Current Economic Statistics and Review For the Week 
Ended September 10, 2005 (37^th Weekly Report of 2005)

Theme of the week:

A Brief Profile Of Social Concerns

I

 The Backdrop: Social and Economic Progress

Quantitative Indicators

            There is undoubtedly a universal recognition that India now stands amongst the top few of the emerging economies based as it is on noteworthy progress made in wide spheres of development over the past five decades and a half, particularly during the last 25 years.  The 1980s saw the Indian economy piercing through the first-three decades’ Hindu rate of growth of 3.5 per cent per annum in real GDP and attaining an annual growth of 5.7 per cent, which has further improved to 6.2 per cent during 1992-93 to 2004-05.  The compound growth rates of agriculture and industry were the best in the 1980s at 3.2 per cent and 7.5 per cent, respectively.  There has been some deceleration in them in the 1990s which has, however, been compensated for by the services sector (including construction), the share of which in total real GDP has shot up from 43 per cent in 1980-81 to 57.6 per cent in 2004-05 (advance estimates).

            Likewise, the official measures of poverty shows a steady decline in the poverty head-count ratio, from about 55 per cent in 1973-74 to 44.5 per cent in 1983 and to 26 per cent in 1999-2000.  On the human development front too, the country has made significant progress in the last three decades or so.  The average life expectancy at birth has gone up from 45.6 years in 1970-71 to 50.4 years in 1980-81, to 58.7 years in 1990-91 and to 63.3 years in 2000-01 (approximate years of reporting). The infant mortality rate (per 1,000 live births) has dropped from 110 in 1981 to 80 in 1991 and to 63 in 2002.  Maternal mortality (per 100,000 live births) has dropped from 437 in 1992-93 to 407 in 1998. The improvement in literacy rate has been much more rapid, from 34.45 per cent in 1971 to 52.20 per cent in 1991 and to 65.38 per cent in 2001.

Serious caveats and concerns

            Though achievements have thus been quite significant on many fronts, recognisedly the gaps remain quite large and disquieting.  There is the first set of questions that casts doubt on the conventional poverty estimates.  To begin with, the number of the poor still exceeds 260 million, said to be one in fifth of the global poor. There are wide inter-regional disparities in poverty levels, with over 48 per cent of the poor concentrated in three states of UP, MP and Bihar in 1999-2000 (before these three states were bifurcated).  Though, for the country as a whole, the rural share of the poor stands at 74.25 per cent which is only slightly higher than the rural share of the total population (72.21 per cent as per 2001 census), vast differences are found as between states in the proportions of people below the poverty in rural and urban areas.  Besides, the steep decline in the proportion of the people below the poverty line in the 1990s has been based on non-comparable data series.  As per Deaton (2001 and 2003), the official estimates of rural head-count ratio of 27.1 per cent for 1999-2000 is to be replaced by 30.2 per cent after adjustment for non-comparability with the estimates for 1993-94.  “Instead of there being a drop in rural poverty since 1993-94 of 10.2 percentage points, the adjusted figures show a reduction of only 7.0 percentage points--” (Deaton 2003:325).  By this yardstick, over 290 million people fell below the poverty line in 1999-2000.  And now, serious questions are raised on the credibility of the ‘official poverty line’ as a true measure of the cost of obtaining the original calorie requirements.  The study by Ray and Lancaster (2005:55) “provides evidence, based on estimated nutrient prices and a ‘balanced diet’ of nutrients, that shows how far the official poverty lines have fallen out of line with the ones that reflect the true inflation in the nutrient prices”. According to them, “the poverty situation in India today is much worse than that revealed by the official poverty lines” (ibid).  And added to all these is now the revelation that there can be situations of certain persons, who were above the defined poverty line earlier, slipping below poverty.  Survey results have been reported at the micro level in the Indian states of Rajasthan (Krishna 2003) and Andhra Pradesh ( Krishna , et al 2004).  Broad sets of factors associated with pushing people below the poverty line in both the cases are stated thus: “Falling into poverty in this region is associated not with any single cause but usually with a combination of causes, including poor health, large expenses on (poor quality) health care, social functions associated with deaths and with marriages, and high-interest loans taken out from private sources to meet these unaffordable and often crippling expenses” (Krishna 2003:538; see also Krishna, et al 2004:3252).

---- social deprivations 

            The second set of concerns relates to the extent of social deprivations.  The proportions of people below the poverty line based on income poverty or nutritional standards have no doubt come down but the extent and nature of social deprivations have remained substantial.  A more disquieting feature in this respect has been the poorer performance in the 1990s as compared with that in the 1980s.  The trends in the Human Development Index (HDI) as measured by the UNDP, presented in Table 1, portray how India still lags far behind a few chosen east and south-east Asian countries (and Sri Lanka ).  In terms of almost all of socio-demographic parameters, “in spite of considerable progress over the past two decades the country continues to lag behind several countries in the region” (UNDP 2003).  Despite relatively more rapid progress made in human development, UNDP’s human poverty index (HPI-1), measuring an average of social deprivations, works out to be the highest for India as compared with those for the selected south and east-Asian countries (and Sri Lanka) (Table 2).  No doubt, these countries started off with higher levels of social sector development, but India has been hardly able to catch up with them – not even in the 1990s after reforms.

