Current Economic Statistics and Review For the Week 
Ended January 01, 2005 (1^st Weekly Report of 2005)

  I

Highlights of  Current Economic Scene

Agriculture
The expectation of high rabi crop output that could have compensated the estimated shortfall in kharif output now appears to be vanishing due to reduction in the area under all major rabi crops except oilseeds and coarse cereals. Acreage under oilseeds has registered a 6.1 per cent increase to 92.8 lakh hectares in the current rabi as reported on 27th December 2004 from 87.4 lakh hectares during the same period a year ago. Even among oilseeds, only the acreage under rapeseed & mustard has recorded a 7.5 per cent increase in the current rabi so far and has compensated the fall in the area under other oilseed crops. Hence, the shortage recorded in output of kharif oilseeds may be compensated by rabi oilseeds but not foodgrains.

Though crop sector has managed to escape from any serious damage from tsunami, fishing sector, marine as well as cultured, has reported to be heavily damaged in Andhra Pradesh and Tamil Nadu. According to the Seafood Exporters Association of India, the damage is estimated to reach Rs 200 crore. This may add to the already recorded shortfall in crop sector and ultimately lead to a further fall in output of agriculture and allied sector.

Infrastructure
In India, wind energy accounted for about 3 per cent in the overall installed capacity of the power sector.Wind power output registered an increase of 36 per cent to 3000 MW in 2004. India, thus, emerged as the fifth largest producer of wind energy in the world.

The Union Power ministry started coordinating with certain independent power producers (IPPs) to expedite generating more than 9,000 MW of electricity. The IPPs included Mangalore project of the Nagarjuna Power Corporation Ltd.(1015MW), Karcham project of the Jaypee Karcham Hydro Corporation (1000 MW), Hazira project of Essar Power Ltd; (1500 MW), Vile project of Tata Power Company (1000 MW), Dadri project of Reliance Energy Ltd; (3740 MW), GPEC II Project of China Light and Power india (1050 MW), Amar Kantak project of Lanco (300 MW) and Allian Duhange project of Rajasthan Spinning and Weaving Mills (192 MW). 

Saleable Steel production of the Tata Iron and Steel Company (Tisco) during April-December, 2004 was 3.13 million tonnes (mt), 2 per cent higher than that of the corresponding period of 2003.

Steel Authority of India Limited hiked the price of hot-rolled steel by Rs. 500 per tonne to Rs. 29,500 per tonne with effect from January 1, 2005 as the ex-mine price of iron ore- the key raw material for steel production- was increased from Rs.900 per tonne to Rs.1,600 per tonne between August and November 2004. Moreover, the railway freight rose by 15 per cent. The cost of production of steel, thus, increased by 30 per cent between October and December 2004.

Global consumption of steel in 2004-05 was predicted at about 970 million tonnes with an anticipated shortage of 12-13 million tonnes. in view of a surge in reconstruction across Tsunami affected South Asia.

Following the surge in construction activity, cement prices increased by Rs.5 –10 per 50 kg bag across the country from the extant price per 50 kg bag at Rs.155 in Chennai, Rs.170 in Kerala , Rs. 140 in Andhra Pradesh and Rs.180 in West Bengal.

Corporate Sector
Reliance Industries said that it will continue to provide “reasonable assistance” to Reliance Energy Ltd but made it clear that all group companies should take prior approval from the company before announcing any big project. Reliance Industries Ltd, for the first time, made public the details of its investments and shareholding in Reliance Infocomm. The company said that it has invested over Rs 12,000 crore in Reliance Infocomm and holds a 42.35 per cent stake in the company. Reliance Industries has ear-marked Rs 2,999 crore for the share buy-back in the history of the corporate India. This amounts to 10 per cent of the total paid up equity capital and free reserves of the company as on March 31, 2004.

Mumbai-based Aftek Infosys is planning an overseas listing. The company informed the Bombay Stock Exchange that it is considering a global depository receipts (GDR) or an American depository receipts (ADR) issue aggregating $ 30 million with a green shoe option of 15 per cent. 

LCC Infotech will set up a 100-seat BPO facility in Chennai and an international call center at Kolkata.

