Current Economic Statistics and Review For the Week 
Ended January 29, 2005 (5^th Weekly Report of 2005)

  I

Highlights of  Current Economic Scene

Infrastructure

During the period April – December 2004, infrastructure - comprising crude oil, refinery, coal, cement, electricity and steel – marginally declined to 5.4 per cent from 5.8 per cent in the corresponding period of 2003.

In December 2004, finished steel and crude petroleum registered a negative growth of 0.5 per cent and 0.3 per cent, respectively, as against a positive growth of 14.3 per cent and 3.1 per cent, respectively, in December 2003. Cement and coal production registered higher growth rate of 8.3 per cent and 7.7 per cent, respectively, in December 2004 as against a growth of 5.5 per cent and 6.4 per cent, respectively a year earlier. 

The Government of India allowed free imports of coal having ash content of upto 12 per cent and coal having more than 12 per cent of ash, however, attracted customs duty of 15 per cent. Customs duty on coke was 5 per cent. Steel makers imported more than 13 million tonnes of coking coal at a cost of around $ 250 per tonne.

The Tata Iron and Steel Company (TISCO), producing 5 million tonnes of steel, formally planned to reduce its workforce from the present level of about 40,000 to around 20,000 in the next five years with a view to manufacturing 7.5 million tonnes of steel. 

India imported 71.8 million tonnes of crude oil during April – December 2004 which was at 7.3 per cent higher than the quantum imported during the corresponding month a year earlier.

Oil and Natural Gas Corporation (ONGC) having stakes in Vietnam, Russia, Iran, Qatar and Bahrain planned to invest also in Sudan for a 25 per cent stake as part of its goal of pumping 4,00,000 barrels per day by 2011. 

Corporate Sector
Policy Issues
The Securities and Exchange Board of India (Sebi) has decided to curtail the availability of the creeping acquisition route to promoters who hold more than 55 per cent in a company. Such promoters will have to make the mandatory open offer if they wish to raise holdings over 55 per cent. Earlier the cutoff was 75 per cent. Sebi is expected to give promoters, who hold more than 75 per cent in companies, one year in which to bring down their holdings to 55 per cent. 

The Sebi has approved the country’s first venture capital fund, the HDFC Property Fund, in real estate. 

The government is planning to allow foreign direct investment (FDI) in all real estate projects, including housing. At present, 100 per cent FDI is allowed only in integrated townships. An announcement for liberalizing the foreign investment regime in the real estate sector is expected in the Budget.

Disinvestment
The government is expected to divest up to 15 per cent in the two state-run carriers, Air-India and Indian Airlines over the next two years to fund their fleet expansion. 

Proceeds from disinvestment of public sector units (PSUs) will go into a national investment fund from April 1. A meeting of the Cabinet Committee of Economic Affairs decided that the fund would be used for developing the social sector and reviving public sector units.

Company Issues
ICICI Bank CEO and managing director is expected to present his report on the valuation of the Reliance group and its division between Mukesh and Anil brothers by the end of this month. 

Keeping up the pressure on Mukesh Ambani, younger brother Anil has sent a detailed 500 page note concerning corporate governance in the Reliance empire an issue he has repeatedly raised in the public feud between him and his brother since mid-November.

A major roadblock to a solution to the 2,184 MW, $ 2.9 billion Dabhol Power Company problem has been cleared, with foreign lenders to the Enron-promoted project agreeing in principle to Indian lenders buying out their debt. 

After a high-level probe, the government has ordered the formation of an inter-agency group, which will include the CBI, to determine the course of action to be taken against Modi Xerox Corp. The investigation was ordered in 2002 after the company’s US parent, Xerox Inc, admitted its Indian subsidiary had made improper payments to get government orders. 

Gail India has lodged a protest with the petroleum ministry on British Gas (BG) India’s decision to sell natural gas from the Mukta Panna Tapti fields. The public sector gas company, to which BG (India) is supposed to sell the gas produced, has said that power generation along its Hazira-Vijaipur –Jagdishpur (HVJ) pipeline would be reduced by over 2000 mw and fertilizer production down by over 5.5 million tonne per annum if the joint operators of the fields start selling gas on their own. 

Foreign Institutional Investors (FIIs) were the largest shareholders in as many as 77 companies at the end of December 2004. In the same month two years ago, they had similar stakes in just 24 companies. At the end of December 2003, the number was more than doubled at 54. 

Mergers & Acquisitions
Swiss Cement giant Holcim has found a buyer for the Associated Cement Companies’ (ACC’s) 76.1 per cent stake in Everest Industries Limited. The Rs 7,000 crore Adani group has signed an agreement with Holcim to take over Everest. 