            The extent of such social deprivation in India is also evident rather indirectly from a World Bank study which measures the number of poor people by countries and regions based on two international poverty lines, namely, US $ 1.08 per day and US $ 2.15 per day (both 1993 PPP) (Chen and Ravallion 2004).   As per this study, nearly 360 million people were below the $1.08 a day poverty line in India 2001 as against 380-400 million in the first half of the 1990s (Table 3).  But, when we double the poverty line to $ 2.15 a day which would capture the additional social and economic standards required for a decent living, the proportion of people below the poverty line in India would jump to over 85 per cent up until the mid-1990s and remain at over 80 per cent thereafter.  The absolute number of the poor so defined has consistently risen over the past two decades and touched 826 million in 2001 (Table 3).  In other words, the proportion of economically and socially deprived people still constitute over 80 per cent of the population in India as compared with 47 per cent in China. 

---- Reduced employment growth  

            The third set of caution concerns the deteriorating employment growth situation. First, there has occurred significant deterioration in the growth of employment in the national economy as a whole in the 1990s (Table 4).  Second, the decline in the rate of employment growth in the rural areas has been sharper than that in the urban areas (Table 5).  Third, informal sector employment has received a setback during the 1990s.  Employment growth in agriculture has been niggardly during 1993-94 to 1999-2000, that is, 0.05 per cent per annum as against 1.39 per cent per annum during 1983 to 1993-94.  Rural non-farm employment, which had grown by 3.23 per cent during 1983 to 1993-94, grew by 2.31 per cent during the next period.  Likewise, non-farm employment in the informal sector, as revealed by the Economic Censuses of 1980, 1990 and 1998, has experienced noticeably slackened growth during 1990-98 as compared with 1980-1990 (EPWRF, 2002). 

------ Swelling of informal sector self-employment

            Apart from the farm sector, the growing magnitude of non-farm informal sector employment speaks of the way the workers are swelling the ranks of low productivity, low income households. The 55^th Round of the National Sample Survey Organisation (NSSO) revealed non-farm employment of 160 million, during 1999-2000, of whom only 28 million were in the organised sector; the unorganised labour force was thus placed at 132 million.  This has been growing at over 2.50 per cent per annum.  The NSSO’s survey of Informal Sector in India, 1999-2000 (May 2001) has made an estimate of 44.41 million as the number of non-agricultural enterprises, of which 25.07 million (or 56 per cent) were located in rural areas and 19.34 million (44 per cent) in urban areas.  The total number of non-agricultural workers estimated was 79.78 million. The survey had left out a few activities.  The census survey of the small-scale industry (SSI) sector for 2001-02 has captured only 10.52 million enterprises, of which only 1.38 million (or 13.1 per cent) were registered; 9.15 million or 87 per cent were not so registered.  The numbers of employment in these SSI segments were 6.17 million and 18.77 million, respectively, together constituting only 24.93 million (SIDO 2004).  Thus, over 110 million of workers are outside the pale of the SSI sector – registered or unregistered, and eking out a living in low productivity and low income jobs.

---- growing inequalities

            Above all, the final set of caution to be exercised in appreciating the development process so far emanates from the recognisedly large and growing inter-sectoral and inter-regional, even inter-class, inequalities in the Indian economy – much more in the recent period than in the past.  There are very many direct and indirect evidences in this respect.  The first and foremost of this inequality sub-set has been the widening disparity between agricultural and non-agricultural sectors or between rural and urban sectors.  For instance, the share of ‘agriculture and allied activities’ in total nominal GDP, which has shown a secular decline, has fallen from 38.9 per cent in 1980-81 to 31.3 per cent in 1990-91 and further to 22.8 per cent in 2003-04 (EPWRF 2004:38 and CSO 2005), but at the same time, the dependence of people on the agricultural sector has hardly come down.  As per the data generated in different rounds of nationwide field surveys conducted by the National Sample Survey Organisation (NSSO), the share of agriculture in total employment has remained at 59.8 per cent in 1999-2000 as against 64.8 per cent in 1993-94 and 68.4 per cent in 1983. The 2001 population census places the agricultural workforce (main and marginal) at 58.4 per cent for the country as a whole (Census 2001 Electronic data). As the average number of non-employed dependents is probably somewhat higher amongst farm households as compared with non-farm households, the resulting proportion of people dependent on agriculture  should be still higher beyond  60 per cent in 1999-2000/2000-01 when the agricultural share in GDP was just 25-26 per cent (EPWRF 2004: 38).

            A detailed study on inter-state disparities in the growth of state domestic product (EPWRF 2002 and Shetty 2003) suggests growing inequalities amongst states.  First, it was observed that Gini coefficients worked out for the distribution of average per capita gross SDP amongst Indian states have experienced steady uptrend from 1980-81 to 2000-01.  Gini coefficients appear significantly lower for the 16 major states (possessing 90 percent of the population) than for all the 27 states and union territories, suggesting presence of wider disparities amongst smaller states and between smaller states and major ones.  Secondly, the study showed an amazing constancy in the relative position of states in terms of their rankings based on per capita incomes during the period of two decades.  Even the spread between the top five and bottom six has got widened during the period (Shetty 2003: 5195-5197).