Gail (India) Ltd will get a majority stake of 29 per cent in Tripura Natural Gas Company Ltd. An agreement to this effect will be signed soon between Gail, Tripura Industrial Development Corporation (TIDC) and Assam Gas Company Ltd.

The Rs 453 crore United Breweries will acquire Karnataka Breweries & Distilleries, the main beer supplier of the company in Karnataka, for Rs 180 crore.

NTPC India, the public sector power major, has firmed up plans of acquiring a mid-sized power plant in Lebanon. It is expected to bid for acquiring a stake in the Lebanon based company shortly. This would be NTPC’s first overseas acquisition and second overseas venture.

FaberHeatkraft, one of the leaders in the electronic kitchen chimneys in India, is planning to launch new products and become one-stop shop for kitchen appliances in the country. Faber SpA of Italy and Heatkraft of Pune are jointly planning to roll out kitchen sinks and microwaves in 2005.

GAIL India announced that it would take up a 33 per cent equity participation in Ennore regassification terminal to be set up in Tamil Nadu. The terminal would be developed by a consortium comprising GAIL, Chennai Petroleum Corporation Limited and Indian Oil Corporation.

Everready Industries India has decided to integrate its battery manufacturing facilities in Chennai to improve productivity and save on production costs.

Siyaram Silk Mills, a fabric and readymade garment maker, is entering home furnishing textiles business.

Apparel major Madura Garments, a Rs 400 crore branded player has commissioned a study of the Russian market to decide to venture in, in next six months.

The government is planning to sell UTI Mutual Fund to the highest bidder among its four sponsors. The buyer will have the freedom to manage the unit as a separate entity or merge it with its asset management arm. The four sponsors of UTI Mutual Fund are the Life Insurance Corporation, the State Bank of India, Bank of Baroda and Punjab National Bank.

The Cabinet Committee on Economic Affairs approved an investment of Rs 691.83 crore for the expansion of transmission system associated with Neyveli Lignite Corporation-II.

Max Healthcare Institute Limited, a subsidiary of Max India, announced its decision to make a preferential allotment of 13.8 per cent equity worth Rs 25 crore, to Madison Holding Limited and Melany Holdings, registered foreign institutional investors belonging to the Warburg Pincus group.

Havell’s India Ltd, a leading producer of electrical switchgear, cables and accessories, is drawing up plans to raise up to $ 20 million to do an acquisition in Europe.

Oil and Natural Gas Corporation has lined up a plan to start drilling on two shallow and two deep water blocks on the east coast of India.

Inflation
Inflation sank by 0.23 percentage points to a 23-week low of 6.5 per cent for the week ending December 18, 2004 as against 6.73 per cent in the previous week. The official WPI declined by 0.1 per cent to 188.5 from 188.7 for the previous week. The decline was primarily due to cheaper food items, edible oils and manufactured products. Inflation however, stood much lower at 5.92 per cent during the corresponding period of the previous year. Finance Minister P Chidambaram had indicated that the government was using a series of measures to moderate inflation from time to time and the real issue was global crude prices. Inflation could be easily brought under control if crude prices would have fallen below $40 a barrel. 
The index for primary articles’ group fell marginally by 0.1 per cent to 185.8 points due to cheaper food items. The index for non-food items rose by 0.2 per cent to 181.1 points from 180.7 for the previous week and the Fuel, power, light and lubricants’ group index remained unchanged at the previous week’s level of 288.8 points. The WPI stood corrected at 7.44 per cent as against the provisional rate of 7.38 per cent for the week ended October 23, 2004.

Banking
HDFC Bank has signed an agreement with NCR Corporation, a global technology company, to offer managed ATM services. As per the agreement, the company would provide HDFC bank with a total suite of services, including ATM monitoring and management, consumables and cash replenishment and cash optimization services in addition NCR Corp would also provide electronic journal pulling and software distribution across the bank’s ATMs. 

The Reserve Bank of India (RBI) has cancelled the certificate of registration (CoR) of Bangalore-based Manipal Finance Corporation Ltd. for carrying on the business of a non-banking financial institution.