The Rs 1,300 crore fast moving consumer goods major Dabur India announced the acquisition of the Mumbai based Balsara Hygiene and Home Products in a Rs 143 crore all cash deal. 

The government is open to allowing Saudi Aramco to buy 10-15 per cent equity in Indian Oil Corporation. Discussions have been held with the National Iranian Oil company (NIOC) for a similar stake in Hindustan Petroleum Corporation and Bharat Petroleum Corporation. 

Procter & Gamble (P&G) said it would acquire Gillette in a deal valued at $ 57 billion, forming a combination that will overtake Unilever as the world’s largest consumer and household goods company, with sales of $ 60.7 billion. 

The Rs 4,000 crore Videocon group is buying French electronics major Thomson group’s colour picture tube plant in Anagni, Italy for an undisclosed sum. 

New ventures
British entrepreneur Richard Branson is considering starting his own low cost airline in India rather than taking a stake in an existing carrier. 

Tata Steel is looking out for coal mines in Australia and New Zealand as it has set a target of reaching 15 million tonne per annum capacity by 2010. 

Reliance Industries has obtained approval for laying six petroleum pipelines across the country to sell output from its 33 million tonne per annum refinery in Jamnagar, Gujarat. 

Reliance Industries (RIL) will roll out its petroleum retailing network in cities and metros too. The company which had till now concentrated on the national and state highways, has decided to have atleast 20 per cent of its retail outlets in the cities in the first phase.

Ashok Leyland Ltd, the flagship company of the Hinduja group and India’s No.2 commercial vehicle maker, is considering setting up a base in Thailand. 

The board of Subex Systems approved the restructuring of the flagship company so that it becomes a products venture. This would be done by transferring the services business to its wholly owned subsidiary Subex Technologies Inc. 

The RPG group is restructuring its entire retail portfolio. As part of this exercise all initiatives without an existing outside partner would be merged into a retail company, likely to be named RPG Retail. 

Company results
Unlisted non-finance companies in the private sector fared remarkably well in 2002-03, the latest year for which figures were available, with 7,948 firms posting a rise of 85.75 per cent in net profit and a 14.71 per cent growth in revenue. However, unlisted public sector undertakings (PSUs) did not fare as well. The net profit of 218 PSUs declined sharply by 78.5 per cent, despite a 9 per cent rise in revenue. Data released by Centre for Monitoring Indian Economy (CMIE) were based on the financial performance of over 260,000 unlisted Indian companies. 

According to Business Standard, of the 658 companies that have so far announced their quarterly results at least 140 have announced over 200 per cent growth in net profit. 

Labour
According to Annual Survey of Industries by CSO, the average annual productivity of an industrial worker, measured in terms of per worker value of output has grown by an annual compound rate of 10 per cent during the last six years between 1996-97 and 2002-03. In 2002-03 alone, per worker value of output grew by more than 16 per cent over the previous year. Per worker net value added which directly reflects the contribution of labour in output growth has shot up by over 18 per cent in 2002-03. A 10 per cent rise in per worker value of output is a considerable achievement by any standard. Interestingly, per worker value of output has risen in all major states during this period except few minor states like Manipur, Meghalaya, Tripura and Dadra & Nagar Haveli. 

Inflation
The annual WPI-based inflation fell to a 33-week low to 5.4 per cent for the week ended January 15, 2005 from 5.6 per cent recorded during the previous week, mainly due to a marginal fall in prices of vegetables and fruits, tea, edible oil and naphtha. Inflation was higher at 6.5 per cent a year ago. Inflation fell since November following a series of duty cuts on petroleum, polymers and steel products by the government, while the RBI sucked off excess liquidity through repo rate last year. During the latest recorded week, wholesale price index (WPI) stood unchanged at previous weeks’ level at 188.6 points. The primary articles group index dipped by 0.4 per cent to 185.5 points as food articles turned low-priced by 0.3 per cent, while non-food articles went down by 0.1 per cent. The fuel, power, light and lubricants group index dipped marginally to 288 due to one per cent fall in naphtha prices. Manufactured products group index rose by 0.1 per cent to 167.5 points due to costlier food products, non-metallic minerals, basic metals and machinery, though prices fell for textiles, chemicals and auto parts. The government also revised WPI figure downwards to 189.9 during the week ended November 20, 2004, while correcting the inflation to 7.23 per cent as against the provisional figure of 7.34 per cent. 