            Finally, a study on inter-class inequality in India (Abhijit Banerjee 2001) concludes that the gradual liberalisation of the Indian economy did make it possible for the rich (the top 1 per cent) to substantially increase their share of total income.  While in the 1980s the gains were shared by every set in the top percentile, in the 1990s it was only those in the top 0.1 per cent who gained the most.  The study concludes: “Our results suggest that the gradual liberalisation of the Indian economy did make it possible for the rich (top 1 per cent) to substantially increase their share of total income.  The average income growth among the top percentile of the tax units was 71 per cent in real terms between 1987-8 and 1999-0, which is substantially more than average growth according to the national accounts.  Moreover, the higher one goes within the top percentile, the higher the growth (up to +285 per cent for the top 0.01 per cent income fractile).  While in the 1980s the gains were shared by everyone in the top percentile, in the 1990s it was only those in the top 0.1 per cent who were big gainers” (Abhijit Banerjee 2001:11-12).

            Insofar as the above issue of growing inequality is concerned, all other important studies have come to similar conclusions, though they have adopted different sets of data and different methods of analysis (For instance, Kurian 2000, Cassen 2002, and Deaton and Dreze 2002).

Need for public policies to promote growth with equality

            In view of the above, there is cause for growing concern about the vast gap that exists in satisfying the economic and social aspirations of the vast masses of people in India , as also the financial needs of vast numbers of informal sector enterprises.  And, it is also true that considering the structural characteristics of the Indian economy, it is imperative that every macro-economic policy seeks to address questions of poverty, employment growth and different dimensions of inequality in the process of development. 

References

Banerjee, Abhijit (2001): Top Indian Incomes, 1922-2000 (incomplete version: first draft: December 2001), MIT, Cambridge MA 20139 .

Cassen, R.H (2002)  ‘Well-Being in the 1990s: Towards a Balance Sheet’, EPW, Vol XXXVII, No 27, July 6.

Chen, Shaohua and Martin Ravallion (2004): ‘How Have the World’s Poorest  Fared Since the Early 1980s?’, The World Bank Research Observer, Volume 19, Number 12,  Fall 2004, Oxford University Press.

CSO (2005a): Press Note of Quick Estimates of National Income, Consumption Expenditure, Saving and Capital Formation, 2003-04, January 31.

-(2005b): Press Note of Advance Estimates National Income, 2004-05, February 7.

Deaton, Angus (2003): ‘Adjusted Indian Poverty Estimates for 1999-2000’, EPW, Vol XXXVIII, No 4, January 25-31.

-                      (2001): ‘Adjusted Indian Poverty Estimates for 1999-2000’, SARVEKSHANA, Journal of National Sample Survey Organisation, Vol.XXIV, No.2&3, 85^th Issue, October 2000 – March 2001.

Deaton, Angus and Jean Dreze (2002): ‘Poverty and Inequality in India : A Re-examination’, EPW, Vol XXXVII, No 36, September 7.

EPWRF (2004):  National Accounts Statistics of India : 1950-51 to 2002-03, December

- (2002): Annual Survey of Industries 1973-74 to 1997-98, April   

Government of India (2002): Economic Survey 2001-02, Ministry of Finance, Economic Division

Krishna, Anirudh, Mahesh Kapila, Sharad Pathak, Mahendra Porwal, Kiranpal Singh, Virpal Singh (2004): ‘Falling into Poverty in Villages of Andhra Pradesh: Why Poverty Avoidance Policies Are Needed’, EPW, Vol XXXIX, No 29, July 17-23.

Krishna , Anirudh (2003): ‘Falling into Poverty: Other Side of Poverty Reduction’, EPW, Vol XXXVIII, No 6, February 8-14.

Kurian, N. J. (2000): ‘Widening Regional Disparities in India : Some Indicators’, EPW, Vol XXXV, No 7, February 12.

Ray, Ranjan and Geoffrey Lancaster (2005): ‘On Setting the Poverty Line Based on Estimated Nutrient Prices: Condition of Socially Disadvantaged Groups during the Reform Period’, EPW, Vol XL, No 1, January 1.

Shetty, S L (2003): ‘Growth of SDP and Structural Changes in State Economies: Interstate Comparisons’,  EPW, Vol XXXVIII, No 49, December 6.

Small Industries Development Organisation, (SIDO) (2004):  Third All-India Census of SSIs 2001-2002, Ministry of Small Scale Industries, Government of India

UNDP (2003): Human Development Report 2003, New York .

Highlights of  Current Economic Scene

AGRICULTURE   

Punjab Government has decided to supply power free of cost to those farmers, who have cleared their bills as on August 31, 2005, under the “Energy Bonus Scheme”. The scheme is implemented from September 1, 2005. However, the bills would be issued to the farmers to let them know, how much power they have consumed, but the amount payable would be nil. The free power would put an additional burden of Rs 439 crore on the state treasury.

The kharif 2005-06 sowing is almost over and nearing a normal year production. The kharif sugarcane acreage stands at 41.37 lakh hectares so far as against 37.50 lakh hectares in 2004-2005. The kharif sugarcane acreage this year has gone up by 10.32 percent compared to last year as a result of higher purchasing prices announced by several state governments as well as higher statutory minimum prices set by the central government. The normal area under kharif sugarcane is 43 lakh hectares.

According to data released by the Solvent Extractors’ Association of India, Oilmeals exports of India at the end of first quarter of the financial year 2005-06 are down 9 per cent to stand at 11.33 lakh tonne compared to 12.40 lakh tonne during the corresponding period last year. The decline is largely due to lower global demand and better domestic offtake. Further, with lower global demand, prices are also low this year; making exports a non-profitable option in view of good domestic demand.

