Current Economic Statistics and Review For the Week 
Ended February 26, 2005 (9^th Weekly Report of 2005)

  I

Highlights of  Current Economic Scene

Infrastructure

Global oil prices rose to touch US $ 52 a barrel, bolstered by freezing Siberian weather conditions in western Europe and north eastern U S A. and a sharp decline in the U S dollar versus other currencies.

Growth rate of the core industries declined sharply to 1.9 per cent in January 2005, as compared with a higher growth of 7.4 per cent in January 2004. Although cement industry registered a faster growth rate of 9.6 per cent in January 2005 as against a rate of 7.5 per cent in January 2004, slow growth rate of 0.2 per cent in crude petroleum as against 4.2 per cent, 2.8 per cent in coal as against 8.2 per cent , 2.4 per cent in electricity as against 6.2 per cent, negative growth of 0.2 per cent in both petroleum refinery products and finished steel in January 2005 as against positive growth rate of 8.4 per cent and 9.7 per cent ,respectively in January 2004, pulled down the cumulative growth during the period, April-January 2004-05, to 5.1 per cent as compared to 5.9 per cent in the corresponding period, a year ago. 

The Central Electricity Regulatory Commission (CERC) simplified the procedure for seeking open access in inter- State transmision by introducing e-bidding for short – term customers, a new pricing scheme for inter- regional links for reducing the financial burden of the State Electricity Boards.

Corporate Sector
New ventures

Tata Chemicals, a Tata group company, bid for the assets of the Sudarshan Kumar Birla group firm Saurashtra Chemicals. 

State Bank of India is likely to join hands with Tata Consultancy Services for its proposed infotech venture. 

Larsen & Toubro (L&T) won an order for the supply of a tubular reactor system valued at Rs 130 crore from Kuwait Olefins company KSC Kuwait, a joint venture between Dow Chemical company USA and PIC Kuwait. 

Toyota Kirolskar Motors launched Innova, the first model to be launched in the country from the company’s innovative international multi purpose vehicle (IMV) project. The launch also comes close on the heels of the phasing out of its top selling model Qualis. 

Jaya Shree Textiles, the Rs 400 crore division of Indian Rayon and Industries Ltd, will set up around 15 exclusive Linen Shoppes in major cities of the country within couple of years to meet the surging demand for linen in the country. 

Essar group is looking at investing $ 1 billion in Bangladesh in power and steel ventures. 

TVS Motor’s governing board approved proposals to invest about Rs 419 crore in three manufacturing facilities, including $ 50 million, about Rs 219 crore in a two wheeler facility in Indonesia, the third largest two wheeler market in the world. 

National Thermal Power Corporation (NTPC) approved the investment proposal for Barth Super Thermal Power Project at the current cost of Rs 8,692.97 crore. The first unit is expected to be synchronized within 48 months from the placement of the main plant order. 

Suzuki Motor Corporation plans to develop two new cars by 2007 to hold on to its leadership in the Indian car market. 

India’s biggest private steel maker, Tata Steel, and rival Essar Steel are in talks to set up plants in Iran. 

Deccan Chronicle Holdings Ltd, the publishers of Deccan Chronicle, Andhra Pradesh’s largest circulated English newspaper, announced a voluntary retirement scheme (VRS) for its employees. The scheme would be availed of by about 100 employees, primarily from the Hyderabad plant following its modernization. 

Deviating from the global business strategy of its UK parent, GlaxoSmithKline Pharmaceuticals India, the largest multinational drugs company in the country, is planning to sell in India drugs that are off patents globally. These drugs could either be from the GlaxoSmithKline Plc stable or owned by other multinationals. 

The Dubai based Emaar Properties has drawn up plans to invest $ 500 million in the development of integrated township projects in the country. The company, in which the government of Dubai has a 33.8 per cent stake, is setting up a 60:40 joint venture with the Delhi based MGF Group which will invest $ 333 million in the $ 833 million project. 

Asahi India Glass is in the midst of a Rs 930 crore upgrade of its manufacturing facilities to continue for two more years and equip the company with three integrated glass factories to serve the automobile and construction industries. 

Policy issues
The government is taking a fresh look at the transfer pricing norms for non fund based activities undertaken by companies operating in India for their overseas parents. 

Mergers and Acquisition
Mahanagar Telephone Nigam Ltd (MTNL) said it favoured merger with Bharat Sanchar Nigam Ltd instead of becoming a subsidiary. 

