 2050, it would be tantamount to a reduction of about 93% in per capita emission. Western societies are unlikely to undertake such a dramatic cut in per capita emissions.

Even an overall 50% reduction in global emissions by 2050 will require each person in the developed world to cut his/her carbon footprint by over 70% over the next four decades. This will be possible only if the developed world actually embarks on a radically new consumption path.

Cutting per capita carbon emissions by 80-90% will not happen through such mechanisms as carbon trading and technology transfers. In short, climate change cannot be seen as another instrument for enhancing global trade in new, low carbon technologies, desirable as they may be, per se.

For a real solution, we may have to go back to Gandhi’s position that the world has enough to satisfy everybody’s need, but not enough for anyone’s greed. At a moral level, which is also ecologically compatible, each individual will have to examine his/her carbon footprint and each country its development model for any meaningful consensus to evolve on the climate change debate. This is too critical to be left merely to global diplomacy!

Great expectations from China

Great expectations from China S. VENKITARAMANAN

China achieved more success than the US and other countries in stimulating its economy because it focused on infrastructure development before the onset of the slowdown. However, China may consider converting the renminbi into an international currency to take care of its bloated reserves, says S. VENKITARAMANAN.

The Western media has been engaged in recent weeks in analysing the prospects of China coming to the rescue of the global economy. The issue of Time dated August 10, 2009 has an article discussing the possibility of its economic resurgence. China’s economic growth has , of course, been exemplary. While it has grown at robust rates, its GDP has depended, to a large extent, on demand for its exports in US and Europe.

One view is that China is fast on its way to surpassing Japan as the second largest economy in the world. China’s economic growth has contributed to more than 70 per cent of the world’s economic growth in recent times . Further, fortunately for China, the Chinese economic stimulus package has worked far better than the much-touted stimulus package of the US administration.


One reason why China’s economic stimulus package has worked is that its stimulus package focuses on government spending on infrastructure projects. The Chinese authorities were already in the midst of an aggressive programme of building infrastructure, even before the onset of the slowdown .

The additional money given for the stimulus package could, therefore, be readily absorbed by readymade projects. Meanwhile, in the countryside, the authorities have been busy spending the stimulus package on infrastructure projects. These initiatives will provide a boost to the economy, besides improving its manufacturing efficiency and export competitiveness.

The Peoples’ Bank of China – its Central Bank – has also concentrated on providing additional loans to various infrastructure projects from the national banking system. This has meant that the fiscal economic stimulus package of government works more efficiently in China than in the US or elsewhere. Obviously, there was a risk that some of these large loan funds could flow into equity or real estate. The Chinese authorities are fully aware of the dangers of such mishaps.

The fact that the economic stimulus package in China has succeeded is an illustration of how a determined government, which spends public money efficiently on well-designed infrastructure projects to stimulate the economy and ensure jobs and economic growth, can succeed in the current context.

Chinese monetary authorities and the government have worked in tandem to ensure that the objectives of growth and employment generation are not compromised.


The growing strength of China in the global economy brings with it certain problems, both for China and the rest of the world. One of them concerns the aggressive policy of China in encouraging exports by maintaining competitive exchange rates. This has led to China’s reserves increasing over the years.

A recent report points out that China’s reserves amounting to $2 trillion are parked in dollar-denominated securities, mostly US Treasury bonds. China has legitimate concerns over the devaluation of the dollar.

A recent article in the Financial Times (FT) exploring how China is trying to find its wayout of the dollar trap points out that if China tries to diversify its dollar holdings by selling its US Treasury securities and moving into other currencies, it will damage further the value of the US dollar and will reduce the value of its residual holdings.

The Chinese dilemma is thus obvious. It can content itself by threatening to move out of US Treasury securities. But, if it carries out its threat by selling its Treasury holdings, it would be acting in a self-destructive manner.

According to an FT article, China is, however, exploring the alternative of making renminbi (the Chinese currency) an international currency. That is to say, instead of trades into and out of China being settled in dollars, which are then converted into renminbi, China would, under the new alternative, encourage settling in terms of renminbi itself. The article points out that this may not be such an out of the way solution.