Seasonal uncertainties and outbreak of bird flu have lead the poultry farming business to undergo many changes. Poultry farmers, in and around Mumbai, have taken to contract farming and hedging, in order to protect their business from losses. Almost all the open farms in Khopoli- Pune belt have now turned to contract farming. The open farms, which were owned and controlled by individual farmers, have been replaced by contract farming. Poultry companies provide the farmers with free chicks, medicines and feeding products. The only requirement from the farmers’ side is to provide the shed with good capacity. The companies have also set down some standards for the chicks that are bred, in terms of standard weight of the bird.

INFRASTRUCTURE

Electricity

The union power secretary has stated that in order to support a 10 per cent growth envisaged for the economy, capacity generation in the power sector needed to grow at 8-9 per cent i.e. there is a need to generate 4 lakh Mw of electricity by 2025 from the present 1.25 lakh Mw.

The western region, comprising Maharashtra, Gujarat, Madhya Pradesh, Chhatisgarh and Goa, is reeling under a daily power shortage of 7045 Mw; the daily demand has shot up to a level of 31448 Mw though actual availability is just 24400 Mw. The region is expected to face a daily shortfall of over 9000 Mw by October-November, mainly due to increasing power demand in the rabi season and non availability of power across the country to meet demand.

Non-Conventional Energy

Maharashtra State Power Generation Company plans an internal assessment survey to explore the option of nuclear power generation to meet the ever-increasing power demand in the state.

Petroleum and Petroleum Products

US government figures estimate hurricane Katrina to have closed down 91 per cent of daily crude production and 83 per cent of natural gas production from the Gulf of Mexico, which accounts for about a quarter of US oil and gas production.

The government announced a rise in prices of petrol and diesel by Rs 3 a litre and Rs 2 a litre respectively, while leaving the prices of LPG and kerosene untouched.

The government has announced a new subsidy sharing package to offset under-recoveries of oil marketing companies, projected at Rs 40000 crore for the current fiscal year; wherein the consumers will bear 12-13 per cent of the total under-recovery burden, the government around 36 per cent of the burden while the share of the oil industry, including upstream companies (ONGC, GAIL and OIL) and refineries (state owned and private) will be the largest of around 52 per cent.

A major fire has completely destroyed an exploration rig owned by ONGC in an east Godavari district of Andhra Pradesh causing a loss of around Rs 8 crore to ONGC.

At the Indian oil and gas review symposium, oil firms have put forth a dual price policy allowing them to sell fuel to two-wheelers at a lower price and to four-wheelers at the import parity price and also a differential pricing system for petroleum products in cities and towns against rural areas.

Steel

Essar Steel Limited has commenced operations at its 1.2 million tonne per annum cold rolling complex in Hazira (Gujarat) resulting in an increase in capacity from 2 million tonne (MT) to 3 MT and plans to increase its production to 4.6 MT by the end of the year and 5.5 MT by September 2006. This will make Essar Steel one of the largest integrated steel producers in the country and the largest producer of flat steel.

INDUSTRY

Overall

According to the Monthly Monitor of the Institute of Economic Growth , the present high growth in the industrial sector is due to positive sentiments in the economy and growing external demand as reflected in the high export growth.

Pharmaceuticals

The government plans the revival of three pharmaceutical and chemical units in the public sector, viz. Indian Drugs and Pharmaceutical Limited (cost estimated at Rs 200 crore), Hindustan Antibiotics Limited (cost estimated at Rs 136 crore) and Bengal Chemicals and Pharmaceuticals Limited (details still to be worked out).

Good Manufacturing Practices (GMP) Norms, specified in Schedule M of Drugs and Cosmetics Act, that came into effect from July 1, if strictly enforced, would result in the shutting down of over 2000 small-scale drug companies.

The government, in its new Drug Price Control Order, which is expected to be released by the first week of October, is considering a liberal price structure for R & D oriented companies; it plans a shift from a cost-based price control regime to a system of ceiling prices based on market prices of leading brands.

SME

SME Rating Agency of India Limited (Smera), promoted by SIDBI, Dun & Bradstreet and a host of public and private sector banks has been set-up, with an initial capital of Rs 5 crore and will rate 250 SMEs to begin with.

Construction

A CII survey proclaims a boom time for the construction sector and a resultant ripple effect boosting demand in core sectors of cement and steel. It suggests two issues that require attention are: 1) promotion of a construction equipment bank to facilitate sharing, leasing and hiring of costly equipment so as to avoid locking of capital funds and increased projects costs and 2) need to standardise and develop a fair and equitable contract document, providing incentives for timely completion of jobs and disincentives for delays.

Automobiles

Automobile manufacturer, Skoda, has registered a 29 per cent jump in sales from 603 units in August 2004 to 775 units in August this year. It has sold over 21500 units in India since its inception in 2001.

CORPORATE SECTOR

Thermax’ cogen division has announced an investment of Rs 400 crore for the construction of seven captive power and cogen projects.

Marico limited has entered the baby care segment with the launch of baby massage oil, Sparsh.

Maruti Udyog limited will launch five new models over the next five years. Its diesel engine plant at Manesar in Haryana, will begin to produce diesel powered cars by the end of 2006.

LG has decided to set up a CDMA mobile phone plant in Pune. It will be an extension to the existing GSM facility that the company already has in Pune.