Mahindra & Mahindra announced a euro 125 million joint venture with French auto major Renault, which will see the launch of a mid-size ‘Logan’ in India by the first half of 2007. M&M and its former joint venture partner Ford Motor Company may sell off their cross holdings in each other before the launch of the first Mahindra-Renault car. 

Robeco, one of Europe’s largest fund house with asset under management of euro 110 billion, has bid for the initial public offering of Jet Airways. 

IT services company Tata Consultancy Services has tied up with Dr Edward de Bono and de Bono Thinking Systems to offer business transformation solutions to these organizations. 

Gujarat Gas Company Ltd (GGCL), a subsidiary of British Gas, is scouting for a strategic alliance in the form of an acquisition or a stake in privately run gas distribution entities. 

Internet search engine Yahoo is in talks to acquire a minority stake in Indiatimes, the online operation of the privately owned Bennett Coleman Ltd, which owns the Times of India newspaper. 

Oil and Natural Gas Corporation picked up the Tripura government’s 26 per cent equity in a special purpose vehicle set up to fund infrastructure development in the state. After ONGC’s entry, IL&FS will hold about 50 per cent, while the state government’s stake will be reduced to 24 per cent. 

The Hindustan Motors Ltd, a CK Birla group company approved the proposal to hive off its component business, comprising the Hosur and the Pithampur units, to its subsidiary AVTEC Ltd. 

India’s second largest tractor manufacturer, Tractor and Farm Equipment (Tafe) made an offer to Delhi based Eicher Group, to take over its tractor, engine and gear manufacturing businesses. 

International acquisitions
Ranbaxy Laboratories will set up a majority owned joint venture in Mexico to tap the growing demand for generic drugs there. The joint venture with a Mexican firm will cater to the marketing and distribution demands of the local market. 

Tata Motors announced it was acquiring a 21 per cent stake in Hispano Carrocera, a Spanish bus manufacturing company, for euro 12 million i.e., Rs 70 crore with an option to acquire the entire equity of the foreign company later. The deal involves equity, debt and technology licensing. This is Tata Motor’s second overseas acquisition after it took over South Korea’s Daewoo Commercial Vehicle Company for $ 102 million, the largest Indian acquisition in South Korea. 

The Gautam Thapar controlled Crompton Greaves is acquiring the Pauwels Group, a Belgium based power transformer and distribution transformer company for euro 32.10 million. 

The P K Mittal controlled Global Steel Holdings (GSHL) acquired a 80 per cent stake in Nigeria based Delta Steel company, Aladja from the federal government of Nigeria.

Indian Oil Corporation, India’s largest domestic refiner is in exclusive talks fully to acquire Maurel & Prom (M&P) of France. A compromise purchase of the exploration company’s African assets is being considered if a full scale deal cannot be agreed. 

TVS Logistics Services Limited acquired a 80 per cent stake in the UK based CJ Components Limited for a consideration of Rs 3.5 crore as part of its global expansion plan in the auto components supply chain business. 

South Indian television broadcaster Asianet Communications is restructuring its equity structure by offloading up to 9.33 per cent equity to the Mauritius based Americorp Ventures. 

GAIL India has decided to maintain its individual identity and resist merger with the other state-owned oil companies. It will acquire 9 per cent stake in Hong-Kong based gas distributor China Gas Holdings for a consideration of $ 31.2 million. 

HCL Technologies bought out the US-based Computech Corporation from HCL Enterprise Solutions. 

Company issues
Concerned over the alleged rerouting of international calls, the Central Bureau of Investigation (CBI) launched a probe into the working of Reliance Infocomm and other private telecom operators. 

Goldman Sachs Investment (Mauritius) sold over 3 lakh shares of Shaw Wallace & Co in the market at an average price of Rs 222.81 a share. The buyer could not be ascertained. 

Japanese car maker Hondo Motor Co decided to charge technical know-fee from its Indian arm Honda Siel based on the number of new models launched rather than a lumpsum fee. 

The Goa based Rs 1,000 crore Timblo group’s family feud took a new twist when Dilip Timblo, who had earlier sought that the case before the Company Law Board be dismissed, joined his mother Sushila Timblo and brother Prashant Timblo in their petition. The petition asks the board to conduct an enquiry into the accounts of Sociedade De Fomento Industrial Pvt Ltd, the family’s flagship company. 

Mahindra and Mahindra (M&M) received an order for around 300 petrol Scorpios from Malaysia, which will be supplied over February and March. 

