Healthcare in India

Healthcare  in India   Healthcare sector in India is one of the most competitive ones in the world and Quality medicines and quality health care services in India are available at very affordable price in the world. The sector is growing at more than 10% per annum in the last few years and the growth is likely to be at 15% p.a in the years to come. The size of the industry is likely to reach $ 160 bn by 2017.   The planning commission has allocated $ 55bn to this sector in the 12th five year plan. This is a three fold increase from the allocation made in the 11th Five year plan. The 12th Plan focus is to provide Universal Healthcare, improve the Health infrastructure , promote R&D and develop Patient friendly  regulations.   The growth of this sector provides opportunities in many areas including, Hospitals, Pharmaceutical development, Diagnostics, Hospital Supplies, Medical Insurance,etc.   The contribution of each segment to this sector is as follows : Hospitals 71%, Pharmaceuticals 13%, Medical equipments and supplies 9%.   The contribution of private sector in this industry was 66% in 2005 and it is expected to increase to 81% by 2015. Since there are financial constraints in the public sector, Private sector was playing a major role in creating new capacity and the share of private sector will increase year on year in the coming years.   Due to change in life styles , the number of in patients getting treated for life style diseases is showing a rising trend and the share of these patients in admissions had already reached 50% and it is likely to rise further.   The size of the Hospital services was estimated at $ 54 bn in 2012 and the projections show that it is likely to double in four years . The growth of Hosptial services segment is likely to be around 20% p.a. going forward.   The factors driving higher growth in this sector include , increasing purchasing power , increased interest of private sector to start hospitals, Changing age profile, increasing penetration of Medical insurance and increasing awareness of health and health related issues among the consumers.   The demand for quality treatment is increasing in Tier – II and Tier – III cities and hospitals with good quality high tech equipments are being created to meet the demand in Tier II and Tier III cities. To encourage the private sector participation, the government has given a tax concession of five years for new hospitals.   The high quality service is also being extended through Telemedicine to rural areas and this business has already gained a critical mass with the size of $ 7.5 bn and this will grow at a rate of more than  20% p.a in the years to come.   The low cost advantage in Medicines and Medical treatment is a big advantage for India and the country is able to attract patients from across the world for various treatments. The increasing medical costs in developed countries offers lot of opportunities for Indian healthcare industry and like in IT, wherein India became the back office for the world, in Healthcare, India can become low cost provider of medical services for the world. The developed countries should look at India as a good destination for treatment and should help develop world class healthcare services to reduce the cost of their medicare.

India is emerging as a preferred location for carrying out R&D activities and the cost of doing R&D and drug development in India is much lower than the cost in developed countries. India has lot of advantages in R&D and this trend is being witnessed in creation of R&D centres in other industries also. MNCs around the world are setting up R&D centres in India, since India has the advantage of large number of trainable candidates coming from Higher education institutions.   To meet the emerging requirements, there will be a need to increase the capacity of seats in Medical colleges and to train large number of supporting staff. The efforts are on to promote the skill development in the country catering to the needs of this sector. Due to high demand supply gap, there are good opportunities in creation of educational institutions meeting the requirements of the emerging need in this sector. As per the estimates, additional 2 mn beds and 1.6 mn doctors are required to realise the growth potential in this sector. The estimated investments required are about $ 90 bn to achieve these targets.