Nagarjuna construction company limited has secured Rs 177 crore order from Hyderabad Metropolitan water supply and sewerage board, for execution of Krishna drinking water supply project (phase-2).

TISCO has decided to invest Rs 100,000 crore to set up its plant in Jharkhand. The plant will be 12 million tonne steel plant, which will be set up in two phases of six million tonne each.

Mahindra British Telecom (MBT) has planned to invest Rs 250 crore to set up a new technology centre at Pune. The MBT group has also decided to hire 1500 people in the next six months.

Telecom Dispute Settlement and Appellate Tribunal has advised Tata Teleservices to pay Rs 450 crore as access deficit charge to BSNL.

Essar Steel has commissioned a 1.2 million tonne cold rolling mill. With this mill the company has become the largest integrated steel manufacture at India ’s west coast.

LG Electronics has signed a Memorandum of Understanding with the Maharashtra Government to invest Rs 400 crore to produce DVD writers.

Satyam computer services limited and Mainstay Partners LLC, a Silicon valley based management consultancy company has signed an agreement to offer a new consultancy service in specialised evaluations of technology investments.

BANKING

The Reserve Bank of India (RBI) has decided to allow gold loans to domestic jewellery manufacturers. Earlier, the loan was restricted to jewellery exporters. The provision to expand the ambit of gold loans would, however, be subject to the condition that any loan borrowing or other non-funded commitments for providing loans to domestic jewellery manufacturers will be taken into account for the purpose of overall ceiling, presently 25 per cent of Tier I capital in respect of aggregate borrowing for non-export purposes. Also, the loans extended to exporters of jewellery will continue to be out of the 25 per cent ceiling. The tenor of the loan for the domestic jewellery manufacturers will not exceed 90 days. The interest charged to the borrowers will be linked to the international gold interest rate. The RBI has also asked the nominated banks to subject the loan to the capital adequacy norms. The nominated banks can extend loans to domestic jewellery manufacturers by accepting stand-by letter of credit (LC) or bank guarantee (BG) issued by their bankers in favour of the nominated banks. The bank issuing the stand-by LC/BG need to ensure that adequate margin is available.

The RBI has cancelled the certificate of registration issued to Indian Finances Pvt. Ltd. Allahabad for carrying on the business of a non-banking financial institution as the company has opted to exit from the business.

In a bid to keep a more stringent eye on non-banking financial companies (NBFCs) the RBI has decided to make filing of financial returns a monthly affair instead of the prevailing quarterly system. Further, the RBI has also enhanced the ambit of the financial parameters currently reported, to include additional information, particularly with respect to the company’s capital market exposure. The directives are applicable for all NBFCs having an assets size of Rs.100 crore.

INFORMATION TECHNOLOGY

US-based Product Lifecycle Management services and software provider, UGS Corp is setting up a PLM centre at Pune to service offshore clients. UGS is looking to India as an important source of software development and service, and is keen to partner with companies like TCS.

Nasdaq-100 company, Cognizant Technology Solutions, will invest $76 million in expanding its India development facilities over the next two years. The expansion will be across different cities including its headquarters at Chennai.

Tata Consultancy Services (TCS) and Infosys Technologies have together won outsourcing contract worth $400 million from Dutch bank ABN Amro. The contracts, the largest the two companies have ever won, are part of a $2.2 billion outsourcing deal signed by the bank. IBM, also part of the deal, gets the lion’s share of the business - $1.8 billion. While TCS and Infosys will handle application support and enhancement for ABN, IBM will look after the entire information technology infrastructure of the bank. The bank has also roped in Accenture and Patni as its preferred vendors along with IBM, Infosys and TCS for various future software development works. TCS gets a share of $260 million and Infosys gets $140 million worth of the business over the next 5 years.

Sales of PC including desktops and laptops crossed one million units in the first quarter of 2005, according to Manufacturers Association of Information Technology (MAIT). Sales of notebook PCs, servers and peripherals also witnessed robust growth. The desktop market grossed 9.38 lakh units in the first quarter of the current fiscal, a growth of 5 per cent over the corresponding quarter last year. It was primarily banks, financial institutions, insurance companies and educational institutes that provided momentum to sales growth of desktops.

TELECOM

In a move that could make calls dearer by as much as 75 per cent for many of the 6 million fixed wireless subscribers, the Telecom Disputes Settlement and Appellate Tribunal (TDSAT) described Tata Tele-Services Ltd. (TTSL) Walky as akin to a wireless in local loop mobile (WLL-M) service. Other telecom companies including Reliance Infocomm, MTNL, Shyam Telelink and HFCL would have to fork out access deficit charge (ADC) to state-owned BSNL, just like any other mobile service provider. BSNL, which has dragged TDSAT to the tribunal, is expected to net Rs.450 crore as ADC from fixed wireless telephone service providers: Rs.300 crore from TTSL, Rs.40 crore from MTNL and the balance from others. If these companies choose to pass on the ADC to subscribers, it could increase call rates from Rs.1.20 per three minutes to Rs.2.10, a 75 per cent rise. Turning down the TTSL petition, the TDSAT order said, Walky should not be regarded as anything else but WLL-M. As per the licensing conditions, fixed wireless service has to be provided within the subscriber premises, wherever it is not, it has to be treated as WLL-M.

INFLATION

The annual point-to-point inflation rate based on wholesale price index has declined marginally to 3.01 per cent during the week ended August 27, 2005 from 3.08 per cent registered during the previous week. The inflation rate was at 8.74 per cent in the corresponding week last year.