Pfizer has taken Ranbaxy laboratories to court in the US, alleging infringement of its patent of Accupril (generic name : quinapril), an anti-hypertensive with annual sales of $ 550 million. 

The huge valuation of Pilani investments and Industries, the investment arm of the Birla groups that holds shares in almost all major Birla companies, is emerging as a stumbling block in the way of untangling the crossholding in the company. As on February 15, Pilani’s investments stood at Rs 1,834.67 crore. 

The demand for experienced professionals in the IteS/BPO sector is outpacing the supply in an industry that continues to witness rapid growth. 

Inflation
The annual rate of inflation on point-to-point basis remained static at 5.01 per cent for the week ended February 12, 2005. The rate of inflation a year ago in a comparable period was 6.08 per cent. The Wholesale Price Index (WPI), however, rose by 0.1 per cent to 188.8 points from 179.8 points, even though prices of fuel products remained unchanged. However, prices of primary items and manufactured products showed a rising tendency. The index of mass consumption was up by 0.3 per cent due to 0.6 per cent hike in the food articles index. The food articles index was higher than the previous weeks’ due to higher prices for certain fruits and vegetables which rose by 3.2 per cent. Fuel, power, light and lubricants’ group index remained constant at 288.9 points as against 262.7 points in the corresponding period last year. The index of manufactured products’ group was up by 0.1 per cent at 167.6 points as compared to previous week and 160.4 points in the comparable period last year, mainly due to higher prices of food products, leather and leather products, and non-metallic mineral products. The government revised rate of inflation and WPI downwards to 6.44 per cent and 188.4 points instead of provisional figures of 6.50 per cent and 188.4 points for the week ended December 18, 2004.

Labour
According to the Economic Survey 2004-05, employment in the organised sector (public and private) declined by 0.8 per cent during the year 2003 due to decline in public sector employment by one per cent and a slight drop of 0.1 per cent in the private sector employment in 2003. It is interesting to note that the employment in agriculture and allied activities in public sector which showed a near stagnation level during 1994-2000 and proved as a major culprit in a drop in employment so far, has performed better in the year 2003 (5.06 lakh persons) as compared to that of in the year 2002 (4.83 lakh persons). It has shown a rate of increase in employment of almost 5 per cent and so also for the private sector agricultural employment. The employment in finance, insurance and real estate has also contributed positively to generate more employment both in public as well as private sector. However, the employment in other industries like manufacturing, mining and quarrying, electricity, construction, transport, storage and communications in the public sector have come down and eventually wiped out the employment gains brought in by other sectors in the year 2003.

Banking
Bank of India will soon be entering the market for a $1 billion multi-currency medium term note (MTN) issue to augment the bank’s resources. 

Punjab National Bank (PNB) has embarked on its second round of restructuring – essentially a four-pronged strategy to make it strong enough to counter competition. The strategy involves centralisation of the back-office, a hub setup where all data operations would be centralised. The second step would be to do a detailed study of the profitability of all products on the shelves, which would be followed by corrective actions to align them with the market scenario. The third strategy would be to undertake an integrated risk management system to be followed by an organisational revamp. 

The State Bank of India (SBI) is planning an American depository shares (ADS), issue as part of its fund-raising programme in the next financial year. According to banking sources, a proposal to this effect has been submitted to the Reserve Bank of India (RBI) and discussions have been held with the banking regulator. The bank had also kept open the option of an equity issue in the domestic market in case the ADS issue did not work out. The RBI, which holds 59.73 per cent stake in the bank, needs to bring down it’s holding in SBI to enable it to tap the global market. 

The government has unveiled a new autonomy package for public sector banks, removing a slew of stifling controls. State-owned banks now need not seek the government’s permission for acquisitions, entering or exiting businesses, setting up overseas offices or merger of unviable branches. The new norms also provide banks with flexibility in all human resource issues. It also aims to reduce the risk of nationalised bank staff facing vigilance or CBI inquires as the government has asked the banks to lay down a policy of accountability and responsibility, which recognizes bona fide errors at the time of decision-making. Nationalised bank brass will no longer have to wait for government clearances for undertaking foreign trips to interact with investors and depositors. Apart from a handful of banks like Punjab & Sindh Bank, Dena Bank and United Bank of India, the others would have the flexibility to offer differential pay to its staff and can also offer a different remuneration package for specialised staff. 