Much of Chinese trade, other than with US, is conducted with emerging market economies, who are familiar with settlement in renminbi.

The FT reckons that such a mode of settlement will make the renminbi one of the most active foreign currencies so far because of the size of Chinese trade with other emerging market economies.

China is already encouraging trade denominated in renminbi by subsidising exporters and importers who quote in that currency. Internationalisation of renminbi and its emergence as foreign currency is thus not out of reach. But whether this will by itself solve the problem of China’s accumulated reserves is doubtful.


Owning a reserve currency as the national currency is a course fraught with certain problems. It tends to magnify every trade fluctuation into a currency crisis. It was for this reason that Japan consciously avoided the use of the yen as a reserve currency. China’s ambition may, however, be for renminbi to take its place alongside the dollar, establishing itself as a global reserve currency. The middle kingdom aspires to be a real successor to the US and the UK!

Further consequences follow from the move to internationalise the renminbi. China will have to liberalise its capital account rules. China’s corporates and individuals should be free to move their wealth into and outside the country without any permission from the government or the monetary authority. Capital account convertibility seems to be a prerequisite for any currency becoming a reserve currency.

If China is to play a significant role in the world’s future alongside the US and Europe, it will have to move towards renminbi also becoming an internationally used currency, both for purposes of trade and other settlements. This will call for fundamental changes in China’s economic management.

China has, in keeping with its growing economic strength, asserted itself in international economic management. It has played an increasing role in the World Bank and the IMF. To wit, it is likely that G-8 is reduced to G-2 — the US and China. Will India try to forge a strategic alliance with China in future? The path of wisdom is to recognise China’s increasing prowess in global economic affairs and form an alliance with that mighty nation. We have a lot to gain and little to lose by focusing on a China-India bloc.

China’s future role in the international dialogue across various countries and financial institutions depends on its success in handling the impact of the global economic crisis on its own economy. So far, China’s success seems to have surpassed all other countries. It has benefited from its conscious policy mix of state control and market-related economic management. India has a lot to learn from China’s success.

Consumers go for high-end durables

Consumers go for high-end durables


R. Ravikumar
Vinay Kamath

Chennai, Aug. 9 Amitabh Tiwari, Business Head (Home Entertainment Business), LG Electronics India (P) Ltd, recalls that last year the company struggled to sell even 50 units of its top-end 50-inch plasma TVs a month.

During Diwali, it sold 110 units across the country. Suddenly, this year, it’s all changed. In the last four to five months, LG has been selling 750 plasma TVs a month and Mr Tiwari says the company has nearly run out of stock.

What’ve changed, as Mr Tiwari explains, are wider market reach for the plasmas, lower prices, newer technology and greater awareness among consumers, not to mention a propensity to spend.

Dropping prices

Plasma TVs, which sold for almost Rs 1 lakh last year, have seen prices dropping by approximately 40 per cent. While LCD TVs saw a drop in prices by 20-25 per cent on an average, depending on the models and brand, other categories saw a minimum of 15-per cent drop.

This is evident from the fact that there is a marked shift in consumer preference for high-end consumer electronics and durables in recent times, a trend seeping even into semi-urban towns.

According to Mr Tiwari, big-ticket items such as flat panel TVs, 350-litre-plus refrigerators, top- and front-loading models of fully automatic washing machines contribute close to 32 per cent of the company’s total turnover. “If the trend continues, this will breach 40 per cent next year,” he says.

Samsung India’s Deputy Managing Director, Mr R. Zutshi, says 62 per cent of AC sales came from split air-conditioners, which cost at least 20 per cent more than window ACs. The shift is even more pronounced in the South where 80 per cent of the sales came from splits. While Samsung’s sales of LCD TVs saw a 117-per cent growth, Mr Zutshi says the company’s washing machines business is growing by 31 per cent, the bulk of it coming from the high-end. “The share of fully automatic machines in our sales of washers will be 45 per cent this year.”

He says the trend is also catching on in the rural market. Thanks to the expanding distribution network, service back-up and increasing disposable incomes, people in rural areas too want to graduate to technically-superior models of durables.