Banking
Andhra Bank has recorded a 30.25 per cent increase in its net profit at Rs.121.8 crore in the third quarter ended December 31, 2004 as against Rs.93.5 crore in the corresponding quarter last year. 

Kolkata-based UCO Bank’s net profit has declined by 59 per cent during the third quarter for the current fiscal to Rs.55 crore against Rs.134 crore in the corresponding period in October – December 2003. 

The Reserve Bank of India (RBI) has brought down the minimum eligibility criteria for urban co-operative banks (UCBs) as most of them are inclined to enter the insurance business. The RBI has halved the minimum net worth of UCBs to undertake insurance business as a corporate agent without any risk participation. It has reduced the required net worth of UCBs from Rs.100 crore to Rs.50 crore. 

The State Bank of India (SBI) has recorded a 20 per cent growth in its net profit at Rs.1099.35 crore in the third quarter ending December 31, 2004 as against Rs.919.4 crore for the corresponding period of the preceding year. The net non-performing assets (NPAs) in the reporting period have risen to Rs.4812 crore as against Rs.4076 crore the previous year, as the entire Dabhol exposure amounting to over Rs.1300 crore has turned sticky. 

Punjab National Bank (PNB) has registered a 21 per cent increase in its net profit at Rs.314.3 crore during the third quarter of the current fiscal as compared to Rs.259.8 crore during the corresponding period in 2003-04. 

Manglore-based Corporation Bank has posted a 42.73 per cent rise in its net profit at Rs.161.69 crore in the third quarter of the current fiscal. The bank has declared an interim dividend of 30 per cent.

With a heavy plunge in profit from sale of investments, Bank of India, has declared a 67 per cent fall in net profit to Rs.75.03 crore for the third quarter ended December 31, 2004 from Rs.228.54 in the corresponding period of the previous year. 
The Government of India (GoI) has acquired Reserve Bank of India’s (RBI) 15 per cent stake in Infrastructure Development Finance Company (IDFC) at Rs.150 crore. This takes the central government’s holding in IDFC to 35 per cent. The government has also taken over the RBI’s subordinated debt to IDFC to the tune of Rs.350 crore. The Centre made the equity transfer against cash payment. Industry sources said the transfer has been at par since IDFC is an unlisted company. 

Housing
Housing Development Finance Corporation Ltd. (HDFC) has recorded a 29 per cent increase in its net profit at Rs.236.1 crore for the third quarter ending December 2004, as compared to Rs.182.8 crore for the corresponding period of the last fiscal. For the nine-month period ending December 2004, the net profit stood at Rs.688.8 crore, as against Rs.553.81 crore for the same period the previous year. 

Telecom
Bharti Tele-Ventures, the country’s largest GSM service provider has announced a 131 per cent jump in its net profit at Rs.373 crore for the third quarter of the current fiscal, against Rs.161 crore in the corresponding period last year. As of December 31, 2004, the company had a subscriber base of over 10 million customers, of which 9.8 million mobile users and 0.8 million broadband and wireline users. 

The Tata-group company, Videsh Sanchar Nigam Ltd. (VSNL), has filed a suit against the central government seeking compensation of Rs.2560.72 crore for the premature termination of its international long distance (ILD) monopoly. VSNL’s monopoly was supposed to exist till March 31, 2004, however in July 2002, Department of Telecommunication (DoT) said the government had decided to terminate VSNL’s monopoly two years ahead of schedule. 

Insurance
About 82,000 new employees have joined the Employees State Insurance (ESI) scheme over the past financial year, taking the total number covered under the Employees State Insurance Corporation (ESIC) to more than 70.82 lakh. 

Public Finance
Tax collections in the current fiscal year is likely to fall short of the budget target by about Rs 10,000 –12,000 crore. The shortfall will mainly be due to a fall in the collection of indirect taxes owing to lower excise duty collections. Direct tax is likely to be marginally lower than the Budget target as a result of lower corporate tax collections. Overambition with regards to the budget estimates following impressive tax collections in 2003-04 is seen as one of the reasons for the shortfall in collections.

SEBI is seeking tax sops for broking firms going for M&As. The move is aimed at encouraging the process of consolidation among market intermediaries. Acquisitions of a viable broking entity bring capital gains and are liable to be taxed. A tax exemption has been sought on such gains. In the past, the government has provided tax breaks for M&As in the manufacturing sector, computer software, telecommunications and mining. The benefit was further extended to banks in 2003-04 budget. However, the revenue department fears that tax breaks on M&As may be misused.