As per the latest economic survey, the net non-performing assets (NPAs) as a proportion of net advances had fallen by 24.7 per cent in 2003-04 against 8.1 per cent in the previous year. According to the survey, the advances to non-priority sector accounted for 51.24 per cent of NPAs in public sector banks (PSBs), while for private banks it was 75.3 per cent. 

In a bid to meet the Basel II guidelines, recently issued by the Reserve Bank of India (RBI), the State Bank of India (SBI) is examining the possibility of outsourcing the job of creating a database of its borrowers, both retail as well as corporate, spanning a ten year period. 
Centurion Bank has opened a new branch at Erode, Tamil Nadu. With this, the bank now has 7 branches in Tamil Nadu and 21 branches in south India. 

SBI Capital Markets Ltd., the investment-banking arm of the State Bank of India is planning to offer investment advisory services to private insurance companies in order to increase its fee-based income. 

The gross bank credit by scheduled commercial banks (SCBs) increased by 23.8 per cent in the current year compared with 9.3 per cent in the corresponding period of the previous year. Food credit has grown by 15.2 per cent during the current fiscal (upto January 21, 2005) as compared to a 25.9 per cent decline in the last year. Non-food credit also increased by 24.2 per cent as compared to a 11.9 per cent decline in the last year. 

Advances by the public sector banks to priority sector increased by 21 per cent in 2003-04 compared to an increase by 18.6 per cent in 2002-03. The share of priority sector advances in total net bank credit of PSBs increased from 42.5 per cent in 2002-03 to 44 per cent in 2003-04. According to the economic survey, all bank groups have fulfilled the minimum target of lendings set for priority sector. 

Information Technology

As per the report of market research company IDC (India), the personal computer (PC) sales figure share of assemblers has shrunk to 49 per cent in the quarter ended December 31, 2004 from 61 per cent in the corresponding period the previous year. The market for assembled PCs is shrinking fast as branded majors continue to slash prices and plug the gap. 

Public Finance
The Finance ministry has increased the abatement for MRP-based excise levy on drugs from 35 per cent to 40 per cent. With this the levy, the levy would be on 60 per cent of MRP, instead of 65 per cent at present.

The revenue department in a desperate attempt to deliver revenue targets, before the end of the year, has resorted to a new source of revenue, which is the Rs 10,000 crore export benefits given out each year in the form of Duty Entitlement Passbook Benefits (DEPB). As a consequence of a judgement passed by the Bombay High Court in the Rohan Dyes Case, the revenue department has started sending notices to various pharmaceuticals companies, steel exporters and a host of other industries, asking for taxes to be paid for the past seven years on DEPB benefits claimed by these units as tax exemptions. 

The Income Tax department has authorised 865 computerised branches of public sector banks and private sector banks in Mumbai and Navi Mumbai to accept payment of income tax dues. Of these, 808 are public sector bank branches, 23 branches of HDFC Bank, 9 branches each of ICICI Bank and IDBI Bank and 16 branches of UTI Bank.

Twelfth Finance Commission (TFC) 
The government has accepted the TFC’s recommendation on sharing of profit petroleum, as long as this remains within the overall ceiling of the transfers recommended by the commission. Profit petroleum is the government’s share in sale of crude oil or natural gas recovered from the fields once the exploration and development costs have been recovered. The centre is estimated to earn about Rs 4,000 crore. As per the formula proposed by the TFC, the states producing the mineral oil and natural gas are now liable to get Rs 2,000 crore.

The Centre has also agreed to move towards accrual based of accounting. The commission had recommended that the definition of revenue and fiscal deficit be standardised across states. Additional information on subsidies, spending on salaries, pension and repayment schedule of outstanding debt has also been sought to help in better decision making.

The TFC has recommended a separate allocation of Rs 20,000 crore for Panchayat Raj Institutions (PRI) and Rs 5,000 crore for urban local bodies for the next five years. The commission has also suggested that the states set up guarantee redemption funds through earmarked guarantee fees. It has further expanded the definition of calamity relief and specified that the provision for disaster preparedness and mitigation should be a part of state plans and not calamity relief. The TFC has also said that states should follow a recruitment policy in a manner that the total salary bill relative to revenue expenditure, excluding interest payments, does not exceed 35 per cent.

The TFC has proposed a core rate of 12 per cent under VAT, as against 12.5 per cent, which has been recommended by the Empowered Committee. According to the TFC, states should be given the option to use high rates if desired. Also, a very small number of goods, under well-enunciated principles should be put under the proposed lower category of 4 per cent.