Centurion Bank, the new generation private sector bank, is planning to tap the market to raise the capital to support its growth plans and adhere capital to the Basel-II norms. The capital will be raised either by way of a domestic public issue or an international offering (ADR/GDR/FCCB) or other convertible instruments. 

Oriental Bank of Commerce has cleared the proposal for a public offering of 50 million shares at premium. The bank plans to hit the market during the current financial year itself and proposes to raise over Rs.1300 crore from the issue. 

The Reserve Bank of India (RBI) has increased the margins on all banks advances against shares from 40 per cent to 50 per cent. The increased margin requirements will apply to loans against shares, IPO finance and bank guarantees. Within the margins required for bank guarantees, the RBI has stipulated that at least half should be put up in cash.

Housing
National Housing Bank (NHB) has announced a concessional scheme to provide financial assistance to people in tsunami-affected states for construction and repair of houses. A sum of Rs.100 crore has been earmarked for the assistance.

Insurance
Bajaj Allianz General Insurance Company has launched an insurance coverage for weddings cancellation or postponement. 

The insurance package covers the monetary loss following the cancellation or postponement of wedding due to fire and allied perils, accident to bride/groom, accident to blood relatives resulting in hospitalization within 7 days prior to the printed/declared wedding date, damage to property, Money in safe, Burglary and Public Liability etc. 

The Life Insurance Corporation of India (LIC) is increasing its exposure to banks. The state-owned insurance wants to exploit the synergies between insurance and banking sectors by hiking its stake in commercial banks. It has recently almost doubled its holding in Bank of Maharashtra to over 2.0 per cent from the earlier 1.09 per cent. 


LIC holds about 10 per cent in ICICI Bank, 5 per cent in State Bank of India, 6.37 per cent in IDBI Bank, about 5 per cent in HDFC Bank and about 2 per cent in Dena Bank, Syndicate Bank, Bank of Baroda and Bank of India. In these banks, LIC does not have any board representation despite a significant stake. The corporation will make additional investment of 15-20 per cent in selected banks, including private sector banks.

Telecom
The Department of Telecommunications (DoT) has slapped a penalty of Rs.150 crore on Reliance Infocomm for violation of licence agreement in three circles. 

Public finance
The government could face a shortfall of Rs 17,000 crore in tax collection, budgeted at Rs 317,733 crore during the current financial year. A shortfall of at least Rs 10,000 crore is expected in corporation tax collection and Rs 7,000 crore is expected in the collection of excise duty. 

Finance minister P Chidambaram, has announced that the government would reform tax structure for petroleum, telecommunications, sugar and textiles in the next budget. The reason cited by the finance minister for this proposal is because of the complex tax structure, which these industries have. The step to be taken is mainly an attempt to make these industries more investor friendly. The finance minister has also said that the real expansion from the tax collection will come from the corporate sector and not from the salaried class in the next budget. 

The government is likely to impose a cess on air travel to raise funds to finance the ambitious Rs. 40,000 crore airports modernization project. If the cess is imposed every international passenger will be taxed Rs 200 for each trip and domestic passenger will be taxed at Rs 100 a trip. As per the estimates of the government, this exercise is expected to raise over Rs 750 crore in 2005.

The Empowered committee of state finance ministers has agreed upon nineteen common points on value added tax (VAT), in accordance with which the states will amend their VAT legislation. This move will minimise differences in laws and procedure of various state governments regarding the implementation of VAT

According to a ruling by the Authority for Advance Rulings, Non Residents deputed to India have to pay tax here on their salary incomes, even if their salaries are paid by the foreign parent companies. Salary income is taxable in India if it relates to work carried out here.

According to an analysis carried out by Crisil fiscal deficit is likely to go upto 4.8 per cent of the Gross Domestic Product (GDP) as against 4.4 per cent as estimated by the Budget. Also the slowdown in the expenditure of the centre during April-October this year is likely to be made up in the remaining months of the current fiscal.

Net tax collections from Mumbai during April 1- December 22 rose 17 per cent year-on-year to Rs 23,159 crore, which is far from the target of Rs 49,379 crore for 2004-05. Upto 22nd December, net corporate tax collections reached Rs14, 650 crore, while income tax rose to Rs 8,509 crore. Refunds to companies rose to Rs 9,885 crore during the same period.