The government faces an additional responsibility of Rs 24,000 crore as per the recommendations of the 12th Finance Commission. As a result of this, the government is expected to give lower Plan support for Central Schemes operated in the states. As per senior officials, the government was tied down by the commitment to reduce the fiscal deficit to 4.1 per cent of the GDP during the next fiscal. However, the government faces an additional outgo of Rs 44,000 crore of which Rs 20,000 crore was required for National Common Minimum Programme (NCPM) and the remaining to implement the TFC recommendations.

The government is likely to exempt service providers below the threshold of Rs 10 lakh from service tax. However, the government is also examining the feasibility of fixing a lower limit at Rs 5 lakh. Keeping small service providers out of the tax net would be politically and administratively more practical. A threshold turnover could also give the government to raise tax rates.

The government is considering amending Section 72 (A) of the Income Tax Act in order to enable tax concessions relating to carry forward losses. The merging banks are also likely to get tax exemptions on the total losses. Banks also demanded income tax sops for mergers and acquisitions.

The finance ministry is contemplating to introduce a slew of tax breaks to help the power sector turn around. It is also considering a cess on electricity generation to make up for the loss in revenue. The other options the centre have are marginal duty on equipment imports and a set of indirect tax measures which includes reducing duties on spare part imports, fuel imports, service tax exemptions and easier norms for obtaining mega power plan status. Among other tax proposals being considered for the sector are the reduction of basic customs duty on equipment imports and energy conservation products and materials to 5 per cent and scrapping of the 16 per cent excise duty on the power sector with consequent removal of the countervailing duty (CVD). 

Budget 2005-06 is likely to restructure import tariffs on oilseeds and edible oils. The ministry of consumer affairs has proposed a halving of the import duty on oilseeds to 15 per cent. It has also suggested the rationalisation of the customs duties on edible oils, which would entail lowering duties on most products.

The Commerce ministry has sought a reduction in the import duty on inputs used in consumer goods including televisions, colour picture tubes, lead acid storage batteries and air conditioners to address the inverted duty structure arising because of bilateral trade agreements. Colour television is among the consumer electronic products of India have been included in the early harvest scheme with Thailand.

The Commerce ministry has also proposed a reduction in the basic Customs duty on Scotch whisky to 75 per cent from the current bound and applied rate of 150 per cent for bottled imported spirits in the forthcoming budget. The ministry has also recommended abolition of the additional customs duty on scotch whisky. The additional duty was imposed on bottled imported spirits as countervailing duty in lieu of states excise tax when quantitative restrictions (QRs) were removed in 2001.

The ministry of water resources has demanded Rs 4,500 crore for the completion of major irrigation projects in the forthcoming budget. The target is to complete 83 irrigation projects by March 2007 and 30 projects by the end of this fiscal year. The government has already spent Rs 5,500 crore this year on connecting canals and tributaries for irrigation and its demand for the next fiscal year is at Rs 3,700 crore. The ministry is also looking at a package of Rs 175 crore for the revival of ground water resources. The allocation demand for drinking water is likely to be around Rs 3,500 crore.

The food processing industry has called for complete withdrawal of customs duty on machines, spares and special ingredients used in food processing. It has also asked for waiver of import duty on all capital equipment related to the industry and removal of CVD on the same.
Information regarding the verification for the interstate trading or any information regarding value added tax (VAT) rules would be available in the Internet from April 1 2005, through the National Tax Information Exchange (TINXSYS), which is being developed by ICICI Infotech.

Prices in Kerala are likely to fall in the range of 5-10 per cent post VAT, since it is largely a consumer state. This could come about in 2 ways- the set off on central sales tax to trader at the state of origin and full set-off on tax paid on inputs. At present a tax of 3 per cent is collected on inputs.

Capital Market
Primary Market:
The Mumbai-based Shringar Cinemas plans to float 81.5 lakh shares at face value of Rs. 10 each at a price to be determined through 100 per cent book-built route.

Reliance Infocomm plans to raise Rs. 3,750 crore in fresh capital by March 2005; this capital raising exercise can take the form of preference shares, equity or equity-like instruments such as convertible bonds.

Jet Airway’s proposed IPO offer of 17,266,801 equity shares of Rs. 10 each for cash at a price to be discovered through a book-building process has been studied in details by Sebi.

Secondary Market:
During the week, BSE sensex after ruling below the previous weeks close, staged a buoyant recovery, registering 235.85 points gains to end at 6,419.09. The broader 50-share S&P CNX Nifty gained 83 points to close at 2008.30. The buoyancy was due to a combination of factors such as lower inflation rate, indications of surging Chinese economy; in addition, Sebi’s measure to ease the IPO process contributed to the bullish sentiments. Further, impressive fourth quarter results and short covering ahead of the January 2005 derivatives contracts supported the rally. 