Economic Survey 2004-05 
The Economic Survey has made the following observations with regard to the central finances of the country. According to the survey, the increasing share of the revenue deficit, in the fiscal deficit is worrisome. This distinctly indicates deterioration in the quality of expenditure. The survey has also pointed out that growing revenue expenditure, interest burden, losses of public sector units, inappropriate user charges and falling central transfers to the state are responsible for the deteriorating health of state public finances. Another disturbing trend, which has been brought out by the survey is the mounting outstanding liabilities of the state, the share of which to GDP is expected to increase from 21.7 per cent in 2002-03 to 29.4 per cent in the current year. 

State updates
The State government’s total expenditure on pension has amounted to Rs 34,456 crore during 2004-05. This is an increase of almost 66.5 per cent compared to the figures of 1999-2000. This also amounts to 1.7 per cent of the their total income. Tamil Nadu has the highest burden with a pension bill of almost Rs 5,000 crore. Uttar Pradesh is second on the list having a pension bill of Rs 4,143 crore.
The Maharashtra planning department has brought down the plan outlay for 2005-06 to Rs 10,500 crore

Capital Markets
Primary Market
Yes Bank, the new age commercial bank, is planning to expand its capital base by raising Rs 300 crore through public offering. Post-issue, the public shareholding in the bank would go up to 25 per cent. 

With a large number of small companies approaching the Sebi to tap the primary equity market, Sebi has become cautious. Sebi appears to have taken a view those IPOs seeking to raise less than Rs 50 crore will be cleared only after thoroughly scrutinizing the background of the promoters and the quality of project. 

The initial public offer of UTV Software Communications Limited is for 6,999,950 equity shares of Rs 10 each. The issue is made through 100 per cent book building in a price band of Rs 115 –130 each. 

Secondary Market 
In the week prior to the budget announcement, the stock markets remained range bound as the market participants turned cautious. For the week ended February 25, the BSE sensex ended marginally lower at 6584.32 down 14.60 points over the previous weeks close, while NSE Nifty recorded a gain of 5.35 points to close at 2060.90. The governments decision to allow FDI in banking and construction buoyed the market sentiments. 

For the month of February, the net FIIs investment stood at Rs 8376.30 crore ($1910.50 million) with purchases at Rs 22388 crore and sales at Rs 14012.10 crore. 

Mutual funds were also net buyers in both the equity and debt markets in February, in equities their net investment stood at Rs 125.60 crore with purchases at Rs 3632.75 crore and sales at Rs 3507.15 crore.

As per the study conducted by NSE, the FII investment across companies is below the maximum permissible limit despite such huge inflows of foreign funds. The study covers 469 companies which are part of the broad based S&P CNX 500 index.

Sebi has tightened the margin requirement for the cash market and asked all the stock exchanges to collect the value at risk (VaR) margin upfront, which is to be implemented from May 31. 

Derivatives 
During the week, the rollover of contracts from February to March began on a dim note later on gathered momentum, however, the market participants preferred to wait for budget announcements. The turnover ranged between Rs 10272.3 crore and Rs 17132.80 crore during the week. 

Government Securities Market
Primary Market
The RBI conducted ‘on tap’ sale of 7.17 per cent 2017 state development loan on behalf of 16 states for an aggregate amount of Rs 6,300 crore, of which it received an aggregate subscriptions of Rs 3760 crore, the RBI retained Rs 3,031 crore. 

Secondary Market
Ahead of the budget announcements, the debt market remained cautious with the weighted average YTM 7.38 per cent 2015 rose from 6.47 per cent on February 18 to 6.50 per cent on February 25. The call money market remained comfortable throughout the week and ruled around the RBI’s reverse repo rate of 4.75 per cent. The daily average outstanding amounts in the LAF operations during the week have been Rs 22,936 crore. Also, the CBLO registered the highest daily volume of Rs 72,958.50 million on February 22. 

Bond Market
Powergrid Corporation of India has privately placed its taxable bonds at a coupon of 7.1 per cent for a tenure of eight years through the book –building route for an aggregate amount of Rs 500 crore. The issue was oversubscribed 10 times the issue size.

Food Corporation of India raised Rs 1,000 crore as a part of Rs 5,000 crore borrowings on February 21; the issue was oversubscribed. These bonds are backed by the central government guarantee with an average coupon of 7.1 per cent and an average maturity of 5-10 years. 

With the adoption of new measures of risks as prescribed by the RBI, the banks will require to raise fresh capital to prevent their CAR from falling.