Capital Market
Primary Market
The total mobilisation from public offerings in the capital market has surged 14 times in 2004 to Rs. 30,511 crore from Rs. 2,194 crore last year, according to PRIME Database.

Top Security Ltd., a security guard service provider, is exploring options for private placement or an IPO amounting to around Rs. 40 to 45 crore. 

Oriental Bank of Commerce plans to raise up to Rs. 1,300-1,500 crore in its second public offer slated within this fiscal.

The recently concluded IPO of Deutsche India Equity Fund has collected Rs. 350 crore.

Bharati Shipyard debuted on bourses by listing at Rs. 130, a premium of 97 per cent to its offer price of Rs. 66 a share. The IPO of the company was oversubscribed by around 78 times.

Secondary Market:
The impressive 6.6 per GDP growth for July-September 2004, a fall in inflation rate at 6.5 per cent boosted the sensex to end the week with a solid rise of 104.63 points, or 1.61 per cent at 6,602.69, its new closing high. The sensex surged 5.90 per cent in December and gained 13.07 per cent for 2004.Similarly, NSE rose by 17.10 points or 0.82 per cent for the week to end at 2,080.50 points, its new closing high. The NSE gained 6.2 per cent for the month and it gained 10.7 per cent for 2004.The biggest gainer was the CNX MID-cap 200 index at 800.65 points or 44.6 per cent for the year.

FII has pumped in an all-time high of $8.45 billion in the equity market. Inspite of a slowdown in the FII flow due to year-end, a rebound is expected as India’s weightage in the MSCI Index is expected to rise further.

The RBI increased the margins on all bank advances against shares from 40 per cent to 50 per cent. The increased margin requirements will apply to loans against shares, IPO finance and bank guarantees. Within the margin required for bank guarantees, the RBI has stipulated that at least half should be put up in cash.

Derivatives:
NSE F & O segment witnessed a rollover of around 70 per cent of the positions to January expiry contracts in the Nifty Futures, while the NSE options witnessed a build-up in open position at the strike prices of 2,050 and 2,100 for Nifty calls and 2,000 and 2,050 levels for Nifty puts. The put-call ratio was prevailing at 0.81 and 0.51 level for open interest and trading volume, respectively.

Government securities market
Primary Market:
The RBI will sell market stabilisation bonds worth Rs. 26,500 crore during the next quarter from January 01 to March 31, 2005. The daily trading volume of the T-bills has seen a sudden surge with the volume going up to as much as Rs. 800 crore since last month. This surge can be attributed to the inflows from the special deposit scheme (SDS) and cash surplus of central government undertakings.

RBI will conduct the auction 91-day T-bills for a notified amount of Rs. 2,000 crore, including Rs. 1,500 crore under market stabilisation scheme on January 5, 2005.

Secondary Market:
The call rates eased to the reverse repo rate levels of 4.75 per cent, on expectation of an inflow of Rs. 20,000 crore on account of interest payments to the special deposit scheme.

The government’s decision to go ahead with their borrowing programme scheduled in January led to an upward trend in the yield of the government securities. The government bonds fell by 80 paise even as their yield increased by about 10 basis points. The yield on the actively traded 7.38 per cent GOI 2015 paper, finished the week at 6.65 per cent as against the previous close of 6.54 per cent.

Bond Market:
The yield spread between a five-year AAA rated corporate paper and a government security of comparable maturity has narrowed to 45 basis points 

In the secondary market, the lack of clarification from authorities on excess bond holdings by custodian banks made trading difficult in the bond market and as a result there was no major issuance in the week.

Foreign Exchange Market:
Given the spate of inflows from foreign institutional investment and the overseas weakness of dollar, the rupee rose by 33 paise to end the week at a five-year high of 43.45/47 per dollar. The rupee has surged by 215 paise (4.9 per cent) in this calender year. Annaulised forward premia dipped as exporters covered their exposures.

The six-month annualised forward premia closed at 1.72 per cent (1.85 per cent) while the one-year forward ended at 1.31 per cent (1.40 per cent).