The government has drawn up a plan to promote India as a global healthcare hub. To meet the global requirements, the entrepreneurs and government have to collaborate with the leading healthcare institutions and the Accrediting agencies in the world which will help to promote the India brand and India’s advantages. The cost of surgeries in India in many procedures are one tenth of cost in developed countries. By improving the quality of hospitals and services, India should be able to attract more patients from abroad.Medical Tourism Several key trends are giving impetus to the growth of India’s healthcare sector. Of these, medical city is relatively a new concept that offers immense growth opportunities, in addition to the medical tourism. India is also regarded as the most competitive destination with advantages of lower cost and sophisticated treatments. Due to such promising factors, the medical tourism has great potential in the country. The industry in India is pegged at US$ 1 billion per annum, growing at around 18 per cent and is expected to touch US$ 2 billion by 2015. India has witnessed an influx of patients from Africa, CIS countries, Gulf and SAARC nations, Pakistan, Bangladesh and Myanmar, who mainly come for organ transplant, orthopedic, cardiac and oncology problems. Apollo Hospitals has six tele-medicine (through video-conferencing system) centres in the East and North East India. Plans are afoot to add another 24 over the next couple of years. Government Initiatives The Government of India has decided to increase health expenditure to 2.5 per cent of gross domestic product (GDP) by the end of the Twelfth Five Year Plan (2012-17). Dr Manmohan Singh, the Prime Minister of India, also emphasised the need for increased outlay to health sector during the Twelfth Five Year Plan. Moreover, 100 per cent FDI is permitted for health and medical services under the automatic route. In a recent initiative, 348 essential medicines will now come under price control in India. These currently contribute Rs 13,033 crore (US$ 2.05 billion) to the total annual sales of Rs 72,762 crore (US$ 11.46 billion), according to market research firm IMS Health’s analysis. Some highlights of the Union Budget 2013-14 presented by Mr P Chidambaram, Minister of Finance, Government of India, for the healthcare are as follows: Health for all remains one of the priority sectors for the Government The Ministry of Health & Family Welfare has been allocated Rs 37,330 crore (US$ 5.87 billion). Of this, the new National Health Mission that combines the rural mission and the proposed urban mission will get Rs 21,239 crore (US$ 3.35 billion), an increase of 24.3 per cent over the Revised Estimates (RE) Rs 4,727 crore (US$ 744.41 million) for medical education, training and research In addition, contributions made to schemes of Central and State Governments similar to Central Government Health Scheme, eligible for section 80D of the Income Tax Act. Road Ahead The country's healthcare system is developing rapidly and it continues to expand its coverage, services and spending in both the public as well as private sectors. This is creating a large market for hospital information systems and other healthcare-related IT solutions. The favourable demographic virtues offer an attractive market for healthcare providers and investors in India. An increase in foreign investment inflows and private equity (PE) deals in the industry’s various segments have also been noted, in addition to the increased focus received from the Government. Exchange Rate: INR 1 = US$ 0.01574 as on September 12, 2013 References: Department of Industrial Policy and Promotion (DIPP), Union Budget 2012-13, RNCOS Reports, Media Reports, Press Information Bureau (PIB)

 

Healthcare is attracting lot of interest from PE players and out of total deals , more than 60% of investments by PE’s was in the healthcare sector. The sector is one of the attractive sectors for investment  in India today and increasing penetration of quality health services in India will go a long way in meeting the needs of the Indian population.

Value Creation - Strategies

One of the challenges for corporates today is creating value out of operations and once having created the value , sustaining the created value going forward. There are many examples in the world where companies created value and not able to sustain it for a long time. The good examples are Sony, Nokia, RIM in the recent past and there are several examples and many companies which created value , not able to sustain the value for a long time. The following strategies need to be adopted to create and sustain value.




1.The value creation starts with a Competitive strategy. Every company has a strategy but the strategy adopted by a company should help in creating a competitive advantage over others. This should result in faster growth and higher profitability compared to the competition.



2. There are five strategies available to create a competitive advantage. A) Cost Leadership b) Differentiation 3) Focussed cost leadership 4) Focussed Differentiation and 5) Integrated Strategy ( cost leadership as well as differentiation). Depending on the technology and marketing capability ,cost structure and competition in the particular product segment, one of the above strategies and combination of them have to be chosen. The objective should be to minismise the impact of competition on growth and profitability.



3. Keeping the age of the product portfolio young. To ensure a sustained good performance , there is a need to introduce new products at regular intervals and keep the average age of the products very. Low. This does not assure sustenance in cases where there are technology break throughs . Hence, apart from age of portfolio , it is necessary to make sure that there is an adoption and absorption of emerging and new technologies. The focus for new products should be the segments where there is a good potential for growth, less competition and good profit potential.



3. Many companies develop good strategies but there is a poor implementation due to slow decision making, organisational inertia and poor discipline in implementation. Allowing so many exemptions from the planned strategy leads to slippages and not continuously monitoring the performance and taking course correction leads to poor results compared to the plan.



4.Good corporate governance. The starting point of value creation is good corporate governance. The books of accounts should be closed on time every month. The actual performance should be compared with the plan and reasons for variance in performance should be identified and without much delay the course correction should be put in place. There should be a fit administration which looks into the governance discipline and adoption of best practices in each functional area of operation. Many companies do not have well defined SBU’s ( Investment Centres ,Company within companies ) , Profit centres and Cost centres. This is the starting point for good corporate governance. There is a need to review whether the organisation is well structured and appropriate organization structure and robust systems and procedures are in place.