Foreign Exchange Market
The dollar had panicked after the South Korean Central Bank expressed its plans to diversify its reserves thereby imply that it would sell dollars, however, subsequently the Bank clarified that it did not intend to sell dollars, this buoyed the dollar and it bounced back. 

The dollar has depreciated against the other currencies as the expectation that the interest rate would rise faster in US appears to have weakened. In addition, robust inflow of foreign fund propelled the rupee to appreciate, however as the RBI intervened to arrest the sharp appreciation of the rupee, as a result, the rupee has appreciated from Rs 43.84 on February 18 to Rs 43.69 on February 25.

The six-month forward premia fell from 1.70 per cent on February 18 to 1.62 per cent on February 25.

External Sectors
The Cabinet Committee on Economic Affairs (CCEA) has provided in-principle clearance for allowing 100 per cent FDI under the automatic route in the construction sector. The main points of the clearance are:

Minimum area under each project is 10 hectares for service housing plots, 50,000 Sq.metres for construction development projects 
Investment subject to minimum capitalisation of $ 10 million for wholly owned arms and $ 5 million for Joint Ventures 
Funds are to be brought in within 6 months of start of business 
Original investment cannot be repatriated before three years
Sale of underdeveloped land barred to prevent speculation in real estate market 

India’s foreign exchange position reached a new high to record $ 132.96 billion on February 18. India’s reserves, which are the tenth biggest in the world rose by nearly $ 3 billion from the previous week’s $ 129.98 billion.

India’s crude oil imports in January rose by 7.6 per cent to about 2 million barrels per day, while exports of refined products rose by 66 per cent from the same period in the previous year. In April-January of 2004-05 crude oil imports rose by 7.2 per cent.

As per the data released by the Cashew Export Council of India, export of cashew kernels during April-December 2004, rose to 92,786 tonne, which was valued at Rs 1942.32 crore. In the corresponding period last year, exports of the commodity stood at 72,039 tonnes, which was valued at Rs 1287.95 crore.

India’s wheat exports in marketing year 2005-06 (April-March) are expected to halve to almost 10 lakh tonnes from the estimated 20-lakh tonnes. Indian wheat lost its competitive edge in the world market when the government decided to discontinue the subsidised wheat export sales in August 2003. 

India and Singapore have sorted out the rules of origin (ROO) issue and finalised the goods component of the Comprehensive Economic Cooperation Agreement (CECA). ROO determines the percentage of local value addition that entitle exports from participating countries to concessional tariffs in the importing country. Singapore has agreed to go by India’s demand of using both value addition and change in tariff heading criteria for determining ROO. On the other hand, India has allowed it a short list of sensitive products, which would get special treatment.

The government is considering opening up of legal services to foreign firms. This follows the attempts made by the World Trade Organisation (WTO) to liberalise trade in services. 

The Export-Import Bank of India has extended a line of credit worth $ 5 million to Lesotho for financing export of capital goods, plants and machinery, industrial manufactures, consumer durables etc.

Credit Ratings
Crisil has assigned a P1+ rating to the Rs. 10 crore CP programme of Linc Pen and Plastics, the rating reflects the company’s strong position in the organised segment of the writing instrument industry, especially in the northern and eastern India and its efficient distribution network. 

In an another exercise, Crisil has removed the ratings on Nirma’s deep discount bonds and short-term debt programme from Ratings Watch with Developing Implications and has reaffirmed them at AAA/stable/P1+. The rating action follows detailed discussions with Nirma’s management on the acquisition costs and the financial implications of its entry into the intravenous fluids business, including the maximum exposure that that the management is a willing to take in this business. It has also assigned aP1+ rating to the Rs. 10 billion certificate of deposits programme of Allahabad Bank.

Icra has assigned a conditional LAAA (so) rating to the Rs. 1000 crore Government of India guaranteed bonds programme of Food Corporation of India, the rating is based on the unconditional and irrevocable guarantee issued by the ministry of consumer affairs. 

In an another exercise, Icra has assigned an MA rating to the FD programme of Television Eighteen India. It has also reaffirmed the long-term debt rating of the company at LBBB+. The rating also considers the uncertainty regarding the ongoing uplinking dispute with the I & B ministry.
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Theme of the week:

Promising Budget

1. As usual, the finance minister laid down the policies that were to be implemented by others. He has many faces - a thousand - as many others would say. Finance minister, Chidambaram, has produced a budget to please a thousand constituentees avoiding controversy and radical ideas in order to present a fractious coalition already shaken by State election results. A relieved stock market shot up 144 points. Since he cannot please everybody with the tax cuts, he has pledged thousands of crores on every possible good cause. With these words, finance minister has presented his budget for 2005-06 to the parliament.