The government has permitted non-government provident funds (PFs) to invest in stocks with effect from April 1, 2005 up to 5 per cent of their fresh inflows in equity shares. In addition, they can invest another 10 per cent in equity-linked mutual funds. However, the PFs can directly invest in only those shares of companies who have debt instruments floated and it carries an investment grade rating from at least two credit rating agencies. 

In the month of January, FIIs were net sellers in equities to the extent of Rs (-) 174.90 crore with sales at Rs 15,301.80 crore and purchases at Rs 15,126.90 crore, even in debt they were net sellers at Rs 753.70 crore with sales at Rs 1,604.60 crore and purchases at Rs 850.80 crore. Apparently, FIIs are selling from the market due to the churning of the portfolio following the annual allocations. Once the process is completed, it is expected that they would continue to invest in Indian equity stocks. 

Sebi has issued a slew of measures to make IPO disclosures more investors friendly: the abridged prospectus is to be made more readable and investor friendly and the design of application form is to be changed so that the investor retains the entire form for future reference among others. 

Sebi has stated that the mutual funds are permitted to invest only in securities, including money market instruments. Since deposits of MFs with the scheduled commercial banks are outside the purview, it was clarified by the Sebi that the MFs should not deploy their funds with them as part of their asset allocation of a scheme. 

Sebi has amended the takeover regulations to tighten the creeping acquisition norms for promoters by allowing them to raise their stake beyond 55 per cent through an open offer. This norm is applicable prospectively and not retrospectively. Earlier Sebi’s takeover regulations permitted creeping acquisition up to 75 per cent. 

The Finance Minister is to consider the proposed sale of equity of 10 per cent in BHEL and 7.5 per cent in Maruti Udyog as part of its disinvestments in the next fiscal year. This buoyed the market sentiments. 

An inhouse committee appointed by Sebi has recommended a cut in annual turnover fees to nearly one tenth of the amount paid currently. 

Sebi has said investors will not have to pay any charges for opening account and crediting securities from February 1, 2005. However, the depositories may levy and collect the charges towards custody from the issuers , on a per folio basis at the end of the financial year. 

Derivatives 
There was buoyancy in the derivatives market due to the strong quarterly results. Besides the rally in the cash market was supported by smooth rollover from January to February expiry derivatives contracts as the January contracts expired on Thursday. Nifty futures witnessed rollover of around 70 per cent of the positions from January to February, while for the individual stock futures rollover of 80 per cent of the positions to February expiry contracts. 

During the week, the derivatives volume on the F&O segment of the NSE ruled between Rs 11,981.5 crore and Rs 18,787.9 crore. 

Government Securities Market
Primary Market
The government in consultation with the RBI acquired the equity (Rs 150 crore) and subordinated debt (Rs 350 crore) of Infrastructure Development Finance Corporation (IDFC). The subordinated debt was transferred against a new dated security floating rate bond 2035 which was issued to the RBI on a private placement basis with a coupon of 6.49 per cent for the first five years which will be reset subsequently. 

Finance secretaries have said in a meeting with the RBI that banks should be guided by commercial judgments, while granting loans to projects backed by state government guarantees.

The government is to auction bonds worth Rs 5,000 crore for 15-19 year gilts. 

Secondary Market
Due to the fall in the inflation rate, there was buoyancy in the gilt-edged securities market as the yields on short and medium term securities eased, while those at longer end ruled slightly higher. 

Bond Market
Union Bank of India raised Rs 300 crore (plus green shoe option of Rs 150 crore) for a period 123 months by offering a coupon of 7.15 per cent. 

Foreign Exchange Market
During the week, the rupee-dollar exchange rate hovered in a narrow range of Rs 43.81 to Rs 43.75. 

The six-month forward premia closed at 2.26 per cent on January 28 as compared to 2.31 per cent on January 21. 

The foreign exchange reserves have risen by US $ 0.05 billion to aggregate to US $ 1 A fall in the inflation rate and the merger of IDBI with the IDBI Bank on the last trading day of the week did not boost the market sentiments much. The BSE sensex gained 9.92 points to settle at 6,183.24, amid high volatility due to lack of fresh triggers. The selling spree by the FIIs continued as the net outflow of the FIIs stood at Rs. 226.1 crore compared to Rs. 189.1 crore in the previous week. 