5. Good governance and good performance creates a good image in the minds of all stakeholders ( investors, bankers, customers , suppliers ). .The market gives a premium to the quality of governance and company starts commanding good multiples. It is true for even unlisted companies, wherein it would be possible to command good premium for the products and achieve above average profits..



6. In Capital intensive industries and where there is hyper competition , scope for collaborating with the competitors should be explored. This is a general practice in electronic hardware industry . telecom , auto and financial services. This provides a full flexibility to an organistion to adapt to variations in economic performance.



7. It is essential in general the companies should be able to maintain market leadership. But there are cases, where, even smaller companies command a high premium. Good example is HDFC’s market cap is higher than ICICI and SBI. The bank had given a sustained performance over the years, which helped to keep its P/E ratio at the highest levels, ever since the bank allowed FII’s to invest in the bank. So far, the bank was able to maintain its lead.



8. The companies / groups which have created a big value, generally grow at a CAGR of 25% . The stretch target of 25% CAGR is very stiff but it is better to keep this target and identify opportunities for faster growth. ( It has to be a combination of old product – old market , old product – new market , new product –new market , new product – old market , new technology – old market , new technology – new market ). Both organic and inorganic routes to be pursued.



9. Reputation. When one of the companies came for an IPO, the inherent value of the stock was even less than Rs.10 per share and no project was on. Since the group was known for creating value for shareholders, the investors were ready to pay Rs.500 per share for the stock. Cognizant technologies was able to win more projects and have become the number one software provider in US over taking TCS. This was mainly on account of Cognizant is seen as a US company and it is parent was Dun and Bradstreet corporation. Further the company adopts an integrated strategy which is helping it to over take others in Revenue growth and it reinvests any surplus amount which is more than 20% margin in the core business.



10. Constant Restructuring. At any point, only a few industries grow and some industries decline and some industries are at a maturity stage. The fortunes of industries change and the portfolio of a corporate should be well balanced to generate enough cash and sustain the growth levels. The strategy is not only about growth but also about keeping the portfolio healthy. The portfolio should be churned to ensure that the businesses generating negative cash flow and where scope for future revival is limited should be removed from the portfolio through divestment and sale. Many a times, the poor performance of corporates is due to keeping the businesses where there are continuous cash losses. There should be well defined criteria for entry in a business and criteria for exiting a business. GE is a role model for corporates in this respect and this is the secret of GE’s survival for more than hundred years.



11. Not Succumbing to herd mentality. The high growth businesses after the entry of few players start attracting many new investors. This results in overcapacity in the industry and the players who enter late find it difficult to adopt the cost leadership or differentiation strategy. In a few cases, new entrants come up with new business models and redefine the industry. If the industry is overcrowded and there are many players, then the best form of entry in the industry is through acquiring a company which is doing very well in the industry rather than starting a green field venture. In many industries, the feature of herd mentality leads to entry of many entrants and those who are not able to create competitive advantage report poor performance affecting the overall performance of an industry.



12 Constant interactions with the Investor community. This is the one way; the value created could be taken to higher levels. One of reasons for faster growth of Infosys compared to its peers few years back was due to early listing of the stock in a market where most of its customers were coming from . Whenever analysts brought out analysis on companies growing fast and reporting higher profits, Infosys was always coming on top of the table in USA. This has created awareness among the CXO’s in US who were the decision makers and investors in the stocks. Since the company was growing very fast and profits were growing faster, inventors felt the company was well managed. So when bids were opened for awarding assignments, even when Infosys quoted 10% higher price compared to competition, they were willing to pay the premium , despite the competitors were as good as Infosys. But Infosys lost this advantage , after listing of TCS and TCS moving away from the strategy of cost leadership to differentiation like Infosys. Cognziant also started growing fast which had reduced the attraction for this stock.



To create and sustain value, a corporate has to use the combination of above strategies to achieve a sustained competitive advantage.

Indian Economy – Options for accelerating the Economic Growth

Indian Economy – Options for accelerating the Economic Growth

The Indian Economy did very well immediately after the Crisis. The performance in the following year s was better than the expectations. After the growth of 9.3% in F 11, the Growth was down to 6.2% in F 12 and  5% in F13.The underperformance of the Economy continues. In F 14, the growth is likely to be in the range of 6% and

Even till the middle of F11, the potential for the Economic growth was at 10% and it appeared that India would be able to achieve the potential. The  developments in the Global economy and developments in many aspects in the Indian Economy had resulted in deceleration of growth and brought down the potential for growth to 8% today.