The shift towards top-end appliances is also reflected in the overall industry. According to industry officials, who quote research body ORG-GfK figures, in 2008, when the entire colour TV category grew by 13 per cent over the previous year, flat panel TVs – dominated by LCD TVs – grew 65 per cent.

In the refrigerator segment, 350-litre and higher capacity fridges grew 15 per cent against the overall segment growth of 8 per cent. The growth of direct-cool refrigerators was only 9 per cent.

In the air-conditioner category, which grew 15 per cent, split ACs registered a growth of 22 per cent while window ACs posted a growth of only 5 per cent.

Ditto with washing machines: the fully-automatic front-loading machine range (which is considered to be the top-end segment) grew at 20 per cent against the overall washing machine category growth of 9 per cent.

Jet Konnect: A flexible solution

Jet Konnect: A flexible solution

This country is huge and can have multiple market segments. We have our full-service Jet Airways, and we have JetLite. There is a segment in between where, if the market ceases to exist, we can convert it back to full service. We are punting on Jet Konnect.


Ashwini Phadnis

The need for a “rapidly deployable and flexible solution” saw Jet Airways launch, Jet Konnect, its new low-cost sub-brand in May this year. In an interaction with Business Line, the airline’s Chief Commercial Officer, Mr Sudheer Raghavan, outlined the reasons for launching a new airline, rather than transforming JetLite (former Air Sahara), the current low-cost airline of the Jet Group.

Excerpts from the interview:

Why did the Jet Airways management decide to launch another sub-brand, Jet Konnect?

In the current situation we required a solution and a rapidly deployable and flexible solution. There are a number of reasons for this. In our dealing with corporate houses it was abundantly clear that the decision taken some time ago to cut back on air travel was not going to change very rapidly.

Many people talk about green shoots and the economy turning but there are no fundamentals to indicate that there is light at the end of the tunnel. There was a significant shift on those routes that we converted to Konnect; we saw our numbers were falling faster than the actual market drop on those routes which indicated that the airlines offering lower fares were getting market share.

At that time we decided that our market did not grow but our passenger loads were higher than the market growth. If you take a long-term view this is a transient phenomenon. What we are experiencing today is an interim phenomenon. When the market turns around, there will be room. My belief is that there will be a market that will ask for a full-service carrier and there will be a market that will ask for nothing but the lowest price.

I suspect there will also be a market somewhere in between, that will say price is important but I also want on-time departure and quality services, though I do not need frills like food, etc. There will be a segment of the market that will look for value. It will be prepared to pay marginally more than the low fare but not as high as full service.

I see the development of distinct models — the ultra low, where some of the low-cost carriers will play, and the value arena where some low-fare variants of full-service airlines will play. This country is huge and can have multiple market segments. We have our full-service (Jet Airways), we also have JetLite.

There is a segment in between, where we needed to be present. We are punting on Jet Konnect. We needed to have a solution where, if we believe the market does not exist, eventually we should be able to convert it back to Jet Airways. So, all we are doing is using the same crew and the same aircraft. We are just converting it into a single-class configuration with buy-on-board meals.

The change of two classes into a single class must be costing money?

Actually, not really. We had some seats that are required to convert an aircraft from a twin-class cabin to a single-class cabin. We have not spent money on the number of aircraft that have been converted today. We had enough seats in our inventory to take out the business class seats and convert the aircraft into ‘all-economy’. So we went ahead and did that.

To convert more aircraft than we have, we will have to buy more seats. We are buying ship-sets. If we buy one ship-set we can convert three more aircraft. We will probably buy a few ship-sets, this does not cost us huge amounts of money. But we will not throw away the business-class seats. If we do not see a future, we can convert back. That is why we say it is a flexible and rapid solution. We already have the pilots and cabin crew. In fact, we have reduced the number of crew on Jet Konnect as it is a buy-on-board concept. We now have four crew members on Jet Konnect, while traditionally we have six crew members. We are earmarking about 20-30 more flights for Konnect.

By when?

There will be two aircraft in August and the rest will be when we get the seats shipped in. We have placed the orders. By the northern winter schedule, which starts in October, we should have all the flights we want to convert to Konnect connected. It is not a small initiative. We are switching a sizable percentage of our domestic operations to Konnect.