Commodity Market:
The National Commodity and Derivative Exchange Ltd. (NCDEX) is to launch future trading in rice from January 2005 and has got necessary approval from the Forward Market Commission for rice future.

Credit Rating
Care has downgraded United Western Bank’s Tier-II bond issue of Rs. 55 crore and Rs. 79.7 crore from A- to BBB+.

It has also reaffirmed the AA rating assigned to the Rs. 750.15 crore Tier-II capital bonds of UCO Bank.

In an another exercise, Care has assigned an in-principle AA (SO) rating to the NCD issue of Ranbaxy Holding Company for an amount aggregating Rs. 200 crore which is backed by a pledge of unencumbered, fully paid shares of Ranbaxy Laboratories, the rating takes into account the underlying collateral and the strength of the structured payment mechanism.

Fitch Ratings has confirmed that the proposed shares buyback programme of Reliance Industries Ltd. will not have any impact on the company’s AAA (ind)/stable rating .

It has also affirmed the BB+ senior unsecured foreign currency and local currency rating of National Hydroelectric Power Corporation of India (NHPC). At the same time, NHPC’s senior unsecured national rating at AAA (ind) and short-term rating at F1+(ind) have also been affirmed.

Crisil has assigned a P1+ rating to the Rs. 30 crore short term debt programme of BHW Birla Home Finance, the rating takes into account BHW Birla Home Finance’s good capital adequacy, and expectation of an improvement in its resource profile and inherent asset quality.

Icra has downgraded the rating assigned to the Rs.95.8 crore NCD programme of Escort, from LBB to LB, the downgrade taking into account the continued strained liquidity position of the company resulting in delays on debt repayment obligations.

Theme of the week:

Subdued Quarterly GDP Growth

1. According to the Central Statistical Organisation (CSO), the setback suffered by agriculture during the khariff season had its impact on the GDP growth for the second quarter of 2004-05, having brought it down to 6.6 per cent , significantly lower than 8.6 per cent recorded in the comparable period last year. Such a marked dip in agricultural GDP was expected after it experienced delayed monsoon and erratic rainfall. The agricultural output has declined by 0.8 per cent during July-September quarter. The department of agriculture and cooperation estimated that the production of rice might decline 3.8 per cent in the khariff season of 2004-05; that of coarse grains by about 23 per cent and pulses by about 26 per cent. Among commercial crops, oilseeds is expected to report a decline in output by about 9 per cent and sugarcane by 0.3 per cent over the estimated production a year before. Cotton production, on the other hand, is expected to show a marginal rise of about one per cent. In value terms, the gross domestic product for the second quarter stood at Rs. 3,47,308 crore at factor cost at constant 1993-94 prices compared to Rs. 3,25,857 crore in the corresponding period last year.

2. The deceleration in the overall growth in the second quarter notwithstanding, the GDP for the first half-year – April-September 2004-05 – recorded a 7 per cent growth as against 6.9 per cent in the corresponding period last year. The first quarter GDP growth had touched 7.4 per cent when the impact of monsoon on crops was limited. In any case, the agriculture sector is unlikely to see much of a recovery in the remaining two quarters of the year. Overall, the sector may register just about 1-2 per cent growth in the full year. However, if the other sectors sustain the momentum, the GDP growth for the full year could come
closer to 6.5 per cent.

3. Unlike agriculture, manufacturing and electricity sectors recorded a healthy growth of 9.3 per cent and 9.2 per cent in the July-September quarter as against 7.4 per cent and 2.9 per cent, respectively during the corresponding period a year earlier. Construction activity has decelerated to 5.2 per cent from 6.4 per cent during the same quarter a year ago. The key indicators of construction sector, namely, cement and steel registered growth rates of 6.6 per cent and 3.4 per cent, respectively ,during July September as against the growth rates of 6.0 per cent and 10.2 per cent, respectively, during the corresponding period of 2003. Trade, hotels, transport and communication continued to display robust growth of 11.6 per cent compared to 9.9 per cent during July-September 2003. Financing, insurance, real estate and business services declined to 5.9 per cent from 6.4 per cent in the same quarter a year earlier. While the performance of mining and quarrying improved to 4.8 per cent from 2.0 per cent in the previous quarter, that of community, social and personal services was disappointing with the growth rate in July-September 2004 slipping sharply to 4.6 per cent from 15.2 per cent in the first quarter of 2003-04.