The WPI in the week under review has risen by 0.3 per cent to 194.9 from the previous week’s level of 194.3 (Base: 1993-94=100). The index of primary articles’ group has increased considerably by 0.9 per cent to 193.4 from the previous week’s level of 191.6, due to a substantial increase of 1.5 per cent in the price indices of food articles. The higher prices of food articles have been evident due to the higher prices of fish-inland, condiments, spices and bajra. The index of fuel, power, light and lubricants group has risen marginally to 304.1 from the previous week’s level of 304, mainly due to higher prices of aviation turbine fuel. The heavy-weighted manufactured products’ group constituting 63.7 per cent of total weight, has also increased by 0.2 per cent to 171 from 170.7 of the previous week’s level, mainly due to the higher price indices of ‘chemicals and chemicals products’ and ‘basic metals alloys and metal products’. 

The latest final index of WPI for the week ended July 2, 2005 has been revised upwards; as a result both, the absolute index and the implied inflation rate moved up to 193.7 and 4.14 per cent instead of the provisional levels of 193.6 and 4.09 per cent, respectively.

The current contained rate of inflation, which is attributed mainly to the high base effect, is not an issue of concern.  However, the recent hike in the prices of petroleum products by the government, which was effective from September 6^th, may stimulate inflationary pressures on the economy in the near future, through its cascading effects on the related sectors like transport. 

LABOUR

The Pension Fund Regulatory Development Authority (PFRDA) has released it’s draft investment norms for pension fund managers with regard to the New Pension System (NPS) to be tabled in the parliament. The following norms are included in the draft:

 1.Allows investments in equity shares as long as they are part of an approved index.

 2. Rated corporate debt can be invested in, but few investment opportunities exist.

 3. Government debt securities will be the main investment of the safe risk-free schemes.

 4. Investments in micro finance companies that are guaranteed by the Reserve Bank of   India will also be permitted.

The draft rules does not specify the number of pension fund managers, though the finance ministry is keen on having finite number of fund managers at six or nine. It doesn’t even specify the capital requirements for fund managers to enter into the pension business. Interestingly, the draft norms have strong consumer focus, while simultaneously trying to allay apprehensions of the left parties.  

FINANCIAL  MARKET

Capital Markets

Primary Market

Sasken Technologies has been listed on stock exchanges at a premium of 76 per cent ay Rs 460 as against the issue price of Rs 260 per share.

Idea Cellular and Aircel Cellular are planning to enter the market with IPOs for Rs 2,000 crore and Rs 6,000 crore, respectively.

Secondary Market

The BSE sensex crossed the psychologically important benchmark of 8,000 on September 8 buoyed by strong FII inflows and easing of global oil prices; the sensex ended the day at 8052.56 up by 105.78 points and NSE nifty rose by 25.80 points to close at 2454.45 points. The journey of BSE sensex between 7000 and 8000 mark took 55 trading sessions (79 days); this is the third fastest four-digit rally of the index. The first one being between 3000 and 4000 mark from February 29, 1992 to March 30, 1992 in 30 days and the next one took 45 days to move from 2000 points to 3000 points again in 1992.

Over the week, the BSE sensex and NSE nifty have gained 2.03 per cent and 1.64 per cent, respectively. The turnover in BSE rose by 23 per cent due to block deals while the turnover on NSE increased by 5 per cent. All the sectoral indices of BSE have registered gains during the week. 

The 1000-point rally of the BSE sensex between June 21 and September 8 saw as many as 390 scrips gaining over 100 per cent each. As many as 611 scrips appreciated between 50 and 100 per cent, while 669 scrips appreciated between 25 and 50 per cent. the major gainers in the current rally were from T group with share prices of 161 companies in this group gaining over 100 per cent since June 21.

The number of companies with market capitalization over US $ 10 billion has increased to 11 as of September this year as against 7 in the previous year and three in 2003.

With the BSE sensex touching an all-time high, the price to earnings multiple (P/E) stood at 14.64 times. On June 21, wherein the index touched 7000 mark, the P/E hovered around 12.54 times and at 6000 sensex level, the P/E stood at 12.16 times.    

Following the BSE sensex touching 8000 mark, the Finance minister has cautioned investors to take informed investment decisions and said further that the rise in the indices is not a cause of concern and the stock market movements have been orderly.

Sebi chairman has said that the regulator was trying to find out why a few stocks with no trading record have suddenly started going up with a scorching pace. He said that they were examining whether there are any manipulations or unethical practices involved in recent movements.

Between September 1 and 9, FIIs have been net buyers of equities to the extent of Rs 1,780 crore with purchases of Rs 7,366 crore and sales of Rs 5,586 crore. During the week under review, the highest net investment of Rs 543 crore has been made on September 9.  

Among the Asian emerging markets, India has seen the most sustained buying by the FIIs in 2005 apart from Taiwan . As of September, the FIIs have invested US $ 7.8 billion in India while US $ 12.80 billion in Taiwan and $ 2.60 billion in Thailand .   

Mutual funds have also been net buyers of equities of Rs 511 crore with purchase of Rs 1,535 crore and sales of Rs 1,024 crore.

The Securities Appellate Tribunal (SAT) has set aside the Sebi’s order passed in May 2005 banning UBS Securities Asia and its associates from issuing offshore derivative instrument with underlying Indian securities for one year. SAT has said that the regulations were not clear on the “know-your-client” norms, which currently required only first-level information about registered FII clients.