We are not averse to launching Konnect services even on our international routes. Where the market so requires, we will switch. We are evaluating a few routes, all of which will start within this year. Our reading is that this economy will take some time to mend and, as long as these conditions prevail this solution should help us.

What have been the results so far?

On the routes we have converted to Konnect we have seen a significant climb in the seat factor. Where it used to hover around 50 plus per cent it has shot up to about 74 per cent. Despite the conversion there are some bummer flights, which are less than the fingers on one hand. The way we measure (how a flight is doing) is by seeing what the flight was carrying on average about eight weeks earlier and what it is carrying now, after it has been converted. This growth has, however, come at a yield decline of 12-15 per cent. So, if you do the math it is in the right zone. We get more on the top-line, with no increase in costs, in fact a decrease in costs because there is no food served and the reduction in the number of crew members.

How many seats have been added due to the conversion?

Our goal is to have 175 seats. We are currently averaging 168.

Why did you introduce a third name?

The real reason why we did not expand JetLite into this route is because its fleet is fully utilised. It was possible to transfer some aircraft from Jet Airways to JetLite, but there were impediments. These were not insurmountable but there would have been time-consuming hurdles. Jet Airways and JetLite operate under different Air Operators Certificates (AOCs). The lessors of the aircraft are different. We would also need to get local DGCA approval to transfer assets. Besides, JetLite does not have enough crew to operate these additional services. And there are tax issues.

Has Jet Airways got out of any of the routes on which Konnect operates?

All the Konnect routes were previously operated by Jet Airways. So, when we convert, we do not operate another Jet Airways flight. We also try and ensure that JetLite flights do not overlap with Konnect flights.

Does it help maintain a better fare level?

There is some influence. But, then again, in all the flights that we converted to Konnect, there was hardly any JetLite presence. So we do not have to benchmark against the JetLite fares. We are priced marginally higher than the low-cost carriers. But the wild card in this is the price of oil.

Related Stories:
Jet plans to transfer more flights to Konnect
Jet Konnect plans international flights

US recession seen ending in Q3

US recession seen ending in Q3

10 Aug 2009, 2125 hrs IST, REUTERS
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WASHINGTON: The worst US recession since the Great Depression will probably end in the third quarter, but there is uncertainty over the speed

and duration of the economic recovery, according to the most recent survey of private economists.

The Blue Chip Economic Indicators survey of private economists released on Monday showed about 90 percent of the respondents believed the economic downturn would be declared to have ended this quarter.

This upbeat assessment followed recent government data showing gross domestic product (GDP) contracted at a shallow 1.0 percent rate in the second quarter after sinking 6.4 percent in the January-March quarter.

Recent data, including housing and key labor market indicators, have suggested a bottoming in the recession and the the economy close to turning the corner.

“Debate now centers on the speed, strength and durability of the recovery,” the survey said.

It showed nearly two-thirds of respondents believed the economy was set for a U-shaped recovery, marked by below-trend growth in gross domestic product before stronger growth took hold in the second half of 2010.

About 17 percent of the respondents anticipated a V-shaped rebound, where growth pulled back to its trend rate on a sustained basis, while the same percentage fretted that a W-shaped recovery could follow, the survey showed.

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“In their view, GDP growth will pop higher for a quarter or two only to falter again before a lasting recovery takes hold,” the survey said.

Growth in the second half was expected to be supported by a reduction in the pace of business inventory liquidation, marginal improvements in consumer spending and residential investment. The survey predicted non-residential investment would remain a drag on GDP.

Despite the improved economic picture, unemployment was likely to remain a problem, with jobless rate predicted to peak at just over 10 percent late this year or early 2010, the survey showed. It was seen falling only slowly.

Government data on Friday showed the unemployed rate nudged down to 9.4 percent in July from 9.5 percent in June, but mostly because many people dropped out of the labor force.

“Indeed, about 70 percent of the panelists believe the jobless rate will not dip below 7.0 percent on a sustained basis until the second half of 2012 or later,” the survey said.

The sluggish labor market, together with excess capacity in many business sectors were seen dampening inflation pressures.

“Consumer price inflation excluding food and energy costs will increase by slightly less n 2010 than in 2009,” the survey said.