2. In May 2004, the UPA government inherited an economy that had as we know, registered a growth of 8.56 per cent in 2003-04 on the back of 4 per cent in the previous year. While growth was indeed broad based, the impressive growth was due largely to restoration of output in the agricultural and allied sector. He had the occasion to comment that his predecessor was a very lucky man, even while his predecessor was not. Notwithstanding at high growth rate, there were disturbing trend which came to notice in May 2004. The first was the liquidity overhang at the end of 2003-04, which spilled over into 2004-05. The second was the definite build up of inflationary pressure as a result of sharp rise in global petroleum prices. The third was the unanticipated a 13 per cent deficiency in the south-west monsoon. The fourth was the apparent decline in business confidence that had led to a sharp downturn in new investment and also showed up as current account surplus. By any standard, these were formidable challenges but the UPA Government was prepare to face these challenges.

3. The National Common Minimum Programme (NCMP) mandated the Government to maintain a growth rate of 7-8 per cent a year to promote investment, to generate employment and accelerate fiscal consolidation to ensure a higher fiscal devolutional and to focus on agriculture, manufacturing and infrastructure. The NMCP also mandated the government to provide universal access to education and health care and assure one hundred days of employment for one person in each family. In the face of 9 months, we have risen to the challenge and carved out many success. According to the Central Statistical Organization, the growth rate in the current year is estimated to be 6.9 per cent with manufacturing expected to grow at 8.9 per cent. Inflation which has touched a high of 8.7 per cent on August 28, 2004 has been reined in. As on February 12, 2005, the rate of inflation was 5.01 which is more than one percentage point lower than what it was in the same week in the previous year. Business confidence has been buoyant. Non-food credit has increased by 21.2 per cent. As the year draws to a close, we can predict confidently that all the engines of the economy are running at nearly full speedy.

4. After a series of customs duty reduction, the finance minister proposed further reduce in East Asian neighbour. The customs duties on selected capital goods and parts to below 15 per cent to 10 per cent in some others. He has proposed to reduce the duties from 20 per cent to 10 per cent in order to help the textile industry acquire a competitive edge in post-quota regime. To give a leg-up to leather and footwear industry, he proposed to reduce the leather and footwear industry on customs duties on seven specified from 20 per cent to 5 per cent. Considering the pharmaceutical and biotechnology as a sunrise sector, he proposed to reduce the customs duty on nine specified machinery used in these two sectors to 5 per cent. For primary and secondary metals, he proposed to reduce the customs duties from 15 per cent to 10 per cent. Similarly, industrial raw materials such as catalyst, refractionary raw material, basic plastic material, molasses and industrial ethyl alcohol which are key inputs to manufactures, will now liable to a reduced customs duty rate of 10 per cent.

5. Speaking on cut in customs duty, the finance minister proposed coking coal with highest ash content attracting duty of 15 per cent to 5 per cent. Further, keeping in mind the crucial need to encourage textile sector, the customs duties rates on polyester and nylon chips, textiles fibre, yarn and fabrics and garments are proposed to be reduced 20 per cent and 15 per cent. However, he intend to take the power to impose a countervailing duty (CVD) of 4 per cent on all imports to componesate for state level VAT that is proposed to be imposed on corresponding domestic goods. In order to encourage, the import of technology to production pure drinking water, he proposed to reduce the import duty on atmospheric drinking water generator from 20 per cent to 5 per cent.

6. Imitation jewellery now attracts a new excise duty of 16 per cent. Since they are products predominantly consumed by less affluent sections, he proposed to reduce the excise to 8 per cent. At the same time, expensive and premium is now manufactured and sold under alluring brand names: on such branded jewellery he proposed to levy an excise duty of 2 per cent. Some sector he mentioned deserve relief since they produce goods for common citizens. Today, there is a surcharge of Re. 1 per kg on tea. He proposed to abolish the surcharge. There is also an Re. 1 per kg on refined oil and Rs. 1.25 per kg on vanaspati. He has proposed to abolish both these levies. Even while protecting the handloom sector, that makes matches, it is necessary to give some to mechanized and semi-mechanised sectors. Hence, he has proposed to reduce the excise duty from 16 per cent to 12 per cent on matches made by these two sectors. Extending the tax relief, he proposed to raise the ceiling for SSI extending based on turnover from a level of Rs. 3 crore per year to Rs. 4 crore per year.