Lot of new initiatives were identified by the government to revive the higher growth and action plans are in place and implementations are being addressed. To implement the action plans every segment in the society has to become a partner to the Government. Addressing the crisis requires co-operation of all.  The slowing economy has affected all segments in the society and everybody is keen that India’s economic growth gains momentum. The support for Government Initiatives has to come from all political parties, Judiciary, the regulators , the media and all other segments of the Society.

Agriculture. The growth in agriculture in the last many years was sub par and much below the growth in Industry and services. Year on Year the share of agriculture in the economy is going down. Considering the low productivity of crops in India, the potential for growth in agriculture is more than 6% p.a. Since the prices of agricultural commodities in the open market have become very attractive , by enabling the farmers to realise the high prices, the agriculture growth could be accelerated and the government subsidy to  fertilizer could be reduced substantially.

Apart from inflationary pressure, in recent times, the depreciating rupee has emerged as a major concern.  Current account deficit has become one of the major concerns in maintaining the macro economic stability.  Some of the following measures could be considered for addressing the pressing issues in the economy today.

Measures to correct the Current Account Deficit

·         The current account deficit is mainly due to high imports of oil and Gold and very high value of non essential and consumer products from other countries. Many of the products imported are available in India and only action plans to be identified to make them available to the required customer segments  .

·         To address the current account deficit the following measures could  be adopted.

·         Identify the trade gap with every country with India has  trade.

·         Discuss with  these countries to increase the imports from India.

·         Request all the Diplomats from India to aggressively promote the Indian product imports in the country of their residence.

·         Many of the products imported from few coutnries , are giving competition to the Indian suppliers and sme’s in India. Many of the consumer related products which are imported  could be reduced substantially.

·         Set the quantitative limit for imports of Gold on a monthly basis. Create a campaign for discouraging the purchase of gold for non productive purposes  . Identify action plans for using the unproductive gold in the economic system to meet the demand.

·         Create a nation wide campaign for reduction of fuel use. Encourage people to use public transport. Target a five per cent reduction in use of fuel across industries , homes and offices.

·         Create innovative schemes for investments by NRI’s. Offer sovereign guarantee for these products with reasonable rates of return.

·         Attract more FDI through clearly specifying the policies for FDI in India in each sector  

·         Identify the imported products, which will not be productive in the immediate term.

·         Explore the scope for rupee trade with countries wherever the imports far exceed exports.( Rupee trade would help to reduce the dollar imbalance ).

 

Measures to revive industrial growth

·         Projects above Rs.1000 cr of capex which are stuck due to regulatory and environment hurdles could be cleared by convening the CCI very frequently.

·         The infrastructure projects which are on and stuck due to various issues relating to regulation and environment could be cleared on an urgent basis.

·         The credit flow from banking system to industries had seen a decline. Banks stopped lending to many of the industrial sectors. This was also due to projects in many sectors not bankable today. The sectors which had become unattractive today can be made attractive again by introducing new investor friendly regulations .

·         Mining is a key sector for industrial growth and it has seen a big decline in volumes and there is an immediate need to target a growth of at least 15% in mining in the immediate term and target a growth of 10% year on year in the coming years.

·         Many of the power projects were stuck due to unavailability of competitive coal. Through the proposed MDO model, the output of coal India could be increased by at least 10% year on year and the government can appoint the best MDO operators in the world to increase the output of coal.

·         Automobile industry is one of the key industries in India and it has seen a big decline in demand. Many sme’s and workers’ fortunes are dependent on this industry. The credit flow to this sector including SME’s could be increased and tax incentives could be considered for the short term.

·         The manufacturing council has come out with lot of recommendations for increasing the manufacturing activities and increasing the manufacturing competitiveness of India. The suggestions could be prioritised and take up for implementation without any loss of time.

·         Interest rates. Since there is very little activity on new projects and the inflation has gone up ,many of the industries in India had become unviable. There is a need to reduce the interest rates which will benefit the government, companies as well as individuals.

·         The affordability of interest rates will make the projects more viable and rekindle the consumer boom witnessed in the industry.

·         Land has become very unaffordable for new projects and thel government has to work very closely with each state government to make the land available at affordable rates.  Single widow clearance including environmental clearance for projects  could be created and the large projects can be show cased to the foreign investors ( already for Steel sector similar structure is being created ).

 

Depreciation of the Rupee and its impact on trade and industry

·         Most of the companies left their exposures uncovered expecting that the rupee would move towards Rs.50. The analysts also expected the rupee levels to remain strong.