The S & P CNX Nifty registered a decline of just 0.30 per cent during the week to close at 1,925.30 level, while, the NSE 500 witnessed a fall of 0.46 per cent. 

The average total combined turnover on the BSE and NSE dipped at Rs. 6,758.83 crore as compared to Rs. 7,404.82 crore in the previous week. 

Derivatives
The NSE F & O segment witnessed a high trading interest and FIIs were among the major contributors to the volatile movement. The open interest declined for most part of the counters and the outstanding position in the Nifty futures remained flat during the week. 

In the Nifty options trading volumes were decent and positions were built up at 1,950 and 2,000 levels for Nifty calls and 1,900. 1,950 and 2,000 levels for put. The put-call ratio for outstanding positions remained range-bound at 0.86 and 0.89 during the week.

Government securities market
Primary Market:
The RBI has announced the auction of 91-day T-bills for a notified amount of Rs. 2,000 crore, of which Rs. 1,500 crore will be auctioned under the market stabilization scheme and Rs. 500 crore under regular auction calendar.

Secondary Market:
The market sentiments continued to remain weak amid appreciating dollar and high global crude oil prices. The call money rates moved in the range of 4.50 per cent to 4.80 per cent. Comfortable liquidity saw an increase in the volume of the RBI’s reverse repo auctions, an average amount of Rs. 19,352 crore remained parked under reverse repo auction during the week ended January 20, with Rs. 15,355 crore remaining outstanding as the end of the week.

The SGL traded volumes remained in the range of Rs. 2,000-2,500 crore during the week. The yields continued to firm up, despite a decline in inflation at 5.6 per cent for the week ended January 8. In a five- day week of trading cycle, the yield on 7.38 per cent 2015 ended the week at 6.74 per cent as against the previous week’s close of 6.69 per cent. 

Bond Market:
In a subdued market, the triple-A rated five-year benchmark yield rose to 7.05 per cent, while its spread over comparable government bond eased by eight basis points to five per cent.

Allahabad Bank is likely to raise Rs. 700 crore through its second trench of public offering.

UCO Bank is to raise Rs. 250 crore Tier-II capital, including greenshoe option of Rs. 50 crore, through its private placement of unsecured, redeemable, non-convertible, subordinate bonds (Series V). 

Foreign Exchange Market:
The decline in Asian currencies and the renewed rise in the crude oil prices weighed on the rupee, which rose to two-week highs of 43.67 against the dollar. The foreign exchange reserve rose by $266 million to $129.4 billion in the week ending January 14, after a drop of over $2 billion a week earlier. The forex reserve was led by a rise in the foreign currency assets and the reserve tranche position (RTP) with the IMF. Foreign currency assets rose by $252 million to $123,374 billion led by a revaluation of international currencies.

Commodity Market:
The Multi-Commodity Exchange (MCX) has launched futures trading in jeera (cumin seeds) from January 17.The contract size has been kept at two tonne, with quotation of price per kg and a tick size of ten paise. Each contract would be of three months, expiring on 15th of every month. The maximum order size is 50 tonne.

The National Commodity and Derivatives Exchange Ltd. (NCDEX) launched futures trading in cocoon and raw silk.

Credit Rating:
Crisil has assigned an AA/stable rating to the Rs. 4 billion tier-II bonds of the Bank of Maharashtra, the rating draws significant support from the bank’s majority ownership by the Government of India and its strong liquidity position and moderate resource profile.

Icra has assigned an A1+ and LAA rating to the Rs. 200 crore short-term debt programme and Rs. 25 crore long-term debt programme of Kotak Securities. The rating factors in the strong presence of Kotak Securities in the equity business and portfolio management services, adequate capitalisation, strong liquidity and the sound risk management system employed by the company.

In an another exercise, Icra has suspended the outstanding rating of MB assigned to hte FD programme of Manipal Finance Corporation due to lack of information. It has also downgraded the rating assigned to the non-convertible debenture programme of B Seeniah and Company (Projects) Limited from LA+ to LA.

Care has assigned a PR1+ rating to the short-term debt programme up to Rs. 320 crore (increased from Rs. 270 crore) of Srei Infrastructure Finance, for maturity up to one year. 

In an another exercise, Care has assigned AA+ rating to the proposed Rs. 250 crore tier-II subordinated bond issue of Vijaya Bank. 