AMFI chairman, A P Kurian, has said that there will be no third party assurance in the proposed capital guarantee product, which will try to ensure that the capital is protected.    

Derivatives

Despite the bullishness witnessed in cash market, the derivatives market displayed caution, as investors are skeptical about the future outlook of the market. The daily derivatives turnover has hovered around a lower range of Rs 10,818 crore to Rs 12,047 crore during the week as compared to a range between Rs 12,269 crore and Rs 13,809 crore in the previous week.

The discount on nifty futures has widened marginally, it indicates that a section of investors were taking short positions in Nifty futures as the cash market is touching new heights. 

Government Securities Market

Primary Market

The RBI auctioned 5.69 per cent 2018 and 7.40 per cent 2035 for notified amounts of Rs5,000 crore and Rs 3,000 crore, respectively, at cut-off yields of 7.23 per cent for the 13-year stock and 7.40 per cent for the 30-year paper.

The government has issued 7 per cent oil companies government of India special bonds , 2012 for liquidating outstanding claims of oil companies aggregating to Rs 5,763 crore against oil pool account on September 9. The investments in these bonds will not be reckoned as an eligible investment under SLR.

Eleven state governments have offered to sell 7.53 per cent 2015 state development loan aggregating around Rs 2,900 crore on September 13 by way of tap.  

The yield set at the 91-day treasury bills auction has eased to 5.16 per cent in this week as compared to 5.20 per cent in the previous week.

Secondary Market

Liquidity in the system continued to remain in surplus despite the outflows on account of central loan floatation’s as indicated by the reverse repo bids being tendered during the week amounting to  Rs 49,000 crore as compared to Rs 26,000 crore in the previous week. Further as the prices were set below the market expectations and international crude oil prices eased, the markets turned buoyant. The weighted average YTM on 8.07 per cent 2017 has eased from 7.18 per cent on September 2 to 7.11 per cent on September 9. Further, following the hike in domestic fuel prices, the RBI deputy governor and  finance minister assured the market that they would keep the inflation under check.

Bond Market

The RBI has issued detailed guidelines for debt restructuring mechanism for small and medium enterprises  with outstanding upto Rs 10 crore.

Foreign Exchange Market

RBI is planning to introduce a new six-country trade-weighted real effective exchange rate (REER) for the rupee which would include Chinese yuan and Hongkong dollar.

The rupee-dollar exchange rate has appreciated from Rs43.95 on September 2 to Rs 43.81 on September 9.

With the improvement in cash dollar situation, the six-month annualised forward premia has increased from 0.45 per cent on September 2 to 0.58 per cent on September 9.

Commodities Futures derivatives

NCDEX and the International Petroleum Exchange (IPE), Europe ’s leading energy futures and options exchange, have entered into a co-operative venture to allow Indian participants to trade rupee-dominated Brent crude futures contracts, priced and settled with reference to the benchmark IPE Brent crude futures contracts. The rupee-denominated Brent crude futures contracts are to be traded on NCDEX.   

The NCDEX AGRI index during the week has fallen from 1263 on September 3 to 1238 on September 10.

Multi Commodity Exchange (MCX) is planning to launch T+7 or weekly contracts in all its agricultural commodities.

CREDIT RATING

Care has assigned ‘AA’ rating to the proposed tier-II capital bond issue of UCO Bank of Rs. 150 crore  (including a greenshoe option of Rs. 50 crore), while it has also reaffirmed the ‘AA’ rating assigned to the bank’s outstanding Tier-II capital bond aggregating Rs. 1000 crore. The rating draws strength from the government of India significant equity stake in the bank, wide branch network across the country, satisfactory and stable deposit base, increasing income from core lending activity and improving technology orientation in respect of its operations.

Care has assigned ‘A’ rating to the proposed long-term borrowing programme of Rs. 100 crore and ‘PR1+’ rating to the ongoing commercial paper programme upto Rs. 150 crore of CESC. The rating takes into account CESC Ltd’s strong transmission and distribution network, satisfactory Plant Load Factor and backup of West Bengal State Electricity Board (WBSEB). The rating also factors in the improving profitability and substantial cash accruals earned by the company during the last few years, enabling prepayment of loans apart from substantial loan repayments.

Care has assigned ‘A+’ rating to Emami Paper Mills Ltd.’s (EPML) proposed term borrowing/ non-convertible debenture issue aggregating Rs. 12.5 crore. The rating draws strength from, inter alia, EPML’s satisfactory track record, experience of promoters, group support, professional management of the company, EPML’s leading position among the paper manufacturers in Eastern India, good clientele and positive outlook of the paper industry.

Care has retained the ‘PR1+’ rating assigned to the ongoing commercial paper programme of Simplex Concrete Piles (India) Limited for an amount of Rs. 100 crore. The rating factors in, amongst others, the long and satisfactory track record of the company for over eight decades, proven engineering capabilities & strong technical tie-ups, leadership in concrete piling, healthy order book position with diversified project mix, improving profitability and financial position. The rating also draws strength from the proposed equity infusion induced by Governments thrust on infrastructure creation vis-à-vis favourable outlook for the industry.