·         The announcement from the US fed that there would be early withdrawal of stimulus created panic among the investors and they had started withdrawing investments from emerging markets.

·         This has affected the financial performance of many of the Indian corporates in quarter one and despite good operational performance , the companies had to report poor performance. Many of the corporates are sitting on a large unrealised loss on account of sharp rupee depreciation. Appreciation from the present levels would reduce the burden on the corporates. This is also likely to reduce the NPA’s in the banking system.

·         Going forward, the currency could be managed by a narrow band and the frequent communication by the government on new measures to achieve a stable rupee will go a long way in bringing a stability to the exchange rate.

·         Make the country more attractive for NRI investments, FII inflow and FDI investments through investor friendly measures.

·         By reducing the current account deficit through various measures mentioned above, it would be possible to manage the currency within a narrow band.

 

Development of industrial corridors

The proposed  Delhi - Mumbai Industrial Corridor (DMIC), the Chennai-Bangalore Industrial Corridor (CBIC), and the Amritsar-Delhi-Kolkata Industrial Corridor (ADKIC) by the government will give a big boost  to the economy. 

·         These projects will create many large industrial zones and new cities . This will create demand for  more than 300 industries.

·         Since these projects are very large, there is a need to raise resources from abroad.

·         Already Japan is involved in a big way in DMIC. UK and Japan had shown interest in CBIC. World bank has promised to assist in ADKIC.

·         Considering the large size of the projects, there is immense scope for other countries to get involved in these projects.

·         All the countries with large forex reserves and sovereign wealth funds can participate in these projects  and we can invite them to participate in these projects.

·         Indian companies can play a major role in partnering these projects and management of these projects.

·         The government can create many sub projects with smaller size with attractive returns.

·         On the similar lines, now discussions are being held about Chennai – Mangalore corridor, etc.

·         This is the best way to develop the industries. This is the model China followed. For creation of large cities, China had shown interest. Since they are running  a huge surplus with India, the scope for retaining the export proceeds within India to deploy them within India could be discussed with China.

 

Skill development  

·         Despite there is  unemployment, in many cases, there is a shortage of skills.For .E.g. Drivers to drive Trucks and buses. There is a skills mismatch in many professions today. On one side there is a shortage of labour and at the same time, there is an high level of unemployment.

·         Further many professions are unattractive today and dying.

·         The government has already drawn up a plan  for developing skills in the Economy and detailed reports of skill development were prepared for more than 20 industries.

·         Each state has created a skills development council and each state is working on this concept.

·         Industry wise skill development councils were created and they have started functioning.

·         PPP model  has been created and corporates are working very closely with the government to make the initiatives very successful. Corproates are very happy to co operate with the government on these initiatives.

·         These programmes can also be synchronised with programmes for unemployed in rural and urban areas. Since the following projects are being taking on a large scale there is a need for a large number of workers with competitive costs.

 

 

US Economic Stimulus

US Economic Stimulus

The economic  underperformance of the Developed countries continues.  Among the developed countries, US continues to do well. The Q3 adopted by the US government brought some semblance to the global markets and provided stimulus not only for the US economy but also to other economies around the world. The global investors /corporations were able to source low cost funds from US. The low interest loans were available to US corporates, Households and there was a good momentum created in the construction front in the US.

The overall  competitiveness  of US is improving supported by availability of cheap gas. The government has drawn up a strategy to revive the manufacturing sector and there are many new initiatives on the way to regain the competitiveness. The exports of consumer goods and consumer durables from US has started going up.

The announcement that US was about to withdraw the stimulus had a global impact and funds invested in emerging markets were withdrawn by the investors and there was a volatility in the emerging financial markets after the announcement. This has affected the global financial markets.

While announcing Q3 , the government mentioned that the withdrawal would depend on two factors that is unemployment level reaching 6.5% and inflation at 2%. The government also expected that the economic growth would be at a much higher level by adopting Q3. There is a significant movement in all these parameters towards achieving the  goals but it will take at least a year from now to reach the targets set by the Government .

There was an improvement in Trade data reported recently which is again a good movement towards achievement of set economic targets.

The adoption of indicator based approach during the economic crisis is a good method and it provides an objective basis for decision making to the authorities. Looking at these indicators, July 31^st Statement of Fed did not give any indication of any tapering by September as many of the Analysts were predicting.