Theme of the week:

Arial, Helvetica, Verdana

1. Preliminary data for 2004 show that the countries in Asia-Pacific region registered an impressive 37 per cent growth in tourism arrivals. The US, after the September 12, 2001 event, reversed its negative growth of three consecutive years, but is estimated to have grown by a relatively modest 12 per cent and Europe’s growth of 6 per cent though above its usual average, is much lower than for Asia. India entertained about 3.36 million visitors from abroad for the first time in 2004, compared to 2.7 million in 2003. Similarly, foreign exchange earnings from tourism rose by 37.1 per cent to $ 4.8 billion in 2004 from $ 3.5 billion a year ago. It is pointed out that the increase in foreign exchange earnings was the result of tourists having decided to stay longer period of time in India. There have been an effort to attract tourists round the year as well as to extend their average stay in the country.

2. Over 35 per cent of worldwide international tourists arrivals are concentrated in five nations: France, Spain, the US, Italy and China. Even though the competition of the top 10 remained unchanged from 2002, Canada dropped to the 10th slot from a seventh a year earlier. This was primarily due to after effect of SARS, which also hit tourists in South and East Asia in 2003. For instance, China’s tourist arrivals in 2003 suffered a setback, with a fall of about 10 per cent. However, long term trends are better captured by 2002 figures since 2003 data shows the effects of SARS epidemic. Overall, international tourist flows increased by about 27 per cent from 55 million in 1995 to 70 million in 2002. But the direction of tourist flows has changed significantly. The US has experienced a decline in tourist arrivals of 3.2 per cent in 2002 compared to 1995 and dropped to the third position. The biggest losers were Poland and Hungary, the later ranked sixth in 1995 dropped to the twelfth place in 2002, a decline of 4.8 million.

3. In turn, Asia was the biggest gainer, its share in tourist arrivals increased from 15.5 per cent in 1995 to 18.7 per cent in 2002, in the process overtaking the Americans on the whole. True, Europe continues to have the lion’s share, being the preferred destination for an overwhelming 57 per cent of tourists. As for individual countries, China saw an 84 per cent increase in tourists flow from 20 million in 1995 to 36.8 million in 2002. Malaysia with 13.3 million and Thailand with 10.9 million tourists were the other impressive Asian gainers, registering increases of 77 and 58 per cent, respectively. But the biggest success story has been the West Asia, where Saudi Arabia has more than doubled its tourists inflow to about 7.5 million in 2002. The gains of UAE was even higher being five times as the figure rose to 5.4 million in 2002.

4. India has a Rs 500 crore plan outlay for tourism sector of which Rs 90 crore is spent on awareness campaigns and marketing. According to tourism ministry sources, the department has asked for additional funds of Rs 20 crore in the wake of the Tsunami crisis. The industry expects that the overall outlook for the region will improve as early as possible. The tourism department and the private sector have to highlight the fact that the tragedy impacted only in Tamil Nadu, Pondicherry and Andaman and Nicobar Islands. Other coastal areas in the South remain unaffected. Besides, while marketing the unaffected states and resorts in Kerala, Goa, Andhra Pradesh and Karnataka, emphasis should be given to these states.

5. There is a strong linkage between foreign exchange earned from tourism and employment created in the country. This was clearly brought out by a study undertaken by the Planning Commission. As a starter, the preliminary data presented by the Commission show that among 70 countries getting one million arrivals every year, India ranks 40. And among 59 countries with $ one billion receipt from tourism, India ranks 34. In India, tourism provides 5.6 per cent of total jobs. China that has pulled its iron curtain is doing better with 7 per cent. Sri Lanka, despite its being torn apart by civil war, has 7.4 per cent of its job coming from tourism. According to plan panel’s estimate, tourism if tapped properly can help turnaround the unemployment problem. For instance, for every Rs.10 lakh invested, tourism can create 89 jobs, while manufacturing industry can create 12.6 jobs and agricultural sector 44.7 jobs. The Commission projects creation of 26 million jobs, if tourism can increase to 10 per cent of India’s GDP as against the current rate of 4.8 per cent. Considering the high incidence of poverty and large scale unemployment in India, there is no better way than promoting tourism. Out of the total outlay for the 10th plan, the center has set aside only 0.27 per cent for tourism. The Commission plans to push for better fund allocations. 

6. Meanwhile, in an effort to strengthen the chain of service providers in tourism, the Indian Tourism Office has trained over 6000 members of the unorganized sector dealing with tourists on a regular basis, such as porters, taxi and auto-rickshaw drivers, local tea vendors, priests and jetty operators. The programme was aimed at imparting training to grassroot workers. As porters and drivers are the first to interact with tourists upon reaching their destination, it is desirable, that they provide a good first impression of the country and hence play a pivotal role in the chain of services provided in tourism. The training helped in inculcating a positive attitude and behavior among the target while dealing with the tourist. The training includes providing information about tourists spots in and around the place, tourist offices, entertainment centers, shopping malls, tourists friendly etiquette, brushing up languages, basics on hygiene and cleanliness.