7. Continuing with this tax proposals, he came down strongly on taxes on molasses. From Rs. 500 per metric tonnes to Rs. 1000 per metric tonnes to adjust for hefty increase in molasses prices. He also raised specific cement clinkers from Rs. 250 per MT as an anti-avoidance measures. He is aware of the fact that the National Highway Development Project requires very large resources. In order to raise additional resources, he proposed to increase the cess on petrol and diesel by 50 paise per litre. A levy of an education cess has been widely accepted. The health sector demands similar treatment. Accordingly, he proposed to increase the specific rate on cigaratte by almost 10 per cent and impose 10 per cent on ad volorem on the other tobacco products. Finally, there is the issue of taxes on petroleum products. After examining the Lahiri Committee Report, he proposed to make major changes in the customs and excise duty. The customs duty on crude oil will be reduced from 10 per cent to 5 per cent.

8. The changes in exemption limit and personal income tax slab means that those with the annual income of Rs 1.8 lakh or more save between Rs. 5,100 and Rs. 51,816 on tax each year. Top gainers are those who earn between Rs. 8.5 lakh and Rs. 10 lakh. Non-salary earners gain more because what they save from the slab changes is not offset by the fact that standard deduction has now been abolished. In addition, to this benefit for women an exemption limit, moves upto Rs. 1.25 lakh and for senior citizen to Rs. 1.50 lakh but the higher limit is in lieu of existing rebates under Sections 88C and 88B. The effect for women is Rs. 9,180 less of tax, while senior citizen remain unaffected. Stop worrying about how to speedy spread investments to maximize tax savings. No more hassling figuring out what qualifies under Sections 88 and 80L. Just known off savings upto Rs. 1 lakh from your taxable income to save upto Rs. 30,600. Those who are working at 30 per cent tax rebate save an extra 10 per cent of the invested amount.

9. The most obvious implication and the one that will intone most people is that they will now have much less tax. Budget 2005-06 has reduced tax liability of individuals across the board. It has raised the exemption limit to Rs. 1,00,000 from the existing level of Rs. 50,000 and changed the tax slab. At the same time, the finance minister has increased the limit beyond which the 10 per cent of surcharge will be levied to Rs. 10 lakh from Rs.8.50 lakh too. This will benefit a person having income more than Rs.8.50 lakh but less than Rs. 10 lakh. Finance minister has also used the occasion to rationalize various IT deduction and rebates allowed under Sections 80 and 88 clubbed together. No rebate will be allowed under section 88 against investments made in specified instruments like PPF, National Savings Certificate and infrastructure bonds. The finance minister also discontinued Section 80 L under which deduction upto Rs. 15,000 was allowed against interest income. However, investors are free to exhaust the investment limit of Rs. one lakh in any of the investments.

10. Both Investment Commission and the National Manufacturing Competitiveness Council have started the work in right earnest. In India, we believe we shall reap the first success of their work in the next financial year. Worldwide it is manufacturing that has driven growth. For domestic companies, the corporate I-T rate will be 30 per cent. There will also be a surcharge of 10 per cent. The rate of depreciation will be 15 per cent for general machinery, but the material depreciation will be increased to 20 per cent. The corporate sector will find that the proposed tax structure is fair, gives them relief of nearly 3 per cent in the tax rate, encourages new investments and ensures equity among all sections of corporate tax payers.

11. However, there was programmes of national importance such as for generation of employment, National Rural Employment Guarantee Scheme., National Rural Health Mission, ICDS, Sarva Shiksha Abhiyan, Drinking Water and Sanitation, Scheduled Castes and Scheduled Tribes, Women and Children, Backward Regions Grant Fund etc, due to larger allocation. The fact is that at the national level, the allocation under each programme, varied from scheme to scheme. In overall terms the expenditure in the current year is estimated at Rs. 4,020 crore. For 2005-06 a provision of Rs. 5,400 crore for the cash component and 50 lakh MT of foodgrains have been made and in overall terms the allocation will increase to Rs.11,000 crore. Similarly, the total allocation for the Department of Health and Department of Family Welfare will increase from Rs. 8,420 crore in the current year to Rs. 10,280 crore in the next year. For many schemes, the marginal allotment was huge, while for others it was small, depending on when the scheme was introduced in the country.

*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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