Icra has assigned an ‘A1+’ rating to the Rs. 100 million commercial paper programme of Saraswati Sugar Mills Limited (SSML); a wholly owned subsidiary of the Saraswati Industrial Syndicate Limited. The rating takes into account the improved profitability and cash accruals of the consolidated SISL following an upturn in both its sugar and engineering businesses, its moderate gearing levels and availability of adequate bank limits to fund the working capital intensive sugar operations.

Icra has assigned an ‘LAA+’ rating to the Rs. 0.50 billion long-term subordinate bonds programme of Kotak Mahindra Bank Limited (KMBL), while it has also reaffirmed the ‘LAA+’rating to the outstanding Rs. 1.50 billion long-term subordinate bonds programme of KMBL. The rating factors KMBL’s strong position in the commercial vehicle finance and improving franchise in the other retail asset segments such as personal loans and mortgage finance. The rating also takes into account the improving financial performance and the ability of the bank to maintain its asset quality with negligible losses and delinquencies despite its greater focus on the non-salaried individual segment.

Crisil has reaffirmed the ‘AAA/Stable’ and ‘FAAA/Stable’ rating assigned to Canbank Factors Limited’s (CFL) Rs. 1.5 billion short-term debt programme and Rs. 250 million non-convertible debenture programme, respectively. The ratings on CFL continue to be based on Canara Bank's majority ownership of the company and on CFL's strong market position in the domestic factoring business.

Crisil has placed the rating assigned to Jindal Saw Limited's (JSL) fixed deposit programme on 'Rating watch with Positive implications'. This is in anticipation of a reduction in the company's outstanding debt, following its upcoming GDR issue of US$ 75 million. The rating continues to reflect JSL’s leadership in the submerged arc-welded (saw) pipes industry, healthy growth prospects of end-user segments and a strong order book position.

PUBLIC FINANCE

The government has hiked the prices of petrol and diesel on September 06 by Rs. 3 a litre and Rs. 2 a litre, respectively.  While the prices of cooking gas and kerosene have been left unchanged. The union Cabinet has also decided that the government will take over a part of the under-recoveries on its books for which bonds of Rs. 10,000-12,000 crore would be issued to the oil companies. The government has provided Rs. 3,750 crore of oil subsidy during the current financial year.

Central Board of Direct Taxes has been directed by the Finance Minister to study the proposal wherein all assessees who have declared a taxable income that is twice or more of the income filed in the previous year will be exempted from scrutiny. The proposal, which is mooted with the objective of increasing voluntary tax compliance and deepening the tax base, would be announced in the next budget, if approved.

As per Controller General of Accounts data, tax collection through the fringe benefit tax (FBT) has been only Rs. 641 crore up to August 31. The government has collected Rs. 60 crore through the banking cash transaction tax (BCC) and Rs. 770 crore by the way of securities transaction tax (STET) up to August 31. The overall direct tax collection of Rs. 28,600 crore, inclusive of FBT, BCC and STET, has registered a 35 per cent growth during the first five months of the current fiscal year over the previous year’s collection of Rs. 21,200 crore. Income tax collection has increased to Rs. 13,822 crore, a raise of 8.84 per cent, compared with Rs. 12,700 crore last year. Corporation tax collection during April-August was Rs. 13,258 crore, an increase of 58 per cent, compared to Rs. 8,400 crore during the same period last year.

A lower advance tax remittances from the corporate assessees, despite the industry showing a positive growth for the first quarter in Andhra Pradesh has prompted the Income Tax Department to thoroughly analyse the balance sheets of all the corporate assessees. The department had reported a 37 per cent growth in tax collections at Rs. 788 crore for the first quarter ending June, as against Rs. 574 crore in the corresponding period last year. The Income Tax department has already initiated raids in case of gold merchants and big builders and about 15 big cases are in advance stage of inquiry. The department has fixed a target of Rs. 6,400 crore in tax collections for the year 2005-06, which is a 33 per cent growth as against Rs. 4,800 crore collected last year.

EXTERNAL SECTOR

The government may bring in a few changes in the crude oil import policy. The relaxations are being sought with a view to diversify the source of crude oil supplies and to increase refining margins. At present, Indian oil companies enter into annual or long-term contracts at an official price with state-owned companies abroad to meet a large part of their requirement. In addition, crude oil is also bought in the spot markets.

The government has cleared 10 proposals to set up SEZs including Reliance Industries zone at Jamnagar , Wipro’s six SEZ projects in five cities, Biocon’s biotech SEZ at Banglore and Serum Institute’s pharmaceutical (vaccines) zone at Pune. The development of these zones, each of which will house a large number of manufacturing/service units, will entail an investment of over 15000 crore. The zones would create over 67000 jobs in the next two years.

Planning commission is in favour of foreign direct investment in retail market as it would strengthen the domestic supply chain and create more employment.

The government is planning to allow foreign currency non-resident accounts and non-resident external accounts to be maintained with overseas banking units in SEZs.

India will buy crude oil from the Caspian Sea for the first time. UK based BP will supply 600000 barrels of crude oil to Bharat Petrolium Corporation from the port of Ceyhan in Turkey next month.

According to an Assocham Eco Pulse (AEP) study, foreign investors prefer to go to rich Indian states with higher GDP income and maximum number of higher educational institutes. Out of the 10 states led by Maharashtra and Uttar Pradesh contributing maximum to the national GDP, eight emerged the preferred destination for FDI, the study said.

*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.

LIST OF WEEKLY THEMES

We will be grateful if you could kindly send us your feed back at epwrf@vsnl.com