4. Among the services sectors, the key indicators of railways, namely the net tonne kilometres and passenger kilometres have shown growth rates of 8.2 per cent and 8.4 per cent, respectively, during the second quarter of 2004-05. The other key indicators, namely production of commercial vehicles, cargo handled at major ports, cargo handled by civil aviation, passengers handled by civil aviation, total stock of telephones, including WLL and cellular phones, aggregate bank deposits, bank credits and total revenue expenditure (excluding interest payments) of central government, respectively have shown rates of 17.1 per cent, 11.9 per cent, 18.6 per cent 18.8 per cent, 33.2 per cent, 14.1 per cent, 23.9 per cent and (-)4.5 per cent during the second quarter of 2004-05 over the same quarter of 2003-04.

5. If we go back in time to a little longer period, the picture that emerges is not so disappointing. For the combined two quarters from April-September, the growth rates turned out to be higher than the quarterly growth discussed above. For mining, manufacturing and electricity, the growth rates were 5.5 per cent, 8.7 per cent and 7.8 per cent, respectively as against 2.1 per cent, 7.0 per cent and 3.8 per cent, respectively, during April-September 2003 . The same has been the trend in respect of trade, hotels, transport and financing. However, in the case of construction and community, social and personal services, the performance remain disappointing with the growth estimates of 4.4 per cent and 6.7 per cent, respectively, during April-September 2004 compared to 6.1 per cent and 12.5 per cent during the six months a year earlier. Thus, despite the slowdown in agriculture, the manufacturing sector continues to perform well, thanks to buoyancy in consumer demand for goods and services and exports. However, the GDP data for the third quarter October- December 2004 could be depressive due to poor farm sector growth which had displayed robust 16.5 per cent growth during the same quarter last year.

6. Currently, prices seem to be under check with the wholesale prices index (WPI) based inflation falling for the fourth consecutive week to 6.50 per cent for the week ended December 18th from 6.73 per cent in the previous week. Inflation remained a source of concern during the year, having touched 8.73 per cent in the last week of August as international crude oil prices neared $ 60 a barrel. The softening of prices has been attributed primarily to cheaper food items, edible oils and manufactured products. The current decline comes despite a steady trend in fuel prices, a key factor influencing inflation in the recent months. True, inflation was much lower at 5.92 per cent during the corresponding period of the previous year. The finance minister’s view is that the price level can be brought down further, if crude prices fell below $ 40 a barrel. During the week ending December 18, international prices had remained over $ 44 a barrel even as worries over the oil inventories in the US kept market nervous. 

7. On the economic front, not every segment of it is thriving. No doubt, there is serious concern over revenue receipts which touched 97 per cent of the budget estimate at the end of November. Revenue receipts of Rs. 1,49,601 crore during Aril to November were 48.2 per cent of the corresponding period last year. Tighter expenditure control meant that at the end of November the Centre’s fiscal deficit was limited to 51.5 per cent of the Budget estimate against 61 per cent in the corresponding period last year. The Centre’s expenditure of Rs. 2,64,403 crore during the first eight months of the fiscal year amounted to 55.3 per cent of the Budget estimate of Rs. 4,77,829 crore. 

8. As stated earlier, agriculture sector cannot be expected to make a significant contribution to the GDP growth during 2004-05. If industry and services sectors continue to maintain the current tempo, they might push up the overall growth. The services sector which accounts for nearly half of GDP showed 8.2 per cent growth in the year through July- September of 2004. Strong underpinnings of growth in industry and services will certainly drive the GDP growth. Indeed, we may come up with the prospects of our GDP estimate for 2004-05 moving up to 6.5 per cent. The finance minister believes that despite slowdown, India will remain one of the world’s fastest growing economies.

*These statistics and the accompanying review are a product arising from the work undertaken under the joint ICICI research centre.org-EPWRF Data Base Project.

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