7. Recently, the minister of tourism has admitted that lack of infrastructure was the bane of tourism in India. The minister told the members of consultative committee attached to the tourism ministry that a result oriented approach is being adopted to endure budget accommodation for tourists, better road connectivity to all tourist destinations and world heritage sites. Efforts are being made to bring the tourist infrastructure in the country upto international standards. For this, there are plans to increase the scheduled airlines capacities and upgrading airport infrastructure. Rationalization of tourist transport taxes and setting up budget hotels are among other steps being considered. Besides, five ports, including Mumbai and Goa have been identified for introduction of a sea cruise between Mumbai and Goa . The government has also taken up rural tourism in a proactive manner. The idea is to pass on the socio-economic benefits of tourism to rural people. Another area is the health tourism that attracted about one lakh fifty thousand tourists in 2003. This segment has the potential to draw one million health tourists into the country.

8. Similarly, on the occasion of the Confederation of Indian Industry’s (CII’s) fifth international conference: India: Tourism and Heritage, the human resource development underscored the fact that close to 80 per cent of people earning their livelihood from tourism could be classified as part of unorganized sector. The group’s recommendations included creation of awareness campaign and inclusion of tourism in the curriculum of schools and colleges. The group believes that there is a huge gap between ‘Brand India’ and ‘Experience India’. The brand raises expectations which the actual experience may be frustrating. It recommended a committee to be set up under the chief minister of each state, involving professionals from the field to oversee the creation of infrastructure. Similarly, professionally managed tourism board should be set up. Special tourism economic zones should be created where land should be allotted to private promoters to build hotels in various categories, conventional centers, shopping complexes for handicrafts, tourism offices and the like.

9. The officials concede tourism in 2004 has gone up 37 per cent in value terms and touched an all time high of over three million visitors but the ministry needs to sustain this growth in the next three to four years to touch the critical 50 to 60 per cent to see some real benefits. Talks are on with the ASEAN Secretariat to establish a network of tour operations between India and the East and even use our resources in the IT sector to drive tourism. The most critical area still remains building infrastructure facilities which are awfully lacking. Air/rail and road connectivity to destinations beyond the big metro route is minimal. There is a need to create more rooms in the country – to raise the present 90,000 rooms in approved hotels to at least two lakh rooms, coerce the Home Ministry to pursue the open visa regime: encourage the growth of small airlines for small destinations, create new destinations for adventurous and boost in some hot spots. The tourism minister has chosen two new States for development, her home state Andhra Pradesh and Karnataka. The tourism minister is all praises for Mysore from where a visitor can go to seven different destinations each day all within 10 km with forest reserves, temples and resorts.

10. Banks are treading into a new financing area that of tourism infrastructure development. For the first time, in an integrated approach towards tourism financing, the Indian Banking Association (IBA) along with the tourism department of India has set up a core group to look into the role of banks in financing tourism. The IBA, in a pioneering move, is also contemplating making investment in tourism development. The core team formed to take a look into the role of banks is headed by Indian Bank’s CMD, MBN Rao, along with the officials of the tourist department and finance corporations. The rise in domestic tourism prompted banks to take a series look into funding of tourist infrastructure. Also banks have been encouraged by the success of international tourism destinations like Malaysia to establish a model along similar lines in India. So far, banks have financed hotel projects. The idea this time around is to go in for an integrated approach with the active participation of state governments.

11. Meanwhile, Associated Chambers of Commerce and Industry of India (Assocham) has mooted the creation of a chain of ‘land-banks’ all over the country for allocation of preferential land sites to the hotel industry at subsidized rates. It demanded the setting up of a tourism development fund to bridge the critical infrastructure gaps in the sector. The center should earmark a budget for development of preferential sites for hotels and distribute them to the suggested land banks through a mechanism. The authorized capital of the proposed land bank constitute a major equity contribution from the site in the form of surplus government land. In this connection, it has been advised that finance and urban development ministries should take the lead in writing to all state tourism development corporation advising them to identify preferred sites suitable for hotels. They should make provisions for their preferential allotments to those willing to invest in the sector. The land earmarked for such purposes should be distributed among the entrepreneurs at preferential rates to attract investments to promote the state hotel industry.

*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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