Economic growth in First two quarters was  lower than expectations and the first quarter growth number was revised down to 1.8% from 2.4%. But the growth in the second of fed fiscal year is likely to pick up momentum.

Inflation in 2012 was at 2.1% and it is likely to come down to 1.6% in 2013  and it is expected to be in the range of  2.2% in the next few years.

Consumer spending rose by  3.4% in the first quarter, fixed investments by 4.1% and Residential investment by 12.1%.

All the corporates in US have a cash ( global resources )of more than $ 5 trn and non financial companies have a cash of more than $ 2 trn. They have started investing in Capex and many companies having high cash reserves will declare high dividends. This will increase the dividend yield for many companies.

The corporate sector performance in Q2 is likely to be better but as per analyst estimates , US has one of the high P/e ratios in the history. The banks had reported very good performance in Q2.

The government is able to move toward its target of sequestration and the budget deficit is likely to be down to 2% by 2017.

2.2 mn new jobs were created in 2012 and 6.3 mn since the employment level bottomed out. Wages are still growing.

Household debt to disposable income fell from 126% before recession to 104% by the first quarter.  There is a favourable trend showing a movement towards 90 – 95% under normal circumstances. Housing starts in first quarter was 968,000 annualised in Q1, 35% higher than the previous year.

Net wealth of US household sector has increased by nearly $ 15trn over the past three years.

US is not facing a short term fiscal deficit problem.

Recovery today does not look secure to withdraw the monetary stimulus immediately and it is likely to happen by July 2014 as per the above point.

In the past six months, congress made adjustments to both spending side and taxes and the deficit is likely to come down to reasonable levels.

At the end of 2012, Bush era income tax cuts were made permanent for low and middle income wage earners. Taxes rose for wealthier Americans. Wealthy will pay higher dividend, capital gains and estate taxes.

On the spending side $ 2.1 trn was identified. $ 900 bn of back loaded costs have already been settled and underway. Other $ 1.2 trn “sequester” focuses heavily on cuts to defence and other discretionary items. Despite there are concerns that this may not happen, there is a high likelihood that this would be implemented.

The government is taking special management steps to stretch its resources for several more months, putting off the real debt ceiling deadline until October.

Immigration reform would enable 12 million undocumented immigrants , to fill the job openings . This will create income opportunities for these immigrants thereby creating additional national income and consumer demand.

This reform would help the new manufacturing strategy of US which is based on low price for shale gas in US. Using the availability of this gas, the government has decided to revive the manufacturing sector and many of the imported items from countries like china will be produced in US going forward. The imports will go down and the trade deficit will be down.

S& P price gains seven months in a row up 15.4% between Nov 12 – May 13. Earnings are likely to beat forecasts.

YTD returns from S&P was at 12.6% by the end of June. MSCI emer markets had shown a negative return of 10.9% and 10 year treasury yield was up by 41.5%. The UBS commodity index was down by 10.5%.

Looking at the globe, Europe continues to be under economic pressure and the solutions are still not in immediate site and in Middle east, the political tensions are a great threat. Among BRIC , China is doing better but its performance levels were down compared to the peak and there is a pressure on exports. Considering all the above and the US increasing self dependence and better management of the economy supported by improving corporate performance and increasing household wealth, US is becoming attractive for investments.

The uncertainty prevails on when the Economic Stimulus would be withdrawn and the feeling is that the process would start soon from the month of September. From the present indications it would take a few more months to achieve the stability expected by the US government. The government’s approach to adoption of indicator based approach for action plans  should be intact.  There could be a clear  communication from the authorities that the stimulus withdrawal will be based on achievement of defined targets on Unemployment and inflation.

Whatever is said and done, one day the stimulus withdrawal has to start and the withdrawal could be made smooth by gradual withdrawal over a period of time. From the present indications, the whole process should take at least 2 to 3 years and the withdrawal could start with gradual reduction of purchase of bonds. To start with, reduce the purchase size by $ 2 bn a month and a maximum increment withdrawal in a month could be $ 5bn.  When the bond purchase programme achieves the level of $ 40 bn a month, then the Fed could look at increase in the interest rates in phases. The incremental increase in every instance could be 10 bps. The interest rates could be gradually increased. The programme for withdrawal could be drawn up looking at various scenarios and how it will affect the bond portfolio of banks and how it will affect the international financial system. The plan drawn up could be made less painful for those segments which are going to be affected due to withdrawal. From the present indicators, it appears that the first phase of withdrawal could be started in the month of March 2014 and the phased programme could be implemented.

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